Scottish Court of Session Decisions

 

OUTER HOUSE, COURT OF SESSION
	[2013] CSOH 173
CA68/12	OPINION OF LORD TYRE   in the cause   THE ROYAL BANK OF SCOTLAND PLC Pursuer;   against   HALCROW WATERMAN LIMITED Defender:   ________________

 

Pursuer: Young QC, Richardson; Dundas & Wilson LLP

Defender: Weir QC, Broome; CMS Cameron McKenna Scotland LLP

 

8 November 2013

 

Introduction

[1] The defender was appointed by a developer, Lysander Developments (Scotland) Limited ("Lysander"), in terms of an agreement ("the Appointment") dated 4 and 16 September 1998, to provide structural engineering services in respect of the demolition and partial façade retention of a property at 24-25 St Andrew Square, Edinburgh, and the erection and construction of a new building ("the building") comprising seven floors tied to the original listed façade. The building, which is known as the Gemini Building, was constructed pursuant to a contract between Lysander and a contractor, Lilley Construction Limited ("Lilley"), dated 2 and 30 October 1998 with a supplemental agreement dated 9 and 14 March 2000. The Appointment was novated in terms of a novation agreement dated 4 and 16 September 1998 to the effect that Lilley was substituted for Lysander. At the times when the building contract and supplemental agreement were entered into, the tenant of the property was SBCI Investment Banking Limited ("SBCI"). SBCI's interest as tenant was assigned to the pursuer on 9 March 2001. The pursuer's obligations as tenant include an obligation to repair, maintain, renew and, in the event of destruction, damage or deterioration (irrespective of the cause), to rebuild, reinstate and replace the building or such part thereof as may have suffered such destruction, damage or deterioration. The development was certified as practically complete on 5 July 2000 and the building was then fitted out for occupation by members of the pursuer's staff. Occupation took place during the second half of 2001.

[2] By a collateral warranty agreement dated 16 March and 18 December 2000 between the defender and SBCI, the defender warranted that in the performance of its services to the developer, it had exercised and continued to exercise the reasonable skill, care and diligence to be expected of a suitably qualified and competent structural engineer experienced in projects of a similar size, scope and complexity to this development. The warranty agreement permitted assignation of the benefit of the warranty, and it was in due course assigned by SBCI to the pursuer by an assignation dated 13 and 14 March 2001.

[3] The structural frame of the building comprises reinforced concrete floor slabs supported by reinforced concrete columns. Some time after occupation of the building by the pursuer, structural difficulties emerged regarding the floor slabs. Investigations carried out between 2006 and 2008 indicated that slabs at all levels of the building had deflected significantly during construction and fit-out, and that movement was continuing. In this action the pursuer avers that the defects in the slabs were caused or materially contributed to by faults in design for which the defenders are responsible, namely (i) insufficient thickness of the slabs in relation to the spans of the slabs between the column supports; and (ii) incorrect area and configuration of steel reinforcement within the floor slabs. The defender avers that the excessive deflection in the slabs occurred as a result of a combination of factors all of which were the fault of Lilley or one of its sub-contractors, namely (i) use of concrete of a lower than specified strength; (ii) early removal of floor propping during construction; (iii) use of GGBS (ground granular blast furnace slag) in the concrete mix; and (iv) incorrect placement of reinforcement. The present action was raised on 28 September 2010. The pursuer sues for the cost of extensive remedial works to the building, the cost of decanting staff and equipment while these works were carried out, other associated costs, and loss due to disruption of business.

[4] The matter came before me for a preliminary proof on the issue of whether the pursuer's claim had prescribed prior to the raising of these proceedings. The defender's contention that any claim has prescribed arises out of the fact that in 2003 the pursuer instructed the inspection of the building by a structural engineer who reported, among other things, the presence of cracks in the soffit (underside) of the ground floor slab. It is averred by the defender that the pursuer could with reasonable diligence have become aware more than five years before the raising of the present action that the building suffered from the defects of which it now complains. The pursuer avers that it was not at that time aware, and could not with reasonable diligence have been aware, that either further investigations or remedial works required to be carried out. At the preliminary proof I heard evidence from 12 witnesses who had been concerned either with the investigations carried out in 2003 or with the subsequent process which led to remedial works being carried out. I also heard evidence from expert witnesses called by the pursuer and defender respectively, namely Mr Brian Veitch, chartered civil and structural engineer, who is a director of Ove Arup and Partners Limited and Ove Arup and Partners Scotland Limited, and Mr Duncan McDougall, FICE and FIStructE, who is a consulting engineer with Wren & Bell.

[5] At the hearing the parties also debated an unrelated issue concerning the proper interpretation of a "net contribution" clause in the collateral warranty granted by the defender to SBCI and assigned to the pursuer. I deal with that issue at paragraph 37 below.

 

The 2003 inspection

[6] In the course of 2003, reports were made to the pursuer by members of its staff of various problems emerging with regard to the building. Mr Morris Schumacher was employed by the pursuer as assistant facilities manager with responsibility for maintenance and repair issues which arose in connection with inter alia this building; he retained that responsibility until about 2005. By the time of the proof in this action, Mr Schumacher had very little direct recollection of events which occurred in 2003. He did recall that one contact came from an employee who worked in an office outside the Comms Room on the lower ground floor and who was concerned about cracks in the partition wall separating her office area from the Comms Room. The pursuer operated a Helpdesk to which staff could report issues affecting its buildings. An operator would receive the call and assign the appropriate contractor to the job. Mr Schumacher and the pursuer's other facilities managers would receive monthly reports. The Helpdesk records include an entry dated 12 August 2003 which reads "Repair doors leading into Comms Rooms on lower ground and 1^st floor - they are both sticking". Because the building was so new, Mr Schumacher was keen that any cost associated with investigation of these matters and necessary repairs should come out of the pursuer's budget for fit-out rather than that for maintenance. He thought he would have reported the complaints to Mr Andrew Allan who was his line manager in facilities management and to Neil Grassie, a manager in the Projects team which had been responsible for the fit-out. Mr Allan's evidence, however, was that he had no recollection of complaints about the building at that time and that he did not know in 2003 that the building had been investigated by a structural engineer.

