Act: S. Smith, Advocate; MacRoberts

Alt: Malone, Solicitor Advocate; Bell & Scott

10 ^th February 2010

Introduction

[1] In or about May 2001 the first defender and reclaimer ("the first defender") purchased a house and ground at 17 Fairyknowe Gardens, Bothwell. She and her husband, the second defender and reclaimer ("the second defender"), intended to build an extension to this house and thereafter to live in it themselves. The extension was constructed but the work was defective and the defenders decided to demolish the extension and the original house and build a new house on the site. They instructed Mr Gordon Gibb to be their architect and Mr Peter Imrie to be their chartered surveyor. Following certain communings with the pursuers and respondents ("the pursuers"), in relation to which detailed evidence was given before the Lord Ordinary, the pursuers commenced work on site on or about 23 January 2006. Work progressed and certain payments were made therefor.

[2] On 17 July 2007 the pursuers' solicitors served a notice of adjudication on the defenders. In the course of the adjudication proceedings, the defenders' solicitors submitted inter alia that there was no contract between the parties and accordingly that the adjudicator had no jurisdiction and should resign. After sundry procedure, including hearing the evidence of three witnesses for the pursuers and four witnesses for the defenders, and legal submissions on behalf of both parties, the adjudicator found that the parties to the contract were the pursuers and the defenders. In her decision letter, which was dated 26 September 2007, she decided that the defenders were to pay the pursuers the sum of £112,598.75, within seven days of the date of the decision, together with interest on sums certified in interim certificates and joint and several liability for the fees and expenses in relation to the adjudication.

[3] The defenders have made no payment to the pursuers in respect of these sums, so the present commercial action for payment was raised in late October 2007. The matter came before the Lord Ordinary by way of a preliminary proof, which lasted for 8 days in March and May 2008. A number of issues were canvassed. For present purposes it is enough to note that the main issue was whether there was, as contended for by the pursuers, a contract between them and the defenders. It was agreed that if there was such a contract it made provision for reference of any dispute between the parties to adjudication. It was further agreed that if there was no such contract between the parties the adjudicator had no jurisdiction. In that connection the defenders' primary contention was that the contract was between the pursuers and KWF Homes Limited, ("KWF") a company of which the defenders were the sole shareholders and directors; alternatively, there having been no consensus as to the parties there was no contract.

[4] The Lord Ordinary heard evidence from four witnesses on behalf of the pursuers (Gordon Gibb, architect and director of Gibb Architects Ltd, and Ronald Burrows, Kennedy Rodger and Michael Burrows, all directors of the pursuers, the last named being managing director), and from four witnesses on behalf of the defenders (the two defenders themselves, John Thomson, an architect employed by Gibb Architects Ltd and Peter Imrie, quantity surveyor). A considerable body of documentary evidence was referred to at the hearing.

[5] Having set out in detail a summary of the evidence given by each witness, the Lord Ordinary explains in his opinion of 15 July 2008 that he found the evidence of the four witnesses led on behalf of the pursuers to have been generally credible and reliable. He records inter alia that Gordon Gibb, in particular, gave his evidence in a careful and professional manner, without apparent exaggeration, and that he found him to be a most impressive witness. His evidence was precise and detailed, and was consistent with the documentary evidence and also with much of the other evidence led on behalf of the pursuers. It was he who dealt primarily with the clients. John Thomson was employed by his practice for about 9 months, between May 2005 and early 2006. He dealt with the details of the construction and reported to Mr Gibb, who had much greater professional experience. The Lord Ordinary also found Michael Burrows had been clear and open in his evidence and had a detailed recollection of events. By contrast, he did not find the evidence for the defenders to be satisfactory. He found none of the four witnesses led for the defenders to have been entirely credible and reliable. For reasons which he explains he did not feel able to place any reliance on the evidence of John Thomson or of Peter Imrie. He explains that he found that the first defender gave her evidence in an evasive and reluctant manner and was unconvincing. The second defender was not an impressive witness either. Thus where there was a conflict of evidence between the evidence for the pursuers and that for the defenders, he had little hesitation in preferring the evidence on behalf of the pursuers.

