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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Emcor Drake And Scull Ltd v. Edinburgh Royal Joint Venture& Ors [2005] ScotCS CSOH_139 (28 October 2005)
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Cite as: [2005] ScotCS CSOH_139, [2005] CSOH 139

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Emcor Drake And Scull Ltd v. Edinburgh Royal Joint Venture& Ors [2005] ScotCS CSOH_139 (28 October 2005)

OUTER HOUSE, COURT OF SESSION

[2005] CSOH 139

CA10/03

 

 

 

 

 

 

 

 

 

 

OPINION OF

LORD DRUMMOND YOUNG

in the cause

EMCOR DRAKE & SCULL LIMITED

Pursuer;

against

(FIRST) EDINBURGH ROYAL JOINT VENTURE; (SECOND) BALFOUR BEATTY CONSTRUCTION LIMITED; (THIRD) HADEN YOUNG LIMITED; AND (FOURTH) MORRISON CONSTRUCTION LIMITED

Defender:

 

________________

 

 

Pursuers: Reid, QC; Masons

Defenders: Moynihan, QC; Borland; Tods Murray WS

28 October 2005

[1]      The first defenders are an unincorporated joint venture, the partners in which are the second, third and fourth defenders. The defenders entered into a contract under which they undertook to design and construct the New Royal Infirmary of Edinburgh and University of Edinburgh Medical School at Little France, Old Dalkeith Road, Edinburgh. That contract was concluded with Consort Healthcare (Edinburgh Royal Infirmary) Limited, a company which had entered into certain PFI arrangements for the provision of the Infirmary and Medical School. The pursuers were employed by the defenders to carry out the secondary heating and domestic services installation for the whole of the works. Initially the defenders employed another subcontractor, Balfour Kilpatrick, to carry out the general electrics installation for Phase 1 and Phase 2 of the works. In the course of the works on Phase 1, however, the relationship between the defenders and Balfour Kilpatrick deteriorated, and the defenders decided to substitute a different subcontractor for the general electrics installation in Phase 2. The pursuers and the defenders had generally developed a good working relationship on the heating and domestic services subcontract, and the defenders invited the pursuers to submit a tender for the general electrics installation in Sectors 3 and 4 of Phase 2. With the invitation to tender the defenders supplied a range of tender documents to the pursuers. These included a copy of the proposed Construction Sub-Contract relating to the general electrics installation in Sectors 3 and 4, in three volumes. They also included a range of drawings prepared by Hulley & Kirkwood, the services engineer for the project, further drawings prepared by Keppie, the project architects, and a specification. Those drawings are listed in Appendix A to volume 1.

[2]     
Initially the pursuers declined to tender for the general electrics installation in Sectors 3 and 4. After certain discussions, however, they change their minds, and on 24 August 2000 they submitted a tender, accompanied by certain other documentation. Among the documents submitted with the tender was one described as a Schedule of Notes/Clarifications, which contained the following statement:

"1.01 Our Bid has been prepared on the understanding that the Tender Drawings received are fully co-ordinated and approved for construction".

Thereafter negotiations took place between the pursuers and the defenders, and on 19 September 2000 a revised tender was submitted. On 22 September the defenders instructed the pursuers to proceed with mobilization and the execution of the works in question. On 2 October the pursuers began preparatory work on site, and on 9 October the work itself began. Thereafter, the defenders invited the pursuers to tender for the general electrics installation in Sectors 6 and 8 of Phase 2. Once again, the defenders provided the pursuers with drawings prepared by Hulley & Kirkwood. On 3 November the pursuers submitted a tender for the work in Sectors 6 and 8. Discussions followed, and revised tenders were submitted on 21 November and 1 December. On 11 December work on Sectors 6 and 8 began at the defenders' request. An unsigned site instruction for this work was issued by the defenders to the pursuers on 30 January 2001, and a signed instruction eventually followed on 19 April 2002.

[3]     
A formal subcontract for the general electrics installation in Sectors 3 and 4 was executed by the parties on 30 and 31 March 2001. This was generally in the form provided by the defenders at the time of the original invitation to tender, but with the incorporation of a variety of other documents. Some parts of the tender documents submitted by the pursuers were incorporated into the final contract; these included the statement quoted in the last paragraph, but in the following amended form:

"1.01 Our Bid has been prepared on the understanding that the vast majority of Tender Drawings received are fully co-ordinated and approved for construction".

Other parts of the tender documentation submitted by the pursuers were either deleted or incorporated in a heavily amended form. I deal with the material provisions of the contract below at paragraphs [27]-[30]. When the pursuers were awarded the general electrics work in Sectors 6 and 8, that was treated as a variation to the works under the subcontract concluded in relation to Sectors 3 and 4.

[4]     
The pursuers have raised proceedings against the defenders in which they seek first a declarator in the following terms:

"For declarator that in the Sub-Contract dated 30 and 31 March 2001 between the parties the defenders warranted to the pursuers that the vast majority of the Tender Drawings received by the pursuers were fully co-ordinated and approved for construction".

The wording of the declarator reflects the contractual version of the statement quoted above in relation to the co-ordination of tender drawings. In the second conclusion of the summons, the pursuers claim payment of 1,190,210.17 and 208,286.78 in respect of variations that are said to have been instructed to the contract works. In the third conclusion of the summons the pursuers claim payment of 4,069,661.48; they aver that that sum is due as damages for breach of the warranty referred to in the first conclusion. It is accordingly clear that the major part of the pursuers' claim is predicated upon the existence of such a warranty. In view of the fundamental importance of such a warranty, I allowed the parties a preliminary proof before answer of their respective averments relative to whether the defenders gave the pursuers a warranty regarding the state of the tender drawings. The present opinion relates to that proof before answer. Initially the proof was to cover arguments based on a further provision of the parties' contract, clause 14.1.1, but at the start of the hearing parties were agreed that it was not appropriate to deal with that matter.

The process of design and the preparation and co-ordination of drawings

[5]     
In order to understand the issues that arose in the course of the proof, it is necessary to have some knowledge of the processes that are involved in the design of a complex building such as the new Infirmary, in particular in relation to the installation of the various engineering services that go into such a building. Considerable evidence was led on this matter, but ultimately I did not understand that there was any real dispute as to the processes that are typically involved. The contract architect provides the basic drawings for the shell of the building. Thereafter the mechanical and electrical engineer appointed for the purposes of the contract prepares drawings that indicate how the various engineering services are to run through the building. It will be readily appreciated that this is an extremely complex exercise, as several different services are involved and most of these run throughout the building. The principal services are the electrical works, which include both lighting and power cabling, the plumbing and drainage installation, the central heating and air-conditioning, the fire alarm system and the emergency lighting system; in addition, in a hospital provision must be made for medical gases and the nurse call system. The main distribution network for these services runs through the corridors at high level, in an envelope between the ceiling and the floor above. Connections are then made from the envelope above the corridors to individual wards and rooms, where they are linked to, for example, power sockets and light fittings. The distribution network and connections for each of the services are indicated in the mechanical and electrical engineer's design drawings, and in those drawings a degree of co-ordination of services is involved, in that the services must be shown running alongside each other. It is obviously essential that there should be adequate space in the envelope to accommodate all the services, and that should be taken into account in the mechanical and electrical engineer's drawings. What is not normally shown in those drawings, however, is the precise interaction of the various services as they run alongside one another.

[6]     
When the mechanical and electrical engineer has prepared the basic design of the engineering services, the various specialist subcontractors responsible for the installation of those services must then embark on the process of co-ordinating the work of installation in detail. This involves defining the precise routes taken by the ducting or piping for the different services in such a way as to avoid any clashes, the organisation of junctions in such ducting or piping, and the manner in which one service may pass over or under the other services at such a junction. When the detailed co-ordination process is complete, each specialist subcontractor will have prepared detailed working drawings which can be used by its employees to install the service in question. These will define precisely where the service is to run, including heights, and the components that are to be used, including bracketry and other fixings. The actual process of detailed co-ordination is carried out by CAD operators employed by the various specialist subcontractors, who discuss the details of the various services and produce multi-layered co-ordination drawings showing all of the services. These must obviously deal with all potential clashes. The cadsmen then separate out the individual services to provide the working drawings for individual subcontractors. The work of the cadsmen is normally governed by contractual protocols. In the present case the contractual protocols governing the production of drawings were set out in Appendix F to Volume 1 of the subcontract; the material provisions of those protocols are set out below at paragraph [29].

[7]     
Drawings are invariably numbered, normally is such a way as to indicate the precise status of the drawing in question. In the present contract a distinction was drawn between drawings with construction development (CD) status and drawings that had been given construction approved (CA) status. The earlier versions of drawings had CD status. Drawings with CD status were not sufficiently developed for use in construction. In due course working drawings became available, and were referred to the mechanical and electrical engineer for his approval. When such drawings were approved by the mechanical and electrical engineer for use in construction, they were given CA status. A drawing that had CA status might be used for construction purposes. As is perhaps obvious, a drawing that had CD status was liable to revision before it attained CA status and could be used for installation purposes. A drawing with CA status, by contrast, was not liable to further revision. This distinction underlay the system of drawings used in the project, and for reasons discussed below I consider it important in the interpretation of the parties' contract.

