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	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> The Miller Group Ltd v Scottish Coal Company Ltd [1998] ScotCS 75 (24 November 1998) URL: http://www.bailii.org/scot/cases/ScotCS/1998/75.html Cite as: [1998] ScotCS 75

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The pursuers in this reclaiming motion are the contractors who, in 1991, entered into a contract with British Coal Open Cast to carry out coal production and restoration works at the Westfield Link site in Fife. British Coal Open Cast was the trading name of British Coal Corporation. The rights and obligations in respect of the contract were transferred to the defenders in terms of the Coal Industry Act 1994. In the contract the pursuers are referred to as the Contractor and the defenders' predecessors as the Authority.

In this action the pursuers have sought payment of a sum of £346,870.79 with interest. They have done so under reference to certain provisions of the contract and related correspondence. The sum sought represents the balance of a fund referred to in the contract as the retention fund.

After debate before him, the Lord Ordinary held, on a construction of the contract and of the related correspondence, that the pursuers were entitled to payment of the sum sued for and by interlocutor dated 12 November 1997 granted decree in that sum together with interest. Against that decision the defenders have reclaimed.

In terms of the contract the pursuers were required to carry out and complete the execution of the works to the satisfaction of a supervising officer, referred to in the contract as "the S.O.". The relevant provisions of the contract are contained in Conditions 40, 41 and 42 of the General Conditions of Contract as amended and Condition 14 of the Special Conditions. It is necessary only to set out certain material parts of these for the purpose of this reclaiming motion. Condition 40, so far as material, provides as follows:

Condition 41 opens with the words

Provision is then made for the authority to prepare and submit for the Contractor's agreement a final account within a period of 12 calendar months after the date of the completion of the works to the satisfaction of the Superintending Officer. Thereafter provision is made for notification by the Contractor to the Authority of any items in the final account with which the Contractor does not agree. It is further stated that all items which are not disputed by the Contractor shall be deemed to be agreed. Condition 41 goes on to provide, amongst other things, that when the Authority is notified that the Contractor has duly fulfilled all his obligations under the contract the balance of the retention fund shall be released forthwith to the Contractor by the Authority. There is also provision that if the total amount paid to the Contractor exceeds the final sum, the excess shall be paid forthwith by the Contractor to the Authority.

Condition 42 provides as follows:

The correspondence to which reference was made in the course of the reclaiming motion begins with a letter dated 28 March 1997 from the Superintending Officer addressed to the pursuers. The letter is in the following terms:

The date of that letter constitutes the date after which, in terms of Condition 41, the defenders were taken bound to prepare and submit for the contractor's agreement a final account. The present dispute concerns the balance of the retention fund held by the authority at that date.

The correspondence upon a construction of which the Lord Ordinary held the pursuers entitled to payment of the balance of the retention fund begins with a letter dated 6 May 1997 sent by the pursuers' Commercial Director to the Superintending Officer.

The next letter is dated 16 May 1997. It is addressed by the Superintending Officer to the pursuers' Commercial Director and is in the following terms:

Lastly by letter dated 5 June 1997 the defenders' Managing Director (Opencast) wrote to the pursuers' Commercial Director as follows:

In reaching his decision that the letter of 5 June 1997 constituted an Advanced Payment Certificate issued in terms of Condition 40(3), the Lord Ordinary began by holding that such a certificate could, consistently with the provisions of the contract, be issued some ten weeks after the Superintending Officer had certified the works as complete. He rejected an argument for the defenders that the contract envisaged a sharp temporal distinction between Condition 40 and Condition 41 such that once a stage had been reached at which Condition 41 was operable, no Advance Payment Certificate under Condition 40 could be issued. The Lord Ordinary pointed out that releases from both the restoration fund and from the retention fund were provided for under Condition 40(1)(e). No distinction fell to be made between the two funds in respect of the period when such releases might be made. The language of the two conditions was not such in his view as to compel a conclusion that the periods for their respective operations was rigidly discrete. No express provision to that effect was made. The Lord Ordinary went on to point out that the mechanisms to be followed through before the right to payment arose in terms of the particular Advance Payment Certificate inevitably involved a lapse of time after the completion of the particular work. It was implicit that the right to a particular payment was not cut off merely because the relative work (including any relative work constituting the last work to be executed) had been completed. At the end of the day Mr. McNeill for the defenders conceded that on a fair reading of Conditions 40(3) and 42, the Superintending Officer was entitled to entertain and act upon an application in terms of Condition 40(3) after the date on which the works were held to be completed in terms of Condition 41. Indeed it would be difficult, as the Lord Ordinary pointed out, for it to be otherwise since work executed in accordance with the contract would continue up until that date and could not be assessed by the Superintending Officer for the purposes of Condition 40 until after that date. Accordingly we agree that the Lord Ordinary was correct to reject the submission pressed before him for the defenders and forming the first ground of appeal before us, that the contract envisaged a sharp temporal distinction between Condition 40 and Condition 41 such that once a stage had been reached at which Condition 41 came into operation, no Advance Payment Certificate under Condition 40 could be issued. By the same token we agree with the Lord Ordinary that the language of Conditions 40 and 41 was not such as to compel a conclusion that the periods for release from either fund was rigidly discrete. Indeed Mr. McNeill accepted that upon a proper reading of Condition 40(1)(e), the Superintending Officer was empowered to release the whole of the retention fund as well as the whole of the restoration fund, under the provisions of Condition 40(1)(e).