[6] Having considered the evidence the Lord Ordinary was entirely satisfied that there was no contract between the pursuers and KWF. He considered the possibility that there was no consensus as to the parties, and thus no contract, but decided that on the whole evidence he was satisfied that there was a contract between the pursuers and the defenders. As a result he rejected the defenders' attack on the adjudicator's decision as ultra vires for want of jurisdiction. Having rejected certain other arguments advanced in criticism of the adjudicator's decision, he then proceeded, on 22 July 2008 to grant decree for payment of the sum found due by the adjudicator, plus interest, being £117,350.50 together with £17,977.52 in respect of the adjudicator's fees.

[7] The defenders have reclaimed against this interlocutor. They seek to argue (as more fully set out below) that Lord Ordinary erred in relation to his finding that there was a contract between the pursuers and the defenders. It has to be said at the outset that it extremely unfortunate that so much time has already been spent in relation to the enforcement of the adjudicator's award; an award of a type designed to provide a speedy and practical provisional remedy to parties in respect of disputes arising in the course of the progress of the works. Moreover there is, it appears to this court, some air of unreality about the dispute. It is accepted on behalf of the defenders that the contract for which they contend would also have been subject to adjudication, and that, if the same dispute had been referred to adjudication under that contract and the adjudicator had found against the company on the merits, payment would have to have been made (whatever might ultimately be decided as to the rights and liabilities of the parties under the contract). It is not obvious that there is any reason for thinking that in such an adjudication the adjudicator would have found any differently on the merits of the dispute. Be that as it may, there is no dispute but that the defenders are entitled to take the point on jurisdiction which they have.

The Factual Background

[8] To give a proper context for the submissions made on behalf of the defenders it would, we think, be helpful to set out broadly the salient facts which the Lord Ordinary found to have been established.

[9] Mr Gibb was instructed by the defenders as their architect in relation to the project, and was the contract administrator. He was clear that the works were for the defenders as individuals. The application for building warrant was made on 1 March 2005 by Mr and Mrs Forrest (ie. the defenders) and was granted on 14 July 2005. On 11 August 2005 Peter Imrie invited contractors to submit tenders for a proposed new-build house for Mr and Mrs Forrest. By letter dated 5 September 2005 the pursuers returned completed tender documents in the sum of £833,000. The covering letter indicated that the proposed house was for Mr and Mrs Forrest. On 4 October 2005 Peter Imrie wrote to the pursuers inviting them to submit a fresh tender. This was for "proposed new-build house at 17 Fairyknowe Gardens, Bothwell for Mr and Mrs Forrest". By letter dated 2 November 2005 the pursuers submitted a revised tender in respect of works for the client "Mr and Mrs Forrest" in the sum of £521,791.03. On 30 November 2005 the pursuers attended a meeting with the defenders and others. As recorded in the minutes the list of those present included John and Jane Forrest as "clients". There was no mention of KWF in the minutes or at the meeting. By letter dated 2 December 2005 the pursuers wrote to the defenders' architect offering a saving to the clients of £8,000, making a revised tender sum of £513,791.03.

[10] It was Mr Gibb's evidence that he discussed this with Mr and Mrs Forrest and they decided to accept the offer. According to him neither of the defenders suggested that they would prefer the contract to be with KWF and not with themselves. It was Michael Burrow's evidence that the pursuers then received a fax from John Thomson saying that the defenders were going to accept the tender and identifying a date for a pre-start meeting. This was to be on 10 January 2006.

[11] By letter dated 20 December 2005 Peter Imrie wrote to the pursuers. This letter stated inter alia

"We have been authorised by the client KWF Homes Limited whose registered office is at Silverwells House, 114 Cadzow Street, Hamilton, ML3 6HP to accept the tenders submitted by you on the 2 ^nd November 2005 in the amount of £521,791.03 further revised by your letter dated 2 ^nd December 2005 in the amount of £513,791.03."

It appears that no evidence was given by the defenders to the effect that they instructed this letter. It was John Thomson's evidence that he drafted it, albeit it was signed by Peter Imrie. Mr Imrie's evidence was that he was instructed by John Thomson to accept the pursuer's tender on behalf of KWF, but was given no explanation as to why the tender should be accepted by KWF and not the defenders. Mr Gibb did not see the letter in question, until the adjudication took place. He could not understand how it came to be sent, as it was normally the architect who accepted a tender. He could not explain why Peter Imrie purported to do so in this instance. If he had seen the letter earlier his first reaction would have been that as the offer was made to Mr and Mrs Forrest, it could not be accepted by KWF. Michael Burrows of the pursuers received the letter. At a quick glance he thought that this was an acceptance of the pursuers' offer, but then realised that it was not in the name of the defenders, and so deliberately refrained from acknowledging it.