Parties' contentions

[8]     
The pursuers seek declarator that the contract concluded between the parties included a warranty by the defenders that the vast majority of the drawings received by the pursuers at the tender stage were "fully co-ordinated and approved for construction". This formulation is based essentially on the provision quoted in paragraph [3] above. As the argument in the case developed, however, it became apparent that the critical question was not merely whether a warranty had been granted in the terms stated in the conclusion for declarator; even if the provision on which the form of declarator is based amounted to a warranty, the defenders suggested a construction for it that differed radically from the pursuers' construction. If the defenders' construction is correct, and for reasons stated below I consider that it is correct, the pursuers would not be entitled to recover at least the greater part of the sums sought in the third conclusion of the summons. Consequently the meaning of the provision quoted in paragraph [3] above is of critical importance. This was recognized by the pursuers' counsel; at the outset of his submissions at the close of the evidence, he submitted that the meaning of the provision was as follows. The provision quoted in paragraph [3] meant that the vast majority of the tender drawings reflected or should have reflected the co-ordination process that ought to have been carried out by the defenders and the design team under the contractual protocols that related to design, drawing production and co-ordination of services (found in Appendix F of Volume 1). For the purposes of the parties' contract, the tender drawings fell to be so treated. By accepting the provision quoted in paragraph [3] as part of the subcontract the defenders acknowledged that the tender drawings provided by them were or ought to have been in such a form that installation drawings approved for construction could and should forthwith upon commencement of the works have been issued to the pursuers. The drawings so issued should have been consistent with and should have essentially reflected the contents of the tender drawings, and any amplification needed to install the works on site should be consistent with and essentially reflect the tender drawings. The use of the expression "vast majority" meant that all of the information contained in the tender drawings should have been co-ordinated and that the only amplification required should be consistent with and essentially reflect the tender drawings, apart from a very small commercially insignificant amount of information which required minor adjustment or fine tuning of the fit and installation sequence of the items to be installed on site. Counsel invited me to make express findings to the foregoing effect in my opinion.

[9]     
In essence, the pursuers' case amounts to a contention that the tender drawings should generally have reached the stage of development where installation drawings could immediately be issued in the great majority of cases. That position was warranted; consequently, if a significant proportion of the tender drawings did not attain the requisite stage of development the defenders are liable to the pursuers for all direct loss and expense incurred by the pursuers in consequence. The defenders deny in the first place that any warranty was granted. In the second place, however, they contend that if a warranty was granted that the tender drawings were fully co-ordinated and approved for construction, on the true meaning of the warranty it was satisfied. They further contend that the pursuers' argument is inconsistent with other terms of the contract, and would, moreover, lead to a result that did not make commercial sense.

Evidence led at proof

[10]     
In the course of the proof the pursuers led evidence from Mr W J Burns, one of their operational directors having responsibility for mechanical and electrical services, from Mr R L Stubbs, who at the time of their involvement in the Infirmary project had been their general manager for Scotland, and Mr G D Smith, who was one of their electrical project managers. The pursuers also led expert evidence from Mr G A Morris, who is a consulting engineer with particular expertise in the field of mechanical and electrical services. I found his evidence of great assistance in understanding the contract drawings and the systems of drawing production that applied to the contract; this part of his evidence is taken into account at paragraphs [5]-[7] above. I deal with the remainder of his evidence at paragraphs [42]-[47] below. The defenders led evidence from Mr M E Harris, who was the first defenders' deputy project director; he had been seconded to that position by the third defenders. The defenders also led evidence from Mr J P H More, who was the first defenders' services engineer. He too was employed by the third defenders.

[11]     
The evidence from the witnesses directly involved in the project covered the general factual background to the parties' contract in some detail. I discuss this below at paragraphs [15]-[26]. That evidence also dealt with the way in which the witnesses envisaged the provisions of the contract as working in practice, and similar evidence, obviously from an expert standpoint, was led from Mr Morris. I consider this aspect of the evidence further in my discussion of the significance and operation of the terms of the contract at paragraphs [31]-[46]. In addition to the above matters, the pursuers led evidence about the process of contractual negotiation at around the date of their initial tender, in August 2000, and during the following month or so. That was obviously well before the parties' contract was concluded in its final form in March 2001, and at a time when the tender documentation was in a materially different form from that ultimately incorporated into the subcontract. For reasons discussed below at paragraphs [14], [18] and [19] I am of opinion that such evidence is not admissible as an aid to construction of the contract, and I have accordingly disregarded it in reaching my decision. I did not consider that any issues of credibility arose, nor any significant issues of reliability. On the question of reliability, this is obviously subject to the qualification that the representatives of the two sides plainly had radically different views as to the terms of the contract, and I must decide between those views.

[12]     
I intend now to consider the principles of contractual interpretation that have a bearing on the present case. Thereafter I will consider the factual evidence that I consider admissible in the light of those principles. This relates essentially to the general factual background to the contract. I will also explain my reasons for holding inadmissible evidence of contractual negotiations prior to the date when the contract was concluded. After that I will consider the particular terms of the contract that appear to have a bearing on the present case, and will state what I consider the proper construction of the contract to be on the issue in dispute.

Interpretation of contract

[13]     
The legal principles that are applicable to the construction of the parties' contract are well established, and were not significantly in dispute. First, a contractual provision must be construed in the context of the contract in which it is found. The documents forming the contract must be construed as a whole: Gloag, Contract, 399; Capital Land Holdings Limited v Secretary of State for the Environment, 1997 S.C. 109, at 114 per Lord Sutherland. If possible, all the provisions of a contract should be given effect. Secondly, a contract must be construed objectively, according to the standards of a reasonable third party who is aware of the commercial context in which the contract occurs. Thirdly, a commercial contract should be given a commercially sensible construction; this can be regarded as an example of the more general rule that a construction that produces a reasonable result should be preferred over one that does not: Bank of Scotland v Dunedin Property Investment Co. Ltd 1998 SC 657; Mannai Investment Co. Ltd v Eagle Star Life Assurance Co. Ltd, [1997] AC 749. This means, in particular, that when a court is faced with competing constructions, it should consider which meaning is more likely to have been intended by reasonable businessmen: Commercial Union Assurance Co. Ltd v Hayden, [1977] QB 804. I consider that this principle is of particular importance in the present case. Fourthly, counsel for the pursuers referred to the rule that typewritten elements will normally have priority over standard printed conditions if there is any conflict between them: Barry D Trentham Ltd. v McNeil, 1996 SLT 202, at 207. That rule only applies, however, if there is a conflict that cannot be reconciled using the normal processes of contractual interpretation, and in the present case I did not think that ultimately there was any irreconcilable conflict between printed and typewritten conditions. Fifthly, the court must give effect to the parties' bargain; it must not substitute a different bargain from that made by the parties.

[14]      Sixthly, it is permissible in construing a contract to have regard to the circumstances in which the contract came to be concluded for the purpose of discovering the facts to which the contract refers and its commercial purposes, objectively considered: Prenn v Simmonds, [1971] 1 WLR 1381; Reardon Smith Line Ltd v Hansen Tangen, [1976] 1 WLR 989. This means in particular that the court may have regard to expert or other technical evidence as to the meaning of technical provisions in a contract. Nevertheless, regard may only be had to matters that were known, or ought reasonably to have been known, to both parties: Howgate Shopping Centre Ltd v Catercraft Services Ltd, 7 January 2004, unreported, per Lord Macfadyen at paragraph [36]. Seventhly, the foregoing rule is subject to certain important limitations and qualifications. In the first place, evidence of parties' discussions while a contract is being concluded is admissible "not to put a gloss on the terms of the contract, but rather to establish the parties' knowledge of the circumstances with reference to which they used the words in the contract": Bank of Scotland v Dunedin Property Investment Co. Ltd, supra, at 665 F-G per LP Rodger; a similar point is made in Bovis Construction (Scotland) Ltd v Whatlings Construction Ltd, 1994 SC 351, by LP Hope at 357 C-G. In the second place, it is not usually helpful to have regard to evidence about what was said in the course of the negotiations over the terms of the contract. The reason for that was expressed as follows by Lord Wilberforce in Prenn v Simmonds, at [1971] 1 WLR 1384G-1385A:

"[S]uch evidence is unhelpful. By the nature of things, where negotiations are difficult, the parties' positions, with each passing letter, are changing and until the final agreement, though converging, still divergent. It is only the final document which records a consensus. If the previous documents use different expressions, how does construction of those expressions, itself a doubtful process, help on the construction of the contractual words? If the same expressions are used, nothing is gained by looking back; indeed something may be lost since the relevant surrounding circumstances may be different. And at this stage there is no consensus of the parties to appeal to".

In the third place, words that have been deleted by the parties prior to signature should not generally be looked at as an aid to construction because they are not part of the agreement: Inglis v Buttery & Co., 1878, 5 R. (HL) 87, per Lord Hatherley at 96-97, Lord O'Hagan at 98-99, and Lord Blackburn at 102; Prenn v Simmonds, supra, per Lord Wilberforce at [1971] 1 WLR 1384G-1385H: London & Overseas Freighters Ltd v Timber Shipping Co. SA, [1972] AC 1, per Lord Reid at 15-16. This qualification is essentially a development of the previous one, and its rationale is the same. I consider all of those limitations and qualifications to be important in the present case.

