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EXTRA DIVISION, INNER HOUSE, COURT OF SESSION |
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Lord KingarthLord EassieLord Wheatley |
[2007] CSIH 47CA5/05OPINION OF THE COURT delivered by LORD KINGARTH in RECLAIMING MOTION in the cause GLASGOW AIRPORT LIMITED Pursuers and Respondents; against MESSRS KIRKMAN &
BRADFORD Defenders and Reclaimers: _______ |
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Act: Woolman, Q.C., Gardiner; Brodies (Pursuers
and Respondents)
Alt: Moynihan, Q.C., Fairley;
[1] In 1998 the
pursuers and Fritz Companies Inc. (now known as UPS Supply Chain Solutions
Inc.) ("the tenants") entered into missives and an Agreement
for Lease relative to Block 2, Unit A, Ayr Cargo Centre, Douglas Terrace,
[2] In the
present action the pursuers seek to recover £2 million with interest as
damages for breach of a collateral warranty provided by the defenders on
[3] The preamble
and clause 1(a) of the warranty (in which the pursuers and BAA Lynton plc
are referred to as "the Employer" and the defenders are referred to as "the Sub-consultant")
are in the following terms:
"WHEREAS
A.
The Employer has entered into
an agreement with Kensteel Structures Limited ('the Building Contractor') under
which the Building Contractor is to design and construct the Phase 2 Building A
Shell and Fit Out Works at the Air Cargo Centre, Douglas Terrace, Abbotsinch
Road, Glasgow Airport ('the Works').
B.
By an appointment ('the Appointment') dated 10th day of
November 1997 the Contractor has appointed the Sub-Consultant to carry out and
complete the Services as described in the Appointment.
NOW IT IS
HEREBY AGREED
1. The
Sub-Consultant warrants that it has exercised and will continue to exercise
reasonable skill, care and diligence in the performance of the Services under
the Appointment. In the event of any
breach of this warranty:
(a) The
Sub-Consultant's liability for costs under this Agreement shall be limited to
that proportion of such costs which it would be just and equitable to require the Sub-Consultant
to pay having regard to the extent of the Sub-Consultant's responsibility for
the same and on the basis that the Contractor and its sub-consultants and
sub-contractors shall be deemed to have provided contractual undertakings on
terms no less onerous than this Clause 1 to the Employer in respect of the
performance of their obligations in connection with the Works (other than those
obligations which relate to the Services) and shall be deemed to have paid to
the Employer such proportion which it would be just and equitable for them to
pay having regard to the extent of their responsibility".
[4] Other
relevant clauses provide:
"1(b) The
Sub-Consultant shall be entitled in any action or proceedings by the Employer
to rely on any limitation in the Appointment and to raise the equivalent rights
in defence of liability as it would have against the Contractor under the
Appointment. ...
6 The
Sub-Consultant shall take out and maintain professional indemnity insurance in
an amount of two million pounds (£2,000,000) for any occurrence or series of
occurrences except for pollution and contamination which will be for any one
claim and in total during each twelve month period arising out of any one event
for a period of 12 years from the date of Practical Completion of the Works
under the Building Contract ... .
7 This
Agreement may be assigned twice by either party comprising the Employer to
another person taking an assignation of the Employer's interest in the Works
without the consent of the Sub-Consultant being required and such assignation
shall be effective upon written notice thereof being given to the
Sub-Consultant. No further or other
assignation of this Agreement shall be permitted save as is expressly provided
for herein.
9 No
action or proceedings for any breach of this Agreement shall be commenced
against the Sub-Consultant after the expiry of 12 years from the date of
Practical Completion of the Works under the Building Contract."
[5] In the
present action the damages claimed by the pursuers are said in the pleadings to
cover sums relating to the replacement of the floor slab and sums in respect of
the pursuers' liability to meet claims by the tenants for losses sustained by
them due to the remedial works. Parties
were agreed in submission that the background to the claim is that the tenants
have raised an action against the pursuers seeking damages of
£2.15 million, in which they seek to recover their expenses in relation to
the replacement of the floor slab (in the sum of £775,000) and their losses in
respect of disruption to their business and loss of profits. Although in their pleadings the defenders
admit that they were advised that the tenants were to be the end users of the
premises, they aver (in Answer 10) inter
alia:
"Further, any liability of the
defender to the pursuer is limited to costs and does not extend to any damages
payable by the pursuer to UPS Supply Chain Solutions Inc. Reference is made to the terms of
clause 1(a) of the collateral warranty.
