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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Fleming Builders Ltd v. Forrest Or Hives & Anor [2008] ScotCS CSOH_103 (15 July 2008)
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Cite as: [2008] ScotCS CSOH_103

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OUTER HOUSE, COURT OF SESSION

 

[2008] CSOH 103

 

CA106/07

 

 

 

 

 

 

 

 

 

 

 

OPINION OF LORD MENZIES

 

in the cause

 

FLEMING BUILDINGS LIMITED

 

Pursuers;

 

against

 

MRS JANE FORREST OR HIVES

 

First Defender:

 

and

 

MR WILLIAM FORREST

 

Second Defender

 

­­­­­­­­­­­­­­­­­________________

 

 

 

Pursuers: S. Smith, MacRoberts

Defenders: Malone, Solicitor Advocate, Bell & Scott

 

15 July 2008

 

Introduction

 

[1] In about May 2001 the first defender purchased a house and ground at 17 Fairyknowe Gardens, Bothwell. She and her husband, the second defender, intended to build an extension to this house and thereafter to live in it themselves. The extension was constructed but the work was defective and the defenders decided to demolish the extension and the original house and build a new house on the site. They instructed Mr Gordon Gibb to be their architect and Mr Peter Imrie to be their chartered surveyor. In August 2005 invitations were sent out to contractors to submit tenders for this project, and in September 2005 the pursuers returned the completed tender documents offering to do the works for about £833,000.00. The tenders at this stage were too high, and contractors were invited to tender for a revised project in October 2005. The pursuers returned the completed tender documents for this work in the sum of £521,791.03. The pursuers attended a meeting with the defenders and others on 30 November 2005, and by letter dated 2 December 2005 the pursuers wrote to the defenders' architect offering a saving to the client of £8,000.00, making a revised tender sum of £513,791.03. By letter dated 20 December 2005 Peter Imrie wrote to the pursuers stating inter alia

"We have been authorised by the client KWF Holmes Ltd whose registered office is at Silverwells House, 114 Cadzow Street, Hamilton, ML3 6HP, to accept the tenders submitted by you on the 2 November 2005 in the amount of £521,791.03 further revised by your letter dated 2 December 2005 in the amount of £513,791.03."

[2] There was a pre-start meeting on 10 January 2006 and work commenced on the site on about 23 January 2006. On 17 July 2007 the pursuers' solicitors served a notice of adjudication on the defenders. In the course of the adjudication proceedings, the defenders' solicitors submitted inter alia that there was no contract between the parties and accordingly the adjudicator had no jurisdiction and should resign. After sundry procedure, including hearing the evidence of three witnesses for the pursuers and four witnesses for the defenders, and legal submissions on behalf of both parties, the adjudicator found that the parties to the contract were the pursuers and the defenders. In her decision letter, which was dated 26 September 2007, she decided that the defenders were to pay the pursuers the sum of £112,598.75, within seven days of the date of the decision, together with interest on sums certified in interim certificates and a joint and several liability for the adjudicator's fees and expenses in relation to the adjudication.

[3] The defenders have made no payment to the pursuers in respect of these sums, so the present commercial action for payment was raised in late October 2007. The matter came before me by way of a preliminary proof, which lasted for eight days in March and May 2008. The issues to be canvassed in this preliminary proof were set out by the Court in interlocutors dated 6 February and 17 March 2008. These were first the issues contained in statement A and B3 of the pursuers' note of issues (No 9 of Process). These were in the following terms:-

"A. Whether or not the Adjudicator's decision is ultra vires

1. The power to refer the parties' dispute to adjudication is
derived from a clause in the pursuers' revised tender of 2 December 2005. Only if this tender was accepted by the defenders, and a contract concluded between the parties thereby, did the Adjudicator have jurisdiction.

2. The defenders set out additional grounds upon which they seek to have the Adjudicator's decision set aside ope exceptionis. These are: that she failed to take account of the evidence of Mr Thomson, and the affidavit of Mr Imrie; and that she failed to have regard to the argument that there was no contract at all (ie. neither with the defenders nor with KWF Homes Ltd). This raises the issue:

2.1 Whether it is open to the defenders to seek to reduce the Adjudicator's decision on any of these grounds;

2.2 Where it is open to them to do so, whether any of these grounds are well-founded.

B. Retention and set-off

3. The defenders have pleaded retention and set-off on the basis of an (as yet) unspecified claim for damages. Whether or not they may do so depends on whether a valid notice of intention to withhold payment was in accordance with the contract."

