A recent judgment by the Outer House of the Court of Session considered whether notice was a condition precedent to claiming loss and expense The case analysed the requirements of clauses 4.20/4.21 of the Scottish Standard Building Contract with Quantities for use in Scotland (SBC/Q/Scot) (2016 Edition in February 2020). It will be of interest to all users of the SBCC suite: whether seeking additional payment, administering the contract, or procuring (and paying for) works.
The Contract
FES Ltd (FES) and HFD Construction Group Limited (HFD) entered into a contract (Contract) to carry out works at a property in Glasgow. The Contract was based on the SSBC Standard Building Contract with Quantities for use in Scotland. It contained the following standard clauses 4.20 and 4.21:
"4.20.1 If in the execution of this Contract the Contractor incurs or is likely to incur any direct loss and/or expense as a result of any deferment of giving possession of the site…or because regular progress of the Works or any part of them has been or is likely to be materially affected by any Relevant Matter, he shall, subject to clause 4.20.2 and compliance with the provisions of clause 4.21 be entitled to reimbursement of that loss and/or expense."
"4.21.1 The Contractor shall notify the Architect/Contract Administrator as soon as the likely effect of a Relevant Matter on regular progress or the likely nature and extent of any loss and/or expense arising from a deferment of possession becomes (or should have become) reasonably apparent to him."
During the course of the works, FES encountered delays attributable to the Covid-19 pandemic. A dispute arose between the parties as to FES' entitlement to an extension of time and loss and expense under the contract. The dispute was referred to adjudication, where the Adjudicator found that FES was not entitled to reimbursement of loss and expense due to its failure to give notice under Clause 4.21 of the Contract.
Unhappy with the Adjudicator's decision, FES took the matter to court, seeking declarator that the notice provisions of 4.20/4.21 are not a condition precedent to any entitlement to reimbursement and that the adjudicator's decision was not binding on the parties.
Condition Precedent
A condition precedent is a clause in a contract that provides that certain obligations under that contract will only come in to force if and when certain specified conditions are met.
The Judgment
In a relatively short judgement, the Court found that that the adjudicator was correct and that notice requirements under clauses 4.20/4.21 are a condition precedent to claiming loss and expense.
In another example of the Scottish Courts adopting a textual approach to contractual interpretation (per Wood v Capita and the 2023 Scottish case Lagan Construction v Scot Roads Partnership). Lord Richardson held:
"…The task which the Court must undertake is to ascertain the intention of the parties. The parties' intention can most obviously be found by determining the objective meaning of the language which the parties have chosen to express their agreement."
Applying that to Clause 4.20.1, the Court found that the language contained within clause 4.20.1 was so 'clear and straightforward' that 'it is difficult to construe this language other than that it creates a condition precedent'.
That is, Clause 4.20.1 says that the Contractor's entitlement to reimbursement of loss and expense was "subject to…compliance with clause 4.21". Clause 4.21 requires the Contractor to give notice of Relevant Matters and the likely extent of any loss and expense "as soon as…[it] becomes (or should have become) reasonably apparent to him".
While FES made a number of arguments based on 'business common sense' and 'disproportionality', given the straightforward nature of the language used in the contract, the Court found that it was unnecessary to consider these perspectives, noting: "Where, as I have found in the present case, the language the parties have used clearly discloses their intention, it is not for the court to second guess what it considers business common sense might have otherwise dictated…"
The court dismissed FES' action.
Impact
This is an important case because it firmly establishes that the notice provisions under clauses 4.20.1 and 4.21 of the SSBC Standard Building Contract are conditions precedent to a claim for loss and expense. Any party to this contract form will need to strictly comply with the requirements of these clauses if claiming for reimbursement as a result of loss and expense caused by delay. In addition to ensuring that notices are given in a timely fashion, those claiming loss and expense should take care to comply with any contractual stipulations concerning the form and content of notices, including where, and to whom they are to be given.