Factual background to contract

[15]     
As indicated above, evidence about the factual background to a contract is admissible in order to discover the facts to which the contract refers, including the meaning and significance of technical terms and processes that are involved. It is also admissible to discover the contract's commercial purposes, objectively considered. The general background to the present contract was relevant to both of those matters. The import of the evidence was in my opinion as follows. At the outset of the project the pursuers were employed as mechanical services subcontractor. At the time when the mechanical services subcontract was entered into only part of the hospital, approximately one quarter, had been designed, and then only to the CD stage. Consequently the drawings were subject to design changes. As a result the contract provided for a guaranteed maximum price (GMP), which was subject to variations as the work proceeded. The contract was concluded by reference to a series of CD drawings provided by Hulley & Kirkwood. The CD status of the Hulley & Kirkwood drawings was significant for two reasons: it indicated that the design could change subsequently, and it meant that the preparation of working drawings by the specialist subcontractors could not begin until CA status drawings were made available by Hulley & Kirkwood. The other terms of the mechanical services subcontract were similar to those that were subsequently used for the general electrics subcontract. In both cases the contract contained a "no design" provision. At about the same time as the mechanical services subcontract was awarded to the pursuers, Balfour Kilpatrick (a company associated with the second and third defenders) was awarded the general electrics subcontract for Sectors 1 and 2, on terms that were essentially similar to the mechanical services subcontract. An equivalent of a GMP, known as a "Target Price" was used in that subcontract. By the time the tender for the present contract was lodged, however, the drawings provided by Hulley & Kirkwood were at a much more advanced stage. A design existed for the whole contract, and the great majority of the Hulley & Kirkwood drawings had CA status. Consequently at that stage there was no need for any GMP arrangement, and in fact the subcontract relating to the electrical work in Sectors 3 and 4 did not contain any such arrangement.

[16]     
During the works in Sectors 1 and 2 disagreements arose between the first defenders and Balfour Kilpatrick. The result was that the first defenders decided to terminate Balfour Kilpatrick's position as electrical services subcontractor and to relet that subcontract in respect of Sectors 3 and 4. By that time, however, Balfour Kilpatrick had carried out certain work on Sectors 3 and 4; this related in particular to the production of installation drawings. During the works on Sectors 1 and 2 a good working relationship had developed between the first defenders and the pursuers, and consequently the first defenders encouraged the pursuers to tender for the general electrics work in Sectors 3 and 4 when that subcontract was relet. The pursuers' witnesses emphasized how anxious the defenders had been to obtain a tender from the pursuers. They stated that initially the pursuers had been reluctant to tender for the electrical work, but had ultimately been persuaded to lodge their tender of 24 August 2000.

[17]     
Mr Stubbs gave detailed evidence about the pursuers' thinking at the time when the tender was lodged, to the following effect. He stated that the defenders had offered to be flexible in respect of the construction and scope of any bid made by the pursuers. The pursuers had been unhappy because information was missing; in particular no distribution board schedules or schematics were available. As a result the pursuers had been unable to put a realistic risk-free price together. They had asked for a GMP to be used, were told that that was not achievable. Thereafter consideration had been given to how the bid could be reconfigured. At that point the defenders had said that they would take the drawings that were available as fully co-ordinated drawings. As a result the pursuers were able to put a price together, because treating the drawings in that way took the risk out. Consequently the pursuers had used those drawings as tender drawings, and assumed that they were fully co-ordinated. If the drawings were fully co-ordinated and approved for construction, there would be no need for any further drawings. It was as a result of those drawings that clause 1.01 of the Schedule of Notes/Clarifications incorporated into the tender (the provision quoted in paragraph [2] above) was included in the tender. That provision stated that the tender drawings received by the pursuers were fully co-ordinated and approved for construction. On that basis, they would be ready for use, and there would be no need for the pursuers to employ a team of cadsmen on the electrical subcontract. That was significant because the defenders were anxious that the pursuers should make a rapid start on site. In addition, the pursuers had prepared a programme for the electrical subcontract that reflected the fact that only one cadsman was to be used. That programme was incorporated in resource charts, which were dealt with by another paragraph in the Schedule of Notes/Clarifications incorporated into the tender; this was clause 1.10, which was in the following terms:

".10 Our preliminaries have been priced strictly on the Resource Charts enclosed with this tender. These in turn have been prepared to suit our tender programme. Should this provision not be in line with your own interpretation of requirements, then please advise for the necessary adjustments to be made".

[18]     
In my opinion the evidence of Mr Stubbs summarized in paragraph [17] is not admissible on the basis of the principles set out in paragraph [14]. That evidence related to the negotiations over the terms of the contract and, as Lord Wilberforce pointed out in Prenn v Simmonds, such evidence is unhelpful. Even more important, however, is the fact that Mr Stubbs' evidence relied on the terms of the pursuers' tender of 24 August 2000, and in particular the provisions of the Schedule of Notes/Clarifications incorporated into the tender. Those provisions were either heavily amended or deleted in the final contract concluded between the parties in March 2001. Clause 1.01 was amended from the wording quoted in paragraph [2] to that quoted in paragraph [3] (see Appendix 3, Parts A, item 16). In the subcontract clause 1.01 continued as follows:

".01...From the Resource Charts included you will note that we have made allowance for the presence on site of a Co-ordination Engineer/Cadsman, who will 'fine-tune' working details and prepare as fitted drawings [together with checking the previously produced co-ordinated drawings and highlighting early on any errors/discrepancies found].

.02 The price quoted is based on the Subcontract Documentation".

In the tender documentation the words in parentheses in clause 1.01 were absent, and the word "only" appeared in their place. Clause 1.02 was markedly different; it was worded as follows:

"The price quoted is based on the Technical Specification and drawings only. Any subsequent changes would be processed upon receipt of a Variation Instruction".

In its amended form, clause 1.02 is plainly important, because it specifies very clearly that the price is to be based on the documentation incorporated into the subcontract. In its original form, clause 1.02 formed the basis for Mr Stubbs' view, expressed in cross-examination, that the pursuers were quoting a base price and that any changes in the drawings would count as variations.

[19]     
Most of the remainder of part 1.0 of the Schedule of Notes/Clarifications contained in the tender documentation was deleted. The deleted clauses included clause 1.10, quoted above. The resource charts referred to in that clause and in clause 1.01 were also deleted. The deleted provisions also included clause 1.15, which was in the following terms:

".15 Appendix 1. We have priced using the specification of drawings supplied to us. While we will assist in a pro-active manner, to identify any inconsistencies where seen, any costs associated with Design, Working Drawings, Installation, Commissioning or Engineering will constitute an extra for which instruction will be sought".

Appendix 1 related to the interface with other electrical contractors, and was specifically designed to deal with the relationship between the works to be carried out by the pursuers in Sectors 3 and 4 and the works carried out by Balfour Kilpatrick in Sectors 1 and 2. Its purpose was to ensure that the resolution of any inconsistencies between those two parts of the works should be charged as extras. It is accordingly clear that the Schedule of Notes/Clarifications was heavily amended in the course of the negotiations that led to the conclusion of the subcontract on 30 and 31 March 2001. Mr Stubbs' evidence related to the amended form of clause 1.01, and to the pursuers' intentions at the time when that version of the clause was put forward as part of the tender. On the basis of the principles stated in paragraph [14] above, in particular the role that word that had been deleted by the parties prior to signature should not generally be looked at as an aid to construction because they are not part of the agreement, I hold that all such evidence is inadmissible in construing the parties' subcontract.

[20]     
The pursuers' evidence did establish, however, that an early start on site was envisaged. That was clear from the evidence of Mr Stubbs, and also that of Mr Smith, who thought that work had started on site on 25 September 2000. Mr Smith stated that he had understood that construction issue drawings were to be available immediately, to enable immediate installation to take place. He expected that other services would have been installed, and that there would be voids left for the electrical services. If a co-ordination process were necessary, that would inevitably take time, and three or four cadsmen would be required for the electrical subcontract. In the course of his evidence Mr Smith was referred to the terms of the pursuers' tender to a much lesser extent that Mr Stubbs, but I thought it clear that his evidence was largely based on impressions that he had formed at about the time of the tender. I also thought it obvious that his evidence about starting on site and the amount of co-ordination work that would be necessary was based on the general attitude taken by the pursuers in August 2000, as spoken to by Mr Stubbs. That attitude was clearly heavily influenced by the terms of the original tender documents, including the Schedule of Notes/Clarifications incorporated into the tender. For this reason I thought that the evidence of Mr Smith was of very limited utility in construing the contractual documentation. It did, however, indicate that a rapid start on site was envisaged. It also indicated that the pursuers did not at the time envisage having much work to do to prepare drawings suitable for installation. The critical question in the case, however, is whether that attitude was justified on the basis of the subcontract that was ultimately concluded between the parties.

