Factual and Procedural Background
This commercial dispute arises from a Settlement Agreement between the Plaintiff, a construction company engaged as main contractor to expand a harbour at a port operated by the Defendant, and the Defendant. The Plaintiff had subcontracted design services to a design consultant under a separate agreement. The project experienced difficulties, leading the parties to enter into a Settlement Agreement in June 2020. Under this Agreement, the Plaintiff received a settlement sum and was relieved from further management or construction obligations, except for completing certain specified design packages known as the Contractor Design to Complete ("CDTC"). The Agreement also contemplated possible further design work beyond the CDTC, potentially involving the design consultant, with reimbursement provisions for certain costs.
Subsequently, the Plaintiff and the design consultant settled their own disputes by a global settlement without apportioning specific amounts to individual claims. The Plaintiff now claims £1,247,542 plus interest from the Defendant as reimbursement under the Settlement Agreement for liabilities to the design consultant related to work beyond the CDTC and verification processes. The Defendant challenges the relevancy and validity of this claim, leading to this court determination on whether the claim should be dismissed without inquiry or proceed to proof.
Legal Issues Presented
- Whether the Plaintiff's claim for reimbursement under clause 7.8.4 of the Settlement Agreement is relevant and enforceable given the Plaintiff's inability to specify the settlement value allocated to the claims against the design consultant.
- The proper construction of clause 7.8.4 of the Settlement Agreement regarding the conditions under which the Defendant is liable to indemnify the Plaintiff for design work carried out by the design consultant beyond the CDTC.
- Whether the Plaintiff fulfilled the conditions precedent, including receiving instructions from the Defendant and administering the design consultant's appointment on an open book basis, necessary to trigger the indemnity in clause 7.8.4.
- The relevancy of the Plaintiff's claim for costs related to design elements already covered by the settlement sum.
Arguments of the Parties
Defendant's Arguments
- The Plaintiff’s entire claim is irrelevant because it has not proven the specific settlement value attributable to the claims against the design consultant; the global settlement sum between the Plaintiff and the design consultant does not suffice.
- The indemnity under clause 7.8.4 only applies if the Plaintiff received instructions from the Defendant to operate the design consultant's appointment beyond the CDTC and administered that appointment on an open book basis, neither of which occurred.
- The Plaintiff was not obliged to continue operating the design consultant’s appointment beyond the CDTC without instruction, consistent with the overall scheme of the Settlement Agreement.
- The claim for £377,307.98 relating to design elements prior to the Settlement Date is irrelevant as those costs were included in the settlement sum.
- The court should dismiss the claim in full or in part and consider fixing a hearing to discuss the terms of an interlocutor.
Plaintiff's Arguments
- The claim is not for damages but for contractual indemnity or payment under the Settlement Agreement; thus, the Plaintiff need only establish liability to the design consultant, not prove the exact settlement allocation.
- The global settlement with the design consultant does not preclude claiming reimbursement under the Settlement Agreement with the Defendant, as the Plaintiff’s liability to the design consultant is distinct.
- The Plaintiff was obliged under clause 7.3 to continue employing the design consultant to complete the CDTC and, under clause 7.8, to continue operating the existing appointment until a direct contract between the Defendant and the design consultant was procured or deemed impossible.
- The Plaintiff contends that the Defendant’s refusal to instruct continuation of the appointment does not absolve the Defendant of liability for costs incurred beyond the CDTC, as the appointment was to continue automatically to ensure project completion.
- The Plaintiff offers to prove that the liabilities to the design consultant were incurred after the Settlement Agreement and CDTC completion, relating solely to the Complete Works Design and verification processes.
