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DUNDEE CITY COUNCIL AND OTHERS AGAINST D GEDDES (CONTRACTORS) LIMITED


Submitted: 18 November 2014

 

OUTER HOUSE, COURT OF SESSION

[2014] CSOH 164

 

CA71/14

OPINION OF LORD WOOLMAN

In the cause

DUNDEE CITY COUNCIL AND OTHERS

Pursuers;

against

D GEDDES (CONTRACTORS) LTD

Defenders:

Pursuers:  Howie QC;  Gillespie MacAndrew LLP

Defenders:  Balfour;  BLM

 

18 November 2014

Introduction

[1]        Dundee City Council, Angus Council and Perth & Kinross Council have combined under the name “Tayside Contracts” to carry out various tasks, including road maintenance.  Tayside Contracts requires stone chippings for that purpose.  Prior to 2010, it obtained its supplies from quarries in Aberdeenshire and the west of Scotland.  It incurred significant haulage costs in transporting those materials to its depots.

[2]        On 19 March 2010 Tayside Contracts asked the defender to provide a quotation for the supply of chippings.  The defender sent a quotation the following day offering to supply chippings from Waulkmill Quarry at Arbroath, Angus.  On 7 April Tayside Contracts accepted the defender’s offer.  Subsequently, the parties entered into further contracts.  In the financial year 2010-11, Tayside Contracts purchased a total of 8,764.59 tonnes of chippings from the defender at cost of £176,631.26.  All of the contracts incorporated the defender’s standard terms and conditions, which were printed on the reverse of its quotation forms.

[3]        Tayside Contracts used the defender’s chippings in the course of its road maintenance programme in the summer of 2010.  Within a matter of months, problems had developed.  By mid-winter there were widespread failures of the road surfaces.  The pursuers’ investigations disclosed that the problems were attributable to the composition of the defender’s chippings.  In the present action they seek damages of £812,718.  They contend that the defender failed to supply materials that were of satisfactory quality or reasonably fit for their purpose, contrary to section 14 (2) and 14 (3) of the Sale of Goods Act 1979.  The defender denies liability.  Both parties have obtained expert reports about the cause of the road surface problems.  The factual dispute can only be resolved by way of proof. 

[4]        There is, however, a preliminary legal issue for determination.  It is of short compass.  The defender maintains that condition 6 of its standard terms restricts its liability.  That clause provides:

“The Company will not entertain a complaint of any kind (except in special circumstances justifying delay) unless it is made in writing within twenty-four hours after the time of supply of the materials or goods of which a complaint is made or any materials or goods supplied by the Company should be defective or in any way not in accordance with contract liability shall be limited to the cost price of the material supplied.  The Company is not under any circumstances to be liable for any loss or damage whether direct or indirect caused or arising by reason of the late supply or any fault failure or defect in any materials or goods supplied by them or by reason of the same not being the quality or specification ordered or by reason of any matter whatsoever.”

 

[5]        The provision contains three elements: (a) a time-bar restriction; (b) a limitation clause and (c) an exclusion clause.  The defender does not found on (a), because it accepts that the present case relates to latent defects, which justifies the claim being made outside of the twenty-four hour period.  Accordingly, the question relates to the construction of the remainder of the clause and in particular, whether the limitation and exclusion provisions can be reconciled. 

 

Submissions
[6]        On behalf of the pursuers, Mr Howie argued that a clause restricting liability must be clear and unambiguous.  Condition 6 fails that test, because the limitation and exclusion elements are mutually inconsistent.  It is therefore void for uncertainty.  He also submitted that the meaning of the phrase “cost price of materials” was uncertain.

[7]        On behalf of the defender, Mr Balfour submitted that the court should prefer a construction that gives effect to condition 6, rather than one which renders it void.  As the parties plainly intended to restrict liability, the court should give effect to that intention by putting a line through the second sentence.  He described this as a ‘blue pencil’ approach.  In other words, the exclusion clause should be treated as pro non scripto.  He also submitted that “if” should be inserted between “is made or” and “any materials or goods” in the limitation provision. 

