OIL STATES INDUSTRIES (UK) LTD AGAINST LAGAN BUILDING CONTRACTORS LTD [2018] ScotCS CSOH_22 (13 March 2018)

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Cite as: [2018] ScotCS CSOH_22, [2018] CSOH 22

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OUTER HOUSE, COURT OF SESSION
[2018] CSOH 22
CA74/16
OPINION OF LORD DOHERTY
In the cause
OIL STATES INDUSTRIES (UK) LIMITED
against
LAGAN BUILDING CONTRACTORS LIMITED
Pursuer
Defender
Pursuer: Moynihan QC; CMS Cameron McKenna Nabarro Olswang LLP
Defender: Borland QC, Manson; DAC Beachcroft Scotland LLP
13 March 2018
Introduction
[1]       The pursuer’s business includes the fabrication of equipment for the oil industry. On
15 October 2014 the pursuer and the defender entered into a building contract in terms of
which the defender was to design and construct a new production facility for the pursuer at
Heartlands Industrial Estate, Whitburn. The contract was in the form of the SBCC’s Design
and Build Contract for use in Scotland DB/Scot (2011 Edition), as amended by a Schedule of
Amendments annexed and signed as relative thereto.
[2]       During the course of the contract the pursuer’s agent issued certain contract
instructions to the defender which bore to be issued in terms of clause 3.5 of the contract
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conditions. By letter dated 13 July 2016 the pursuer gave notice to the defender in terms of
clause 8.4.1 of the conditions that it was in default, inter alia, in failing to comply with
contract instructions numbers 58, 65, 67 and 68. The pursuer avers that the defender did not
remedy the default. Accordingly, by letter of 2 August 2016 the pursuer gave notice to the
defender terminating its employment (with effect from 4 August 2016).
[3]       In this commercial action the pursuer seeks declarator that the defender is in breach
of contract in consequence of its failure to comply with those contract instructions. It also
seeks declarator that the pursuer is entitled to reparation for the said breaches. Whether or
not the defender was in breach in respect of non-compliance with the instructions, the
pursuer also maintains that the defender is in breach of contract because elements of the
design work are not in accordance with the contract and that the defender has failed to carry
out the works in a proper and workmanlike manner. It seeks damages for the defender’s
breaches of contract. The matter came before me for a debate on the commercial roll. In
advance of the debate the parties lodged written notes of argument.
The contract
[4]       Clauses 2.11, 2.12, 2.13, 2.17, 3.5 and 3.8 of the contract conditions provide:
Preparation of Employer’s Requirements
2.11 The Contractor shall be responsible for the contents of the Employer’s
Requirements and for verifying the adequacy of all design contained within them.
The Contractor hereby accepts full responsibility in all respects for the whole of the
design of the Works … including any design comprised and/or referred to within the
Employer’s Requirements or other Contract Documents and in relation thereto; …
Employer’s Requirements – inadequacy
2.12.1 If an inadequacy, a mistake, an omission or an error is found in any design in
the Employer’s Requirements then, if or to the extent that the inadequacy, mistake,
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omission or error is not dealt with in the Contractor’s Proposals, the Employer’s
Requirements shall be corrected, altered or modified accordingly.
2.12.2 Any correction, alteration or modification under clause 2.12.1 shall not be
treated as a Change.
Notice of discrepancies etc.
2.13 If the Contractor becomes aware of any inadequacy, mistake, omission or
error as is referred to in clause 2.12 or any other discrepancy or divergence in or
between any of the following documents, namely:
.1
the Employer’s Requirements;
.2
the Contractor’s Proposals;
.3
any instruction issued by the Employer under these Conditions; and
.4
any drawings or documents issued under clause 2.8;
he shall immediately give notice with appropriate details to the Employer, who shall
issue instructions in that regard.
Design Work liabilities and limitation
2.17.1 The Contractor warrants and undertakes to the Employer that, without
prejudice to any express warranties or any warranties implied by common law or
statute:
2.17.1.1
in relation to the design of the Works all the skill, care and diligence to
be expected of a properly qualified and competent architect or other appropriate
designer who is experienced in preparing such design in relation to works of a
similar size, scope, nature, complexity and value as the Works has been exercised
and shall continue to be exercised; …
Compliance with instructions
3.5 The Contractor shall forthwith comply with all instructions issued to him by
the Employer in regard to any matter in respect of which the Employer is expressly
empowered by these Conditions to issue instructions …
...