The Lord Ordinary went on to consider whether the form and terms of the letter of 5 June 1997 excluded the possibility that it was an Advance Payment Certificate under Condition 40. He noted that there were differences between the letter and other pro forma documents which were agreed to be Advance Payment Certificates issued by the defenders or their predecessors under Condition 40. The Lord Ordinary also noted that the letter did not in terms bear to certify anything either by docquet or by express description of its character as a certificate. Nevertheless he held that these differences did not exclude the possibility that it was an Advance Payment Certificate under Condition 40 when considered in the context of the two letters to which it referred and which its author must be assumed to have perused.

The Lord Ordinary held that the letter of 6 May constituted an application under Condition 40(3) for two reasons. First, it was plain, notwithstanding the reference to Condition 41(ii), that the writer was seeking from the Superintending Officer the inclusion of the balance of the retention fund in a monthly certificate. Such a certificate was issued only in pursuance of Condition 40. Second, in any event the basis for the request, namely "the fulfilment of the contract", was made sufficiently clear. The Lord Ordinary went on to hold that doubt about the perceived nature of that letter was resolved by reference to the Superintending Officer's response in the letter of 16 May 1997. The Lord Ordinary held that that letter plainly treated the earlier letter as an application to him to be dealt with by passing the same to the defenders as the Authority for its attention under monthly certification for payment. The Lord Ordinary noted that in the letter the writer did not in terms record his satisfaction that such work had been completed so as to justify the release at that time of the balance of the retention fund, nor in terms recommend payment of the relative amount. But he held that the prima facie implication from the letter including its last sentence, was that he was so satisfied and was so recommending. It was on that basis that the Lord Ordinary concluded that, on receipt of both the letter of 6 May and a copy of the Superintending Officer's response of 16 May, the defenders became obliged to issue an Advance Payment Certificate in accordance therewith within 14 days of the last day of its monthly accounting period. He then went on to hold that they had in fact done so by reason that the letter of 5 June which had been dispatched within the timescale, constituted at least in part such an Advance Payment Certificate.

At the conclusion of the hearing it became clear that the issue in this reclaiming motion was a short but sharp one. The Lord Ordinary in his opinion recognised that the real question was whether on receipt of the letters of 6 May 1997 and of the Superintending Officer's response of 16 May 1997 the defenders became obliged to make payment of the sum sued for to the defenders. It is also clear from the terms of Condition 40, and in particular Condition 40(6)(a), that the defenders were still liable to make payment to the Contractor in accordance with Condition 40(3) even if they failed to issue a certificate when bound to do so.