[12] Notwithstanding this letter Mr Thomson wrote on the same date to Forbes and Whiteford Limited (who were contractors competing with the pursuers for the work) stating "We refer to your recent tender submission for the project listed above and subsequent meeting in our office to discuss the details of the project with our clients, Mr and Mrs Forrest. After much deliberation our clients have decided to accept a tender received from Fleming Buildings Limited". This letter was copied to the defenders.

[13] The pre-start meeting on 10 January 2006 was attended by, amongst others, Michael Burrows, John Thomson and the defenders. Minutes of that meeting were distributed to all who attended. The defenders were described in the minutes as "client". There was no reference to KWF at the meeting or in the minutes. It was Michael Burrow's evidence that at this meeting the defenders told the pursuers to proceed with the works. Although KWF were not mentioned during the meeting he remembered that during the informal discussions afterwards the first defender asked him if the pursuers would be happy if KWF were the clients. At the same time she gave him a letter from Airdrie Savings Bank dated 9 January 2006 confirming that bank approval had been granted to provide funding in favour of KWF to contract for the construction of a new build detached property at 17 Fairyknowe Gardens, Bothwell on a fixed price contract basis. He explained that the pursuers were always concerned with unknown companies in case they did not get paid, particularly with regard to retention moneys held for a period of 12 months. His response to the first defender was that the directors of the pursuers would have to consider the suggestion but it was clear to him at the time that the defenders wished to proceed with the contract, and he presumed that the request about changing the contracting parties was just for funding purposes. Although the potential change was considered, the pursuers decided against it and so carried on as normal.

[14] By letter dated 10 January 2006 John Thomson wrote to the pursuers enclosing for signature a copy of an F10 notification form. The letter began "Further to your appointment and our recent pre-start meeting, we enclose for signature a copy of the F10 notification form...Please retain a copy for display on site." Michael Burrows confirmed that this form was an important document which had to be completed and sent to the Health and Safety Executive before work commenced on site (as provided in the (Construction) (Design and Management) Regulations 1994, Regulation 7(6)(c)). By letter dated 13 January 2006 the pursuers replied, returning a copy of the form and confirming that they had passed the original to the Health and Safety Executive. By letter of the same date they sent the form to the Health and Safety Executive. The form was a standard form partly printed and partly handwritten. The handwritten sections were completed by John Thomson. The defenders were designed as the client. Section 10 of the form, which contained provision for a declaration of a planning supervisor, was scored out by Mr Thomson. It was Michael Burrow's evidence (confirmed by the evidence of Mr Rodger) that the pursuers took from the terms of the form that the defenders were prepared to continue with the contract as individuals rather than seeking a change; not only were they named as the clients but if the works had been for a development company such as KWF there would have been a requirement for the appointment of a planning supervisor. It was on this basis that the pursuers signed the form and sent it to the Health and Safety Executive. Michael Burrow's position was that the defenders' presence at the pre-start meeting, their instructions at that meeting and the receipt of the F10 form thereafter satisfied the pursuers that they were contracting with the defenders. It was then that the pursuers sent out acceptances of tenders by subcontractors.

[15] On 13 January 2006 John Thomson sent about 17 letters in identical terms to the occupiers of other properties in Fairyknowe Gardens. Each of these letters was headed "New house - 17 Fairyknowe Gardens, Bothwell" and began "On behalf of our clients, Mr and Mrs Forrest, we would like to notify you that works to their new home will be commencing on site on Monday 23 January 2006". Each of these letters was copied to Michael Burrows for the pursuers.

[16] On 23 January 2006 the defenders allowed the pursuers to commence works on site. There was no evidence of any mention then having been made of KWF or of any arrangements between the defenders as individuals and that company. When works began Mr Thomson introduced the second defender to Ronald Burrows on site as the client. It was clear according to Michael Burrows that by then the defenders were indeed the clients. Thereafter although payments in respect of work were made by KWF, Gibb Architects issued 12 architects instruction's, the first dated 16 February 2006 and the last dated 19 March 2007, and 9 architect's certificates, the first dated 15 March 2006 and the last dated 1 December 2006, in each of which documents the defenders were designed as the employer. In none of them was there any reference to KWF. After commencement on site there were 25 site meetings, the first of which was on 8 February 2006 and the last on 19 March 2007. Both defenders attended each of these meetings. Minutes were taken by Gibb Architects of each of these meetings and distributed to all those present. In each of these minutes the defenders were designed as "client". There was no reference to KWF in any of them. Peter Imrie issued several valuation claim forms on each of which the employer was stated to be the defenders. No reference was made in any of these to KWF. Against that background the Lord Ordinary could not accept "that the defenders (who had experience of other building contracts and commercial development projects) were so naïve or disinterested ( sic ) that when they received important documents such as minutes of site meetings, architect's instructions, architect's certificates and valuation claim forms in which they as individuals, rather than KWF, were designed as the employers, they never raised this matter with anyone".