[7] Mr Schumacher and his team were sufficiently concerned by reports received of sticking doors, damaged partitions and distorted cable trays at lower ground floor level to decide to instruct an engineer to investigate. The pursuer's preferred structural engineers at that time were W A Fairhurst and Partners ("Fairhurst"), and on about 9 September 2003, a call was made by the pursuer to Fairhurst and passed to Mr Gordon Hay, a structural engineering technician based at Fairhurst's Edinburgh office, to deal with. Mr Hay's recollection of events in 2003 was clearer than that of Mr Schumacher, and I found him to be a credible and reliable witness. He was asked to inspect damage to the walls of the lower ground floor of the building. The job was classified in Fairhurst's internal records as a "short term project", meaning that it was expected to take less than five full days' work in total. Mr Hay visited the building on the morning of 10 September 2003 and was directed by Mr David Adams, who was then on secondment to the pursuer's facilities management team and reporting to Mr Schumacher, to those areas of the building where problems had been reported. Mr Hay recalled inspecting the Comms Room on the lower ground floor and walking around the ground floor, lower ground floor and basement. He did not inspect the other floors. With the exception of the Comms Room, the building had raised floors and suspended ceilings and Mr Hay was not able directly to inspect the top or underside of concrete floor slabs. Mr Hay took notes during his visit and also took photographs either during this visit or during his second visit on 9 October 2003, discussed below. His notes and photographs were available at the proof. In the course of his first visit he observed the presence of large filing cabinets on the ground floor.

[8] After his inspection, Mr Hay reported his findings to the pursuer in a letter sent on the same day (10 September 2003) for the attention of Mr Schumacher. It is necessary to quote that letter in full:

"Following a request by Mr D Adams we visited the above premises on the 10^th September to view damage to the walls situated within the computer suite at lower ground floor level. We list our observations as follows:

 

(1)   Damage has affected the three door openings located within the non loadbearing partitions on the north, south and west elevations of the room. Both the door openings and the plasterboard linings are distorted.

 

(2)   A pattern of longitudinal hairline cracks, at approx. 150 to 200 crs, was recorded on the soffit of the suspended concrete ground floor slab. The cracks run from north to south of the building.

 

(3)   Within the car park, at basement level, no obvious signs of cracking to the soffit of the lower ground slab was [sic] noted.

 

(4)   Within the ground floor office accommodation some vertical tearing of the joints between the main structural columns and the adjacent non loadbearing partitions was recorded. The presence of computer flooring and a suspended ceiling system did not allow further inspection of the main structure of the building.

 

From our limited visual inspection of the damage, to the lower ground floor walls, it would appear that some vertical deflection of the ground floor slab has taken place. This movement has induced load into the metal stud partitions causing them to buckle and crack. The damage has occurred at the position where the partitions are weakest i.e. at the door openings.

 

We do not deem the damage to the partitions to be a significant structural defect at this time. It is possible that the partitions have been built tightly between the lower ground and ground floor slabs with no accommodation for any vertical movement. The cracks to the underside of the ground floor slab do however give us concern and it may be necessary to inspect them more fully and/or monitor them over a period of time. We understand that David Adams may be able to furnish drawings of the premises to allow us to review the structural grid, general floor construction details and report more fully on the situation.

 

We hope that you find the above information suitable for your use at this time, in the meantime we await receipt of the above mentioned drawings..."

 

Mr Hay emailed a copy of his letter to his own project leader with the comment that there was likely to be further input to assess further action as required.

[9] In his evidence to the court Mr Hay recalled that the cracks in the underside of the ground floor slab were hairline. He did not see anything at this stage to suggest that there was a problem with the slab itself. He did not observe deflection as such but inferred it from the crushed partitions and the cracks in the soffit of the slab. It was not clear at this stage whether the deflection was "undue", i.e. noticeable deflection with significant associated cracking of concrete. Undue vertical deflection of a floor slab was not necessarily a sign of a design problem. In any event, he did not expect that in a new building there would be anything wrong with the slab, even after finding cracks in the underside.

[10] On 16 September 2003, Mr Hay received a set of floor plan drawings from the pursuer. These were not structural drawings as Mr Hay had requested but they did enable him to identify the locations of the vertical columns supporting the floor slabs. On 19 September, Mr Hay wrote to the pursuer (for the attention of Mr Schumacher/Mr Adams) confirming receipt of the floor plan drawings and indicating that he had reviewed them "with a view to determining the layout of the main structural elements in relation to the damage which has occurred at lower ground floor level". Mr Hay suggested a meeting to discuss his approach to the problem followed by a further inspection. He indicated that during the inspection it would be useful to have someone available who could supply a ladder and remove ceiling tiles where necessary. His purpose in making this request was to investigate the underside of the first floor slab, which had a suspended ceiling, to see whether it had cracks similar to those he had noted on the soffit of the ground floor slab. Mr Hay also observed: "Any information you may have on the design floor loadings would also be useful at this time". This last request arose out of a thought Mr Hay had had that the cause of the damage to the partitions on the lower ground floor might be that the cabinets on the ground floor were too heavy for the floor slab's design loading.

[11] A second inspection by Mr Hay was then arranged to take place on 7 October 2003. The pursuer's Helpdesk log for 6 October 2003 records the following request:

"Please can engineer attend tomorrow 07/10/03 to take ceiling tiles down so as structural engineer can take a look. Located on a variety of floors. Please contact David Adams at 36 St Andrew Square for exact location of work."

 

In preparation for his visit, Mr Hay made some notes as an aide memoire to himself. As regards the lower ground floor, Mr Hay's notes were:

• "Inspect soffit of ground floor slab for cracks outwith computer area.
• Check actual deflection is noticeable. "

 

Mr Hay duly attended the building at around 5 pm and had access to the first floor, ground floor and lower ground floor. He was accompanied by Ray Young, an employee of Johnson Controls who were at that time the pursuer's maintenance contractors. In the course of his visit Mr Hay annotated his aide memoire. Beside the first of his bullet points for the lower ground floor he wrote "More cracks 0.4 - 0.5" and "None" (i.e. no cracks outwith computer area). Beside the second bullet point (i.e. whether deflection was noticeable) he wrote "No".

[12] As before, Mr Hay followed up his visit with a report to the pursuer in the form of a letter dated 9 October 2003, marked for the attention of Mr M Schumacher/Mr D Adams. Again it is necessary to quote the letter at some length though not in its entirety:

"...2.0 Ground Floor Level

 

Ceiling tiles were removed from the underside of the first floor slab within the room immediately above the computer area. Although a significant number of services were present, within the ceiling void, it was possible to inspect some of the concrete surfaces - no significant cracking, other than normal shrinkage type cracking, was noted.

 

Observation of the general office showed large banks of storage units positioned against the dividing walls.

 

3.0 Lower Ground Floor - Computer Area

 

Further close inspection of the cracks within the soffit of the ground floor slab showed them to be in the region of 0.4mm wide which is in excess of what would be expected for this type of structure. Most of the discernible cracking is contained within a 4m wide longitudinal strip which runs North to South and parallel to the entrance corridor wall. Additional cracks were noted in the soffit of the slab at the south east corner of the room and adjacent to the exit door on the north wall.

 

Ceiling tiles were removed in the offices surrounding the computer room and the soffit of the concrete inspected where services allowed. Some cracking was recorded however it was not considered to be significant.