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Provisions empowering instructions
3.8 On receipt of an instruction or purported instruction the Contractor may
request the Employer to notify him which provision of these conditions empowers its
issue and the Employer shall forthwith comply with the request. If the Contractor
thereafter complies with that instruction with neither Party having then invoked any
dispute resolution procedure under this Contract to establish the Employer’s powers
in that regard, the instruction shall be deemed to have been duly given under the
specified provision.”
Counsel for the defender’s submissions
[5]       Mr Borland accepted that an inquiry of some sort would be necessary in order to
dispose of the action, but he maintained that it was possible to decide at this stage that
certain parts of the pursuer’s pleadings were irrelevant or so lacking in specification that
they should not be admitted to probation.
[6]       First, in article 12 of condescendence the pursuer averred:
“12. A design and build contractor, such as the defender, exercising reasonable
skill and care has a duty to comply with normal best practice. The defender had a
duty to warn the pursuer that the external floor slab did not comply with best
practice due to the facts that:
(a) It was not laid to a fall of 1:60;
(b) It did not provide slip and skid resistance.
(c) It did not incorporate air entrainment for external exposure.”
Mr Borland submitted that the relevant contractual obligations were to carry out and
complete the works in a workmanlike manner (cl 2.1.1) and to exercise the care and
diligence of a properly qualified and competent designer (cl 2.17.1.1). Neither obligation
imposed a duty to comply with “best practice” or “normal best practice”. Reference was
made to Eckersley & Others v Binnie & Others [1955-1995] PNLR 349, per Bingham LJ at
pp 382-3. Nor did clauses 2.11 or 2.13 assist the pursuer in this regard. Moreover, in order
to plead a relevant case of a duty by a contractor to warn the Employer about a matter
contained within the Employer’s Requirements, the pursuer must show (i) that the design or
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the works were obviously and significantly dangerous, and (ii) that the defender knew or
ought to have known that this was the case (Plant Construction plc v Clive Adams Associates
(No 2) [2000] BLR 137, per May LJ at p 147; Aurum Investments Limited v Avonforce Limited
[2001] 78 Con LR 114, per Dyson J at paragraph 11; Stagecoach South Western Limited v Hind
[2014] EWHC 1891 (TCC), per Coulson J at paragraphs 101-102; Goldswain & Hale v Beltec
Limited [2015] EWHC 556 (TCC), per Akenhead J at paragraph 7). In any case, the suggested
breach was not linked to any specified loss the pursuer was said to have suffered.
[7]       Second, contract instructions numbers 67 and 68 had not been valid contract
instructions in terms of cl 3.5 of the contract. Instruction no 67 was dated 29 February 2016.
It stated:
Roof Cladding
The Roof has not been constructed in accordance with the contract. We instruct you
to carry out any Works necessary to remedy this.
Please provide a copy of your proposals together with a Programme for undertaking
these works.”
Instruction no 68 was dated 2 March 2016. It stated:
“Internal Floor Slabs – Fabrication and Machine buildings
These works have not been constructed in accordance with the Contract,
consequently we instruct you to carry out the necessary Works to remedy this non-
compliance.
We request that you provide your proposals, together with the programme, for these
remedial works.”
Mr Borland submitted that neither instruction had been sufficiently clear and unambiguous
to enable the defender to understand (i) the nature of the issue raised, and (ii) the particular
action demanded to remedy the issue. Reliance was placed, by analogy, upon QOGT Inc v
International Oil & Gas Technology Limited [2014] EWHC 1628 (Comm), per Popplewell J at
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paragraphs 7, 21, 96 and 109-113). The contractor was obliged to comply “forthwith” with
an instruction. That word should be given its ordinary meaning of “immediately” or
“without delay”. To be valid an instruction had to be sufficiently clear and detailed to allow
the contractor to act upon it forthwith. In the case of instruction no 67 the defender’s case
was particularly strong, because the pursuer neither averred nor relied in its Note of
Argument on any suggested context to the instruction said to have been provided by
correspondence before or after its issue. In the case of instruction no 68 the pursuer did rely
on correspondence prior to and after the date of the instruction (Mr Borland did not take any
technical pleading point is so far as correspondence was founded upon in the Note of
Argument but not in the pleadings). However, the correspondence did not assist the
pursuer. In so far as it pre-dated the instruction it was not clear that the suggested non-
compliance had been sufficiently identified in the correspondence. The later
correspondence was irrelevant. It could have no possible bearing on how the reasonable
recipient would have construed the instruction at the time of its receipt.