[8]        At the start of the debate, Mr Balfour’s primary submission was that the two parts of condition 6 should be read together as meaning that a purchaser can only recover the cost price of the materials and no more.  As he put it, the two sentences meld together and the second underscores the first.  At the end of the debate, however, he abandoned that argument. 

 

Decision
[9]        The court always strives to adopt a construction that gives effect to a term of a contract, see for example Ideal Services Scotland Ltd v Premier Class Packaging Ltd 1999 SLT 134.  There are, however, limits beyond which it cannot go.  It cannot rewrite the parties’ contract. 

[10]      Clauses that seek to exclude liability are subjected to close scrutiny.  The court regards it as inherently improbable that one party will relieve another from all obligations to provide redress in the event of a breach.  While limitation clauses are not treated with the same hostility, they must be clear and unambiguous before they are given effect: Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd 1982 SC (HL) 14, 61 per Lord Fraser of Tullybelton.  The court will reject a clause if it “is so vague and uncertain as to be incapable of any precise meaning”: Nicolene v Simonds [1953] 1 QB 543, 552, per Denning LJ.

[11]      Condition 6 is poorly drafted.  The difficulties begin with the time-bar restriction.  It imposes an extremely tight timescale on a purchaser, who must make a written complaint within twenty-four hours of delivery.  That appears wholly unrealistic in relation to stone chippings, where any problem is as likely to be latent as patent.  The scope of the qualification is uncertain.  It can be contended that “special circumstances justifying delay” will apply in virtually every case.  It can also be maintained, however, that as the parties’ transaction involved the supply of stone chippings, a latent defect does not amount to special circumstances.

[12]      The uncertainty deepens when the limitation and exemption provisions are considered.  In the event of a breach by the defender, the purchaser is understandably left confused as to its rights.  Is it prevented from recovering damages at all, or can it recover the cost price of the defective chippings? As it stands, there is no plain answer.  Mr Balfour was right to abandon his attempt to try and reconcile the two parts of the clause.  They are diametrically opposed to one another.  An insurer which acted for either the pursuers or the defender would find it impossible to assess the risk.

[13]      The “blue pencil” approach is commonly applied in relation to restrictive covenants.  Many such clauses expressly state that if one part is unenforceable, that will not affect the validity of the remaining parts.  Even in the absence of such a stipulation, the court can delete an unreasonable part of a restriction: Living Design (Home Improvements Ltd v Davidson 1994 SLT 753.  In all cases, however, there is an important initial question.  Would the excision of the term in question innovate on the contract? If the clause is meaningless, there is likely to be no difficulty: Nicolene

[14]      In this case, however, the two parts of the clause are inter-dependent.  That is plain when one considers non-delivery or late delivery of materials by the defender.  They are both covered by the exclusion provision, but not by the limitation provision.  To adopt a blue pencil approach would turn a claim where there was no liability to one where there was restricted liability.  That does not make commercial common sense.  It alters the parties’ intention.  I therefore decline to adopt that approach.

[15]      Mr Balfour pointed out that in Ailsa Craig, the House of Lords had upheld a limitation clause, even though two exclusion clauses in the same contract had been held invalid.  That case is distinguishable on two grounds.  First, condition 6 is opaque, whereas in Ailsa Craig the clause was clear and unambiguous.  Second, in Ailsa Craig the limitation provision was clearly intended to be an independent stipulation which acted as a ‘long stop’ in the event that there was no other restriction of liability.  I detect no such intention here.

[16]      For the sake of completeness, I reject both parties’ subsidiary contentions.  The “cost price of materials” clearly refers to the price paid by the pursuer for the defective materials.  There is no basis upon which to insert “if” into the clause.

 

Conclusion
[17]      I shall sustain the pursuer’s fourth plea-in-law and refuse to remit the defender’s averments about condition six to probation.  In consequence the averments relating to the Unfair Contract Terms Act 1977 are also now redundant.  I shall fix a by order hearing to determine further procedure.