 

4.0 Conclusions

 

All the non loadbearing partitions forming the perimeter walls of the computer room are showing signs of distress. The main damage has occurred at the three door positions however cracking and distortions are also noticeable close to the tops of the walls on the other elevations.

 

It would appear that the ground floor slab has deflected transferring load to the lower ground floor partitions. It is likely that the partitions have been constructed with limited allowance for vertical movement of the slab therefore have buckled under the applied load. The damage to the partitions although unsightly is non structural.

 

We are of the opinion that the deflections of the ground floor slab are directly related to the loadings imposed by the banks of storage units located at ground floor level. It is likely that the units are causing a localised overstress within the slab. The attached marked up floor plan shows the relationship between the storage units and the damaged partitions. It should also be noted that the storage units are positioned mid way between the columns where the loading will have the most adverse affect on the slab deflections.

 

5.0 Recommendations

 

Obtain information as to the weights of the ground floor storage units and compare them with the design loading for the floor structure. The design loadings should be available from the Health and Safety file or the original Designers.

 

Carry out a review of the loadings and agree a strategy to reduce the local intensity of loading or allow the loads to be distributed over a larger area of the ground floor slab. Inspection of the first floor slab has shown that it is performing satisfactorily where the loading is dispersed over a larger area.

 

Once the loading has been redistributed the cracks in the underside of the ground floor slab should close up slightly and become less noticeable. We cannot predict whether the slab will recover completely, however we do not consider that the deflections and cracking will have permanently damaged the slab. Once the loads have been dealt with the non loadbearing partitions can be rebuilt in a way which will allow them to cater for the vertical deflections.

 

We hope that this brief report has provided sufficient information for your use at this time. Once you have been able to obtain the necessary loading information we would be available to carry out a review of the loading intensities."

 

In an update to his project leader on 13 October, Mr Hay noted that "...The damage to the non-loadbearing partitions and the cracking on the underside of the ground floor slab appears to be due to a local overloading caused by their storage units. The ball is therefore back in the Bank's court. I await further instruction from them."

[13] In his evidence to the court, Mr Hay described himself as more rather than less reassured after his second inspection that there was no major structural problem with the building. He saw nothing which gave him real concern regarding the integrity of the structure. In cross-examination he agreed that cracks of 0.4 to 0.5 mm constituted a significant structural defect and could not be described as hairline. However, only one or two cracks were 0.4 to 0.5 mm in width; any others he saw were hairline. His inspection of areas of the soffit of the ground floor slab outwith the computer room by removing ceiling tiles was hampered by the presence of cabling and other services in the ceiling void.

[14] Having sent the letter of 9 October 2003, Mr Hay expected the pursuer to revert to him with the loading information he had requested, so that he could carry out the desired comparison between the weights of the ground floor cabinets and the floor slab design loading. Alternatively, the pursuer might have proceeded to redistribute the cabinets on the ground floor without further input from him. He thought he recalled receiving a telephone call during November 2003 from someone at the Bank telling him what the cabinets might weigh on average. He received no further information regarding the weight of the cabinets; nor, despite two telephone reminders from him, did the pursuer provide him with structural drawings or any other information from which to ascertain or calculate the design loading. Nevertheless Mr Hay did proceed to carry out a calculation, using 425 kg as the assumed weight per cabinet unit. Using the floor plan showing the location of the cabinets, he was able to calculate an average loading intensity per square metre. In the absence of any design loading information from the pursuer, he assumed (correctly) that this was a standard building with a design loading of 4+1 kN/m² for imposed loads. The results allayed his concerns regarding overloading. In a 4+1 kN/m² building, loads should not exceed 400kg/m². The figures which Mr Hay calculated for the ground floor ranged between 370 kg/m² in one area to 515 kg/m² in another, but where there were localised areas of average loading in excess of 400kg/m², these were surrounded by areas where the loading was much lower.

[14] The conclusion that Mr Hay drew from these calculations was that the damage to the lower ground floor partitions and the cracks in the soffit of the ground floor slab were not, after all, caused by overloading but by normal, acceptable deflections of the slab. His view was that the pursuer did not need to redistribute the cabinets nor undertake any further investigations regarding the slabs. All that was required was to repair the damaged partitions and to include an allowance for further normal deflection. He did not, however, report his conclusion to the pursuer. Mr Hay thought that the reason for this might have been that he was waiting to receive the structural drawings with design loadings before putting his final findings to the pursuer. Without this confirmation he was not entirely confident that his advice about the absence of overloading would be accurate. Having chased the pursuer unsuccessfully for the drawings, Mr Hay did not give much further thought to the building; he was engaged in other work.

[15] For its part, the pursuer did not actively pursue Mr Hay's recommendations. Mr Schumacher thought that he would have read Mr Hay's report dated 9 October 2003 and would have concluded that there was nothing significant to worry about and that the damage to the partitions could be addressed by moving the ground floor cabinets. In cross-examination he agreed that the Bank's objective would have been to get to the bottom of what had been causing the cracks in the slab and, if the strategy recommended by Mr Hay had been implemented, to satisfy itself that the cracks had closed up, but he could not remember what, if anything, happened after Mr Hay's report was received. He recalled that the ground floor cabinets were moved at some time, but he could not remember whether this had been done to implement Mr Hay's recommendation or for some other reason. It was put to Mr Schumacher that two ground floor plans dated June 2001 and July 2004 respectively demonstrated (if the plans accurately depicted the layout of the ground floor as at those dates) that some cabinets were moved between those dates. The result had been to decrease the load in some areas of the floor but to increase it in others, with the increases occurring in areas where Mr Hay had calculated loadings in excess of 400 kg/m². On the basis of these plans Mr Schumacher agreed that it did not look as if the cabinets had been moved to implement Mr Hay's strategy; he could not, in any event, recall being involved in implementing any load reduction strategy. The other addressee of Mr Hay's letter, Mr Adams, was on holiday abroad at the time of its receipt. He did not remember what, if anything, was done by the pursuer as a follow-up to it. He was not involved in looking for information regarding cabinet weights. Mr Allan left his role as facilities manager for central Edinburgh in the latter half of 2003 and thereafter Mr Schumacher's line manager was Mr Kevin Miller, whose job title was customer operations manager ("customer" in this context meaning a department within the pursuer). Mr Miller did not recall being made aware of any significant issue with the building during the period of Mr Schumacher's responsibility for it.

[16] Mr Hay had no further involvement with the building. In due course two invoices were issued by Fairhurst to the pursuer; these were not prepared by Mr Hay. The first was dated 21 November 2003 and bore to be for "Structural inspection of damaged walls and reporting". The second, described as a final invoice, was dated 28 April 2004 and bore to be for "Structural inspection of damaged walls and reporting (including additional involvement in November 03 not included in Invoice No. 01)".

