Karl Construction Limited V. Palisade Properties Plc
| Jurisdiction | Scotland |
| Judge | Lord Drummond Young |
| Date | 14 January 2002 |
| Docket Number | CA199/01 |
| Court | Court of Session |
| Published date | 15 February 2002 |
| OUTER HOUSE, COURT OF SESSION | |
| CA199/01
| OPINION OF LORD DRUMMOND YOUNG in the cause KARL CONSTRUCTION LIMITED Pursuers; against PALISADE PROPERTIES PLC Defenders: ________________ |
Pursers: S.C. Smith; MacRoberts
Defenders: Wolffe; Paull & Williamsons
14 January 2002
[1]The pursuers, who are building contractors, have raised an action against the defenders in which they conclude for payment of the sum of £533,947.35. The pursuers aver that by contract dated 27th October and 26th November 1999 Karl Construction (Scotland) Limited, acting as agent for the pursuers, who at that stage were an undisclosed principal, entered into a contract with the defenders for the construction of four retail units and eighteen residential flats at 330 Byres Road, Glasgow. The form of contract used was the Scottish Building Contract Contractor's Designed Portion Sectional Completion Edition with Quantities (August 1998 revision). That contract incorporated the 1980 edition of the JCT Standard Form of Building Contract, Private Edition with Quantities, subject to a number of important amendments. The pursuers further aver that the contract works were carried out on site and that practical completion was certified as having occurred on 16th June 2000. The pursuers' claim against the defenders is said to arise on two bases. First, it is said that the pursuers are entitled to payment of further monies due under the contract. The final contract sum requires to be adjusted, to take account of variations and the like, and in addition the pursuers are entitled to reimbursement of loss and expense incurred by them as a result of certain matters affecting the regular progress of the works, in terms of condition 26 of the JCT Standard Form of Building Contract. Second, it is said that the pursuers are entitled to claim damages for breach of contract by the defenders. That breach of contract is said to have occurred in two ways. First, it is averred that the defenders' agents, the contract architect and quantity surveyor, have failed to fulfil the obligations contained in condition 30.6 of the JCT Standard Form, and that the defenders are liable for that failure. Second, it is averred that it was an implied term of the contract between the parties that the defenders would take such steps as were reasonably necessary to see to fulfilment of the architect and quantity surveyor's functions and obligations under the contract, and that the defenders were in breach of that term. Although the two grounds of action, payment and damages, are not expressly stated in the alternative, Mr Smith, who appeared for the pursuers, stated that the claims were made on an alternative basis. This is in any event clear from the fact that a single conclusion covers both grounds of action.
[2]The summons contained the usual warrant for inhibition and arrestment on the dependence of the action, and the pursuers in due course inhibited the defenders, having registered an inhibition on the dependence on 19th October 2001. The defenders moved for recall of that inhibition.
[3]Mr Wolffe, who appeared on behalf of the defenders, advanced three grounds for recall. First, he submitted that the pursuers had no title to sue on the terms of the contract between the parties. They accordingly had no colourable case, which was a ground for recalling diligence on the dependence. Second, the defenders submitted that the pursuers' claim was essentially contingent, with the result that diligence on the dependence was incompetent unless special circumstances were averred. Third, in the circumstances of the present case, the automatic grant of inhibition when no particular justification was advanced for such a remedy involves an infringement of the defenders' rights under article 1 of the First Protocol to the European Convention on Human Rights; on that basis the diligence was wrongful and should be recalled.
