Supreme Court allows appeal on RIAI contract validity but rejects incorporation of approximate Bill of Quantities.

THE SUPREME COURT

HARDIMAN J.

FENNELLY J.

MURPHY J.

Record No. 002/2008

BETWEEN/

MCCABE BUILDERS (DUBLIN) LTD.

PLAINTIFF/RESPONDENT

AND

SAGAMU DEVELOPMENTS LTD., LARAGAN DEVELOPMENTS LTD. AND HANLY GROUP LTD.

DEFENDANTS/APPELLANTS.

Judgment delivered the 1st April 2009 by Mr. Justice Murphy

1. The parties to this appeal seek declarations as to the nature of the building contract entered into by the appellants (“the

Hanly Group”) as employers and the respondent (“McCabes”) as contractor.

2. By letter dated 5th August, 2005, from Mr. Alan Hanly, the chief executive of the Hanly Group, to Mr. Richard

McCarthy, commercial director of McCabes, was countersigned and returned by Mr. McCarthy on 8th August.

3. That letter stated in relation to a meeting the previous day, 4th August, as follows:-

“… we will be entering into a fixed price contract with the contractor to carry out the works at

Kilmacanogue; there will however be 6 P.C. sums, three of which will be nominated suppliers and the

other three will be at the contractor’s discretion. In all cases, should there be an extra overspend on

the 6 P.C. sums, it will be the developers responsibility to pay the difference.”

4. That letter stated that the parties had reached agreement on the project via telephone. The summary of their agreement

appeared as follows:-

“The Healy Group will pay McCabe Builders €15.3million plus VAT for the contract as outlined in the Spec and

Bill of Quantities at Kilmacanogue, Co. Wicklow. The Hanly Group is entering into a fixed price contract and as

stated earlier in this letter there are 6 P.C. sums of which there are only two nominated suppliers/sub-contractors

(McNally Kitchens and Vogue Bathrooms). In both cases McCabe Builders will be dealing directly with these

suppliers. However, the Hanly Group has already secured competitive quotes from both people and at any rate,

as with other P.C. sums, should same increase; it will be an extra over-cost for the Hanly Group. Our expertise

and experience will assist in choosing both suppliers, particularly given the product in question as both suppliers

will be able to deal efficiently with customers who wish to upgrade/change products. This will be both beneficial

to McCabe Contractors and the Hanly Group of developers.”

The letter then stated that the parties proposed to take the opportunity over the coming days to work closely to finalise all

outstanding issues. It was noted that it would be beneficial to both of the companies to reach a conclusion on this upon

signing of contracts.

5. The letter dealt with the understanding of the Hanly Group in the following terms:-

“it is the Hanly Group’s understanding that all correspondence forwarded to McCabe Builders from

our offices and (the quantity surveyor’s offices) regarding conditions, planning conditions and special

conditions are and form integral parts of our agreement. I would be grateful if you could review this

document, and if you concur that the conditions laid out in this document are as agreed, please sign

below and return to our offices at your earliest convenience.”

6. The High Court found that the communication of the 5th and 8th August was ineffective to create legal relations, due to

uncertainty, and that no contractual relations had been created between the parties. The entitlement of the respondent in

relation to payment for the work done to date was to be assessed on a quantum meruit.

7. The Hanly Group had engaged a firm of quantity surveyors to conduct an initial tendering process. Tender documents

were sent out to a number of builders, including McCabes on the last week of June, 2005. The tender documents comprised

a Bill of Approximate Quantities, a form of tender and architectural drawings and a landscape architect’s drawings.

8. The Bill of Approximate Quantities was in four volumes. The preamble to the Bill of Approximate Quantities provided

that the contractor was to “properly execute the works whether or not shown on the drawings or described in the Bill of

Approximate Quantities, provided that same may be reasonably inferred therefrom”.

9. The contract drawings prepared for the appellant had not been sufficiently developed to enable tenderers to properly price

the works with a required degree of specificity needed for a meaningful tender. The specification document entitled

“Specification of Materials”, consisting of 13 pages was very sparse. To make up for this the appellant’s quantity surveyors

provided a very detailed Bill of Approximate Quantities to allow tenderers price in detail for the works required.