The Court also allowed the preliminary proof to consider the question "if no notice of intention to withhold was given, does that preclude the right of retention or set off by the defenders?". Finally, the Court extended the scope of the preliminary proof to include the "breach of natural justice" point as contained in paragraph 3 of the defender's note of argument No 18 of process, which was in the following terms:

"3. The adjudicator's decision should in any event be reduced as being
contrary to the rules of natural justice.

3.1 The principle issue for determination was whether there was a contract between the parties.

3.2 A key witness for the Defenders was the QS Mr Peter Imrie. Mr Imrie provided an affidavit confirming that a building contract had been completed in the name of KWF Homes Ltd, and KWF Homes Ltd was to be the party to the contract. Mr Imrie was on holiday and was not contactable during the adjudication. On his return, he advised that he would be willing to participate in a conference call.

3.3 Whilst Mr Imrie had provided an affidavit, he did so prior to the issues becoming focused by the adjudication, and it was not possible to put the evidence of the Pursuers' witnesses in respect of the written contract to him. The Defenders were grossly prejudiced by the Adjudicator's refusal to hold a conference call with Mr Imrie. Mr Imrie was available for a conference call on 21st September 2007. The adjudicator's decision was not due until 26th September 2007. In these circumstances, given the short timescales within which adjudication is meant to operate, it would have been reasonable for the adjudicator to conduct a conference call with Mr Imrie."

[4] There was a considerable body of documentary evidence referred to at the preliminary proof. In addition, I heard evidence from four witnesses on behalf of the pursuers and four witnesses on behalf of the defenders. In their closing submissions parties laid considerable emphasis on the question of the credibility and reliability of these witnesses. In these circumstances it is appropriate that I should attempt to summarise the most important of the productions relied on (although I make it clear that I have taken account of all of the productions and also the terms of the Joint Minute for the Parties, No 20 of process), and thereafter set out the evidence of the witnesses rather more fully than is my normal practice.

 

Documentary Evidence

"Form of Tender

Tender for: New Build House, 17 Fairyknowe Gardens, Bothwell

Client: Mr & Mrs Forrest"

"Dear Sirs,

KWF Homes Limited

We confirm that bank approval has been granted to provide funding in favour of KWF Homes Limited to contract for the construction of a new build detached property at 17 Fairyknowe Gardens, Bothwell on a fixed price contract basis."

"Dear Sir or Madam

New Build House at 17 Fairyknowe Crescent, for KWF Homes Limited

We herewith enclose the Building Contract as discussed and agreed for your attention. We would request that you complete and sign the document and return it to our offices."

"Dear Sir or Madam,

New Build House 17 Fairyknowe Crescent, for KWF Homes Limited

We herewith enclose the SBCC Building Contract with Contractors Design Portion duly completed as discussed and agreed for your attention and agreement. Please complete this document in accordance with the guidance note for signing as attached and return to my office in due course. A copy of the completed and signed document will be issued to you."

[5] This production appeared to be a principal rather than a copy. Written across the top in handwriting were the words "file copy", and attached to it was a post it sticker with the words "Ann do not post this as I will hand deliver thanks Peter" written on it.

[6] The foregoing list of productions is not intended to be exhaustive, but is rather a list of those documents which featured most frequently in the evidence and which were relied upon most heavily in submissions. There were other documents, including mail sheets, extracts from diaries, file notes and internal or personal memos which featured in the evidence but which I have not felt it necessary to list here.

 

Witnesses for the Pursuers

[7] (i) Mr Gordon Gibb had practised as an architect for 22 years before the preliminary proof, his practice involving a mixture of commercial and domestic buildings. He first became involved with the site at 17 Fairyknowe Gardens when the defenders asked him to act as an expert witness in their dispute with their previous architect. Thereafter the defenders asked him to look at drawings prepared by other architects for a new house on the site. He was quite sure that it was not KWF Homes that instructed him; the house was specifically for the defenders' needs and they intended to live in it. His appointment was in terms of SCAA/2000 "Scottish Conditions of Appointment of an Architect" published by the RIAS. At some stage Mr Gibb became aware of KWF; he was involved in carrying out some design work for a commercial development of about 12 flats in Kilmarnock, in which KWF were the developers. By contrast, Mr Gibb was clear that the works at 17 Fairyknowe Gardens were for the defenders as individuals. Mr Gibb was involved principally in dealing with the clients, and Mr Thompson (who was employed by Gibb Architects between about May 2005 and early 2006) was more concerned with the details. Generally Mr Thomson had to report to Mr Gibb and Mr Gibb was responsible for the contractual side of matters.