For the defenders, Mr. McNeill submitted that the inference to be drawn from the two letters upon their receipt by the defenders was far from clear. In the first place, he pointed out that the letter of 6 May 1997 asked that the balance of the retention fund which the pursuers claim was due to be released should be certified "accordingly". This was a reference back to the phrase "in accordance with Condition 41(ii) of the contract" which on the face of the letter qualified the request. Notwithstanding its terms the Lord Ordinary had treated the letter as an application made under Condition 40. The last paragraph of the letter sought a response from the Superintending Officer for the issue of an up-to-date certificate, recognising that the issue of such a certificate did not necessarily release any further monies at that stage. When reference was made to the letter of 16 May 1997, which was a letter addressed to the pursuers, a copy of which had been forwarded to the defenders, there was nothing which could be read as a recommendation by the Superintending Officer of any amount which in his opinion was due to the pursuers under the contract. The reference to the letter of 6 May having been passed to the defenders for their attention in respect of the monthly certification of payment, could not be read as any such recommendation. Nor did it express any indication of satisfaction that work had been completed in accordance with the contract as was referred to in Condition 40(3). In these circumstances, the Lord Ordinary had been in error in regarding the letters of 6 May 1997 and 16 May 1997 as constituting steps in terms and for the purposes of Condition 40(3). The letter of 6 June gave no indication that the defenders were certifying any amount as due and payable within 14 days. On the contrary it gave the outstanding balance as nil. The reference to the need to amend the figures to reflect a different escalation index on rubber tyres and spares and the verification of actual site tonnages following the issue of a rolled up certificate, was plainly a reference to procedures in relation to Condition 41. Nothing stated in the letters of 6 May and 16 May 1997 entitled the Lord Ordinary to conclude that the Superintending Officer was intending to deal with the request for the release of the balance of the retention fund contained in the pursuers' letter of 6 May other than in the context of Condition 41 or that he was in the letter of 16 May 1997 waiving the defenders' rights to have the matter so regulated under Condition 41. In these circumstances the Lord Ordinary had been in error in holding that the inference to be drawn from these two letters was that on their receipt the defenders became obliged to issue an Advance Payment Certificate. This conclusion was reinforced by the terms of the letter itself which, as the Lord Ordinary had noted, did not bear to certify anything.

For the pursuers Mr. Clark, at the outset of his submissions, drew attention to the fact that no defence of counterclaim and hence of any valid right to set off, had been advanced on the part of the defenders to the pursuers' claim for payment under Condition 40. There was nothing in the documents indicating that the Superintending Officer had complained that any work executed by the pursuers was not in accordance with the contract. The provisions of Condition 40 gave the Superintending Officer a dominant role up to completion of the works. The defenders as the Authority had no part to play except under Condition 40(3) in relation to the issue of an Advance Payment Certificate upon a prior recommendation of the Superintending Officer. That recommendation proceeded upon an application initiated by the pursuers as Contractors. However that scheme for payment did not refer back to Condition 40(1). The provisions of Condition 40(1) envisaged that even without an initiating application by the pursuers the Superintending Officer was entitled to release a proportion of the retention fund under Condition 40(1)(e) by issuing a certificate of the kind which he was empowered to issue in terms of Condition 42. Upon the issue of such a certificate, the pursuers became entitled to payment and the defenders became obliged to pay that sum. If the Superintending Officer was satisfied that the work had been completed in accordance with the contract, it was no function of the Superintending Officer to determine any dispute between parties in the nature of a counterclaim by the Authority alleging breach of contract. Nor could his determination that he was satisfied that the work had been completed in accordance with the contract foreclose any subsequent claims for breach of contract. The letter of 16 May 1997, read in the context of the prior correspondence, constituted a certificate for the purposes of Condition 40(1)(e) for the release of the balance of the retention fund. The reference in the last sentence of the letter to due fulfilment, was an echo of the purpose of the retention fund as set out in Condition 40(1)(a). That reference also fell to be read in the light of the letter of 6 May 1997 in which the pursuers had stated that they were pleased to have the confirmation of the Superintending Officer that the works were complete as at the date of the latter's letter of 28 March 1997, "signifying due fulfilment of the contract". In any event the words in the last sentence of his letter were apt to indicate that the Superintending Officer had been satisfied that the works had been completed in accordance with the contract. Furthermore the same letter made clear that the Superintending Officer had not demurred to the request for release of the balance of the retention fund made in the letter of 6 May 1997. The letter of 6 May 1997, together with a copy of the Superintending Officer's letter of 16 May 1997, had been passed on to the defenders to be dealt with in respect of the monthly certificate of payment. That was to say that it was expected to be dealt with under Condition 40 which made specific reference to the Authority's monthly accounting period. In any event, even if Condition 40(3) was relevant and required a recommendation before a right to payment arose, that recommendation was, as the Lord Ordinary found, to be inferred from the terms of the letters of 6 and 16 May 1997. The letters had to be read in context. That included the last sentence of the letter of 16 May 1997 and its reference to due fulfilment. The Superintending Officer not having demurred to the terms of the letter of 6 May, it was to be read as an application made for release under Condition 40 as the Lord Ordinary had held. In these circumstances the Superintending Officer must be held as having certified due fulfilment of the contract in the sense of being satisfied that the work had been completed in accordance with the contra