[21]     
As mentioned in paragraph [15] above, when the mechanicals subcontract was let to the pursuers the design information that was available was very limited; all of the drawings had CD status, and consequently the contract proceeded on a GMP basis. When the pursuers submitted their tender for the general electrics in Sectors 3 and 4, by contrast, more information was available. By this time design drawings, of CD or CA status, were available for the hospital as a whole and working drawings were available for some areas. The installation of mechanical, electrical and other services had begun, and indeed work had started in Sectors 3 and 4; the pursuers were responsible for the mechanical services in these sectors. Because of their status as mechanical services subcontractors the pursuers had taken part in the co-ordination of engineering services in Sectors 3 and 4; the mechanical services works were the first to be installed and were ahead of the general electrics, which were the last of the services to be installed. The nature of the co-ordination exercise was such that the pursuers as mechanical services subcontractor required to know where the electrical services were to go. Consequently the pursuers were aware of the Balfour Kilpatrick working drawings for the general electrics in Sectors 3 and 4 at the time of tendering; that was apparent from the evidence of Mr Stubbs in cross-examination, and also from the fact that the pursuers' working drawings for mechanical services included sections that showed electrical containment, which must have been derived from Balfour Kilpatrick drawings. At the time of tendering the co-ordination exercise among the various engineering services subcontractors was continuing, and indeed it did not finish until December 2000 or the early part of 2001 (evidence of Mr More and Mr Harris respectively). By that time the pursuers had tendered for Sectors 6 and 8 as well as Sectors 3 and 4. In addition, any site inspection in August 2000, when the pursuers tendered for the general electrics in Sectors 3 and 4, would have shown areas where the electrical services ran in juxtaposition to mechanical services and medical gas pipes; this was illustrated in two photographs (numbers 6/47 and 6/49 of process, spoken to by Mr Stubbs in cross-examination), which showed typical arrangements where electrical containment had to cross over mechanical or other containment. Thus it is clear that, at the time when they began work on the general electrics in Sectors 3 and 4, the pursuers in their capacity as mechanical services subcontractor already had very extensive knowledge of the way in which the containment runs operated in those sectors.

[22]     
At the time of tendering for the general electrics in Sectors 3 and 4 the pursuers and other tenderers were told that they could work to the drawings prepared by Balfour Kilpatrick, although those drawings were not included in the tender package (evidence of Mr Stubbs and Mr Harris). The pursuers had stated that they would cast an eye over them and mention any glaring errors that appeared. It is thus clear that the pursuers expected to play some part in the co-ordination process.

[23]     
Drawings were provided to the pursuers with the tender package for Sectors 3 and 4; these are listed in Appendix A to the proposed form of subcontract (found in number 7/31 of process, at pages numbered A/1-A/8). 347 drawings are listed there, of which 197 are not designated as being for information only. It is clear from the descriptions of those 197 drawings that in large part they dealt with the layout of the electrical services in Sectors 3 and 4. All of these drawings were of CA status, and most came from Hulley & Kirkwood. It is a matter of admission that an electrical engineer who looked at the tender drawings would have realized that they were design drawings and not detailed working drawings. For reasons discussed below, I am of opinion that it is highly significant both that the drawings provided with the tender package were of CA status and that they were obviously design drawings rather than detailed working drawings. Those were the drawings that were actually provided with the invitation to tender, and their status must in my opinion have been obvious to the pursuers.

[24]     
Mr Morris, the pursuers' engineering expert, gave evidence about the drawings provided with the tender, and in particular about their relationship to the drawing protocols set out in Appendix F of the subcontract document (quoted at paragraph [29] below). He stated that they were "engineering services design drawings" for the purposes of paragraph A of the section of Appendix F dealing with Sub-Contractor's Design Co-ordination. In general, the drawings were two-dimensional representations of the "spatial co-ordination of primary service distribution routes with the building structure", in terms of paragraph A. Although some cross sections were included, the drawings lacked invert levels and heights. The drawings covered not merely electrical services but also the ventilation system and medical gas pipes. Anyone looking at the drawings would have to think three dimensionally to determine how the various services could fit into the envelope provided for them. It was doubtful whether the electrical containment could be inserted as shown in the drawings, because the gap between the opposing walls was not always great enough. Moreover, at junctions, for example where in the drawing number 6/50 of process the patients' locker corridor met the containment within the ward, it was inevitable that electrical containment would have to be fitted at different levels or with offsets or devices known as "top hats" because it was not possible to run one piece of electrical containment through another. Mr Morris also accepted that the electrical containment could not have been installed directly on the basis of the Hulley & Kirkwood drawings. First, those drawings lacked invert levels; secondly, they lacked fixing points for bracketry to support the electrical containment; and thirdly they did not indicate how maintenance access to adjacent services was to be preserved.

[25]     
The pursuers' initial tender of 24 August 2000 was the subject of negotiation, in the course of which value engineering initiatives were discussed and agreed. One example of these was the substitution of baskets for trays as electrical containment (evidence of Mr Stubbs and Mr Harris). That conflicted with the Hulley & Kirkwood drawings. In addition, changes were made to the lighting system (letter of 22 December 2000, found in number 7/31 of process). Mr Stubbs accepted in cross-examination that, at least in such cases, the tender became an "open book" bid, which meant that it was not based on the Hulley & Kirkwood drawings but was rather the subject of general negotiation between the parties.

[26]     
I accordingly conclude, in relation to the general contractual background, that the pursuers' understanding at the time of the initial tender is of little or no assistance in construing the subcontract ultimately concluded because that understanding was based on provisions in the tender documentation that were deleted or heavily amended in the subcontract. I further conclude that the pursuers were aware from the drawings handed to them at the time of the tendering process that those drawings had CA status and that they were engineering services design drawings that lacked certain important features of the installation drawings, notably invert levels, heights and details of junctions. All of these would have to be provided before installation drawings could be completed.

Provisions in contract documentation material to construction of clause 1.01

[27]     
The provisions of the contractual documentation that are material to the question of construction are as follows. These relate in particular to the drawings that are to be used for the purposes of the subcontract. The parties' subcontract, which was concluded on 30 and 31 March 2001, begins with Articles of Agreement, which in turn refer to Sub-Contract Conditions that were annexed thereto. The primary operative provisions of the subcontract are contained in the Articles of Agreement and Sub-Contract Conditions. It should be noted that the subcontract is a lump sum contract with provision for variations, additional work and the like (Article 2 of the Articles of Agreement, together with clause 15 of the Sub-Contract Conditions and Appendix 3 to the contract). The contract is not a remeasurement contract. Two of the Sub-Contract Conditions are particularly material for present purposes. First, clause 9 provides as follows:

"9. Backgrounds and Previous Work by Others

9.1 The Sub-Contractor shall satisfy itself before commencing the Sub-Contract Works or any section of the Sub-Contract Works as to the position, dimensions and suitability of any previous work which may in any way affect the Sub-Contract Works, (including without restriction any surface or background to which the Sub-Contractor is to fix, apply or lay his work) and shall immediately advise the Contractor in writing if such previous work is out of position, wrongly dimensioned or in any other way unsuitable.

9.2 The Sub-Contractor shall have no claim or right of action against the Contractor arising from work previously carried out by others unless the discrepancy in position or dimension or any other unsuitability of the work or surface has been referred to the Contractor by the Sub-Contractor in writing pursuant to Clause 9.1 prior to the Sub-Contractor commencing the Sub-Contract Works or any part or section of the Sub-Contract Works".

The importance of that clause is that it indicates that the subcontractor is expected to examine work that has previously been carried out to ensure that it is compatible with the work that it is to install.

[28] Secondly, clause 20.2 provides as follows:

"20.2 The Sub-Contractor acknowledges and confirms that:-

20.2.1 the Sub-Contractor has conducted its own analysis and review of the Contractor Data and has prior to its execution of this Sub-Contract satisfied itself as to the accuracy, completeness and suitability of all Contractor Data upon which it places reliance; and

20.2.2 the Sub-Contractor shall not be entitled to (and shall procure that any sub-contractor or supplier of the Sub-Contractor shall not) make any claim against the Contractor, Service Co, the University or the Trust, whether in damages, or for extensions of time or additional payments under this Sub-Contract or under any other document or at common law on the grounds of any misunderstanding or misapprehension in respect of the Contractor Data or the matters referred to in Clause 7 of the Construction Contract or on the grounds that incorrect or insufficient information relating thereto or to the Site or the Works was given to it by any person, whether or not in the employ of the Contractor, Service Co or the Trust, nor shall the Sub-Contractor be relieved from any liability, risk or obligation undertaken by it under this Sub-Contract on any such ground".

"Contractor Data" are defined in clause 1.3 of the Sub-Contract Conditions as, in essence, the data necessary for the performance of the subcontractor's obligations under the subcontract plus any information, documents, designs or data supplied to the subcontractor directly or indirectly by the contractor, its consultants, other subcontractors or agents. Clause 20.2 thus makes clear that the subcontractor can have no claim against the contractor on account of any misunderstanding or misapprehension of the information provided for the purposes of the subcontract, or on the ground that incorrect or insufficient information was given to the subcontractor. That clearly places a considerable onus on the subcontractor to check the drawings provided for the purposes of the subcontract. It also appears inconsistent with any argument that the defenders warranted the drawings made available at the time of tendering, or indeed any other drawings.

[29]     
A substantial number of other documents were included in the parties' subcontract. In particular, detailed protocols were provided relating to design, drawing production and the co-ordination of services. The material protocols are found in Appendix F to Volume 1; these applied to all engineering services subcontracts. So far as material they are as follows:

"APPENDIX F

DESIGN, DRAWING PRODUCTION & CO-ORDINATION

 

Introduction

A Unless stated as being the responsibility of the Sub-Contractor, the Services Engineer will design the Engineering Services. The Services Engineer will spatially co-ordinate the services with the structure only in producing design drawings. It will be the responsibility of the Sub-Contractor to fully check the accuracy of the information provided to him.

B The Sub-Contractor will be responsible for the co-ordination of the Sub-Contract Works and for co-ordinating works with those of other Sub-Contractors involved on the project and for ensuring that the works and those of other Sub-Contractors can be maintained without obstruction. The Sub-Contractor will be required to attend co-ordination meetings with other Sub-Contractors whenever required by the Contractor, and incorporate the agreed detail into the design and installation.