[8] That the defenders were personally involved as the employers in these works was clear from the documentation, said Mr Gibb. They were named in the building warrant, and in both sets of tender documents. Mr Gibb was present at the meeting on 30 November 2005 when the defenders interviewed the two potential contractors, including the pursuers. There was no discussion at that meeting about the identity of the contracting parties. The pursuers did not offer to reduce their tender at this meeting - they were asked to go away and see if they could reduce their price. This resulted in their letter of 2 December 2005 in which they offered to reduce the price by £8,000. Mr Gibb stated that he must have discussed this with Mr and Mrs Forrest, and they decided to accept this offer. Neither of the defenders suggested that they would prefer the contract to be with KWF and not themselves. Thereafter the draft letter of 14 December 2005 was prepared, but was not sent to the pursuers because Gibb Architects were waiting for the defenders' consent to issue it. Mr Gibb emphasised that he had a particular concern that a tender is accepted in proper terms on behalf of the client. It would normally be the architect who accepted a tender; he could not explain why Peter Imrie purported to do so in this instance. Until the adjudication he had never seen Peter Imrie's letter dated 20 December 2005 purporting to accept the revised tender on behalf of KWF. If he had seen this earlier, his first reaction would have been that as the offer was made to Mr and Mrs Forrest, it could not be accepted by KWF. He would also have been concerned about Peter Imrie accepting the revised tender rather than Gibb Architects as the contract administrator. There was no doubt in his mind as to who his clients were, namely the defenders.

[9] Mr Gibb did not attend the main part of the pre-start meeting on 10 January 2006, although he "topped and tailed it". He met with the defenders before the meeting began, and then left, returning just before the end. There was no discussion while he was there about changing the identity of the employers from the defenders to KWF. Before the meeting he had spent at least half an hour with the defenders, and there was no mention of such a possible change. This was a major change, and Mr Gibb would have expected it to have been brought to his attention and reflected in the minutes.

[10] When shown No 7/5 of process, which bore to be a note extracted from Peter Imrie's diary headed "Pre-start meeting 17 Fairyknowe Gardens" (the date of which was missing from the production) Mr Gibb observed that Peter Imrie was not at the pre-start meeting (as is clear from the Minutes of that meeting which were circulated). With regard to the entry in this excerpt "Client re KWF Homes Ltd contractor confirmed acceptable that even if KWF Homes requested bank details + ref" this was not discussed at the pre-start meeting in his presence, and had not been discussed at the meeting on 30 November. He expressed the view that a contractor would never accept a development company as employer without first having received bank details and a reference in relation to that company, because development companies are here today and gone tomorrow.

[11] With regard to the Form F10 Notice, this had not been issued by the pre-start meeting (despite the indication to the contrary in the excerpt from Mr Imrie's diary). The F10 was sent to the pursuers for signature on 10 January and completed and sent out on 13 January. It was important to note two things from this form: first, that the client was specified as Mr and Mrs Forrest, and second, that the passage relating to a planning supervisor was scored out. This was because a planning supervisor is not required for a domestic development. It would have been appropriate to delete this passage only if the clients were domestic clients having the works carried out for their only use. If the clients had been KWF, it would not have been appropriate to make this deletion.

[12] Throughout the whole progress of the works Mr Gibb stated that he considered that his clients were the defenders and that they were the employers of the pursuers. In none of the site meetings which Mr Gibb attended was there any suggestion that KWF had any involvement in the matter. This is why Mr Gibb designed the defenders as the employers in all his architect's instructions and certificates, which were discussed in detail with the defenders. He described the suggestion that the defenders' names appeared on the architect's instructions not as individuals but as directors of KWF as absurd - although Gibb Architects had worked with KWF on other development sites, in Kilmarnock and elsewhere, the project at 17 Fairyknowe Gardens was for the defenders themselves and he was very clear that they were his clients and the employers in the contract. He could not imagine that they were involved not in a personal capacity but as directors of KWF. Although towards the end of the works the defenders questioned the amounts certified as payments to the pursuers, they never questioned the designation on the architect's certificates of themselves as employers. Contractual terms are of the highest importance to an architect, and Mr Gibb was pretty sure that he checked the architect's instructions and certificates before they were sent out.