Title to sue
[4]Mr Wolffe's first argument was that on the face of the parties' contract the pursuers had no title to sue; on that basis the pursuers did not have a colourable case, and the diligence should be recalled. The contract had on its face been concluded between the defenders and Karl Construction (Scotland) Limited, not the pursuers. The defenders now averred, however, that Karl Construction (Scotland) Limited had been acting as agent for an undisclosed principal, namely the present pursuers. Mr Wolffe submitted that the contract was one that could not be performed vicariously, and consequently could not be enforced by an undisclosed principal. Such a category of contracts was well recognised; reference was made to Siu Yin Kwang v Eastern Insurance Company Limited, [1994] 2 AC 199, Keating on Building Contracts (7th ed, London, 2001) at paragraphs 12-04 and 12-06, Asphaltic Limestone Company Limited v Glasgow Corporation, 1907 S.C. 463, Cole v C.H. Handasyde & Co, 1910 S.C. 68, Scottish Homes v Inverclyde District Council, 1997 SLT 829 and Linden Gardens Trust Limited v Lenesta Sludge Disposals Limited, [1994] AC 85. He referred in particular to three features of the contract. First, it was a sophisticated building contract, involving more than mere manual work in particular, the main contractor was expected to exercise considerable administrative and management skills. Second, the contract incorporated the Contractor's Design Portion. This involved the design of substantial parts of the building by the main contractor. Third, the contract contained prohibitions on assignation and subcontracting. Clause 19.1.1 of the JCT Standard Form provides that neither the Employer nor the Contractor shall, without the written consent of the other, assign the contract. Clause 19.2.2 provides that the Contractor shall not without the written consent of the Architect (which consent is not to the unreasonably withheld) sub-let any portion of the Works. On the foregoing basis, Mr Wolffe asked me to hold that only Karl Construction (Scotland) Limited could perform the contract, and consequently that only that company could have title to sue on the contract.
[5]Mr Smith, who appeared on behalf of the pursuers, submitted that it could not be said that the pursuers had no colourable case on title to sue. While there are classes of contract which are personal as between the contracting parties, it was not clear that this was such a case, and it was likely that a preliminary proof would be required to establish the facts. A number of reasons existed for this view. First, the prohibitions on assignation and sub-letting contained in the contract were not absolute; in particular, sub letting was only prohibited without the consent of the Architect, and that consent was not to be unreasonably withheld. Second, the Contractor's Design Portion was not significant, because the actual design was normally provided not by the contractor himself but by a design team of outside professionals. In fact it became clear that the contractor's direct input to design in the present case was restricted to the timber kit portion of the building. While this was fairly significant, it was less than the total work notionally attributed in the contract to contractor's design. Third, while reliance was undoubtedly placed by the employer on management and administrative skills, the skills in question were those of the pursuers, rather than Karl Construction (Scotland) Limited. The two companies were closely associated with each other. Karl Construction (Scotland) Limited was not a trading company, and had no skills of its own as a contractor. It had no employees beyond the board of directors. In all contracts that it had entered into, the necessary management skills, and the input of the main contractor, had been provided by the pursuers.
[6]In my opinion the defenders' arguments are to be preferred on this matter. It is clear that the law recognises a category of contracts which are personal to the contracting parties. In such cases it is not possible for the ostensible party to a contract to conclude it as agent for an undisclosed principal; that follows from the nature of such a contract. This was recognised by Lord Lloyd of Berwick, delivering the opinion of the Privy Council in Siu Yin Kwang v Eastern Insurance Company Limited, supra, when he stated (at [1994] 2 AC 207D-E):
"The terms of the contract may, expressly or by implication, exclude the principal's right to sue, and his liability to be sued. The contract itself, or the circumstances surrounding the contract, may show that the agent is the true and only principal".
In that case which concerned a contract of insurance, it was argued on behalf of the insurer that such a contract is personal in nature, with the result that an undisclosed principal cannot intervene. This argument was rejected on the basis of a finding by the trial judge that the actual identity of the insured was a matter of indifference to the insurer.
[7]A similar point is made in Cole v C.H. Handasyde & Co, supra, where Lord President Dunedin indicated (at 1910 S.C. 73-74) that it was essentially a matter of construction in the light of all the circumstances whether a contract involved delectus personae and hence was not capable of being performed by anyone other than the ostensible contracting party. In the same case Lord Kinnear pointed out, at 75, that:
"The principle which we call delectus personae ... applies when a person is employed to do work or to perform services requiring some degree of skill or experience. And it is therefore to be inferred that he is selected for the employment in consequence of his own personal qualifications. Such a contract is not assignable by him to a third person who may or may not be competent for the work".
In the context of a building contract, Lord Penrose applied this principle in Scottish Homes v Inverclyde District Council, supra.. The contract in question was for the repair and maintenance of a local authority's...
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