C It will be the responsibility of the Sub-Contractor to ensure that he has co-ordinated the design of the works with other Sub-Contractors and he should operate a signing-off procedure as the drawings are co-ordinated, and show the works of other Sub-Contractors where the Contractor considers it to be necessary.

D The Sub-Contractor shall allow for amending, revising and updating his Working Drawings to achieve full co-ordination with other Sub-Contractors. The Sub-Contractor will provide a resident on-site engineering team as necessary to ensure that fully co-ordinated drawings can be amended, revised, updated and approved in the shortest possible time to allow the works to proceed on site.

...

Sub-Contractor's Design Co-ordination

A The engineering Services Design drawings issued by the Contractor represent the following stages of design:

1. Concept

2. Design Intent

3. Design Development

4. Spatial Co-ordination of primary service distribution routes with the building structure

The vertical co-ordination is reflected in representative sections to the primary service distribution routes.

B Unless stated elsewhere in the Sub-Contract, the Sub-Contractor's design co-ordination responsibility will not include a requirement to undertake fundamental design concepts such as the sizing of pipe work, ductwork, cables, or the calculation of plant duty, ratings, etc. It will be necessary, however, for the Sub-Contractor... to be responsible for design co-ordination including but not limited to, verify the sizing of some elements of distribution systems or equipment according to the carrying capacity or requirements of its own design work e.g., conduit sizes, control cables and gear, etc.

C The Sub-Contractor's design responsibilities shall include full co-ordination of the entire project services (in conjunction with other Sub-Contractors -- all as detailed elsewhere in the documentation) and, but not limited to, those elements of the works necessary to effect complete installation but which are not shown or set out in detail on the drawings issued by the Contractor, e.g. brackets/supports or conduit work, etc.

D The design co-ordination responsibilities of the Sub-Contractor... shall be deemed to include the design, full co-ordination and assembly of components, equipment and plant items conforming to the requirements of the technical specifications.

E It will be a requirement of the Sub-Contractor to develop the designs into his Working Drawings for manufacturing, installation and record purposes. Should it become evident during the course of the Sub-Contractor's development of Working Drawing, that changes may be required to the indicated line and level of the installations to effect a fit within the building, then the Sub-Contractor's tender is to allow for this and any subsequent effects....

...

Sub-Contractors' Drawings:

...

C Working Drawings

1 The Sub-Contractor shall produce co-ordinated working drawings for submission to the Contractor and to convey to others the details and requirements of the Sub-Contractor's works. The submission of the document to the Contractor... shall not relieve the Sub-Contractor of his contractual responsibility in respect of the co-ordination of the design and installation of the works.

2. The Working Drawings shall include but may not be limited to, the following:

D Installation Drawings

...

E Fabrication Drawings and Manufacturers/Suppliers Drawings

...

F Schematic Drawings

...

H Wiring Diagrams

...".

It is clear from the foregoing provisions that it was intended that a subcontractor such as the pursuers should be responsible for the co-ordination of its works with those of other subcontractors, and also the production of working drawings; that is very obvious from, for example, paragraph E of the section dealing with Sub-Contractor's Design Co-ordination. The working drawings were to reflect the process of co-ordination with other subcontractors. For present purposes, that related particularly to the manner in which the various services, for example electrical ducting and water and gas piping, were set beside each other and crossed each other where that was necessary.

[30]     
Certain parts of the tender documentation submitted by the pursuers on 24 August 2000 were also incorporated into the subcontract. As mentioned above at paragraphs [18] and [19], that documentation was in large part deleted, and what remained was heavily amended (see Appendix 3, Part A, item 16). The provision in that documentation that is particularly important for present purposes is clause 1.0 of the Schedule of Notes/Clarifications. In its final form, clause 1.0 assumed the following wording:

"1.0 Commercial Matters

.01 Our Bid has been prepared on the understanding that the vast majority of Tender Drawings received are fully co-ordinated and approved for construction. From the Resource Charts included you will note that we have made allowance for the presence on site of a Co-ordination Engineer/Cadsman who will 'fine-tune' working details and prepare as fitted drawings together with checking the previously produced co-ordinated drawings and highlighting early on any errors/discrepancies found.

.02 The price quoted is based on the Sub-Contract Documentation".

As I have mentioned above, the amended version of clause 1.02 is plainly important because it specifies very clearly that the price is to be based on the documentation incorporated into the subcontract. That excludes anything contained in the tender that did not find its way into the subcontract. It is also significant that the subcontract documentation includes the procedures set out in Appendix F. Those procedures had considerably less significance in the general electricals subcontract for Sectors 3 and 4 than they had in the engineering services subcontracts for Sectors 1 and 2, because the process of design had reached a much more advanced stage by the time when the work on Sectors 3 and 4 began; nevertheless the procedures were part of the subcontract, and they clearly placed important responsibilities for detailed design and the preparation of drawings on the subcontractor. Clause 1.01 is, of course, the provision founded on by the pursuers, and I must now turn to its construction.

Construction of contract

[31]     
The meaning of clause 1.01 must be determined using the principles set out in paragraphs [13] and [14] above. The most important of those principles in the present case appear to me to be the first three, that a contractual provision must be construed in the context of the contract as a whole, on an objective basis and in such a way as to produce a commercially sensible result. On that basis, the true meaning of clause 1.01 is in my opinion as follows. The two critical expressions, "fully co-ordinated" and "approved for construction", must be given meanings that accord with the contractual context. That context is found in particular in the processes for the design of a building and production of drawings, as described above in paragraphs [5]-[7], and in the drawing protocols applicable to the present subcontract, which are found in Appendix F to Volume 1, set out at paragraph [29] above. In those drawing protocols, two stages of co-ordination of services drawings are envisaged. The first, which is found in paragraph A of the Introduction and paragraph A of the section headed "Sub-Contractor's Design Co-ordination", is the co-ordination of services in the Services Engineer's design drawings. In the first of those paragraphs it is stated that the Services Engineer is to "spatially co-ordinate the services with the structure only in producing design drawings", and in the second it is stated that the engineering services design drawings issued by the contractor should represent, inter alia, "Spatial Co-ordination of primary service distribution routes with the building structure". In the latter paragraph, it is further provided that the vertical co-ordination is to be reflected in representative sections through the primary service distribution routes. This first stage of co-ordination is essentially that described in paragraph [5] above. The second stage of co-ordination of services is described in the same two sections of Appendix F, in the paragraphs from B onwards in each case. This involves the process of co-ordination by the relevant subcontractors, and is essentially the process described, in paragraph [6] above.

[32]     
In my opinion the expression "fully co-ordinated" as used in clause 1.01 of the Schedule of Notes/Clarifications refers to the first stage of co-ordination, not the second. That construction gives the expression a perfectly sensible content, and in my view the construction is inevitable when the factors discussed in paragraphs [33]-[35] below are taken into account. The expression "approved for construction" means in my opinion that the drawings in question must have CA status; that seems a very natural inference from the expression that is used. Finally, the expression "vast majority", which was added between the making of the tender and the conclusion of the subcontract, uses plain language, and I doubt whether it is capable of further explanation. The fact that this expression was added may reflect the fact that at the date of the initial tender, 24 August 2000, all of the 347 tender drawings that were made available had CA status, but during the subsequent negotiations five drawings that only had CD status were added. 347 drawings out of 352 clearly represent the "vast majority". In my opinion construing clause 1.01 in the foregoing manner gives it an intelligible commercial purpose, in that the pursuers were assured that a particular level of design had been achieved in terms of the contractual procedures that were applicable to design and drawing production.

[33]     
The drawings that were produced with the tender package were design drawings rather than working drawings, a matter that would readily have been recognized by an electrical engineer (see paragraph [23] above). That is a matter of admission. The nature of the drawings that they received must accordingly have been obvious to the pursuers. That in itself is a strong indication that the drawings fell within paragraph A of the Introduction to Appendix F and paragraph A of the section of that appendix dealing with Sub-Contractor's Design Co-ordination. Moreover, Mr. Morris described the drawings as "engineering services design drawings", and stated that they represented "spatial co-ordination of primary service distribution routes with the building structure", in terms of paragraph A of the section of Appendix F dealing with Sub-Contractor's Design Co-ordination (see paragraph [24] above). That too supports the conclusion that the available drawings fell within the two paragraphs A. If that is so, it must have been clear to the pursuers that the function of the drawings provided with the tender was to indicate the degree of co-ordination envisaged by those two paragraphs. The drawings did not indicate, and were not expected to indicate, the second form of co-ordination, that involved in preparing detailed working drawings for use in installation.

[34]     
This view is supported by certain other features of the contract. The second paragraph of clause 1.01 of the Schedule of Notes/Clarifications, quoted above at paragraph [30], indicates that the pursuers had made allowance for the presence on site of a co-ordination engineer/cadsman. That person was to be responsible for "fine-tuning" working details and preparing as fitted drawings, and also for checking the previously produced co-ordinated drawings and highlighting any errors or discrepancies that were found. Thus a degree of co-ordination was plainly envisaged. That indicates that the drawings that were to be given to the pursuers had not completed the Appendix F procedures, because at that stage there would be nothing to do but install the relevant services. Moreover, it was known to both parties that Balfour Kilpatrick had already produced working drawings for part of the electrical work in Sectors 3 and 4, although the precise status of those drawings was not clear. Mr Harris, who was the only witness to be asked about the contractual form of clause 1.01, stated in re-examination that the "previously produced co-ordinated drawings" referred to in that clause were the Balfour Kilpatrick drawings. He stated that those drawings have been discussed at meetings between the parties in August, and that the pursuers were told that they could make use of those drawings.