[13] Mr Gibb stated that Mrs Forrest asked his advice in March 2006 just as everyone was dispersing from a site meeting at 17 Fairyknowe Gardens; she asked if he thought that it would be a good idea to change the designation of the employers from the defenders to KWF. He replied that he did not think that this was a good idea, and that it would probably not be accepted by the pursuers in any event. He observed that it was an advantage to be a private client, as the chances of a builder going to adjudication against a private client were less than against a developer, and there was no statutory right to adjudication. He could think of no good reason for Mrs Forrest to seek this advice from him if she already believed that KWF were the employers. The advice which he gave at that time was consistent with the advice which he subsequently gave to the defenders by email dated 22 June 2006, in which he observed that

"one thing in your favour in any subsequent negotiation with the contractor is that, unless anything is written in the Bill to the contrary, there is no statutory right to go to adjudication under a contract for the erection of an individual dwelling for the sole use of the owner."

The defenders never responded to this email to correct him or to say that this was not a contract for the erection of an individual dwelling for the sole use of the owner.

[14] Mr Gibb stated that he had two meetings to discuss liquidate and ascertained damages with the defenders, these being on 19 and 21 December 2006. The first of these meetings was attended by the defenders, and the second by the defenders and Mr Hives, who was the first defender's father. At the first meeting Mr Gibb drafted the letter dated 19 December 2006. He explained very clearly to the defenders the effect of the clause of the standard term contract referred to, and that they were being asked to sign this letter as individuals, being the employers in the contract.

[15] Increasingly Mrs Forrest's father Mr Hives became involved in the project. He told Mr Gibb that the first defender was ill and could not cope with running the project anymore so he was taking over. He first became involved in a relatively minor way in about April 2006 when the plumbing work commenced, and by about November 2006 he was very involved. Mr Gibb had reservations about Mr Hives' involvement, because he was not the client and nobody had agreed to him becoming the client instead of Mr and Mrs Forrest. Mr Gibb said that Mr Hives was very offensive and threatening to him and to others including Peter Imrie. He remembered one meeting in particular, quite late in the project works, when he was in the house with Mr Hives and Mr Imrie, and Mr Hives was attempting to have the pursuers demolish all internal walls; Mr Imrie observed that the pursuers were merely doing what they were supposed to do under the contract. Mr Hives lost his temper with Mr Imrie and was very offensive him and told him to "shut up". Mr Gibb observed that Mr Imrie was a mild man, but eventually he stood up and said "I'm not taking that from you John, you're not even the client, William and Jane are the client" and left the meeting. In about December 2006 Mr Hives told Mr Gibb that the pursuers would not get another penny for this project, and over the next few months Mr Gibb realised that this was the defenders' intention. He formed the view that Mr Hives was trying to get him to instruct as much additional work as possible, in the knowledge that nobody would be paying for this. In Mr Gibb's opinion, although the pursuers did make some errors (the hardwood floor was poorly fitted and there were some areas of poor workmanship) Mr Hives' position became so extreme that it became almost ludicrous. When Mr Gibb suggested ways in which costs could be saved, and discussed these with Mr and Mrs Forrest, Mr Hives would have none of it. Mr Hives' conduct became increasingly oppressive and threatening towards Mr Gibb, until Mr Gibb's appointment as architect and contract manager was eventually terminated. When Mr Gibb's secretary telephoned him to tell him that the letter from the first defender dated 20 April 2007 and headed "KWF Homes Ltd, Flat 2/4, 169 Hamilton Road, Mount Vernon" had been received, this was the first time that Mr Gibb had received any letter from KWF in relation to this contract. His immediate reaction was two-fold - first, KWF were not the client, and second, that the contract could not be terminated in this way because in terms of his contract he was entitled to reasonable notice. He therefore responded by the letter of 27 April 2007 confirming that his appointment would be terminated seven days from the date of that letter on 4 May 2007. This letter was addressed to the first defender in her individual capacity at her home address, because Mr Gibb's contract was with the defenders as individuals. No-one challenged his assessment of what constituted reasonable notice in the circumstances. When asked if it was possible for the defenders to be Mr Gibb's clients in terms of his contract, but for KWF to be the employers in the building contract, Mr Gibb was of the view that the two contracts must match up: the employer in the building contract had to appoint an architect, and Gibb Architects were named in the contract. Mr Gibb believed his clients to be the defenders and had no reason to believe that KWF were his clients.