10. A provision had been made in the Bill of Approximate Quantities that the form of contract would be the Articles of

Agreement and Conditions of Contract 2002 (revision 1, print 4) as issued by the R.I.A.I. in agreement with the

Construction Industry Federation (C.I.F.) and Society of Chartered Surveyors (S.C.S.) where quantities did not form part of

the contract. That document also provided as a general condition at (G.C.2) that the contractor should carefully examine the

drawings and other contract documents and satisfy himself as to their accuracy and ensure that they cover and embody the

proposed works. The contractor should also properly execute the works whether or not shown in the drawings and

described in the Bill of Approximate Quantities, provided that same may reasonably be inferred therefrom.

11. The appellants submitted that the description in the Bill of Quantities in relation to the works, in the circumstances,

formed part of the contract documents.

12. On 10th August, works commenced on site.

13. On 26th August, 2005, Mr. Hanly wrote to Mr. McCarthy issuing a letter of intent for the works to the value of

€1,000,000.00, primarily to cover the respondents for works that they were commencing on the site of presence in the

absence of a fully signed contract.

14. The formal contract documentation, including the R.I.A.I “blue form”, was sent to the respondent on 24th November,

2005, for signature and return which was signed on 19th January, 2006.

15. The R.I.A.I. “blue form” accordingly became binding on 19th January, 2006. 16. The Articles of Agreement thereof

recited:-

“For the consideration hereinafter mentioned the contractor will upon and subject to the conditions

annexed hereto execute and complete the works shown upon the contract drawings and/or described

in the specification and conditions all of which together with this Agreement are hereinafter referred to

as ‘the Contract Documents.’”

17. Condition 2 under the heading “The Scope of Contract” provided that the contractor should carry out and complete the

works in accordance with the Contract Documents and with the directions and to the reasonable satisfaction of the

architect…

18. Condition 3 (a)(ii) provided that where the Articles of Agreement did not provide for the inclusion of a Bill of Quantities

as a Contract Document, the contract sum should be deemed to provide for the quantity and quality of work set out in the

drawings and specifications. The contractor was required, before the signing of the Articles of Agreement, to furnish the

architect with a Schedule of Rates. Where a Bill of Quantities was provided for tendering purposes the rates therein

contained should be the Schedule of Rates.

19. That condition further provided:-

“Nothing contained in the contractors estimate or the bills, the Bill of Quantities (except as a Schedule

of Rates), shall confer rights or impose any obligations beyond those conferred or imposed by the

Contract Documents.”

20. This provision would seem to be at variance with the appellant’s contention that the description in the Approximate Bill

of Quantities was effectively the Specification for the purpose of the Contract, notwithstanding that what was termed “the

formal contract documentation” sent to the respondent on 24th November, 2005, included the letter of 5th .

21. Keane: The RIAI Contracts – A Working Guide (4th revised edition) comments on the RIAI “blue form” for use

without quantities and the “yellow” version for use where quantities are part of the contract, as follows:-

“3.01. The effect on the Contract as to whether the Bill of Quantities forms part of the Contract or not is important. If

the Bill of Quantities is a Contract Document then the quantities shown are those required under the Contract and any

variation from the quantities shown in the bill will be adjusted in the final account under clause 13 as if it were a

variation.

If the Bill of Quantities is not part of the Contract, then the quantities are provided only as a guide to the extent

of the work (but also, of course, to form in effect, a Schedule of Rates) and the contractor, or indeed the

employer, must bear any loss which might result from differences in the bill in the actual work carried out. The

practice of having a Bill of Quantities not forming part of the Contract is unusual now and if a Bill of Quantities is

prepared it is almost always made a Contract Document.