Counsel for the pursuer’s submissions
[8]       Mr Moynihan pointed out that the defender’s attack on the pursuer’s averments of
best practice had not been flagged up before the debate. The contention advanced in the
defender’s Supplementary Note of Argument had been that a relevant case of a duty to
warn had not been pled. In fact, notwithstanding the references to best practice in article 12
of condescendence, the pursuer did not intend to suggest that the defender had an
obligation to comply with best practice. In order to make that clear Mr Moynihan moved to
amend article 12 to remove the references to best practice and substitute references to
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normal practice. Unsurprisingly, there was no opposition to that amendment and I allowed
it.
[9]       Mr Moynihan explained that the pursuer’s primary case in articles 10 and 11 of
condescendence is that the defender was in breach of contract in respect of the design and
construction of the external floor slab. It should have been designed and constructed so as
to comply with Concrete Society Technical Report 66 (“CSTR 66”) recommendations, with a
drainage fall of 1:60 (rather than the 1:120 which the defender had used to the east of the
slab), and with a tamped or broomed finish (rather than a pan finish). However, it had been
anticipated (having regard to the way matters had proceeded in adjudications between the
parties) that the defender would argue that in using a pan finish it had merely constructed
the external floor slab in accordance with the Employer’s Requirements. The averments of a
duty to warn in articles 10 and 12 were a secondary case to meet that anticipated defence.
This was not a case where an obligation to warn required to be implied (cf Plant Construction
plc v Clive Adams Associates (No 2), supra, and the cases following it). Here the source of the
duty to warn was the defender’s express contractual obligations in clauses 2.11 to 2.13. The
pursuer had made relevant and specific averments of the existence of an inadequacy in the
design and of the defender’s failure to give the pursuer notice of it. Moreover, although it
was not essential to the relevancy of this aspect of its case, the pursuer averred that a pan
finished external surface posed a significant health and safety risk to the workforce during
winter.
[10]       So far as the instructions were concerned, Mr Moynihan submitted that QOGT Inc v
International Oil & Gas Technology Limited, supra was distinguishable. The contract in that
case had contemplated a “self-contained” notice. That was not the case here - the Contractor
was entitled to request the Employer to notify it which provision of the contract empowered
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the issue of the instruction (cl 3.8). So the instruction was not “self-contained”. While the
word “forthwith” in cl 3.5 must signify a degree of immediacy, there had to be some
latitude. That was clear from the cl 3.8 procedure, including the possibility of resort to the
contractual dispute resolution procedure (articles 7 and 8 of the Agreement and cl 9 of the
contract conditions) in the event of a dispute. In relation to instruction no 68, there was a
background to the instruction which was set out in paragraphs 9-13 of the pursuer’s Note of
Argument. When regard was had to the background correspondence it was clear that the
non-compliance was sufficiently specified. The reasonable recipient, aware of the
background, would have understood the respects in which there was said to have been non-
compliance with the contract. There were three letters which pre-dated the instruction and
two which post-dated it. There was also correspondence which assisted in understanding
the non-compliance which instruction no 67 referred to, but it was accepted that
specification of the correspondence had not been provided in the pursuer’s averments or in
its Note of Argument. If the court accepted that in each case it may be appropriate to look at
the instructions and the correspondence together, Mr Moynihan sought an opportunity to
produce the documentation relevant to instruction no 67. It had not been necessary for the
pursuer to specify any particular remedial measures in either instruction. Doing so would
have encroached upon the defender’s design responsibility under the contract.
