Vital Energi Utilities Limited Against Bouygues E & S Contracting Uk Limited

JurisdictionScotland
CourtCourt of Session
JudgeLord Tyre
Neutral Citation[2014] CSOH 149
Docket NumberCA89/14
Publication Date15 October 2014
Date15 October 2014

OUTER HOUSE, COURT OF SESSION

[2014] CSOH 149

CA89/14

OPINION OF LORD TYRE

In the cause

VITAL ENERGI UTILITIES LIMITED

Pursuer;

against

BOUYGUES E&S CONTRACTING UK LIMITED

Defender:

Pursuer: R W Dunlop QC; G. Walker, Morton Fraser LLP

Defender: Borland; Pinsent Masons

15 October 2014

Introduction

[1] In July 2006, the pursuer was engaged by Fife Council as main contractor in a project to design and construct the Dunfermline Community Energy Scheme. By an agreement dated 25 October and 2 November 2006, the pursuer entered into a sub-contract with the defender for the design, supply and installation of the mechanical and electrical works required for the Scheme. The sub-contract provided that the parties’ respective rights and duties would be regulated by the General Conditions of Government Contracts for Building & Civil Engineering Major Works GC/Works/1/Without Quantities (1998 edition), with certain amendments and supplementary conditions.

[2] Disputes arose between the pursuer and the defender (then called Thermal Transfer Limited) regarding the defender’s performance of its obligations under the sub-contract. By letter dated 26 April 2007, the pursuer gave notice to the defender in accordance with the provisions of the sub-contract that the defender was in default. By letter dated 13 July 2007, the pursuer gave notice that it was determining the sub-contract. There have since been two adjudications. In the first of these, the adjudicator, Mr Gordon Bathgate FICE, made an order finding that the pursuer’s determination of the sub-contract was justified and lawful and in accordance with the parties’ contract. In the second, the adjudicator, Mr Jonathan Lake QC, made an order finding the present pursuer entitled to payment of the sum of £1,614,123.24. Mr Lake’s decision has been the subject of an unsuccessful application by the present defender for judicial review (see Lord Malcolm’s Opinion published at [2014] CSOH 115).

[3] In the present action, the pursuer pleads that the defender was in breach of contract and, separately, that the defender was in default so as to give rise to a contractual entitlement to determine. It concludes inter alia for payment of the sum of £4,482,680.26, being the sum said to be due to it by the defender by way of (i) a claim under the contract and (ii) common law damages. The defender denies that it was in breach of contract or that the pursuer was entitled to determine. The action came before me for debate of three issues:

(1) Whether, having determined in accordance with the provisions of the sub-contract, the pursuer is entitled to pursue a claim for common law damages;

(2) Whether the pursuer’s entitlement to claim for delay is restricted to the sum specified in the sub-contract by way of liquidated damages; and

(3) Whether Mr Bathgate’s decision in the first adjudication that the determination of the contract by the pursuer was justified and lawful is now binding on both parties and unchallengeable in these proceedings.

Issue 1: Entitlement to common law damages
Contractual entitlement to determine
[4] The contractual provisions relevant to the first issue are conditions 56 and 57 of GC/Works/1. So far as material, these provide as follows. (In the context of the present case, references to “the Employer” must be read as references to the main contractor, ie the pursuer, and references to “the Contractor” must be read as references to the sub-contractor, ie the defender.)

56 Determination by Employer

(1) Without prejudice to any other power of determination, the Employer may determine the Contract by notice to the Contractor if –

(a) Any ground mentioned in subparagraphs (6)(a), (b) or (e) has arisen; the Employer has given notice to the Contractor specifying the relevant ground and facts; and such ground was in existence 14 Days after such notice was given; or has arisen again at any time; or

(b) …

(2) The Employer shall specify in a notice of determination under paragraph (1) which of the grounds mentioned in paragraph (6) apply.