[17] In his witness statement Mr Hay addressed the question of what he would expect to have happened if his conclusion that overloading was not the cause of the cracking in the soffit of the ground floor slab had been communicated to the pursuer. His response was necessarily conjectural. Options could have been reassessed. If the partitions had been rebuilt with a gap suitable to accommodate normal deflection and there had then been further damage to partitions or cracking to the underside of the slab, he would have concluded that tight partitions were not the only issue. It would have been reasonable to carry out further investigations to try to identify the cause of the problem. This would have required detailed examination of the construction detail and stripping back parts of the fit-out. It might then have occurred to him that structural design might be at fault, but a further significant period of monitoring and investigation, including level surveys, would have been required. In cross-examination, Mr Hay stated repeatedly that he was not concerned by the cracks in the underside of the slab. He had not seen any major problems elsewhere in the building, and was not raising any alarm with the pursuer. He did, however, accept that he had not reached a concluded view because he was waiting for definitive information regarding design loadings and cabinet weights. When taken through a sequence of events that Mr McDougall would have expected to occur, Mr Hay agreed that recommending a more detailed survey of the ground floor slab was an option that he might have considered; that it was possible (i) that this would have confirmed the excessive deflection of the slab; (ii) that Fairhurst would then have arranged for similar surveys of other floor slabs; and (iii) that if these surveys confirmed excessive deflections to the other floor slabs, Fairhurst would have concluded that there was a serious structural problem with the building. He accepted that it was possible that if the cabinets had been moved but the cracks had not closed to any extent, it would be necessary to go back and look at the causes again, which would entail examination of the structural drawings.

 

Events after 2003

[18] The pursuer's Helpdesk records include occasional reports in 2004 and 2006 of doors to the Comms Room requiring adjustment, and a report in 2006 of a lower ground floor door needing re-hung.

[19] At the material time the pursuer operated a Cyclical Asset Investment (CAI) Programme, in terms of which an external consultant would undertake condition surveys of the pursuer's buildings every five years. The surveys consisted of visits to properties by the external consultants who would carry out a non-intrusive inspection of all areas. In April and May 2004, a condition survey of the Gemini Building was carried out by EC Harris, Surveyors, who were at that time the pursuer's external consultants. This was the first such survey of the building since its reconstruction. It was not a structural survey but was intended to identify repair and maintenance works which required, more or less urgently, to be carried out to the building. It included a one year action plan and a five year action plan. The report by EC Harris contained the observation "The property has recently been fully refurbished with a large new extension being built to the rear and therefore is in very good condition throughout". Only one item appeared in the list recommended for action within one year in relation to the lower ground floor, namely a requirement to patch the plaster of the Comms Room wall at various locations, provisionally costed at £248.00 and scheduled for 2006. No work was recommended with regard to the soffit of the floor slab.

[20] In accordance with normal practice, the EC Harris report would have been reviewed and pruned by the pursuer's facilities managers and technical services managers before being passed eventually to Faithful & Gould, the pursuer's project managers. Their task was to inspect the building and then, after further consultation with the CAI team at the Bank, to arrange for a finalised list of work items to be priced by contractors. The inspection by Faithful & Gould did not take place until 27 October 2006 when it was carried out by Mr Colin Moodie. In the course of his inspection, Mr Moodie noted three items, including damage to the Comms Room walls and joinery, where the problems that he noted on site struck him as more serious than he had expected on the basis of the description in the list provided to him. (The other two items were the central chimney stack and the main stairwell.) The extent of the plaster cracking at these locations caused him concern that there might be major movement in the building. He also noted buckled plant in the basement which had not been mentioned in the list. Mr Moodie submitted his CAI Programme 2007 report on the building to the pursuer's contract and programme manager, Mr Alan Durward, on 27 October 2006. In a brief executive summary, Mr Moodie drew attention to his concerns by observing "The building would benefit from further investigation into the cracks and movement throughout the premises and appropriate repairs made to these areas". Mr Moodie regarded the cracking in the chimney stack and stairwell as more concerning than the damage to the partitions and joinery in the Comms Room. He made no mention of cracking in the soffit of the ground floor slab.

[21] Mr Moodie's report was the first indication that Mr Durward had had that there could be a problem with the building. He instructed Mr Moodie to appoint Fairhurst to carry out a structural survey. At this time Mr Durward was unaware of Fairhurst's previous involvement in 2003. By email dated 30 November, Mr Moodie duly instructed Fairhurst's Mr Gary Dosser to carry out a structural survey, observing that there were "cracks from the basement up both the main staircase and rear fire escape staircase up to the top of the central chimney stack due to settlement. Some of the plant in the basement is bending due to the movement."

[22] Mr Dosser inspected the building on 4 December 2006. He was provided - apparently without difficulty - with the defender's structural drawings for the building and, having subsequently become aware of Fairhurst's earlier involvement, retrieved the 2003 file and spoke to Mr Hay. Mr Dosser was concerned that creep was a continuing issue in the building as the damage around the Comms Room had increased since Mr Hay photographed it in 2003. In a report dated 29 January 2007, he recommended a programme of monitoring which included visual inspections and the installation of tell-tales in the stairwell and basement. As regards the jamming of doors and the damage to the wall finishes in the lower ground floor, he repeated the conclusions and recommendations of Mr Hay's report, i.e. that the loadings imposed by the units on the ground floor be reviewed and that they be distributed over a larger area. The monitoring recommended by Mr Dosser took place between August and December 2007. Fairhurst also carried out a level survey, i.e. measuring spot levels on the underside of floor slabs with an inverted staff. On 25 February 2008, Mr Dosser reported to the pursuer that it was apparent from the monitoring that movement in the floor slabs was continuing, and that this was the explanation for the damage to the non-load bearing partitions, the sticking of doors to the Comms Room and the deformation of a cable tray in the basement. The level survey suggested that there was a deflection of the ground floor slab varying from nil to 6 mm, with an estimated average deflection of 2 mm. Mr Dosser advised that an assessment had been carried out of the design of the concrete slab, limited to one area of the lower ground floor, and that this indicated that the existing arrangement of reinforcement appeared to be inadequate to carry the design loads without unacceptable levels of deflection and creep. He suggested that the problem might have been exacerbated by the positioning of heavy storage cabinets at ground floor level. Mr Dosser recommended inter alia (i) a more detailed assessment of the concrete floor slabs at all levels; (ii) alteration of the non-load bearing walls to include a deflection head detail; and (iii) review of the location of the storage cabinets with a view to relocating them or reducing the load intensity.

