Cases - City Inn Ltd v Shepherd Construction Ltd [2003]

Record details

Name

City Inn Ltd v Shepherd Construction Ltd

Date

[2003]

Citation

ScotCS 146 (20 May 2003)

Keywords

Construction contracts – extension of time – delay – liquidated damages - failure to provide notices of delaying event – whether failure to provide notice of delaying event constitutes breach of contract

Summary

In this case, the contract contained a provision requiring the contractor (Shepherd Construction Ltd) to undertake certain formalities (including the provision of notices) if it formed the opinion that a delaying event had arisen. These formalities were contained in clause 13.8.1 of the contract.

Clause 13.8.5 of the contract provided as follows:

'If the Contractor fails to comply with any one or more of the provisions of Clause 13.8.1, where the Architect has not dispensed with such compliance under Clause 13.8.4, the Contractor shall not be entitled to any extension of time under Clause 25.3.'

A delaying event occurred, but Shepherd Construction failed to issue the necessary notices. Despite this failure, and the above clause, the architect awarded an extension of time of four weeks. This award was followed by an adjudication, in which the adjudicator allowed a further extension of time of five weeks.

This action was brought by City Inn to reverse the above decisions and to claim its entitlement to liquidated damages.

City Inn was successful both in the court of first instance (Outer House of the Court of Session) and in the Court of Appeal (Inner House of the Court of Session). The arguments of Shepherd Construction were that firstly, clause 13.8.5 was a penalty clause, and secondly, clause 13.8.1 required Shepherd Construction to provide notices when they formed the opinion that a delay would result. As they had not formed such an opinion at the relevant time, they were not in breach of the clause.

The courts found that failure to comply with clause 13.8.1 was not a breach of contract - it was an option which the contractor could choose to implement. The consequences of not implementing the procedure did not amount to liquidated damages and therefore were not subject to the test of penalties. The court also found that the interpretation of the clause as a whole required the contractor to apply its mind to the consequences of an instruction. It was not sufficient for the contractor to aver that it had not actually formed the opinion contemplated by the provision.