Introduction

The case of Reclaiming Motions by Network Rail Infrastructure Ltd against Fern Trustee 1 Ltd and Others and the Scottish Ministers against McLaughlin & Harvey Ltd and Others ([2022] ScotCS CSIH_32) adjudicated by the Scottish Court of Session on July 8, 2022, revolves around a dispute concerning the interpretation of the Remedial Works Agreement (RWA). The litigants include Network Rail Infrastructure Ltd and the Scottish Ministers as pursuers, against Fern Trustee Ltd and McLaughlin & Harvey Ltd as defenders.

The core issue pertains to whether the tenants (Network Rail and Scottish Ministers) have the contractual right to influence the determination of 'Completion' of remedial works carried out by contractors, Fern Trustee Ltd and McLaughlin & Harvey Ltd. The tenants contested that the RWA granted them the authority to ensure their contentment before deeming the remedial works complete.

Summary of the Judgment

The commercial judge originally dismissed the tenants' claims, holding that the RWA's clause 3.27 unequivocally vested the authority to declare Completion solely in the owners (Fern Trustee Ltd). The tenants appealed this decision, arguing that their views should materially influence the determination of Completion. Upon review, the Inner House of the Court of Session upheld the original decision, affirming that the owners retain exclusive authority to determine Completion without the tenants' consent, despite the tenants' objections.

The court emphasized that the RWA was unambiguous regarding the owners' role in accepting Completion notices and that tenants' rights to lodge defects were adequately provided for separately. Consequently, the reclaiming motions brought by Network Rail and the Scottish Ministers were dismissed.

Analysis

Precedents Cited

The judgment extensively referenced several key precedents to interpret contractual clauses:

• Arnold v Britton [2015] AC 1619: Emphasized the importance of contractual construction based on the natural and ordinary meaning of the language used, unless ambiguity exists.
• Ashstead Plant Hire Co v Granton Central Developments 2020 SC 244: Highlighted the necessity of applying commercial common sense when interpreting contract terms with multiple possible meanings.
• Wood v Capita Insurance Services [2017] AC 1173: Reinforced that contractual interpretation should consider business common sense to resolve ambiguities.
• Apcoa Parking (UK) v Crosslands Properties [2016] CSOH 63: Asserted that obligations to liaise must have substantive content and meaning.
• Braganza v BP Shipping [2015] 1 WLR 1661: Underlined that contractual powers must be exercised in good faith and not capriciously.

These precedents collectively influenced the court's approach, balancing textual interpretation with contextual factors to ascertain the parties' intentions.

Legal Reasoning

The court employed a methodical approach to interpret the RWA:

• Textualism and Contextualism: The court began with the plain meaning of the contract language, as per Arnold v Britton, and then placed it within the broader context of the RWA and settlement agreements.
• Clause Specific Analysis: Clause 3.27 was scrutinized for its phrasing, which explicitly vested the decision to accept Completion in the owners. The absence of explicit tenant rights in this clause suggested that tenants could not influence Completion directly.
• Commercial Common Sense: While tenants argued that commercial common sense favored their interpretation, the court found that the language did not support this, given the clear delineation of roles and responsibilities.
• Good Faith Obligation: Despite recognizing the importance of good faith in contractual obligations, the court held that the RWA sufficiently safeguarded the tenants' interests through separate defect liability provisions.

Ultimately, the court determined that the contractual language was unambiguous in granting the owners sole authority to determine Completion, and tenants' rights were adequately protected through other mechanisms within the RWA.

Impact

This judgment sets a significant precedent in construction contract law, particularly concerning the interpretation of completion clauses:

• Clarification of Roles: Reinforces the principle that contractual clauses vest authority in the parties explicitly mentioned, limiting the scope of influence for other stakeholders.
• Contractual Interpretation: Affirms that clear and unambiguous language will be upheld by courts, even if it seemingly limits one party's rights, provided that other protective mechanisms are in place.
• Good Faith in Contract Execution: While good faith remains a fundamental principle, its application does not override explicit contractual terms unless there is clear evidence of ambiguity or unfairness.

For future cases, parties drafting contracts must ensure that all desired rights and obligations are explicitly articulated to avoid similar disputes. Additionally, tenants and similar stakeholders must seek clear contractual provisions if they intend to influence key determinations like Completion.

Complex Concepts Simplified

Conclusion

The judgment in [2022] ScotCS CSIH_32 underscores the paramount importance of clear contractual language and the limited scope of implied terms like good faith unless explicitly supported by the contract. By affirming that the owners retain exclusive authority to determine Completion under the RWA, the court delineated the boundaries of each party's rights and obligations.

This decision serves as a pivotal reference for future contractual disputes in the construction sector, highlighting the necessity for precise drafting and the limited role of tenants or third parties in influencing key contractual determinations unless clearly provided for in the agreement.

In essence, the judgment reinforces the principle that the explicit terms of a contract take precedence, and any ambiguities must be carefully interpreted within the contract's broader context, ensuring that all parties' intentions are faithfully upheld.