RECLAIMING MOTIONS BY NETWORK RAIL INFRASTRUCTURE LTD AGAINST FERN TRUSTEE 1 LTD AND OTHERS AND THE SCOTTISH MINISTERS AGAINST McLAUGHLIN & HARVEY LTD AND OTHERS

Factual and Procedural Background

This litigation concerns remedial works agreed to be carried out by contractors on an office block in The City pursuant to a Remedial Works Agreement (RWA) involving the contractors, the owners, and the tenants. The tenants contended that the RWA granted them rights to have their views on the completion of the remedial works conveyed by the owners to the contractors and that the owners were obliged not to agree that Completion had been achieved until the tenants were satisfied. The commercial judge rejected these contentions and dismissed the tenants' actions against the owners and contractors. The present reclaiming motions (appeals) challenge the construction of the RWA, specifically the mechanism for determining whether and when Completion was achieved.

Originally, the contractors had carried out works under a building contract with previous owners between 2002 and 2004. The current owners acquired the property in 2006 and received collateral warranties from the contractors. Defects emerged in 2008, leading to settlement agreements whereby the contractors agreed to carry out remedial works under the RWA and pay damages. The tenants were entitled to liquidated damages if Completion was delayed beyond certain dates.

The RWA detailed a process for Completion involving the contractors issuing a Defender's Completion Notice, the owners responding with an Owner's Completion Notice after liaising with the tenants, and provisions for disagreement and adjudication. Completion triggered the owners assuming responsibility for insurance and the defects liability period.

Remedial works were carried out, and disputes arose after the contractors issued a Defender's Completion Notice in December 2019. The owners issued an Owner's Completion Notice rejecting satisfactory completion, appending tenants' correspondence. The contractors disagreed, leading to adjudication which found Completion occurred in December 2019. The tenants initiated the present actions seeking declarations that Completion had not occurred and that the contractors had not discharged their obligations.

Legal Issues Presented

1. What is the correct construction of clause 3.27 of the Remedial Works Agreement regarding the owners' obligation to liaise with tenants and decide on the satisfactory completion of remedial works?
2. Whether the tenants have a contractual right to challenge the owners' decision on Completion or to insist on inclusion of their concerns in the Owner's Completion Notice.
3. Whether the contractors have breached their obligations under the RWA and the settlement agreements.
4. Whether the owners were entitled to accept Completion without the tenants' consent and to enter into adjudication with the contractors on that basis.

Arguments of the Parties

Tenants' Arguments (Network Rail and Scottish Ministers)

• The RWA should be read to ensure tenants' reasonable and well-founded views on Completion are included in the Owner's Completion Notice (OCN).
• The owners must not depart from the OCN until matters raised by tenants are satisfactorily completed; the works were not completed as the building was not wind and watertight.
• Clause 3.27 is ambiguous and commercial common sense supports the tenants' interpretation that they have a meaningful right to influence Completion.
• The commercial judge erred in concluding clause 3.27 was unambiguous and disregarding commercial common sense.
• The tenants have collateral warranties from the contractors and should not be at the mercy of the owners' unilateral decisions.
• Even if the tenants lack entitlement to insist on inclusion of their concerns, the owners must serve the OCN in good faith and not depart from its terms arbitrarily.
• The Scottish Ministers argued they have a stand-alone right under their settlement agreement to claim breach for failure to complete works.

Owners' Arguments (Fern Trustee 1 Limited and Fern Trustee 2 Limited)

• The commercial judge's interpretation of the RWA was correct; clause 3.27 has only one meaning.
• The owners alone decide whether the works have been satisfactorily completed for the purpose of issuing the OCN.
• The owners must liaise with tenants but are not obliged to include tenants' concerns in the OCN.
• Having multiple parties disputing the OCN content would be unworkable.
• Commercial common sense supports owners having control over Completion as it triggers their responsibilities for insurance and defects period.
• No implied duty of good faith or reasonableness was pleaded or established.

Contractors' Arguments (McLaughlin & Harvey Limited)

• The contractors adopted the owners' submissions and agreed clause 3.27 was unambiguous.
• The owners have sole entitlement to determine satisfactory completion and control the OCN contents.
• Commercial common sense supports the owners' right to decide Completion given the consequences of that determination.
• The tenants' settlement agreements are confidential and cannot aid interpretation of the RWA.
• No implied duty of good faith was pleaded against the contractors; any such duty would lie with the owners.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by reaffirming established principles of contractual interpretation, emphasizing the need to ascertain the parties' intention through the language used, contextual background, and commercial common sense.

Clause 3.27 was found to be unambiguous: the owners alone decide whether the remedial works have been satisfactorily completed for the purposes of issuing the Owner's Completion Notice. The owners' obligation to liaise with the tenants is a duty to consult, not a requirement to accept or incorporate the tenants' views. The language specifying that "the Owner shall confirm ... whether or not it accepts" the completion, and the subsequent clauses referring to the owner's acceptance or rejection, reinforce the owners' sole decision-making role.

The court contrasted clause 3.27 with clause 3.36, which explicitly requires the owners to include tenants' identified defects in a schedule, thereby evidencing that the parties intended different rights for tenants in different contexts.

Commercial common sense supported the interpretation that the owners control Completion because Completion triggers significant obligations such as insurance and defects liability. Allowing tenants to challenge or insist on inclusion of matters in the Owner's Completion Notice would risk unworkable disputes and delay.

The court rejected tenants' arguments that the owners must act in good faith or reasonably in issuing the OCN, noting no pleaded case or evidence supporting an implied duty of good faith or reasonableness in this context. The court also found no separate cause of action based on contractors' failure to complete works under the settlement agreement, which would require a separate claim.

Accordingly, the court agreed with the commercial judge's interpretation and upheld the interlocutors dismissing the tenants' actions.

Holding and Implications

The court REFUSED the reclaiming motions and adhered to the commercial judge's interlocutors dated 21 October 2021.

The direct effect is that the owners alone have the contractual authority under the Remedial Works Agreement to determine whether the remedial works have been satisfactorily completed for the purposes of issuing the Owner's Completion Notice. The tenants do not have a contractual right to insist on inclusion of their concerns in the Owner's Completion Notice or to challenge the owners' decision on Completion within the RWA framework. No new precedent was established beyond affirming established principles of contractual interpretation applied to the facts of this case.