The defender’s reply
[11]       In a brief reply Mr Borland submitted that, notwithstanding the amendment, the
averments as to a duty to warn remained irrelevant. The validity of instruction no 67 should
be decided on the basis of the pleadings and the pursuer’s Note of Argument. The pursuer
had had sufficient opportunity before the debate to produce and specify any documentation
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said to be relevant to the construction of this instruction. It was illegitimate to seek to
construe either instruction by reference to post-instruction correspondence. In terms of
clause 3.5 the obligation was an obligation to comply with the instruction - not the
instruction and any subsequent correspondence. In the absence of any suggestion that the
initial purported instructions had been varied by the later correspondence, the later
correspondence was irrelevant.
Decision and reasons
Duty to warn
[12]       The pursuer’s averments anent a duty to warn appear to me to be suitable for
inquiry. I am not satisfied that the pursuer is bound to fail to establish that the obligation
founded upon was incumbent upon the defender in terms of the contract conditions. In
those circumstances the pursuer does not need to rely upon cases such as Plant Construction
plc v Clive Adams Associates, supra, to support the existence of the disputed obligation.
However, even if it had to, I would not have been persuaded at this stage that the pursuer
would have been bound to fail on that approach. In that regard I think it significant that
although the pursuer does not say in terms that the slab as designed would present an
obvious danger in winter weather, that appears to me to be the reasonable import of the
averments in article 10 of condescendence.
[13]       I am unimpressed by the submission that this suggested breach was not sufficiently
linked to any specified loss the pursuer was said to have suffered. In my opinion, on a fair
reading of the pursuer’s pleadings, the pursuer’s case is that the failure to warn was a cause
of the loss and damage suffered in respect of the external floor slab.
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The instructions
[14]       In QOGT Inc v International Oil & Gas Technology Limited, supra, Popplewell J
observed at paragraphs 109-113:
Notice of Breach inadequate?
109 In Mannai v Eagle Star Assurance Ltd [1997] AC 749, the House of Lords
considered the efficacy of notices to determine two leases which gave the date of
termination a day too early. Lord Steyn said at p767G that:
'the approach to construction of the notices was to determine how a
reasonable recipient would have understood them; and in considering this
question the notices must be construed taking into account the relevant
objective contextual scene.
110 In this respect the process of construction is the same as that for any
contractual term. It is the ascertainment of the meaning which the document would
convey to a reasonable person having all the background knowledge which would
reasonably have been available to the parties in the situation in which they were at
the time: Investors Compensation Scheme v West Bromwich Building Society [1988] 1 WLR
896 at 912H; Chartbrook v Persimmon Homes [2009] 1 AC 1190 at [14]; Rainy Sky SA v
Kookmin Bank [2011] 1 WLR 2900 at [14].
111 In Mannai Lord Steyn went on to observe at p768F-H that:
notices under break clauses in a lease were not in a unique category; and that
all notices exercising rights reserved under a contract should be construed in
the same way: they must be sufficiently clear and unambiguous to leave a
reasonable recipient in no reasonable doubt as to the contractual right being
invoked; and as to how and when the notice is intended to operate. See also
per Lord Hoffmann at p776D; and Geys v Societe General [2013] 1 AC 523 per
Baroness Hale at [52].
112 The present case is concerned with a contractual right to give notice of
persistent or material breach, failure to remedy which gives rise to a right to
terminate the contract. Its purpose is to enable the recipient to understand what
contractual right is being relied upon, and what he is alleged to have done wrong,
with sufficient clarity that he can assess the validity of the notice and take such steps
as are open to him to remedy the alleged breach. The level of detail which is
necessary for these purposes will differ from case to case, and may be affected by the
express terms of the relevant clause. It will not generally be necessary for the notice
giver to identify the steps necessary to remedy the breach, if they can sufficiently
clearly be understood from the details given of the breach itself; but where the notice
does so, the steps identified as necessary to remedy the breach will usually help the
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recipient to understand the nature of the breach being alleged. The notice must be
interpreted as a whole.