Counsel for the defenders in his reply to the submission that the letters of 6 May and 16 May 1997 fell to be read as a certificate issued in terms of Condition 40(1) rather than as a response to a request from the defenders under Condition 40(3), which contention had not been advanced before the Lord Ordinary, argued that the submission appeared to divide Condition 40(1) from Condition 40(3). In terms of Condition 40(1) there was no identification of when the certificate, if issued, was to be paid. Furthermore it did not appear that the provisions of Condition 40(6) could apply to the approach taken by the pursuers to Condition 40(1). In Condition 40(6)(b) the Arbitrator was to deal with a dispute as to whether a sum or additional sum should have been certified by the Superintending Officer by a particular date under Condition 40(3). So far as the letter of 16 May 1997 was concerned the reference in the last sentence to due fulfilment did not indicate an opinion that so far as the retention fund was concerned the works had been duly fulfilled. Rather it was a reference back to the earlier decision with regard to the date of completion. If the letter of 6 May was merely being passed over to the defenders, it could not be held to be the equivalent of not demurring to its terms. Even if the Superintending Officer was considering the issue of due fulfilment, as that phrase was used in Condition 40(1)(a), his opinion on due fulfilment was not one which he was empowered to express. This was clear from Condition 42. It stated that no interim certificate was of itself to be conclusive evidence that any work to which it related was in accordance with the contract. The phrase could only to be related to Condition 41(ii). In any event the letter did not express an opinion that there had been due fulfilment and there was no reference to an amount being due. Such an opinion and such reference to the amount due would be required for a certificate for the purposes of Condition 40(1)(e).

For the obligation to arise upon which the pursuers' claim for payment under Condition 40 is founded, there must be spelled out of the letter of 6 May 1997 and the letter of 16 May 1997 which were received by the defenders, as their letter of 5 June acknowledges, one or other of a certificate of the Superintending Officer for the purposes of Condition 40(1) or a recommendation for the purposes of Condition 40(3). An obligation on the defenders as the Authority to pay any amount to the pursuers as the Contractor in terms of Condition 40 could only arise on the submissions of the parties, in one or other of those two situations. As regards a certificate under Condition 40(1), that would have required that the Superintending Officer certified an amount as one which in his opinion was due to the pursuers as the Contractor in accordance with Condition 40(1)(e). As regards Condition 40(3), that required a recommendation by the Superintending Officer of payment of an amount which in his opinion was due to the pursuers as Contractor under the contract for such work as had been the subject of an application to the Superintending Officer for payment of an advance on account. That recommendation could be made if the Superintending Officer was satisfied that such work had been completed in accordance with the contract. Upon receipt of a certificate under Condition 40(1) or of a recommendation under Condition 40(3) the defenders would have become obliged to make payment of the amount so certified or recommended. The terms of Condition 40(1)(e) allow for release of proportions of the retention fund but provide no criterion for the estimation of how much is to be released at any one time. So far as Condition 41 is concerned, that simply allows for the circumstance that some part of the retention fund has not been released as otherwise provided for by Condition 40(1)(e).

In considering the issue before us, we proceed upon the basis that, as was accepted by counsel for the defenders, on a fair reading of Conditions 40 and 42 the Superintending Officer was entitled to entertain and act upon an application under Condition 40(3) after the date on which the works were held to be completed in terms of Condition 41. However Condition 42 provides for any certificate relating to work done or materials delivered to be modified or corrected by a subsequent interim certificate or by what is referred to as the final certificate, and no interim certificate of the Superintending Officer is to be of itself conclusive evidence that any work or material to which it relates is in accordance with the contract. As we have said before, we agree that the Lord Ordinary was correct to reject the submission that the contract envisaged a sharp temporal distinction between Condition 40 and Condition 41. We also agree with the Lord Ordinary's description of the letter of 5 June 1997 as being one which does not in terms bear to certify anything either by docquet or by express description of its character as a certificate.

