[2018] CSOH 22

On 15 October 2014 OSI and Lagan entered into a contract for the design and construct a new production facility. During the course of the contract OSI’s agent issued certain instructions and on 13 July 2016 OSI gave notice to Lagan that it was in default in failing to comply with four of these instructions. OSI said that Lagan did not remedy the default and accordingly, by letter of 2 August 2016, OSI gave notice of termination. This was a preliminary hearing. Amongst other issues, Lagan said that contract instructions numbers 67 and 68 were not valid contract instructions. For example Instruction 67 said this:

“Roof Cladding: The Roof has not been constructed in accordance with the contract. We instruct you to carry out any Works necessary to remedy this. Please provide a copy of your proposals together with a Programme for undertaking these works.”

Lagan said that this instruction was not sufficiently clear and unambiguous to enable them to understand (i) the nature of the issue raised, and (ii) the particular action demanded to remedy the issue. To be valid, an instruction has to be sufficiently clear and detailed to allow the contractor to act upon it forthwith. Lagan accepted that there was a right under the contract to give notice of persistent or material breach, failure to remedy which gave rise to a right to terminate the contract. Its purpose was to enable the recipient to understand what contractual right was being relied upon, and what he was alleged to have done wrong, with sufficient clarity that he could assess the validity of the notice and take such steps as were open to him to remedy the alleged breach. The level of detail necessary for these purposes will differ from case to case, and may be affected by the express terms of the relevant clause. It will not generally be necessary for the notice giver to identify the steps necessary to remedy the breach, if they can be understood sufficiently clearly from the details given of the breach itself; but where the notice does so, the steps identified as necessary to remedy the breach will usually help the recipient to understand the nature of the breach being alleged.

A notice must be interpreted as a whole. It must be sufficiently clear and unambiguous to enable a reasonable recipient (i.e., one having all the background knowledge reasonably available at the time of the notice) to understand the contractual basis for the notice and the nature of the breach that is alleged to have occurred, so as to be able to assess the validity of the notice and take such steps as are open to him to remedy the alleged breach.

With the second of the instructions, no. 68, the Judge was not persuaded that OSI was bound to fail to establish that it was a valid instruction. At this stage he could not be satisfied that the reasonable recipient, having all the background knowledge reasonably available to it at the time of the instruction, would not have understood the respects in which it was said that the slab did not comply with the contract and that the non-compliance had to be remedied. There was pre-instruction correspondence which may provide an arguable basis for maintaining that the instruction was sufficiently clear on these matters. It was not possible to reach a conclusive view without a hearing. The Judge did doubt that it was incumbent upon OSI here to specify in the instruction a particular means of remedying the non-compliance. Where there is a design and build contract, to do so would have encroached upon the contractor’s design responsibility under the contract.

Instruction no. 67, was different in that it stood alone, uninformed by any relevant background context, and so did not enable Lagan to understand the respects in which there was said to have been non-compliance with OSI’s obligations and that non-compliance had to be remedied. Accordingly, the issue was whether there was a background context about the instruction which would have allowed a reasonable recipient to understand those matters. Apart from the instruction itself, no correspondence about the instruction had been produced. There did not appear to be any relevant background context by virtue of which the reasonable recipient of the instruction would have understood what the suggested non-compliance was and that it needed to be remedied.