- The Plaintiff relies on established principles of contractual construction supporting their interpretation of the indemnity and reimbursement provisions.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Biggin & Co Ltd v Permanite Ltd [1951] 2 KB 314 |
Settlement sum as upper limit on claim; need to prove reasonableness of settlement |
Defendant relied on this to argue Plaintiff's claim was irrelevant without proof of settlement allocation; Court distinguished the Plaintiff’s claim as indemnity, not damages. |
| Gray Construction Ltd v Harley Haddow LLP [2012] CSOH 92, 2012 SLT 1035 |
Requirement to prove reasonableness of settlement in claims for damages |
Defendant relied on this to argue irrelevancy of claim; Court found it inapplicable to indemnity claims advanced by Plaintiff. |
| Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900 |
Principles of contractual construction, including preference for commercially sensible interpretation |
Guided the Court’s approach to interpreting clause 7.8.4 and related provisions. |
| Scanmudring AS v James Fisher MFE Ltd [2019] CSIH 10, 2019 SLT 295 |
Contractual construction principles |
Referenced in support of construction approach to Settlement Agreement clauses. |
| Lagan Construction Group Ltd (In Administration) v Scot Roads Partnership [2023] CSIH 28, 2024 SC 12 |
Contractual construction principles, including indemnity clauses |
Referenced for the approach to interpreting indemnity provisions. |
| Murray v Caledonia Crane & Plant Hire Ltd 1983 SLT 306 |
Approach to construction of indemnity clauses |
Referenced in relation to indemnity clause interpretation. |
| Caledonia North Sea Ltd v London Bridge Engineering Ltd 2000 SLT 1123 |
Interpretation of indemnity clauses |
Referenced for guidance on indemnity clause construction. |
| Photo Production Ltd v Securicor Transport Ltd [1980] AC 827, [1980] 2 WLR 283 |
Modern approach to indemnity clause construction |
Supported Plaintiff’s argument on contractual interpretation. |
| Wood v Capita Insurance Services Limited [2017] UKSC 24, [2017] AC 1173 |
Modern principles of contractual interpretation, including indemnities |
Supported Plaintiff’s contractual construction submissions. |
Court's Reasoning and Analysis
The Court first addressed the Defendant’s submission that the Plaintiff’s claim was irrelevant due to the Plaintiff’s inability to prove the settlement value attributable to the design consultant claims. The Court preferred the Plaintiff’s contention that the claim was for contractual indemnity or payment due under the Settlement Agreement, not damages. Therefore, the Plaintiff only needed to aver that a liability was incurred to the design consultant covered by the relevant provisions. The fact that the settlement with the design consultant was global and undifferentiated did not render the claim irrelevant.
The Court then examined the proper construction of clause 7.8.4 and related provisions. It found that the Settlement Agreement intended that the Plaintiff would complete the CDTC and that further design work beyond the CDTC might be carried out by the design consultant under the "Arup Existing Appointment," administered by the Plaintiff on behalf of the Defendant, but only "in accordance with the instructions" of the Defendant or Project Manager. The indemnity in clause 7.8.4 would only operate if the Plaintiff received instructions to operate or administer the appointment beyond the CDTC and did so on an open book basis.
The Court noted that the Defendant had clearly indicated it would not instruct the Plaintiff to continue operating the existing appointment after CDTC completion, and the Plaintiff accepted no such instructions were given. The Plaintiff also failed to prove that the appointment was administered on an open book basis. Consequently, the Plaintiff had not fulfilled the conditions precedent for the indemnity under clause 7.8.4 to arise, rendering that part of the claim irrelevant.
Regarding the claim for £377,307.98 related to design elements prior to the Settlement Date and CDTC, the Court found these were already covered by the settlement sum and thus irrelevant.
However, the Court found that factual disputes remained about whether some claims fell within the scope of the Schedule Part 12 provisions relating to verification of redline as-built drawings and whether the liabilities claimed arose post-CDTC completion. These issues could not be resolved at debate and required proof.
The Court applied established principles of contractual interpretation, particularly from Rainy Sky, emphasizing the need to consider the language and background knowledge of the parties. It concluded that the key contractual language requiring actions "in accordance with the instructions" of the Defendant or Project Manager must be given effect, meaning no indemnity arises without such instructions.
Holding and Implications
The Court refused probation to the Plaintiff’s claim based on clause 7.8.4 of the Settlement Agreement, holding that no liability arises under that clause absent instructions from the Defendant to operate or administer the design consultant’s appointment beyond the CDTC, which were not given.
The claim for design elements covered by the settlement sum was also dismissed as irrelevant.
The remainder of the action, particularly claims based on Schedule Part 12 of the Settlement Agreement relating to verification fees, was allowed to proceed to proof with all pleas standing.
The Court directed that the case be put out by order to determine the precise averments to be refused probation and to consider whether amendments to the Plaintiff’s pleadings were necessary to focus the remaining claims.
No new legal precedent was established; the decision primarily clarifies the application and conditions of the indemnity clause within the specific contractual framework.