(6) The grounds referred to in paragraph (1) are –

(a) the failure of the Contractor to comply with an Instruction within a reasonable period of its issue;

(b) the failure of the Contractor to execute work in a workmanlike or proper manner, or to proceed regularly and diligently with the Works…

57 Consequences of determination by Employer

(1) If the Employer shall determine the Contract for any reason mentioned in Condition 56(6) (Determination by Employer), the following provisions shall apply –

(a) all sums of money that may then be due or accruing due from the Employer to the Contractor shall cease to be due or to accrue due;

(b) the Employer may hire any person, employ other contractors, use any Things on the Site, and may purchase or do anything necessary for the completion of the Works, and the Contractor shall have no claim whatsoever in respect of any such action by the Employer;

(c) the Contractor shall (except where determination occurs by reason of any of the circumstances described in Condition 56(6)(c) and

(d) (Determination by Employer)) assign to the Employer, without further payment, the benefit of any subcontract or contract for the supply of any Thing for incorporation which he may have made in connection with the Contract;

(d) the Employer may pay to any subcontractor or supplier any amount due to him which the PM certifies as included in any previous advance to the Contractor, and the amount so paid shall be forthwith recoverable by the Employer from the Contractor; and

(e) the QS shall ascertain and the PM shall certify the cost to the Employer of completion of the Works.

(2) If the total of the following sums (hereafter called 'the first amount') exceeds the total of all the advances paid to the Contractor (or to which he is entitled) under Condition 48 (Advances on account) to the date of determination (hereafter called the second amount ), the Employer shall, subject to paragraph (3), hold the amount of the excess. If the second amount exceeds the first amount the Contractor shall be liable to pay the Employer the amount of the excess. The individual sums are -

(a) the value of all the work carried out in accordance with the Contract up to the date of determination;

(b) the value of any work carried out or other things done in accordance with any direction given under Condition 56(3) (Determination by Employer); and

(c) the value (ascertained on the basis of fair and reasonable prices) of all Things for incorporation brought onto the Site, or in the course of preparation or manufacture off the Site, which the Employer elects to keep.

(3) If the total of the cost of completion as certified under subparagraph (1)(e) and the first amount determined in accordance with paragraph (2) exceeds the sum that would have been payable to the Contractor for due completion of the Works, then the Contractor shall pay the Employer the amount of the excess. If the total of the cost of completion as certified under subparagraph (1)(e) and the first amount determined in accordance with paragraph (2) is less than the sum that would have been payable to the Contractor for due completion of the Works, then the Employer shall pay the Contractor the amount of the shortfall.”

The terms of the pursuer’s determination
[5] On 26 April 2007, the pursuer wrote to the defender in the following terms:

“We write to inform you that we are of the opinion that you have defaulted as described below and that such defaults constitute grounds that entitle us to determine the Sub-Contract pursuant to Clause 56 thereof unless you have corrected these defaults within 14 Days of the giving of this notice.

The grounds relied upon by the pursuer were failure to comply with an instruction, failure to execute work in a workmanlike or proper manner, and failure to proceed regularly and diligently with the Works, being grounds set out in condition 56(6)(a) and (b). Details of the alleged failures were set out in an appendix to the letter. The pursuer gave notice that unless the alleged failures were rectified within 14 days, or sufficient information submitted to satisfy it that the defender was in process of rectifying them, it was the pursuer’s intention to determine the sub-contract by means of a further notice at that time.

[6] Correspondence ensued between the parties, and a meeting was held. In one of its letters, dated 9 July 2007, the pursuer stated:

“In the 11 (eleven) weeks since VE [i.e. the pursuer] gave notice of rejection, TT [i.e. the defender] have continued to make poor attempts to propose remedial works for acceptance as a waiver of the contract requirements whilst being at risk of their non acceptability … TT continue to be liable for this breach of the contract requirements and the consequent damages which arise as a result.”

[7] On 13 July 2007, the pursuer determined the sub-contract by letter stating inter alia as follows:

“It is our opinion that we have granted significant opportunities to Thermal Transfer and expended significant time and effort on our own part in the 11 weeks which have passed since giving notice to you, to consideration of your responses to and proposals for dealing with those defects.

We must advise, however, that, in our opinion, you have substantially failed to satisfactorily address the defaults and that grounds for determination continue to exist as summarised in the Schedule enclosed herewith …

We therefore give notice hereby that the Sub-Contract is determined with immediate effect in accordance with our entitlement under Condition 56 thereof.”

The letter went on to require the defender, inter alia, to instruct all labour currently on site to leave by 5pm, and to take various other actions in accordance with condition 57(1).

The pursuer’s claims
[8] The sum sued for by the pursuer in these proceedings comprises (i) a claim framed in
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