[35]     
Moreover, both parties knew that the work of co-ordination had started in Sectors 3 and 4, and that substantial progress had been made; that would be reflected in the drawings prepared by Balfour Kilpatrick. In addition, the pursuers had been involved in the co-ordination procedures in their capacity as mechanical services subcontractor, and in that capacity they had drawings in their possession that showed the position of electrical services. These obviously reflected work carried out by Balfour Kilpatrick. Neither party envisaged that the work of co-ordination that had already been completed would have to be restarted; Mr Harris made that point in re-examination. In these circumstances the provision of only one co-ordination engineer or cadsman in the second paragraph of clause 1.01 was quite intelligible; a very substantial number of drawings would exist already, and would be available to the pursuers either from Balfour Kilpatrick or from their own mechanical services engineers and cadsmen. In any event, Mr Stubbs accepted in evidence that the pursuers would have some involvement in the work of co-ordination. It was plainly a matter for them to decide the resources that they required to carry out the necessary work, and there was nothing in the evidence on documentation to suggest that the risk that the estimate of resources might be wrong was to be passed to the defenders.

[36]     
As indicated in paragraph [32], 347 out of the 352 tender drawings had CA status. That satisfies the second requirement of clause 1.01 of the Schedule of Notes/Clarifications in its contractual form, namely that the vast majority of the tender drawings should be approved for construction. So far as the first requirement is concerned, I am of opinion that the design drawings that were produced with the tender satisfied the requirements of paragraph A of the Introduction to Appendix F and paragraph A of the section of Appendix F dealing with Sub-Contractor's Design Co-ordination; this is for the reasons set out in paragraph [33] above. I am accordingly of opinion that the requirements of clause 1.01 of the Schedule of Notes/Clarifications in its contractual form were satisfied by the drawings that the pursuers received.

[37]     
The interpretation of clause 1.01 of the Schedule of Notes/Clarifications that I have adopted in paragraph [32] above is further supported by other terms of the parties' contract which define the scope of the parties' responsibilities in relation to the works. Two clauses are significant. First, clause 9 of the Sub-Contract Conditions, which is quoted above at paragraph [27], provides that the subcontractor is to satisfy itself before commencing the subcontract works "as to the position, dimensions and suitability of any previous work which may in any way affect the Sub-Contract Works", and is to advise the contractor if such work is out of position, wrongly dimensioned "or in any other way unsuitable". That clause was not altered in any way by any provision put forward by the pursuers at the time of the tender. It is plainly of importance in defining the subcontractor's responsibilities. It is clear in my opinion that the positioning of other engineering services is a matter that might affect the electrical services. Consequently the effect of clause 9 is that the pursuers should satisfy themselves that the electrical services could be accommodated along with the other engineering services, and should advise the defenders if any problem arose. That is a clear indication that the pursuers were expected to give detailed consideration to the positioning of the electrical services.

[38]     
A further provision supporting the same result is clause 20.2 of the Sub-Contract conditions, which is quoted above at paragraph [28]. This clause requires the subcontractor to conduct its own analysis and review of the information provided by the defenders and to satisfy itself as to the accuracy, completeness and suitability of all such information. Clause 20.2.2 prevents any claim by the subcontractor on the ground that incorrect or incomplete information relating to the site or the works was given to it by any person. That is wholly consistent with the view that the pursuers were obliged to make use of the information actually provided to them and work from that, doing everything that was necessary to complete installation. That would, of course, involve the production of the final installation drawings. Put another way, this means that the financial risk of performing any step necessary to transform the information provided into a completed installation lay with the pursuers.

[39]     
That leads on to the financial consequences of the pursuers' construction of clause 1.01 of the Schedule of Notes/Clarifications. These were explained at some length by Mr Stubbs in his evidence, in particular in cross-examination. Mr Stubbs stated that the pursuers' interpretation of clause 1.01 was that they should tender for the electrical works in Sectors 3 and 4 on the basis of the Hulley & Kirkwood drawings. In those drawings the services were shown running flat and level along the Infirmary corridors. Consequently the pursuers quote was based on the assumption that all services would run in that manner, and that any deviations from that state of affairs should count as variations, with the price consequences of variations. Mr Stubbs very frankly accepted that this amounted to a suspension of reality; nevertheless, he thought that it set a baseline for the comparison of the various tenders received by the defenders. The reality of this, he accepted, would be that there were extensive variations to the subcontract works, because clearly the electrical services could not run flat and level; numerous junctions exist where the electrical containment must rise or fall to cross the other engineering services. It was suggested to Mr Stubbs that, if that were so, the defenders would obtain no comfort from the quoted price; that would merely be a base price subject to variations, which were unknown in amount at the time of the tender. Mr Stubbs agreed that that was the import of his evidence.

[40]     
In my opinion it is highly improbable that reasonable men in the position of the parties would have agreed to a subcontract on that basis. That is so notwithstanding the urgency involved in tendering and starting work on site. The parties' subcontract is a lump sum contract, and it is clear from its form that it was negotiated as such. That fact is central to the nature of the subcontract, as it affects the fundamental basis of the price payable for the contract works. Obviously a lump sum building contract is normally subject to provision for variations and additional work, and the present subcontract is no exception. Nevertheless, it is clear that the parties' subcontract is not a remeasurement contract. If the pursuers' construction of clause 1.01 were correct, however, the contract would in my opinion be transformed into a remeasurement contract. If that interpretation were correct, the basis of the pursuers' tender would be essentially unrealistic, and virtually all of the numerous junctions involving the electrical services would involve variations. That in my opinion goes well beyond the scope of a lump sum contract.

[41]     
The financial consequences of the pursuers' interpretation of clause 1.01 provide in my opinion a further powerful reason for rejecting that interpretation. In my view those consequences would not be commercially sensible, and a commercially sensible construction is normally to be preferred. This reason is important, because it is based on the fundamental nature of the parties' contract.

[42]     
Mr Morris discusses the practical implications of the parties' subcontract in the report that he prepared for the purposes of the case (number 6/45 of process). In the conclusions of his report (paragraphs 3.1.1-3.1.5), Mr Morris expresses the opinion that the drawings that were available at the time of tender provided sufficient information to allow a contractor to prepare an accurate cost for the works. Those drawings were at a stage of development that contained more information than would normally be expected in detailed design drawings, and the drawings were stated to be co-ordinated with respect to the building structure. Elsewhere in his report he comments that the drawings available at tender were plans, largely without sections, and did not indicate the height at which services were to be installed. In evidence he stated that the position and type of supports were also lacking from the drawings. In the light of the absence of that information he states:

"3.1.3 It is not possible to say by reading the drawings that they were 'fully co-ordinated'. Given the missing information detail about the height at which services are to be installed, the information contained on the drawings could potentially be taken as fully co-ordinated with respect to other services as well as the building structure. Confirmation or denial of the status of the drawings as having been 'fully co-ordinated' would require to be advised by those issuing the drawings".

This appears somewhat inconclusive, but Mr Morris continues as follows:

"3.1.4 The drawings available at the time of tender are not co-ordination drawings nor are they installation drawings. They contained more than sufficient information for such further drawing development to be carried out. Given the information about the height at which services are to be installed, the drawings contain enough information for the type and quantity of the required materials to be ordered and for tradesmen to progress the works".

Thus Mr Morris accepts that, if the height at which electrical services were to be installed were given, the drawings were sufficient to allow the works to progress. It is noticeable, however, that in his report he does not address the scheme of Appendix F to any great extent. The appendix is discussed briefly at paragraphs 5.1.3-5.1.5. In that passage Mr Morris suggests that the Hulley & Kirkwood drawings were consistent with paragraph A of the Introduction to the appendix, but were only co-ordinated with the building structure; that did not amount to full co-ordination, which would require co-ordination with other services. When the stages contemplated by Appendix F are considered, I am of opinion that Mr Morris' description of the drawings available at tender is probably sufficient to satisfy the requirements of paragraph A of the Introduction and the corresponding paragraph of the section dealing with Sub-Contractor's Design Co-ordination. Indeed, at paragraph 6.2.11 of his report, Mr Morris considers the Hulley & Kirkwood drawings together with the drawings prepared by Balfour Kilpatrick and concludes that, based on the information contained on the two sets of drawings, the proposition that the tender drawings had been "fully co-ordinated" would be reasonable. For the reasons stated above, I am of opinion that clause 1.01 of the Schedule of Notes/Clarifications only requires that the tender drawings satisfy the two paragraphs A. Thus on Mr Morris' view, those drawings would be conform to the parties' subcontract.

[43]     
Mr Morris goes on to state (at paragraph 3.1.5) that, in view of the period of 10 working days between acceptance of the tender and the start on site, it would be impractical to expect a subcontractor to produce co-ordination or installation drawings. The short lead-in time is a matter that was heavily founded on by the pursuers in the argument. Nevertheless, it is the terms of the contract that are critical, and for the reasons stated above I consider that those support the defenders' construction of clause 1.01 of the Schedule of Notes/Clarifications. Moreover, Mr Morris does concede that, if information were provided about the height at which services were to be installed, the tender drawings contained enough information for tradesmen to progress the works.