The Lord Ordinary reached the view that that letter constituted an Advance Payment Certificate under Condition 40 by reference to the implication to be drawn from the letters of 6 May and 16 May 1997 to which reference is made at the beginning of the letter of 5 June 1997. For an obligation to arise on the defenders' part to pay a sum of money to the pursuers under Condition 40 required some clear indication from the Superintending Officer that the defenders were being placed under such an obligation and that they were being so placed in a manner which was consistent with the terms of Condition 40. The correspondence relied upon by the pursuers as giving that indication rests on two letters, neither of which is addressed directly to the defenders. The only letter written by the Superintending Officer, that of 16 May 1997, does not bear to be a certificate, let alone a certificate to the effect that the pursuers are in the opinion of the Superintending Officer due to be paid an amount representing the remainder of the retention fund in terms of Condition 40(1)(e). The letter opens with the words "I acknowledge receipt" of the letter of 6 May 1997. Notwithstanding that the earlier letter contains the statement "the balance of the Retention Fund is due to be released and should be certified accordingly", the Superintending Officer nowhere in the subsequent letter affirms that statement by certification on his part in accordance with or in concurrence with the statement, let alone by certification under Condition 40. Indeed the letter is silent on the matter. We would add that the statement is on the face of the letter of 6 May made under reference to Condition 41(ii). The sentence following it appears to be a rejoinder to an opinion expressed by the defenders in a letter from the defenders dated 7 January 1997. That letter is not referred to or produced in this action. We have therefore reached the conclusion that the two letters founded upon by the pursuers cannot constitute such a certificate in terms of Condition 40(1) as obliged the defenders on receipt of the letters to pay the amount which constituted the balance of the retention fund. We would only add that in so deciding, we find it unnecessary to express any concluded view on whether such certification procedure was to be distinguished from the procedure under Condition 40(3) which led to and provided for the issue by the defenders of an Advance Payment Certificate. We would only point out that nothing is said in Condition 40(1) as to when the sum due to the contractor is to be paid other than that it is to be "each month". Moreover Condition 40(6)(b) appears to refer to a certification procedure involving the Superintending Officer directly as proceeding under Condition 40(3) and envisages that the Arbitrator may identify a particular date by which any sum or additional sum should have been certified, which sum is to be regarded as overdue for payment 28 days thereafter. That period appears to coincide with the total period allowed for the issue of and for payment on an Advance Payment Certificate.

Nor do we consider that these letters can be read as a recommendation made following a request in terms of Condition 40(3) which became binding upon the defenders to the extent that they were then obliged to issue an Advance Payment Certificate and make payment on that certificate. The Lord Ordinary accepted that there was confusion in the letter of 6 May caused by the reference to Condition 41(ii). He held it to be a request under Condition 40(3) because a monthly certificate fell only to be issued in pursuance of Condition 40, and that the basis of the request which he stated to be the fulfilment of the contract, was made sufficiently clear. We consider that the Lord Ordinary has here fallen into error. The term "monthly certificate" does not appear anywhere in Condition 40 or indeed in Condition 41 and no requirement is made for the issue of such a certificate by the defenders as the Authority. Reference is made in Condition 40(3) to the Authority's monthly accounting period and in Condition 40(1) to the Contractor's entitlement to payment each month. Condition 42 envisages certification from time to time of sums to which the Contractor is entitled under Condition 41 as well as Condition 40. Accordingly there appears to be nothing in the contract which restricts the Authority's monthly accounting period only to dealing only with certificates issued by the Superintending Officer under Condition 40(1) or to Advance Payment Certificates issued by the defenders under Condition 40(3). Furthermore the basis of the request was in terms stated to be under Condition 41(ii). The Superintending Officer did not demur to a request so stated. Accordingly it is not clear why the letter of 16 May including the last sentence should have carried with it the prima facie implication that the Superintending Officer was treating the request as a Condition 40 application and making a recommendation thereon. Looking to the terms of the letter of 6 May 1997 it is as consistent with inviting the defenders, if still of the opinion that they have previously expressed in a letter of 7 January 1997, to issue a monthly certificate showing the amount of the balance of the retention fund as a separate and independent deduction. The last sentence of the letter of 6 May 1997 can only be read as indicating that the exercise upon which the Superintending Officer was asked to issue an up-to-date certificate, was one which would detail monies certified to that date together with the monies then withheld offset, and that such a certificate would not necessarily release any further monies at that stage, that is bring out any sum as then payable to the pursuers. Furthermore the last sentence of the letter of 16 May 1997, in its reference to "due fulfilment", is not a clear reference to due fulfilment in relation to the retention fund. The sentence bears to refer to "a reason" for dating completion of the works at 28 March 1997 and not as the pursuers had claimed, at 16 December 1997. It also refers to resolution of the dispute about outstanding restoration works, the execution of which was a part of the contract works. If, as was not disputed, releases of the restoration fund could proceed separately from releases from the retention fund the reference to due fulfilment can not mean any more than that 28 March 1997 was the date as at which the Superintending Officer held the contract works, including restoration works, to be completed to his satisfaction, so that the pursuers could obtain the amount then in the restoration fund. A figure for the fund is specified in the letter of 28 March 1997. It remained to be accepted as correct by the pursuers before the Superintending Officer was in a position, as he put it in the letter of 28 March 1997, to "communicate the agreed figure to the Authority in relation to this month's valuation". But while in terms of Condition 40(1)(e) the restoration works

For these reasons we grant the reclaiming motion, recall the interlocutor of the Lord Ordinary dated 12 November 1997, sustain the first plea-in-law for the defenders and dismiss the action.