Contractor claims for delay and disruption caused by third parties

A decision of the Scottish Court of Session earlier this month has considered a contractor’s entitlement to claim against third parties responsible for causing delay and disruption to on-site construction activities. The case appears to be the first in modern times to consider this issue and rules against the existence of such an entitlement on the facts of the case. The decision has implications for the drafting of construction contracts if appropriate rights of action are to be preserved in such circumstances.

Cruden Building & Renewals Limited v Scottish Water

A housing association entered into a Development and Licence Agreement with Cruden Holdings as developer and Cruden Building as contractor for the construction of a residential housing development. Cruden Building suffered large delays when foul water escaped from a sewer onto the development site. Cruden Building sued Scottish Water in delict (or tort as it is known in England) for economic loss arising from the delay. Scottish Water objected on the basis that Cruden did not have a sufficient property interest in the site in order to bring such a claim.

Does a contractor have a sufficient property interest?

It is established law that in order to bring a claim in delict (or tort) in relation to damage or interference with property a claimant must have had either the legal ownership of or a possessory title to the property concerned at the time when the damage or interference occurred. Whether or not the possessory rights enjoyed by a contractor under a building contract provide a sufficient possessory title to support such a claim has not been not free from doubt, with the only previous case on the point being more than 130 years old.

The building contract in the present case provided Cruden with a “right under licence (but not an exclusive right of occupation) to enter upon the part of the Site on which the relevant Phase is to be constructed for the sole purpose of carrying out the … works, and for no other purpose whatsoever.” Furthermore, it provided that “[Cruden] shall not…be entitled to any tenancy or other estate right, title or interest in the Site…”.

The Court of Session held that these provisions only gave Cruden use of the site for certain limited purposes and that this did not equate to a proprietary right or a right of possession similar to that of an owner of the site. All Cruden had was a contractual right to use the site in order to complete the development and (hopefully) make a profit.

As such, the purser had no title to sue and no remedy against Scottish Water. Neither could the housing association sue, as in the absence of Cruden having an entitlement to an extension of time or loss and expense under the building contract, it had suffered no loss.

Conclusions and implications

This case appears to be the first in modern times to consider the ability of a contractor to bring such claims against third parties. It has been clear for many years that (even without the specific terms present in this case) the right given to a Contractor to access or to take possession of a site in order to carry out work is a contractual rather than a proprietary right. The court’s decision provides important clarification that such contractual rights will ordinarily be insufficient to provide title to sue third parties who cause delay and disruption to the works by causing damage to or interfering with the site. Ultimately, this left the wrongdoer in this case, Scottish Water, without any liability for extensive interference with the land on which the development was being built.

What is at first blush surprising is that the contractor chose to bring a claim against Scottish Water rather than against the housing association. However, it seems that the contractor had no grounds for bringing such a claim. That may not be the case under more standard forms of contract. Under contracts which require the employer to grant possession (as opposed to mere access) of the site to the contractor, for example, in circumstances where the contractor was effectively excluded from site as a result of the foul water escape the contractor would perhaps have argued that the employer had breached that requirement and the contractor was entitled to an extension of time and payment as a result. Alternatively, under contracts which entitle the contractor to claim additional time to complete and additional payment in the event of force majeure or unforeseeable site conditions, the contractor might have chosen to submit a claim on the basis that the foul water escape triggered these provisions.

Nonetheless, this case provides helpful clarification that the contractual rights of access or possession given to contractors in respect of the sites on which they carry out work do not provide sufficient title to bring a claim against third parties causing damage to the site and delays and additional costs incurred in consequence. Contractors will need to be careful not to lose rights to claim extensions of time and additional money in respect of these issues inadvertently through agreeing to bespoke terms and conditions that have this effect.

References: Cruden Building & Renewals Limited v Scottish Water [2017] CSOH 98