[44]     
At paragraph 6.2.8 of his report, Mr Morris expresses the view that the drawings available at tender "were not co-ordination drawings but were taken to be co-ordinated drawings". This distinction appears somewhat fine, and it does not directly address the contractual wording, which refers in clause 1.01 of the Schedule of Notes/Clarifications to drawings that are "fully co-ordinated". It is noticeable, however, that in his report and evidence Mr Morris largely addressed the version of clause 1.01 that appeared in the tender rather than the concluded subcontract (although he does refer to the latter at paragraph 5.3.2). Mr Morris' distinction is also largely based on a document issued by the Building Services Research and Information Association, "Allocation of design responsibilities for building engineering services", Technical Note TN 21/97. This document was not referred to in the parties' subcontract, and it was not suggested that it was a statement of the general practice followed in the construction industry. Consequently it cannot be said that the distinction that Mr Morris seeks to draw would obviously have been apparent to reasonable men in the position of the parties. The distinction, as I have remarked, is rather fine, and does not appear to be related to the protocols contained in Appendix F. I accordingly conclude that it is not of assistance in construing the parties' subcontract. In any event, the distinction drawn by Mr Morris is based on the proposition that the tender drawings were "taken to be" co-ordinated drawings. That suggests that Mr Morris considered that the subcontract was concluded on the assumptions outlined at paragraph [39] above, namely that the drawings provided information that they manifestly did not contain. For the reasons stated above, I do not think that such an assumption is realistic.

[45]     
Mr Morris also commented on the expression "approved for construction". In his evidence he suggested that a drawing would be approved for construction if the contractor could get on and build what was shown in the drawing, with all the information being provided. In the case of the Hulley & Kirkwood drawings, however, the position and type of supports were not stated, and the invert levels were not given. Thus in Mr. Morris' opinion the tender drawings were not "approved for construction". As with Mr. Morris' views on the expression "fully co-ordinated", this argument amounts to saying that the contract proceeded on the assumption that the tender drawings prepared by Hulley & Kirkwood were drawings suitable for installation purposes. It is quite obvious, however, even on a cursory examination of the drawings, that they are not installation drawings. Thus the assumption is incorrect, with the result that numerous variations will inevitably occur, at any point where services cannot run flat and level (see paragraphs [39] and [40] above). In my opinion that is a most unlikely result, and on that basis I consider that the expression "approved for construction" means no more than that design drawings falling within the two paragraphs A in Appendix F should have CA status, as that expression was understood for the purposes of the project.

[46]     
For the reasons stated, I am unable to agree with all of the views expressed by Mr Morris. I should state, however, that I found his explanation of the system of drawings used in the contract, and indeed of the individual drawings, to be extremely helpful in achieving a proper understanding of the technical background.

[47]     
I accordingly conclude that clause 1.01 of the Schedule of Notes/Clarifications in its contractual form meant that the vast majority of the tender drawings received by the pursuers has been fully co-ordinated, in the sense described in paragraph A of the Introduction to Appendix F and paragraph A of the section in the same appendix dealing with Sub-Contractor's Design Co-ordination, and that such drawings had achieved CA status. It is clear that both of those requirements were satisfied. On that basis I find that the pursuers are not entitled to a finding in the terms sought by their counsel, as set out at paragraph [8] above. I further find that the true meaning of clause 1.01 is as set out at paragraph [32] above. That assumes, of course, that a contractual warranty was indeed given. I must now turn to two further provisions of the parties' contract, both of which are highly material to the issue between the parties.

Contractual warranty

[48]     
The pursuers contend that the defenders warranted the state of the drawings available at the time of tendering. Two further provisions of the contract are material to the existence of a contractual warranty. The second of these is of particular importance, because it raises the question of whether reasonable men in the parties' positions would have intended that any warranty at all should be given. First, however, clause 38.2 of the Sub-Contract Conditions incorporated into the parties' contract is in the following terms:

"Each of the parties acknowledges that:

38.2.1 It does not enter into this Sub-Contract on the basis of and does not rely, and has not relied, upon any statement or representation (whether negligent or innocent) or warranty or other provision (in any case whether oral, written, express or implied) made or agreed to by any person (whether a party to this Sub-Contract or not) except those expressly repeated or referred to in this Sub-Contract and the only remedy or remedies available in respect of any misrepresentation or untrue statement made to it shall be a claim for breach of contract under this Sub-Contract".

The effect of that clause is to exclude consideration of any representations made at the time of contracting unless they are incorporated into the subcontract. If that happens, of course, the representation will normally assume the status of a contractual warranty, and in the first conclusion of the summons the pursuers assert that such a warranty was given. The pursuers conceded that clause 38.2.1 excluded consideration of any representations not incorporated into the contract, but submitted that clause 1.01 of the Schedule of Notes/Clarifications contained a representation of fact of the type contemplated by the clause. I agree with the concession. Nevertheless, it emphasizes the fact that the pursuers are forced to rely on the contractual version of clause 1.01. Any oral representations made at about the time of tender are irrelevant, as is the non-contractual version of that clause. As I have indicated above, the pursuers' evidence was largely directed to statements made at about the time of the original tender and to witnesses' understanding of matters at that time. The evidence was not, generally speaking, directed to the version of clause 1.01 that ultimately found its way into the contract. That provides a further reason for disregarding such evidence.

[49]     
The second provision of the contract that is material to the existence of contractual warranties is Appendix 3, which is headed "Technical Specification & Sub-Contract Sum Analysis". This appendix sets out the technical specification for the subcontract. It begins by identifying eight items of tender documentation and a further seven items of correspondence referred to as General Electrics query response. Thereafter it continues:

"The following are Sub-Contractor's Proposals via selective reference to correspondence. Text not applicable is deleted by a drawn line:-

16. Sub-Contractor's facsimile dated 24 August 2000 (9 no pages)

...".

That document is, of course, the fax that includes the Schedule of Notes/Clarifications, and it is this provision that incorporates that document into the parties' subcontract. The reference to Sub-Contractor's Proposals is followed by two documents, described as the Consultants Specification, and a section dealing with value engineering. This provides as follows:

"Value Engineering

The Sub-Contractor is to identify any cost options he wishes to propose to the Contractor for consideration.

These options shall be based upon proposals where the Sub-Contractor wishes to change specifications, installation, methods of working, programme and such like, (from those given in the Sub-Contract documentation), to enable further financial/time benefits".

That is followed by sections dealing with builders work in connection with services and the interface with other specialist electrical contractors. Appendix 3 then continues as follows:

"Interface with the Works of other Sub-Contractors

The Sub-Contractor shall fully co-operate with all other Sub-Contractors executing works in other locations in managing the interface between the works in adjoining areas.

The Sub-Contractor shall fully co-operate with these Sub-Contractors providing them with all information that they shall reasonably seek timeously to avoid disruption or delay to the Works.

Nothing contained in the above proposals shall diminish or relieve the Sub-Contractor of its obligations under this Sub-Contract to co-ordinate the Sub-Contract works with the works of other Sub-Contractors employed on the Works".

[50]     
For the defenders it was submitted that the expression "the above proposals" in the last of the paragraphs quoted referred to the Sub-Contractor's Proposals, which included document 16, rather than the value engineering proposals. Only that construction, it was submitted, gave sensible content to the paragraph in question, which dealt with the interface between the subcontract works and the works of other subcontractors. For the pursuers it was submitted that the expression "the above proposals" referred to the value engineering proposals that might be made by the pursuers, and not to the Sub-Contractor's Proposals identified earlier in Appendix 3. Counsel relied on the fact that the reference was to "proposals", with a small "p", rather than to "Sub-Contractor's Proposals".

[51]     
In my opinion the expression "the above proposals" applies both to the Sub-Contractor's Proposals, including document 16, and to any proposals made in connection with value engineering. I reach this conclusion for four reasons. First, the expression is quite general in its import; prima facie, therefore, it is habile to apply to anything previously referred to that has been described as a "proposal". That includes the Sub-Contractor's Proposals as well as any value engineering proposals. Secondly, the function of the paragraph in which the expression occurs is clearly to ensure that the subcontractor remains fully responsible for co-ordination of its works with the works of other subcontractors. That rationale applies to the Sub-Contractor's Proposals just as much as any value engineering options. Thirdly, the section of Appendix 3 headed "Value Engineering" is separated from the section headed "Interface with the Works of other Sub-Contractors" by two other sections. Thus the latter section, in which the expression "the above proposals" occurs, is clearly designed to have an existence independently of the section dealing with value engineering. Had the expression been intended to refer to value engineering proposals only, the relevant paragraph might have been expected to occur in the value engineering section, or immediately after that section. Fourthly, I do not think that the use of a capital or small letter is of any real significance in the present context. While the word "proposals" is used in the section headed "Value Engineering", it is noticeable that the primary matter to be identified in terms of that section is any "cost options" that the sub-contractor wishes to propose to the contractor for consideration. It is those options that are accepted or rejected by the contractor. The "proposals" form the basis for such cost options, but their function is essentially secondary. Against that background, I do not think that the word "proposals" in the section headed "Value Engineering" can be regarded as a term of art, which is essentially what the pursuers' argument amounted to.

