Case description
Lagan Construction and Ferrovial entered into a joint venture in 2013. The aim of the venture was to secure an appointment from Scot Roads to undertake works to upgrade the M8, M73 and M74 motorways. The joint venture secured the appointment and entered into a contract with Scot Roads regarding the works in 2014. Under the works contract, the joint venture was obliged to provide standby letters of credit in favour of Scot Roads. If either Lagan Construction or Ferrovial were to have an insolvency event during the period of the letter of credit, Scot Roads would have the right to demand payment of an amount not exceeding the amount of credit specified in the letter. This would be paid by the bank providing the credit, Danske Bank.
Lagan Construction went into administration in March 2018. Scot Roads demanded, and received, payment of £3,718,533.24 from Danske Bank. Ferrovial excluded Lagan from further participation in the management of and profit from the joint venture. It was entitled to do this under the joint venture agreement.
Scot Roads became obliged, under the works contract, to return the balance of the security after completion of the works. Scot Roads paid the balance of £1,013,837.76 to the joint venture, the only remaining member of which was Ferrovial. A dispute arose between Lagan Construction and Ferrovial regarding which of them had the right under the works contract to repayment of the balance. Ferrovial argued that the dual purpose of the funds was to provide security to Scot Roads, and thereafter, for the balance to be made available to the remaining, solvent contractor company in order to alleviate the financial strain put upon them by their partner’s insolvency. Lagan argued that only purpose of the funds was to provide security to Scot Roads as the project company.
The Lord Ordinary held that the correct interpretation of the works contract gave Lagan the right to repayment. He found Scot Roads liable to Lagan Construction for £1,013,837.76.
Scot Roads and Ferrovial reclaim (appeal) this decision. The First Division will hear the appeal on Tuesday 27th June 2023 at 10.30am.