Properly construed, the 'costs' recoverable by the pursuer under the
collateral warranty are limited to the costs of repair, renewal and/or
reinstatement of any part or parts of the works."
[6] Following
debate, the Lord Ordinary, by interlocutor dated
[7] In presenting
his submissions on behalf of the defenders and reclaimers, senior counsel
explained that the background to the present action was that the main
contractors were insolvent. Although the
court should be aware of the general contractual background (and that a number
of collateral warranties were given by and to different parties, and that a
number of actions had been raised) the short question of construction of the
collateral warranty raised in the reclaiming motion could essentially be
decided by reference to the terms of the collateral warranty itself. It was not necessary for the court to have
sight of the main contract or of the Appointment or of any other warranties
given. Properly understood, the
defenders' "liability for costs", referred to in the collateral warranty, was
confined to any sums which the pursuers required to pay in respect of repair or
reinstatement of the floor slab, whether incurred directly by themselves or
indirectly by way of damages payable to the tenants in respect of expenditure
incurred by them on such repair or reinstatement. Their liability did not extend to
consequential losses. While no doubt the
general purpose of the collateral warranty was to give the pursuers direct
rights against the defenders which they would not otherwise have had, absent privity
of contract, any such collateral warranty granted by a contractor or
sub-contractor could, depending on its terms, involve the undertaking of a more
restricted liability than was undertaken under the relevant contract or
sub-contract. Reference was made to Greater Nottingham Co-op Society Ltd v Cementation Piling and Foundations Ltd
1989 Q.B. 71 and Alfred McAlpine
Construction Ltd v Panatown Ltd
2001 1 A.C. 518. On any view it was
clear that the defenders' liability under the collateral warranty could not
have been for more than the "liability for costs" referred to in
clause 1(a). In particular it would
not make commercial sense to restrict their liability to a net contribution in
respect of some losses (which, on any view, was one purpose of
clause 1(a)) leaving them exposed to joint and several liability for other
losses.
[8] As to what
was meant by "liability for costs" senior counsel did not seek to argue, by
reference to dictionaries or the like, that the word "costs", looked at simply
as a matter of language, was more consistent with the defenders' contention
rather than the pursuers'. The word was
wide enough, depending on the context, to cover a payment of damages (Bank of Scotland v Dunedin Property Investment Co Ltd 1998 S.C. 657). Although a provision of a contract limiting
liability required to be clear (Ailsa
Craig Fishing Co Ltd v Malvern
Fishing Co Ltd 1982 S.C. (H.L.) 14), and matters could have been better
expressed, it was reasonably clear that the opening part of clause 1(a)
served the purpose of limiting, restricting or defining the defenders'
liability under the warranty, and that in the way for which the defenders contended
- the rest of the clause serving as a net contribution clause. Although it was accepted that the claims
presently made by the pursuers could not have been resisted on the basis that
they were too remote by the main contractor if sued under the building contract,
nor by the defenders if sued in turn by the main contractor under the Appointment,
it was reasonable to suppose that in granting the collateral warranty the
defenders undertook liability only for losses which would comply with the first
rule of Hadley v Baxendale [1854] 9 Exch. 341 ("such as may fairly and reasonably be
considered ... arising naturally"), namely costs of repair or reinstatement (reference
being made to Chitty on Contracts (29th
ed.) at para.37-208), but not for losses which could only, in ordinary course, be
claimed if they complied with the second rule ("such as may reasonably be
supposed to have been in the contemplation of both parties, at the time they
made the contract, as the probable result of the breach of it"), such as any
consequential loss (reference again being made to Chitty, para.37-210). This
was particularly so given that the benefit of the warranty could be assigned,
and the defenders might accordingly be liable in the future to indeterminate
parties in unknown circumstances. So
construed, the collateral warranty would in its effect be broadly consistent
with the Scottish Building Contract Committee standard form collateral
warranties referred to in Stair Memorial
Encyclopaedia, vol.3, para.158. It
was reasonable to suppose that the defenders would undertake liability not only
for expenditure on repair or reinstatement directly incurred by the pursuers
themselves, but also for damages payable in respect of such expenditure
incurred by the tenants. Reference was
made to Lord Millett's (dissenting) speech in Alfred McAlpine Construction Ltd v Panatown Ltd, at p.595.
[9] For the
pursuers and respondents senior counsel argued that there was no warrant in the
language or structure of the warranty to construe it in the way which the
defenders sought to do. The liability
undertaken in the first full paragraph of the warranty in clause 1 was
unrestricted, and, unless restricted elsewhere, the pursuers would be entitled
to recover all losses caused by breach of that warranty subject, of course, in
any case, to satisfying ordinary common law tests of remoteness, such as those set
out in Hadley v Baxendale and other later cases.