[23] After February 2008, Fairhurst continued to monitor the building for movement, now under the direction of Mr Alastair Nimmo, one of their technical directors. Mr Nimmo reported to the pursuer in September 2008. Among the observations contained in this report was that inverted staff readings on the underside of the ground floor slab showed level differences of up to 80 mm, which was significantly more than would be expected and very much in excess of the tolerances allowed in current British standards. Mr Nimmo's structural appraisal concluded inter alia:

·   that the thickness of the slab was not sufficient for the column supports on the grid constructed;

·   that the reinforcement in the slab was not configured as he would have expected it to be.

His opinion was that there was a continuing problem with deflection of the ground floor slab, which was not normal. Small ongoing movement was taking place which was not a result of overloading but was inherent in the building configuration. Fairhurst then proceeded to investigate whether the deformations identified at lower ground floor level were present at upper levels of the building. The conclusion drawn from a survey of the undersides of floor slabs was that slabs at all levels were showing deflections of similar magnitude to those measured at lower ground floor level. The pursuer then turned its attention to the scope and cost of remedial works.

 

Expert evidence
[24] Mr Veitch and Mr McDougall produced supplementary reports addressing, in particular, the question of how long, following the events of October 2003, it would reasonably have taken the pursuer to discover that there were defects in the building caused by act, neglect or default. I approach both of these reports with circumspection. Mr Veitch expressed opinions on certain matters such as what the pursuer should or should not have concluded following Mr Hay's investigations which appear to me to be questions for the court and not for an expert witness. Mr McDougall based his opinion on a sequence of events which he would have expected to occur with regard to what a reasonably competent consulting engineer would have done having concluded that the loading caused by the weight of the first floor cabinets was probably not in excess of the design loading. For reasons discussed below, that does not seem to me to be the correct approach in principle. On the whole, I found the views expressed by Mr Veitch and Mr McDougall as to what ought to have happened in 2003 to be of limited assistance. There were, however, other aspects of their written and oral evidence that I have found to be of greater value in setting the factual background against which to assess the pursuer's actings in and after October 2003.

[25] It is, as I understand it, common ground between the experts that most of the excessive deflection of the floor slabs in the building occurred at the time of construction and fit-out of the building, although they differ as to whose fault this was. I also understand it to be common ground that the reason why extensive remedial works were needed (although again there is disagreement as to what remedial works were needed) was because of (i) the magnitude of the deflection that had occurred during construction and fit-out; and (ii) the fact that by 2010, "creep" deflection was still continuing to a measurable although much smaller degree. Using measurements carried out prior to the remedial works, Mr Veitch calculated the total deflection during construction to have been 52.7 mm and the creep thereafter to have been 32.5 mm, with a further deflection of 4.8 mm at initial fit-out. Applying published European guidance on the development of creep deflection over time, Mr Veitch calculated that the total creep during the period between 4 and 10 years after removal of formwork was 2.3 mm, representing an average increase in deflection of 0.3 mm per year over the seven-year period between 2003 and 2010. Mr McDougall's report proceeded on the basis of surveys indicating deflection of the order of 102 mm between the date of construction of concrete floors in mid-1999 and December 2010, and of the order of 33 mm between the date of construction of raised floors and suspended ceilings in early 2000 and December 2010. He did not consider that it was possible to tell when the latter 33 mm of deflection had occurred. I did not understand him expressly to assent to Mr Veitch's figure of 0.3 mm per year between 2003 and 2010, but he accepted that he had no reason to dispute it and in examination in chief he expressed the view that a detailed survey of the ground floor slab in about 2004 would have produced very similar results to those in 2008 because deflection between 2003 and 2007, although progressive, was not significant in relation to the overall deflection. (I should note that a line taken in cross-examination of Mr Veitch that Mr Dosser's report dated 25 February 2008 disclosed deflection of 6 mm during the preceding four months appears to me to have proceeded upon a misinterpretation of that report, in that Mr Dosser's 6 mm measurement refers to level survey results and not measurement of additional movement.)

 

The legal test

[26] Section 11(1) and (3) of the Prescription and Limitation (Scotland) Act 1973 provide as follows:

"(1) Subject to subsections (2) and (3) below; any obligation (whether arising from any enactment, or from any rule of law or from, or by reason of any breach of, a contract or promise) to make reparation for loss, injury or damage caused by an act, neglect or default shall be regarded for the purposes of section 6 of this Act as having become enforceable on the date when the loss, injury or damage occurred.

 

...

 

(3) In relation to a case where on the date referred to in subsection (1) above (or, as the case may be, that subsection as modified by subsection (2) above) the creditor was not aware, and could not with reasonable diligence have been aware, that loss, injury or damage caused as aforesaid had occurred, the said subsection (1) shall have effect as if for the reference therein to that date there were substituted a reference to the date when the creditor first became, or could with reasonable diligence have become, so aware."

 

The defender submitted that on the basis of the pursuer's averments, loss, injury and damage was sustained by the pursuer when physical damage first occurred, which was by 2003 at the latest. The act, neglect or default complained of must, on the pursuer's analysis, have taken place at the time of the defender's design work, which was before practical completion in 2000. It was not contended by the defender that the pursuer had actual awareness, more than five years before the raising of this action in 2010, that it had sustained loss, injury or damage caused by an act, neglect or default. It was, however, submitted that the action had been raised more than five years after the date when the pursuer could with reasonable diligence have been aware that loss, injury or damage caused by an act, neglect or default had occurred.

[27] The parties were largely in agreement regarding the approach which the court should take in the application of section 11(3) to the facts of the present case. It was not in dispute that the onus of proof that the claim was protected from prescription by section 11(3) rested upon the pursuer; reference was made to Pelagic Freezing Ltd v Lovie Construction Ltd [2010] CSOH 145 (Lord Menzies at paras 86-96). It was also common ground that the lack of awareness that requires to be established for the purposes of section 11(3) is not merely a lack of awareness that a loss has occurred, but rather a lack of awareness that a loss caused by negligence has occurred: see e.g. Greater Glasgow Health Board v Baxter Clark & Paul 1990 SC 237; Glasper v Rodger 1996 SLT 44. "Reasonable diligence" required the taking of those steps that a person of ordinary prudence would have taken if placed in the circumstances in which the pursuer found himself: Glasper v Rodger (above) at p 48B, applying a dictum of Webster J in Peco Arts Inc v Hazlitt Gallery Ltd [1983] 1 WLR 1315 at 1323; Adams v Thorntons 2005 1 SC 30, Lord Penrose at para 23. As Sheriff Principal Bowen observed in Ghani v Peter T McCann & Co 2002 SLT (Sh Ct) 135 at para 15, the degree of objectivity which these authorities require to be brought to bear is perhaps best described as a mild one: the court must consider what the person of ordinary prudence would have done, taking account of the personal circumstances of the pursuer and the whole circumstances of a particular case.

