Scottish appeal court confirms that notification of loss and expense under the JCT standard building contract is a condition precedent to recovery

The Inner House of the Court of Session has upheld a decision by a commercial judge of the Outer House, confirming that notification of loss and expense under the 2016 JCT Standard Building Contract for use in Scotland is a condition precedent to recovery. At first instance, the commercial judge found that no entitlement to loss and expense could arise under clause 4.20 unless the contractor complied with the notification requirements.

We have written about that decision here. The commercial judge noted that the standard contract was drafted by skilled professionals, that its language was clear and straightforward, and that it was difficult to interpret the phrase “subject to … compliance with” in any way other than as a condition precedent. Additionally, compliance with the notice requirement was not unduly onerous, and both parties benefitted from timely notification of loss and expense claims.

This decision, although specific to Scotland, has broader implications since the English version of the contract also uses the phrase “subject to … compliance with” in the notice requirement clause (including in the 2024 version). It remains to be seen if courts in England and Wales will adopt the Scottish approach.

The appeal decision

The Inner House re-emphasised the commercial judge’s observation that the language of clause 4.20.1 was clear and unambiguous. Noting that the contractor’s entitlement is “subject to… compliance with the provisions of clause 4.21.” the court made the following points:

• Natural and ordinary meaning: Ignoring this phrase would contradict the natural and ordinary meaning of the words used. In reaching this view, the court also noted that, as the contract was drafted by skilled professionals, it was appropriate to approach interpretation principally by textual analysis.
   
• Clear words: under the established principles of contractual interpretation, the primary focus is on the intention of the parties as gleaned from the language used. It did not matter that the clause did not expressly state that it was a condition precedent. The clear language of clause 4.20.1 made compliance with clause 4.21 a prerequisite for any entitlement to loss and expense.
   
• Commercial common sense and supplementary material There was no ambiguity in the wording and therefore, no need to resort to supplementary tools of interpretation, including commercial common sense and (as part of the contractual context) the content of JCT guidance.

Implications

The Inner House (and the Outer House before it) have emphasised that standard contracts used in construction are professionally drafted documents. Such documents can be interpreted principally by textual analysis. Any reference to commercial common sense or other contextual material is unnecessary if the impugned text is clear and unambiguous. The decision highlights the importance for both contractors and employers of understanding one’s obligations under a standard contract. Additionally, as the court stated that the JCT guidance could not override the plain meaning of the words used, it also remains to be seen if JCT will offer an altered version of its contracts or if contractors will seek bespoke amendments to deal with this issue.

As noted earlier, the phrase “subject to … compliance with” also appears in the English version of the JCT standard building contract, and it will be interesting to see if the courts in England and Wales will adopt the Scottish approach.