[17] Mr Gibb in addition gave evidence of two specific discussions with the defenders. In March 2006 just as everyone was dispersing from a site meeting the first defender asked him if he thought it would be a good idea to "change" the designation of the employers from the defenders to KWF. He replied that he did not think this was a good idea, and that it would probably not be accepted by the pursuers in any event. He advised that there were certain advantages if the contract was with a private client. He could think of no good reason for the first defender to seek this advice from him if she already believed that KWF were the employers. The advice which he gave her at the time was consistent with advice he subsequently gave on 22 June 2006. He also gave evidence of a meeting on 19 December 2006 at which both defenders were present. At that meeting he drafted a letter to the pursuers intimating that the defenders wished to deduct liquidate and ascertained damages. The letter was on paper headed "Mr and Mrs William and Jane Forrest,..." and was signed by each of the defenders, above the words William and Jane Forrest. There was no reference to KWF. It was Mr Gibb's evidence that he explained very clearly to the defenders the effect of the clause in the standard term contract referred to, and that the defenders were being asked to sign this letter as individuals, being the employers in the contract. The letter was thereafter sent to the pursuers.

[18] It is important to note that, although evidence was given on behalf of the defenders (a)  that at the meeting on 30 November 2005 the first defender asked Michael Burrows if he would have any objection to contracting with KWF instead of herself and her husband, and that he clearly stated that he did not have any such objection, the only thing he asked her to do being to provide a bank reference and (b)  that in the course of the pre-start meeting in January 2006 she showed him the bank reference which had been requested and he confirmed that the pursuers would be happy to contract with the limited company, this evidence was rejected by the Lord Ordinary. He thus rejected the primary contention on behalf of the defenders that an express agreement had been reached that the contract was to be between the pursuers and KWF. The Lord Ordinary also rejected evidence that formal contract documentation referring to KWF as the employer was handed to the pursuers by Mr Imrie along with covering letters dated 13 April 2006 and 29 June 2006.

The Defenders' Submissions

[19] In presenting his submissions on behalf of the defenders Mr Malone did not seek to challenge any of the findings made by the Lord Ordinary. Nevertheless his short primary submission was that the Lord Ordinary had erred insofar as he found that there was no contract between the pursuers and KWF - in particular insofar as he found that nothing in the pursuers' actings could be construed as amounting to an agreement to work for KWF. Properly analysed the letter of 20 December 2005, while not capable of completing the contract (reference being made to McBryde , The Law on Contract in Scotland , 3 ^rd Edition, para 6-106), fell to be regarded as a counter offer by KWF to contract on the same terms as contained in the pursuers' revised tender. Even if that was not right, the request made by the first defender at or shortly after the pre-start meeting was properly to be so regarded. In these circumstances this counter offer was the only live offer prior to the start of work on site. By starting on site without communicating any rejection of it the pursuers should be taken to have accepted that offer. There was then a completed agreement between the pursuers and KWF. The test of what, if anything was agreed was objective. What the parties understood themselves was of no moment. Reference was made to McBryde para 6-11 and Muirhead & Turnbull v Dickson (1905) 7F 686 . That this was the contract was confirmed by the payments made by KWF. The Lord Ordinary erred in placing too much weight on the form F10, and on the letter of 13 January 2006. The former was only a technical matter. If a contract between the pursuers and KWF was thus formed, references thereafter to the defenders in contract documents, minutes, etc. should be construed as pertaining to that contract, any reference to the defenders being referable to them as agents (whether ad hoc or as directors) of the company. Reference was made to John Stirling v Westminster Properties Scotland Limited [2007] CSOH 117 . Alternatively (and this was the secondary submission), it was plain from the letter of 20 December 2005, and from what was said at or after the pre-start meeting, (and from the payments which were made), that the defenders could not reasonably be taken to have intended to contract as individuals. There was thus no consensus as to the parties, and no contract. Reference was made to McBryde at para 6-107.