[28] It was submitted on behalf of the pursuer that placing matters in the hands of an appropriate expert constituted acting with reasonable diligence. In support of this proposition, reference was made to the opinion of Temporary Judge L J Dorrian QC (as she then was) in Hughes v Barratt Urban Construction (Scotland) Ltd, 15 April 2003, unreported, at para 15. I do not read Temporary Judge Dorrian's opinion as stating any general rule; rather it seems to me that what she was saying was that in the circumstances of that case the pursuer satisfied the requirement of reasonable diligence by placing the matter in the hands of his insurers and relying on the experts to get to the bottom of the problem without any further action on his part. Whether instruction of an expert, without more, will be sufficient to satisfy the requirement will, it seems to me, depend upon the facts of individual cases.

[29] The pursuer also submitted that assessment of whether the pursuers could with reasonable diligence have become aware that they had suffered loss as a consequence of negligence fell to be made on the basis of what Fairhurst, being the engineer from whom the pursuer would have received advice, would have recommended in 2003-04, and not what a hypothetical reasonably competent consulting engineer would have been likely to recommend at that time. If it were contended in the present case that the pursuer had failed to exercise reasonable diligence by omitting to follow up Mr Hay's recommendations, it would be necessary to identify what knowledge the pursuer would have obtained and when, had the recommendations been implemented. It was submitted that it would make no sense to find that a creditor failed to exercise reasonable diligence by failing to follow his expert's advice but then to substitute different expert advice for the purpose of ascertaining when the creditor could reasonably have acquired the awareness described in section 11(3). I consider that that submission is well founded and is in accordance with the approach adopted, for example, by Lord Abernethy in Dumfries Labour & Social Club and Institute Ltd v Sutherland Dickie & Copland, 28 April 1993, unreported, to which reference was made in submissions. It was accepted on behalf of the defender that it would not be right to substitute the advice of a hypothetical ordinarily competent engineer for that of Mr Hay, but it was submitted that I should not disregard Mr McDougall's opinion as to what ought to have been done because Mr Hay had accepted in cross-examination that it was possible that events would have followed the course desiderated by Mr McDougall. I address this submission below in the course of my assessment of the evidence.

 

Reasonable diligence and awareness in the circumstances of this case

(i) Did the pursuer act with reasonable diligence in response to Mr Hay's October report?

[30] The starting point, in my view, is to attempt to make findings as to what, if anything, the pursuer did as a consequence of receipt of Mr Hay's report dated 9 October 2003. Such evidence as there was on this issue came from Mr Schumacher. It was apparent that Mr Schumacher had very little recollection of events concerned with the Fairhurst inspections in 2003. I had the impression that from time to time, in an effort to be helpful, he strayed beyond his recollection and speculated in answer to questions as to what might have been the case. It is of note that neither of the individuals who were Mr Schumacher's line managers during the critical period (Mr Allan and Mr Miller respectively) had any recollection of being advised of any significant issue concerning the building. Mr Schumacher was insistent that he would not have proceeded to instruct an engineer's report without authority from his line manager. On this point I am inclined to accept Mr Schumacher's evidence; there were clear indications from all concerned that the attention of the pursuer's more senior facilities managers tended to focus on another building in St Andrew Square which housed the pursuer's executives. There is, however, nothing in the evidence to satisfy me that the terms of Mr Hay's October report were brought to anyone's attention by Mr Schumacher. That would be consistent with Mr Schumacher's recollection that his impression of the Fairhurst reports at the time was that they gave no cause for alarm. It seems that the only action taken by the pursuer in response to the October report was that someone telephoned Mr Hay in November 2003 to tell him what the first floor cabinets might weigh on average. I am satisfied, on balance of probabilities, that certain first floor cabinets were subsequently moved, as evidenced by differences between, on the one hand, the ground floor plan dated June 2001 and Mr Hay's sketch of the locations of cabinets in September/October 2003 and, on the other hand, the ground floor plan dated July 2004 annexed to the Faithful & Gould CAI programme report. I am not, however, satisfied that this was done with the intention of implementing any of Mr Hay's recommendations. No pattern of moving cabinets away from overloaded floor areas can be identified; if anything, the reverse seems to have been the case. In any event, I do not consider that it would have been reasonable for the bank to carry out an exercise of redistribution of load (as opposed, perhaps, to a straightforward reduction of load) without agreeing a strategy with Mr Hay as he had recommended. No further structural drawings or design loadings were provided to Mr Hay. No formal confirmation was given to him of the weight of the cabinets.

[31] Did the pursuer, then, take the steps that a person of ordinary prudence would have taken following receipt of Mr Hay's October report? The point is made by Webster J in the passage from Peco Arts Inc v Hazlitt Gallery Ltd which was cited with approval in Glasper v Rodger and in Adams v Thorntons that reasonable diligence might not necessarily mean doing anything at all. In the present case, it was submitted on behalf of the pursuer that it had exercised reasonable diligence since (a) it instructed a competent firm of structural engineers to investigate matters; (b) those engineers provided an opinion which indicated that the damage was not related to any structural defect in the building; (c) the pursuer passed on further information on cabinet weights as requested but the engineers failed to communicate their further conclusions to the pursuer; and (d) possibly, the pursuer did take some steps to move storage units, thereby seeking to give effect to Mr Hay's recommendation. I have already rejected the last of these steps on the facts. On behalf of the defender it was submitted that the pursuer had failed to exercise reasonable diligence. It had recommendations from its chosen engineer that it did not follow. It was aware that Mr Hay had expressed concerns regarding the cracks to the soffit of the ground floor slab and that the engineer anticipated carrying out further work which could not have been carried out until after the pursuer had supplied him with information as to the actual weights of the storage units and as to the design loading of the floor slab, structural drawings not yet having been provided. The pursuer could not reasonably have regarded - and Mr Schumacher did not regard - Mr Hay's October report as the end of the matter. Both Fairhurst and the pursuer expected monitoring for closure of the cracks in the soffit. That was never done. Reasonable diligence required agreement of a strategy with Fairhurst to include reviewing loadings and move cabinets, followed by monitoring of the closure - or otherwise - of the cracks.

[32] In my opinion the circumstances of the present case were not such as to entitle the pursuer, if acting with reasonable diligence, to do nothing in response to Mr Hay's October report other than to provide him with the average weight of the storage units. If, hypothetically, Mr Hay had reported that there had been some past deflection which was now at an end, it would no doubt have been a matter for the pursuer to decide whether or not to carry out repairs, bearing in mind that the cracks and the damaged stud partitions were located in less-frequented areas of the building. But there was nothing in Mr Hay's report to suggest that the process of damage occurring because of deflection of the ground floor slab due to overloading had come to an end. In my view, the message from Mr Hay was clear: action should be taken (i) to reduce the local intensity of loading or redistribute loads over a wider area at ground floor level; and (ii) once the loads had been dealt with, to rebuild the non-loadbearing partitions in a way that would allow them to cater for vertical deflections. Having instructed a structural engineer to produce recommendations in response to concerns regarding cracks and damaged partitions, and having received the recommendations that they received, I consider that the exercise of reasonable diligence required the pursuer to accept the engineer's advice and to initiate the process recommended. I therefore conclude that the pursuer did not act with reasonable diligence in response to Mr Hay's October report.