[52]     
If the expression "the above proposals" in the provision quoted at the end of paragraph [49] refers to the pursuers' fax of 24 August 2000, the result is that nothing in that fax can detract from the pursuers' obligations under the subcontract to co-ordinate their subcontract works with the works of other subcontractors employed on the project. The critical point of the warranty for which the pursuers contend, however, is to restrict the need for such co-ordination. Thus the existence of any such warranty is fundamentally at variance with the provisions of Appendix 3. On that basis I am of opinion that it is unlikely that clause 1.01 of the Schedule of Notes/Clarifications, even in its contractual form, could have been regarded as a warranty by reasonable men in the parties' positions. It is much more likely that it was intended to operate merely as a statement of the pursuers' understanding, without greater contractual significance. I accordingly conclude that the pursuers are not entitled to declarator in terms of the first conclusion of the summons.

[53]     
The foregoing view is in my opinion further supported by the construction that I have placed on clause 1.01 of the Schedule of Notes/Clarifications, as set out at paragraph [32] above. If that clause means that the vast majority of the tender drawings had reached the first stage of design co-ordination and had CA status, it is difficult to see the point of a warranty, because it was obvious that the vast majority of the drawings had attained that status (see paragraph [33]). By contrast, a warranty that the vast majority of the drawings had achieved a status that they plainly had not achieved in reality seems to me to be commercially improbable, as explained at paragraphs [39] and [40] above.

Sectors 6 and 8

[54]     
The defenders presented a further argument that the pursuers had no relevant case as to how the works in Sectors 6 and 8 came within the warranty referred to in the first conclusion of the summons. The pursuers submitted a revised tender for the electrical work in Sectors 6 and 8 on 1 December 2000; the documentation is found at no 7/33 of process. A Schedule of Notes/Clarifications was included (no 7/33/3 of process, page 2). Clause 1.01 of that Schedule, however, was in the same form as the first paragraph of clause 1.01 in the original tender for Sectors 3 and 4; it was not in the form ultimately incorporated into the parties' subcontract (see paragraphs [2] and [3] above). There was no reference to the "vast majority" of the tender drawings; nor was there any reference (as found in the second paragraph of the contractual clause 1.01) to the "fine-tuning" of working details or checking previous drawings and highlighting any errors or discrepancies. The tender documents for Sectors 6 and 8 had not been incorporated into the parties' subcontract, however, and thus the version of clause 1.01 found in that tender cannot have contractual force. In these circumstances the question arose as to precisely how any warranty that might have been granted in relation to Sectors 3 and 4 came to apply to Sectors 6 and 8. Counsel for the defenders submitted that there were no relevant averments as to how this could have happened; the pursuers' case relating to Sectors 6 and 8 was accordingly irrelevant.

[55]     
On record it is averred that the general electrics installation in Sectors 6 and 8 was treated by the parties as a variation to the subcontract works under the subcontract for Sectors 3 and 4. More particularly, it is stated that at the request of the defenders the pursuers proceeded from about 11 December 2000 to carry out the general electrics insulation in Sectors 6 and 8 without formal instruction, and that on 30 January 2001 the defenders issued an unsigned site instruction thereanent, a signed instruction being issued on 19 April 2002. The relevant written instruction (no 7/34 of process, page 5) instructs certain works "in accordance with the conditions of your Sub-Contract", subject to the provisions of the instruction and its accompanying documents. The instruction states an agreed alteration to the subcontract sum after taking account of the additional works. The accompanying documents are voluminous, but they do not include the tender for Sectors 6 and 8 as submitted on 1 December 2000. On that basis it seems clear that the form of clause 1.01 put forward in the latter tender cannot have any contractual force. That leaves open the question, however, as to whether the form of clause 1.01 that was incorporated into the contract for Sectors 3 and 4 can have application to the work in Sectors 6 and 8. If it is to apply, two major problems arise. First, the contractual form of clause 1.01 forms part of a Schedule of Notes/Clarifications that has specific application to the works in Sectors 3 and 4. This applies in particular to the reference in the second paragraph of the clause to certain works that would be carried out in relation to the "fine-tuning" of working details; the work contemplated was clearly specific to Sectors 3 and 4. It is difficult to see how a clause which contemplated specific work of that nature could have application to the different circumstances that occurred when work began on Sectors 6 and 8. Secondly, the documents accompanying the instruction for the work in Sectors 6 and 8 include a large number of drawings, including Balfour Kilpatrick drawings, in respect of those sectors. On that basis, it is difficult to understand how the instruction for Sectors 6 and 8 is compatible with the pursuers' fundamental argument on Sectors 3 and 4, namely that the contractual clause 1.01 was intended to enable them to bid on the artificial assumption that the electrical works could be constructed on the basis of the Hulley & Kirkwood drawings (see paragraph [39] above). By the time the works in Sectors 6 and 8 were begun, the available drawings were more extensive, and it would have made no sense whatsoever to proceed on the assumption that only the mechanical and electrical engineers' drawings were available when in fact large numbers of drawings from the original subcontractor were available.

[56]     
For these reasons I am in agreement with the argument presented by counsel for the defenders on Sectors 6 and 8. I accordingly hold the averments relative to that part of the works to be irrelevant. This is not, however, of practical significance in view of my earlier findings as to whether a warranty exists and the meaning of the crucial wording in the form of clause 1.01 incorporated into the parties' sub-contract; I accordingly consider it unnecessary to incorporate this matter into my interlocutor. In response to counsel for the defenders, counsel for the pursuers submitted that the defenders ignored the commercial reality of what had happened, which is that Sectors 6 and 8 were treated as a variation of the subcontract. That is undoubtedly so, but it does not follow that every clause of the subcontract is applicable to Sectors 6 and 8. If the content or the rationale of a clause is such that it can only apply sensibly to Sectors 3 and 4, it is unlikely to be part of the contractual provisions applicable to Sectors 6 and 8. In my opinion that is the case with the Schedule of Notes/Clarifications in its final contractual form, looked at as a whole. The content of certain important provisions of the Schedule can only apply to Sectors 3 and 4, and the underlying subject matter of the Schedule, the available drawings, was quite different at the time when work began on Sectors 6 and 8.

Miscellaneous matters

[57]     
Counsel for the defenders presented a number of further arguments. The first of these was that the provisions of the contractual version of clause 1.01 of the Schedule of Notes/Clarifications were so vague that it could not sensibly be assumed that the parties intended to give that provision the status of a warranty, as against a mere statement of the understanding of one party. Counsel drew attention to the use of the expression "vast majority", which was not capable of precise definition. Likewise, it is not clear what "fine-tuning" entailed, and it was not clear what would be included in the expression "errors/discrepancies", especially when contrasted with "fine-tuning". Counsel for the pursuers, by contrast, submitted that the wording used was sufficiently precise; it certainly could not be considered so vague as to be meaningless.

[58]     
In my opinion the features founded on by counsel for the defenders are pointers towards the conclusion, which I have reached on other grounds, that clause 1.01 was not intended to set up a contractual warranty. If a contractual warranty regarding the state of the drawings had been intended, I think that it is likely that it would have been expressed in terms that make the intention much more clear. In reaching this view, however, I am not holding that the terms of the clause are void from uncertainty. As pointed out in the opinion of Lord Cullen in Retail Parks Investments Limited v Royal Bank of Scotland PLC (No 2), 1996 SC 227, at 247-248, an order to enforce a contractual provision can be made even if there is difficulty in determining borderline cases, and I do not think that the difficulties in construing clause 1.01 go beyond that. Moreover, counsel for the defenders made it clear that he was not arguing that the clause was void from uncertainty; instead, his argument took the more limited form described above.

[59]      Counsel for the defenders further argued that the form of the conclusion sought by the pursuers was irrelevant because it reproduced only part of the contractual version of clause 1.01. No reference is made in the conclusion to the second paragraph of the clause, which referred to the use of a co-ordination engineer or cadsman to "fine-tune" working details and to check previously produced co-ordination drawings and highlight any errors or discrepancies that were found. Counsel submitted that it would be misleading to pronounce a declarator that omitted those qualifications. I agree, if only because any declarator that bears to state the effect on a contractual provision should take into account, so far as reasonable, the whole of that provision. If necessary, that can be done by the use of provisos or other qualifications. In the present case I do not think that it would be unreasonable to introduce a proviso to take account of the second paragraph of clause 1.01. If necessary, I would have been willing to allow the pursuers to amend their first conclusion accordingly. In the event, however, I consider that they are not entitled to the declarator on other grounds.

[60]     
Finally, I should record that counsel for the defenders referred to the fact that the parties' subcontract was described as a "no design" contract. The same was true of the mechanical services subcontract. Counsel submitted that, notwithstanding the use of the expression "no design", the contract was still subject to the detailed design provisions of Appendix F. No particular force could accordingly be read into the description as a "no design" contract. I agree; it is clear that the design provisions of Appendix F apply, with the result that the expression "no design" does not mean literally what it says. It is, indeed, no more than a general description of a particular form of contract, no doubt to distinguish that form from other contracts that contain much greater elements of design on the part of the subcontractor.

Conclusion

[61]     
For the reasons stated above I refuse the declarator sought in the first conclusion of the summons, on the ground that clause 1.01 of the Schedule of Notes/Clarifications was not intended to give rise to a contractual warranty. I further find that that clause amounts to a representation that the pursuers' understanding was that the vast majority of the tender drawings (i) had reached the stage of co-ordination stated in paragraph A of the Introduction to Appendix F to the parties' contract and paragraph A of the section of that Appendix dealing with Sub-contractor's Design Co-ordination and (ii) had construction approved (CA) status. This decision follows proof, and I accordingly consider it appropriate to assoilzie the defenders from the first conclusion of the summons. To that extent I will sustain the defenders' first and third pleas-in-law.

 

 


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