3.02 Originally, quantities were taken out by the contractors themselves when tendering, or the contractor

employed a quantity surveyor to do this work. Naturally, under those arrangements, the responsibility for the

accuracy of the quantities fell entirely on the contractor. Over the years, however, the role of the quantity

surveyor changed, and more and more he became employed by the building owner. It seemed reasonable in

these changed circumstances, that the employer accept responsibility for the accuracy of the bill since he has

ordered the preparation of that bill and his agent, the quantity surveyor, has prepared it. This area was a

profitable source of litigation until the case of Patman and Fotheringham Ltd. v. Pilditch [1904] Huttons

Building Contracts, 4th edition, vol. 2, p.368 where it was held: ‘if the quantities in the Bill are less than those

required by the drawings the contractor is entitled to be paid an appropriate addition to the contract sum since the

quantities were introduced with the contract as part of the description of the contract work, and if the contractor

was required to do more, it was an extra.”’

22. Keane refers to the decision of Ross J. in Collin Bros. v. Dublin County Council [1908] 1 I.R. 503, which dealt with

the construction of Portrane Asylum, where the defendant sought to reduce the specification before contract. Quantities did

not form part of the contract. A mistake had been made in a bill of reductions which had been prepared by the defendant

employer’s quantity surveyor. The court held that mistake could be rectified because “the meaning of rectification of a

written instrument is to carry out the real intention of the parties which had been erroneously expressed” in respect of the

building of the asylum for the defendants. The Bill of Quantities had been priced by the plaintiffs in the sum of

£199,000.00. The reductions brought that sum down to under £170,000.00. The building having been completed an error

was discovered whereby the contractors lost £357.00. It was accepted that there was a mutual mistake.

Ross J. was of the view that the court could not deal with the contract alone but had to deal with the tender. The intention

of the parties, when analysed, was that the tender for the original amount of the price to section, less the amount of the

priced bill of reductions, should be accepted. The sum of £167,000.00 was erroneously taken to be the figure, and

erroneously embodied in the contract.

23. Ross J. continued at 509, 510 as follows:-

“The meaning of rectification of a written instrument is to carry out the real intention of the parties

which has been erroneously expressed. This is what the plaintiffs asked me to do. There are all kinds

of technical difficulties. How can you rectify the deed without rectifying the tender? How can you

alter an accepted tender? These technicalities ought not to be allowed to stand in the way of a court of

equity, whose primary duty is to struggle to enforce fair dealing between man and man, if it can be

done without violating some matter of principle.”

24. There is no evidence of a common mistake in the present case; accordingly the issue of rectification cannot arise. The

tender could only be referred to where there was a mutual mistake in order to establish the true intention of the parties.

25. There is no doubt that the parties intended on 5th August, 2005, to enter into an R.IA.I. Contract without quantities.

The only issue is what the specifications were and whether, notwithstanding the provisions in the contract eventually signed

on 19th January, 2006, by the contractor.

26. Lord Denning in English Industrial Estates Corporation v. George Wimpey & Co. Ltd. [1972] 7 B.L.R. 122, took the

view that provisions which have been specially typed in a Bill of Quantities must take precedence over a standard printed

form but this, according to Keane, is an unusual view.

27. The provisions of clause 3(8)(i) which incorporates the Bill of Quantities, provides that nothing contained in the Bill

should override, modify or affect in any way whatsoever the application or interpretation of that condition.

28. It was s. 3(8)(ii) that applies in the present case. That also provides that:-

“Nothing contained in the contractors estimate or the Bill of Quantities (except as a Schedule of Rates) shall confer

rights or impose any obligations beyond those conferred or imposed by the Contract Documents.”

29. In clause 3(a)(i) the Bill of Quantities is deemed to provide for the quality and quantity of the work. On the other hand

in sub-clause 3(a)(ii) the drawings and specifications are to perform this function.

30. It would seem, accordingly, that, in the absence of a special condition in the R.I.A.I. “blue form” importing the

description of works therein to include those described in the Approximate Bill of Quantities, only the drawings and

specification, inadequate though they appear, can form the definition of works. It is these that form the contract documents

referred to in clause 3(b).

31. I am of the view that the R.I.A.I. contract without quantities binds the parties and would allow the appeal to that extent.

However, I am unable to accept the appellant’s contention that the R.I.A.I. contract can incorporate the description in the

Approximate Bill of Quantities as being a definition of the works or as being part of the contract documentation.