Clause 1(a) was not, as a matter of language, apt to restrict such
losses. Its only purpose was to provide
for a net apportionment. In these
circumstances the costs referred to covered any
financial detriment suffered by the pursuers as a result of the defenders'
breach of the warranty, subject to ordinary rules of remoteness. Clause 6 and clause 1(b) were
wholly consistent with such a construction.
The fact that the warranty was assignable, which, it was to be noted,
was to a restricted class, did not assist the defenders.
[10] In light of the
parties' arguments it is clear that certain matters are not seriously in
dispute. In the first place, while the
broad aim or object of the collateral warranty, objectively ascertained, could
be said to be to give the pursuers directly enforceable rights against the
defenders which they would not otherwise have had, beyond that it is difficult
to say more. While it would make
commercial sense from the point of view of the pursuers to obtain the same
rights that they would have in any claim against the main contractor, equally
it would make commercial sense for the defenders, who were accepting a
liability which they would not otherwise have had, to restrict that liability
so far as could reasonably be negotiated.
Secondly, it seems clear that whatever the words "liability for costs" mean (for which liability there was to be a net
apportionment of responsibility in terms of clause 1(a)) they must
describe the defenders' whole liability under the warranty. It would not, on the face of it, make
commercial sense for them to have undertaken liability for wider losses, to be
met on a joint and several basis. Further the parties are agreed that, purely as
a matter of language, the word "costs" could not be said to favour one or other
of the interpretations contended for, and that the answer to the point at issue
depends upon the context.
[11] In our view this
narrow question of construction falls to be resolved by consideration of the
express terms of sub-clause 1(a) and its relationship with the general
warranty granted at the outset. Sub-clause 1(a)
refers to "the Sub-Consultant's liability for costs under this Agreement" in
terms which clearly suggest that it is elsewhere under the agreement (and in
particular earlier) that the basis for that liability is to be found. It is, in particular, not language apt to
suggest an intention to restrict the liability of the defenders from that which
would otherwise flow from the terms of the agreement. It does not, in terms, say that the liability
of the defenders shall be restricted to costs.
The only place where "liability for costs" can be said to arise is from the
warranty granted at the outset. That
warranty is granted in general and unqualified terms and would, unless clearly
restricted, entitle the pursuers to recover all losses directly caused by its
breach, subject always to ordinary common law rules of remoteness of damage, as
set out in Hadley v Baxendale and other cases. That apparent liability of the defenders is,
it seems, then made subject to (i) a net apportionment having regard to the
responsibility of others (clause 1(a)), (ii) any limitation or rights in
defence of liability as the defenders would have against the main contractor
(clause 1(b)), and (iii) a 12 year limitation (clause 9). Sub-clause 1(b), read along with
clause 6, is, indeed, in our view entirely consistent with the
construction contended for by the pursuers.
We are not persuaded that the fact that the warranty is assignable has
the significance contended for by the defenders. In these circumstances it is, we think, clear
that the defenders' liability for costs within the meaning of the collateral
warranty falls to be given the wider meaning contended for by the pursuers, and
would therefore include, subject to ordinary common law rules of remoteness,
consequential losses suffered by the pursuers as a direct result of the
defenders' breach. By contrast it would
appear, at least from the commentary in the Stair
Memorial Encyclopaedia to which we were referred, that the language and structure
of the SBCC collateral warranties is very different.
[12] That is enough to dispose of the question raised in the
reclaiming motion. In addition, however,
we think there are certain difficulties with the particular narrower construction
which the defenders now seek to advance, accepting as they do that the word
"costs" would cover not only the pursuers' own expenditure on repair or
reinstatement, but also any corresponding liability in damages to the
tenants. Although senior counsel now
appearing for the defenders and reclaimers understood that his submission did
not represent a change of position from that previously adopted by his
predecessor, it is not an argument which is focused in the pleadings, nor is it
apparent that it was an argument which was advanced before the Lord
Ordinary. At paragraph [6] of his
Opinion he records that senior counsel then appearing laid particular stress on
the dictionary definition of the word "costs", and argued that it "did not mean
the same as damages". Be that as it may,
we consider there is no warrant in the language or structure of the warranty
for the construction now urged upon us, which might be thought to fall, as it
were, between two stools. Nor do we
think the defenders' argument gains any assistance on this point from the
passage in Alfred McAlpine Construction Ltd
v Panatown Ltd to which we were
referred.
[13] In these
circumstances the reclaiming motion is refused.