In FES Limited v HFD Construction Group Limited [2024] CSOH 20, the Outer House considered a “short question of contractual construction” which will be of interest to those in construction industry (and potentially beyond). The question was whether a contractual notice was a condition precedent to the contractor’s entitlement to loss and expense under the SBCC Standard Building Contract with Quantities for use in Scotland (2016). That is important as failure to comply with a ‘condition precedent’ precludes the relevant relief whereas failure to comply with a lesser contractual mechanism – although a breach of contract – does not necessarily have the same consequences.

The Contract

The contract between FES Ltd and HFD Construction Group Ltd related to fitting out works for a landmark office development in central Glasgow, where FES were engaged as contractor. The contract was entered into in February 2020, and took the form of the SBCC Standard Building Contract with Quantities for use in Scotland (2016) (with bespoke amendments).

There were various delays in completing the works – including the closure of the site due to COVID – and a dispute arose regarding the contractor’s entitlement to extensions of time and loss and expense.  That was taken to adjudication where the adjudicator decided in HFD’s favour on two important issues.  Firstly, that giving contractual notice was a condition precedent to FES’ entitlement to loss and expense and, secondly, that FES had failed to provide notice. 

Unsurprisingly, FES were unhappy with the decision.  They therefore challenged it in the Court of Session.  That required the court to review the relevant loss and expense clauses and decide on the effect of the wording in bold below (our emphasis):

Clause 4.20

“If … the Contractor incurs or is likely to incur any direct loss and/or expense as a result of any deferment of giving possession of the site … or because regular progress of the Works or any part of them has been or is likely to be materially affected by any Relevant Matter, he shall, subject to clause 4.20.2 and compliance with the provisions of clause 4.21 be entitled to reimbursement of that loss and/or expense.”

Clause 4.21.1

The Contractor shall notify the Architect/Contract Administrator as soon as the likely effect of a Relevant Matter on regular progress or the likely nature and extent of any loss and/or expense arising from a deferment of possession becomes (or should have become) reasonably apparent to him.

FES’ arguments

FES presented various different arguments against the wording in bold being a condition precedent, including that:

• contractual notices are not generally conditions precedent so clear wording is needed to make them so. There was at least one other part of the contract where the words “condition precedent” has been used but that wording was not used here;
• neither clause 4.20 nor clause 4.21 expressly stated that FES would lose its entitlement to loss and expense if it failed to comply with the supposed condition precedent. That is in contrast with some other forms of contract (e.g. NEC4) where the consequences of non‑compliance are clearly spelled out;
• the wording in bold did not have to be regarded as a condition precedent. Instead it could be taken to mean that any sums recoverable in respect of a loss and expense claim could be reduced by HFD’s claim for damages due to non-compliance;
• a condition precedent produced a result which was “illogical, unreasonable and disproportionate” in removing FES’ entire entitlement. That was contrary to business common sense so could not have been the meaning intended by the parties; and
• various parts of clauses 4.21 were unclear in what was required in terms of notification and submission of information and it could not be the parties’ intention that minor non-compliance would prevent reimbursement of loss and expense.

The decision

Each of FES’ arguments were rejected by the court. 

It viewed the language used as “clear and straight-forward” in stating that the contractor’s entitlement to reimbursement was “subject to… compliance with clause 4.21”.  The court found it difficult to construe that as not creating a condition precedent and if the court was to do so (i.e. do as FES asked) it would “involve having to delete or ignore [that] critical phrase”.

The court’s view was that where the contractual wording clearly discloses the intention of the parties, “it is not for the court to second guess what it considers business common sense might have otherwise dictated”.  Indeed, where the contract was sophisticated and complex and had been prepared with the assistance of skilled professionals – as was the case here – there was less scope for contextual/purposive interpretation.

In any event, the court considered that clause 4.21 had the intelligible purpose of promoting timely and well administered contract administration and that, while the consequence of non-compliance instance was the loss of an entitlement to loss and expense, the clause did not of itself create “an unduly onerous” obligation on the contractor.

Implications

This decision provides clear and important guidance to the UK construction industry on these clauses (which are mirrored across various different SBCC Contract forms, including the Design and Build Contract for use in Scotland (2016)) and confirms what most advisers considered to be the case: contractors must comply with each of the obligations within clause 4.21 to ensure legitimate claims for loss and expense are not lost. 

As always, the judgment will however require to be applied to the particular facts and circumstances of a given dispute. For example, it remains the case that bespoke amendments to the standard form of building contract and principles such as personal bar and/or waiver may provide grounds for contractors to avoid the implications of clauses 4.20 and 4.21. We can expect then that compliance with the requirements of clause 4.21 will continue to be a breeding ground for many disputes.

This article was originally published on the BTO website.