 

(ii) Could the pursuer have been aware with reasonable diligence that loss caused by negligence had occurred?

[33] The next step is to decide what would, on balance of probabilities, have occurred if the pursuer had responded to Mr Hay's report in accordance with his recommendations. It is important to recall that Mr Hay's thinking, not communicated to the pursuer, after he had carried out his calculations based upon the information provided to him and his own assumption regarding the design loading, was that there did not appear to be any overloading. (With the benefit of hindsight it does not appear that Mr Hay's opinion would have altered had he been provided with the actual design loading, as his assumption was correct.) If, therefore, the pursuer had contacted Mr Hay to "agree a strategy", it seems likely that Mr Hay would have advised that the pursuer did not need to redistribute the cabinets after all. What, then, would he have recommended? In answering that question, it seems to me to be of critical importance to bear in mind that Mr Hay had not identified the excessive deflection of the ground floor slab which, as is common ground, must have occurred during construction and fit-out of the building. The note which he made during his visit on 7 October 2003 was that deflection was not visible. His report following that visit states explicitly that the cracking in the soffit of the slab was not considered to be significant. This is reiterated in the witness statement which he adopted as his evidence in chief, in which he stated that his conclusion that there was no overloading cemented his original thoughts "that it was just normal deflection". He did not consider that the pursuer required to undertake any investigations regarding the slabs. That being so, and having regard to the terms of his report and his evidence to the court, which I accept, I conclude on balance of probabilities that the advice which the pursuer would have received from Mr Hay once overloading was eliminated as a cause of continuing deflection would have been to proceed to rebuild the non-loadbearing partitions but with an allowance for vertical deflection. In reaching this conclusion I depart from Mr McDougall's expectation (at step 9 of his sequence of events) that having rejected overloading as a cause of cracking, Fairhurst would have carried out a more comprehensive inspection of the soffit of the ground floor slab. Mr Hay agreed in cross-examination that this was an option he might well have considered, but that seems to me to fall short of agreeing that it is more likely than not that he would have followed this course of action, and the general thrust of his evidence is clearly to the effect that he would not have followed it.

[34] The conclusion in the preceding paragraph leads in turn to the question whether adopting this course of action would have alerted the pursuer prior to 28 September 2005 to the structural problems which were subsequently identified. I am satisfied that it would not. Mr McDougall made the perhaps obvious point that insertion of allowance for vertical movement in the partitions would not be an appropriate method of monitoring any movement: if a 20 mm joint were to be inserted (as was in fact recommended by Mr Dosser in February 2008), the slab could deflect 20 mm without the movement being detected. It follows that continuing deflection creep of around 0.3 mm per year is not likely to have been detected prior to 28 September 2005 by virtue of the occurrence of damage to rebuilt stud partitions. Acceptance by the pursuer of Mr Hay's advice would have been more likely to mask the fact that creep was continuing than to reveal it.

[35] That leaves the cracks in the ground floor slab. Although senior counsel for the defender placed emphasis upon Mr Hay's assent to the proposition that cracks of 0.4 - 0.5mm in width were a "significant structural defect", it is clear that they were not regarded by Mr Hay as a cause for concern. Mr Hay did explain that although one or two cracks may have been of that width, the others were hairline. For his part, Mr McDougall acknowledged that if there were only one or two cracks of that width in the more extensive area inspected by Mr Hay, he (Mr McDougall) would not have been too concerned. Nor is there any evidence that the width of the cracks in the soffit of this slab increased during the period prior to 28 September 2005 so as to suggest a structural problem. The EC Harris report of the survey carried out in April and May 2004 made no mention of such cracks, and they were not among the features that attracted Mr Moodie's attention in October 2006. No mention was made of cracks in the soffit by Mr Dosser in either of his reports, and even in February 2008 Mr Nimmo observed that significantly wide cracks were not present in the soffit of the slab.

[36] For these reasons I hold that the pursuer could not with reasonable diligence have been aware more than five years before the raising of the present action that it had sustained loss, injury or damage caused by negligence. The claim has not therefore been extinguished by operation of prescription.

 

The interpretation issue

[37] The point of contractual interpretation which was debated at the close of the preliminary proof concerned a clause, commonly referred to as a net contribution clause, contained in the collateral warranty granted to SBCI by the defender and assigned to the pursuer by SBCI to which I referred in paragraph 2 above. The net contribution clause (Clause 1(c)) is in the following terms:

"...The Consultant's liability arising as a result of any breach of this Agreement shall be limited to that proportion of the Tenant's losses which it would be just and equitable to require the Consultant to pay having regard to the extent of the Consultant's responsibility for the same and on the basis that all Other Consultants shall be deemed to have provided contractual undertakings to the Tenant on terms no less onerous than this Agreement in respect of their services in connection with the Development and shall be deemed to have paid such proportion which it would be just and equitable for them to pay having regard to the extent of their responsibility."

 

With one exception, the capitalised words in the clause are defined terms and are self-explanatory. The exception is "Other Consultants" which is not a defined term in the warranty agreement. Nor is "Consultants" (in the plural) a defined term. "Other Consultants" is, however, a defined term in the Appointment, where it is defined as meaning "the other Consultants engaged by [Lysander] in connection with the Development"; "other" in this context means Consultants other than the Lead Consultant, namely the architect. The Appointment also contains a definition of "Contractor" as meaning the Building Contractor appointed by [Lysander] to carry out the design and construction works defined in the building contract. The preamble to the collateral warranty agreement similarly refers to Lilley as the Building Contractor appointed to design and construct the Development.

[38] I have summarised the contractual framework at the beginning of this opinion. By way of further background, Appendix VII to the building contract between Lysander and Lilley, inserted by the supplemental agreement, provided inter alia for the delivery by Lysander to SBCI on the practical completion date of collateral warranties by the architect, the defender, the mechanical and electrical engineer and Lilley, all in terms of drafts contained in a schedule annexed thereto. The draft collateral warranties by the architect and by the defender included a net contribution clause in terms identical to Clause 1(c) above; the other two drafts contained no such clause. Each of the architect, the M&E engineer and the defender was referred to as "the Consultant" in its collateral warranty agreement; Lilley was referred to as "the Contractor" in its agreement.

[39] As was observed by Lord Drummond Young in Scottish Widows Services Ltd v Harmon/CRM Facades Ltd (in liquidation) 2010 SLT 1102 at paragraph 37, a net contribution clause in effect restricts joint and several liability by limiting a co-obligant's liability to a fair assessment of the consequences of his own breach of contract.

