In the recent case of FES Ltd v HFD Construction Group Ltd [2024] CSOH 20 the Scottish courts have held that the notice requirement under clause 4.21 is a condition precedent to claiming loss and expense under the SBCC Standard Building Contract with Quantities for use in Scotland, 2016 Edition (SBC/Q/Scot 2016).

Summary

FES (pursuer) was a building contractor engaged to perform fit out works to an office building in Glasgow. During the works, FES encountered various delays, including the closure of the site during COVID. A dispute arose around FES’s entitlement to its claim for extension of time and associated loss and expense. FES referred the dispute to adjudication, including the question whether notification per clause 4.21 was a condition precedent for the recovery of loss and expense under clause 4.20. Clause 4.20.1 states: “If in the execution of this Contract the Contractor incurs or is likely to incur any direct loss and/or expense … he shall, subject to … compliance with the provisions of clause 4.21 be entitled to reimbursement of that loss and/or expense.” Clause 4.21 requires the Contractor notify as soon as is reasonable and include an initial assessment of its loss and/or expense.

The adjudicator found in the affirmative. Consequently, FES sought a declarator from the courts that the notice provisions in SBC/Q/Scot 2016 were not conditions precedent to its entitlement to loss and expense. Lord Richardson ultimately held that the notice requirement under the contract was a condition precedent. In an unfortunate double blow to FES, the version of SBC/Q/Scot 2016 entered into with HFD had been amended to remove FES’s common law entitlement to claim damages for matters which fell within the remit of clause 4.20.

Judgement

Lord Richardson’s judgement is based on a natural reading of the contract’s terms. He states that “the language used in clause 4.20.1 is clear and straight-forward”, that the use of “subject to… compliance with clause 4.21” can only be interpreted as a condition precedent.

FES’s argument that the contract did not spell out the consequence of non-compliance was rejected by Lord Richardson as it was clear from the wording of the clause that “…without such compliance, the contractor is not entitled to reimbursement”. Nor did Lord Richardson consider that the “obligation to comply…[was]…an unduly onerous one” in response to FES’s arguments on disproportionality.

Of interest in the case was a point raised by FES in respect of an article by Suzanne Reeves, a member of the JCT drafting committee. Her article comments on the JCT standard building contract 2016, the English basis to the SBC/Q/Scot 2016. In it she states,

“JCT has not adopted the approach of some bespoke amendments whereby notification by the Contractor … is a Condition Precedent to entitlement to loss and expense…”

Lord Richardson was not persuaded. It will be interesting to see how the English courts react to this decision.

Impact

From a Scottish perspective, the decision that the notice requirement under clause 4.21 is a Condition Precedent to claiming loss and expense under SBC/Q/Scot 2016 is a warning, in the first instance, to contractors that not complying with these provisions will prove fatal to their claim under the contract. Further, it is also a cautionary tale on acceptance of amendments that rob the contractor of alternative routes of recourse.

This article was first published in Construction Law on 2 May 2024.