Discussion

[20] In light of the findings made by the Lord Ordinary we are not persuaded, for the reasons broadly advanced by counsel for the pursuers, that there is any substance in these contentions.

[21] In the defenders' primary submission some weight at least was placed upon the letter of 20 December 2005. It is not clear, however, from the Lord Ordinary's opinion (or from the recollection of counsel for the pursuers) that any such weight was placed upon it before the Lord Ordinary (although the general thrust of the defenders' present argument was, it seems, advanced, albeit as a fallback position). Be that as it may, in our opinion the Lord Ordinary was entitled to treat the letter as being of no real significance. First of all there was, as recorded above, no evidence that it was issued with the authority of the defenders, nor any satisfactory evidence as to how it came to be written. In any event it could not, we consider, be regarded as a counter offer (and as such an implied rejection of the pursuers' tender, leaving it as the only live offer - see e.g. Hyde v Wrench (1840) 3 Bev. 334). It did not come from the parties to whom the original offer was addressed. Instead, in our opinion, the pursuers were, on the Lord Ordinary's findings, reasonably entitled to treat the letter - received against a background in which there had been no mention whatsoever of KWF - as a mistaken attempt to accept their offer, and as such that it did not call for any acknowledgement (see eg Shogun Finance Ltd v Hudson [2004] 1 AC 919 - in particular Lord Millett at para. 63).

[22] The main emphasis in the defenders' primary submission was upon the request made at the end of the pre-start meeting. At least that was something which could be said to have come from the defenders themselves. Once again, however, to suggest that it falls to be treated as a counter offer goes, in our view, too far. It is important to consider both the context in which it was made and the terms of what was said. As to the former, the pre-start meeting was, on the Lord Ordinary's findings, arranged because the defenders were going to accept the revised tender from the pursuers. It was accepted that at the meeting the defenders informed the pursuers that they wished to proceed. As to the latter, all that happened (and that during informal discussions after the meeting) was that Mr Burrows was asked if the pursuers would be happy if KWF were the clients. The pursuers, in our view, were reasonably entitled to treat this, as they did, simply as a request to consider as a possibility that KWF would be the employers in place of the defenders. What was not said, it seems, was anything to the effect that the defenders would not be prepared to contract unless the company was the employer. In short the pursuers were, it appears to us, reasonably entitled to treat this as a suggested change to the parties to a contract which the defenders were otherwise prepared to enter as employers, and to proceed on the basis that unless they agreed to this suggestion their employers would be the defenders. In these circumstances the Lord Ordinary was perfectly entitled in our view not to treat what was said as a counter offer. Furthermore, against that background the pursuers were reasonably entitled (as was the Lord Ordinary) to treat the position as having been confirmed by the sending of the F10 form (indeed the pursuers' reaction, as found by the Lord Ordinary, went somewhat further - the form confirming to them that the defenders were prepared to continue with the contract as individuals rather than seeking any change). To suggest that this form was a mere technicality is in our view seriously to underplay its significance.

[23] In these circumstances we consider the Lord Ordinary was entitled to take the view that, when the defenders, without any further reference to KWF, allowed the pursuers to commence work on site, by their actings they accepted the pursuers' offer to contract with them (even if that was not already clear from the pre-start meeting). Further he was entitled to take the view that the formation of such a contract was confirmed by the repeated issue of the architect's certificates and instructions, by the unchallenged repeated reference to the defenders in the minutes of site meetings, by the letter of 19 December 2006 (and the evidence as to its genesis) and having regard to the evidence of the discussion between Mr Gibb and the first defender in March 2006 (as to the potential relevance of post contractual actings see e.g. Baillie Estates Limited v Du Pont (UK) Limited [2009] CSOH 95 at paragraph [26]). Indeed, quite apart from any question of offer and acceptance and leaving aside any evidence which might point only to the parties' subjective understanding, the Lord Ordinary would, in our view, have been entitled to infer from their performance in relation to the works (in particular from the instructions, directions, minutes and correspondence) that such a contract had been formed (see e.g. G. Percy Trentham Ltd v Archital Luxfer Limited and Others 1993 Lloyd's Law Reports 25 at page 27). Finally, although payments were made by KWF the Lord Ordinary was, in our view, entitled to treat that fact as neutral. Evidence was given, and accepted, that it was not unusual for such payments to be made by a third party.

[24] In these circumstances this reclaiming motion falls to be refused.