113 Accordingly in the current context I would formulate the general principle as
being that the notice must be sufficiently clear and unambiguous to enable a
reasonable recipient (that is to say one having all the background knowledge
reasonably available to the recipient at the time of the notice) to understand the
contractual basis for the notice and the nature of the breach which is alleged to have
occurred, so as to be able to assess the validity of the notice and take such steps as are
open to him to remedy the alleged breach.”
While those observations were made in a different context, in my opinion the general
principles discussed are well established and are equally applicable to the contract
instructions in the present case. I am not convinced that they apply only to “self-contained”
notices or instructions. I turn then to the disputed instructions.
[15]       I am not persuaded that I can conclude without inquiry that the pursuer is bound to
fail to establish that instruction no 68 was a valid instruction. At this stage I cannot be
satisfied that the reasonable recipient, having all the background knowledge reasonably
available to it at the time of the instruction, would not have understood the respects in
which it was said that the slab did not comply with the contract and that the non-compliance
had to be remedied. It seems to me that the pre-instruction correspondence upon which the
pursuer founds may provide an arguable basis for maintaining that the instruction was
sufficiently clear on these matters. However, I do not think it is possible or appropriate to
reach a concluded view at debate. It seems to me that, at the very least, the documents will
have to be put in context. There may well be the need for additional background or
explanatory evidence.
[16]       I doubt whether it was incumbent upon the pursuer to specify in the instruction a
particular means of remedying the non-compliance. In the circumstances, where the
defender was a design and build contractor, it seems to me that there is a cogent argument
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that to have done so would have encroached upon the defender’s design responsibility
under the contract (cf QOGT Inc v International Oil & Gas Technology Limited, supra, per
Popplewell J at paragraph 112).
[17]       The post-instruction correspondence is relevant in so far as it was a response to the
defender’s cl 3.8 request, but it is more difficult to see how it might otherwise be relevant to
the question of the validity of the instruction. I do not understand the pursuer to maintain
that the later correspondence was a variation of the instruction, or was itself a further
instruction, or that it was the initial purported instruction taken together with the
subsequent correspondence which comprised the instruction. Nonetheless, given that
inquiry is necessary in any event in relation to this instruction, I think it preferable that the
relevance or otherwise of this correspondence is also determined following inquiry.
[18]       That brings me to instruction no 67. I understand it to be common ground that if it
stands alone, uninformed by any relevant background context, it does not enable the
defender to understand the respects in which there is said to have been non-compliance
with the defender’s obligations and the fact that that non-compliance required to be
remedied. Accordingly, the issue is whether there was a background context which
informed the instruction and would have allowed a reasonable recipient to be clear on those
matters.
[19]       In article 17 of condescendence, in response to an averment by the defender (in
answer 6.4.4) that “the pursuer sought to procure, at the defender’s expense, the removal
and replacement of the roof cladding to Bays 1, 2, 3, 4, 5 and 6 … by way of a letter from Ken
Scott of ePPS LLP dated 12 November 2015”, the pursuer refers to that letter for its full terms
beyond which no admission is made. In article 18 of condescendence the pursuer refers to
instruction no 67 and avers: “The defender sought further detail from the pursuer regarding
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this instruction by letter dated 8 March 2016. This was provided.” Apart from the
instruction itself, no correspondence from the pursuer or its agents to the defender
concerning the instruction was produced at the debate, and none was mentioned in the
pursuer’s Note of Argument.
[20]       As matters stand, the pursuer does not maintain (in its averments or in its Note of
Argument) that there was a relevant background context by virtue of which the reasonable
recipient of the instruction would have understood what the suggested non-compliance was
and that it needed to be remedied. All that the pursuer avers is that it provided further
(unspecified) details to the defender following the request of 8 March 2016. Once again, I do
not understand the pursuer to maintain that the later correspondence was a variation of the
instruction, or was itself a further instruction, or that it was the initial purported instruction
taken together with the subsequent correspondence which comprised the instruction. In
those circumstances I agree with Mr Borland that the pursuer’s averments concerning
instruction no 67 are irrelevant.
Disposal
[21]       Counsel were agreed that I should issue my Opinion and put the matter out by order
to discuss (i) an appropriate interlocutor to give effect to my decision; and (ii) further
procedure. I shall accede to that request.



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