 

Argument for the defender

[40] On behalf of the defender it was contended that, properly construed, Clause 1(c) restricted the defender's liability to the pursuer where responsibility for the pursuer's losses also lay with Lilley or one of Lilley's sub-contractors. A commercially sensible construction of the clause would ensure that the defender is liable only for its net contribution amongst other parties to the pursuer's loss, especially where, as here, the pursuer was entitled to assignation of a collateral warranty by the design and build contractor. This could be achieved in one of two ways:

(i) The design and build contractor should be construed as falling within the scope of "Other Consultants", especially as the contractor had also provided a warranty; or, alternatively,

(ii) The principal purpose of Clause 1(c) was in any event to restrict the defender's liability arising from breach of the warranty to that proportion of the pursuer's losses which it would be just and equitable to require the defender to pay. The provision made within the clause for regard to be had to certain considerations in determining that proportion did not exclude consideration, as part of the overall assessment of what was just and equitable, of the extent of responsibility of the contractor for the same losses.

It was submitted that the defender's construction accorded with Lord Drummond Young's analysis of the effect of a net contribution clause. The absence of express mention of the contractor in the clause was not sufficient to subvert that construction because it reflected the primary purpose of the clause which was to limit a contributor's liability to a just and equitable proportion of the loss. In Langstane Housing Association Ltd v Riverside Construction (Aberdeen) Ltd 2009 SCLR 639, Lord Glennie held a net contribution clause in similar terms to be fair and reasonable for the purposes of the Unfair Contract Terms Act 1977, observing that it was not unreasonable for an employer to satisfy himself that insurance was in place in the event that one or more of them was in breach of contract or duty, and thereby protect himself from risk of loss if the contractor or a consultant were to become insolvent. In the present case, the practical issue was who should bear the risk of the contractor's insolvency (which had occurred). The commercial answer was that it should be borne by the pursuer, who could decide whether to acquire a tenancy on terms which included a warranty negotiated by an employer who was able to arrange its contract and insurance to allocate and cover all risks, rather than by the defender, who contracted only with the employer and those to whom it gave collateral warranties, and who had no such ability to arrange the project's other contracts or insurance. To hold otherwise would fail to give appropriate effect to the operative wording of the clause because the defender's liability would not in practice be restricted due to the liquidation of the contractor.

 

Argument for the pursuer

[41] On behalf of the pursuer it was submitted that, reading the documentation as a whole, it was clear that in accordance with normal language a distinction was drawn between the contractor (Lilley) and the consultants (the professional design team). There was no net contribution clause in Lilley's collateral warranty as they were not viewed as a "consultant" entitled to share in the benefit of the net contribution clause. It was understandable that the members of the design team would enjoy a degree of reciprocity in the protection obtained, given their distinct and defined roles in the design process. They would not normally have contractual rights between themselves so the net contribution clause sought to limit their exposure in an equitable manner. The contractor did not need the benefit of a net contribution clause since, in the normal course of events, the contractor had rights under the novated appointments of the design team to recover proportions of damages from the professionals for their errors. As the clause sought to limit the defender's liability for losses for which they would normally be jointly liable, it fell to be construed with a degree of strictness.

 

Discussion

[42] In my opinion the argument on behalf of the pursuer is to be preferred. I reject, in the first instance, the defender's submission that "Other Consultants" could and should be construed as including the contractor. I accept the pursuer's analysis that a clear and well-recognised distinction is drawn throughout the contractual documentation between the contractor on the one hand and the consultants or professional advisers on the other. To interpret the words "Other Consultants" in Clause 1(c) as including the contractor cannot, in my view, reasonably be described as construing the contract commercially: it would amount rather to re-writing the contract: the contractor is not a "consultant". It would not have been difficult to draft a clause which included the contractor among those deemed to have provided contractual undertakings and paid their just and equitable proportion of the loss, but the parties in the present case have not chosen to do so. Nor, in my opinion, is the defender's second argument sustainable against the terms of Clause 1(c). It would, in effect, require reading the clause as if it stopped after the words "responsibility for the same". But that would add nothing to what is already provided by section 3(1) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1940. The purpose of a net contribution clause is to depart from joint and several liability by, in effect, disapplying by agreement the proviso to section 3(1). In the present case that purpose is achieved by the words which begin "and on the basis..." The difficulty for the defender's proposed construction, as it appears to me, is that the deeming provisions which follow are expressly restricted to consultants. There is, of course, nothing in the clause itself to preclude the pursuer from exercising its right under a separate collateral warranty to recover damages from the contractor for loss caused by the latter's breach of contract or duty, in which eventuality the same loss could not be recovered again from one or more of the consultants. The problem in the present case derives not from the range of remedies available to the pursuer but from the fact that one of those remedies has been rendered worthless by the contractor's insolvency. It is not clear to me that a commercial construction of the clause necessitates imposing any loss resulting from the contractor's impecuniosity on the pursuer as assignee of the beneficiary of the warranty rather than on the defender as granter of the warranty, when both parties to the warranty agreement must be taken to have been aware of the terms of section 3(1) of the 1940 Act.

[43] I should add for completeness that it was also submitted on behalf of the pursuer that the construction for which the pursuer contended was supported by wider considerations of commercial common sense. Reference was made to MacRoberts on Scottish Building Contracts (2^nd ed., 2007) at paragraph 13.3.4 where it is stated:

"Care needs to be taken when agreeing the terms of a net contribution clause in a consultant collateral warranty in the context of a design and build contract, that the design and build contractor is not named as one of the parties 'deemed' to have provided similar undertakings and paid the relevant proportion according to its responsibility. Since the design and build contractor's responsibility is for the whole of the design, its 'deemed' payment will be for the whole of the claim and so the consultant who has the benefit of such a net contribution clause could unintentionally end up escaping all liability as a consequence."

 

I confess to having difficulty following this. The specimen net contribution clause in MacRoberts' work to which these comments relate is in terms not materially different from Clause 1(c) above. On my reading of the clause, the reference to "the extent of their responsibility" at the end of the clause is not a reference to responsibility for design but rather a reference to the same kind of responsibility as has previously been referred to in the clause, i.e. responsibility for the claimant's loss. The contractor would not, therefore, if named as one of the parties, be deemed to have paid more than his just and equitable proportion of the total loss and the consultant with the benefit of the clause would not escape liability for his own just and equitable proportion. In reaching my decision in favour of the pursuer I have not placed any weight on this aspect of its argument.

 

Disposal

[44] For the foregoing reasons I sustain the pursuer's fourth and fifth pleas-in-law and repel the defender's second and fifth pleas-in-law. I shall put the case out by order to be addressed on further procedure. All questions of expenses are reserved.