[16] In cross-examination Mr Gibb agreed that he would expect his minutes of meetings to reflect accurately the capacity in which Mr and Mrs Forrest attended site meetings. He accepted that the Minutes of Site Meeting No 23 held on 23 February 2007 were not accurate in describing Mr Hives as the client, and he remembered thinking how he should describe Mr Hives, but as he was Mrs Forrest's father he took the view that it was appropriate to design him as client along with the defenders. He observed that site meetings were merely a record of what was discussed, and did not have such a significant contractual effect as architect's instructions. It was put to him that Mr Imrie, Mr Thomson and the defenders recalled the pursuers being asked at the tender interview meeting on 30 November 2005 if they were prepared to contract with KWF; Mr Gibb considered that they were wrong in this regard, and he was certain that this was not discussed in his presence. He would have taken issue with this because the identity of the contracting parties was of utmost importance to the architect and contract manager - for example because of health and safety requirements and the need to appoint a planning supervisor if the employer was a corporate developer rather than an individual building for his own occupation. Mr Gibb did not see the acceptance of tender before it was sent out, and neither Mr Thomson nor the defenders nor Mr Imrie ever discussed with him instructions to put this contract in the name of KWF. If such instructions had been given he would have expected to be aware of this - he was overseeing the project and Mr Thomson knew that he had to discuss important contractual matters with Mr Gibb and accept direction from Mr Gibb on these. Indeed, on one occasion, Mr Thomson told Mr Gibb that he did not need Mr Gibb leaning over his shoulder, but Mr Gibb pointed out that he had specialist knowledge about contractual matters and had to supervise Mr Thomson. Something as important as the identity of the employers goes to the heart of the contract, and Mr Gibb was of the view that this would inevitably have been referred to in the Minutes. He had no awareness of KWF being discussed, although he accepted that the pursuers admitted that there was some discussion about this. He would have felt uneasy about KWF being the employers in the building contract, but the defenders being his employers. This would raise difficulties. This was why, when Mrs Forrest wrote to him on KWF headed paper purporting to terminate his contract he replied to her as an individual at her home address, because his contractual relationship was with the defenders and not with KWF.

[17] Mr Gibb was asked if he ever saw Mr Imrie handing contract documents to the pursuers, and he replied that he saw Mr Imrie handing what he thought was just a blank form to Mr Ronnie Burrows. He observed that Mr Imrie never got down to doing things when he was supposed to do them. At the first site meeting on 8 February 2006, it was noted that Mr Imrie would forward the formal building contract to the pursuers on the following day. This had not been done by 21 February 2006. At the meeting on 9 March 2006 Mr Gibb remembered Mr Imrie saying words to the effect of "here is a form, its not quite the right one but it will do". He understood that this was rejected by the pursuers. On 23 March 2006 Mr Imrie was asked to prepare a completed form for signing, and on 11 April 2006 it was noted that the contract was to be handed over to the pursuers on the following day. Mr Gibb had never seen the letter from Mr Imrie to the pursuers dated 13 April 2006 and was not aware of it. However, the minutes of the meeting of 27 April 2006 record that "we still await completion of the contract document by PI". The minutes of 18 May 2006 record that the contract documents were handed over to the pursuers by PI for signing, but it appeared from subsequent minutes that these were the wrong contract documents. Mr Gibb had never seen the letter from Peter Imrie to the pursuers dated 29 June 2006. The reason that the signing of the formal contract documents ceased to be mentioned in the minutes was that nobody mentioned the topic at meetings. Mr Gibb never saw a signed or completed contract. He saw the tender and bill of quantities, but he did not see the purported acceptance of tender by KWF until after the adjudication.

[18] With regard to the termination of his contract, Mr Gibb observed that Mrs Forrest expressed her desire, erroneously through her company, that she did not want him to continue as architect, and in these circumstances it was appropriate to bring the relationship to an end. Mr Gibb expressed the view that it would have been a breach of contract to terminate immediately. Seven days was the period referred to in the building contract, and this was the time that he required to put things in place in order that his contract could be concluded properly. He then issued the certificate of extension of time and asked Mr Imrie to provide a valuation of works outstanding, so that he could deduct the appropriate amount from the certificate. He granted an extension of time to the pursuers of 37 weeks, for the reasons carefully stated in his extension of time letter.

[19] (ii) Mr Ronald James Burrows was aged 40 and had been a director of the pursuers for about ten years, this being the family firm. He was responsible for sales and contracts (as senior contract manager). He was not involved in the tender process relating to 17 Fairyknowe Gardens; he first became involved at the start of the site works early in 2006. He understood the defenders to be the employers in the contract, because in any dialogue or discussions about the contract they were the clients. At the commencement of digging works on site, Mr Thomson introduced Mr Forrest to him as the client. He did remember seeing the letter from Mr Imrie dated 20 December 2005 purporting to accept the tender "by the client KWF" but this was before his direct involvement. He attended site meetings. He understood that it was Mr Imrie's role to provide contract documents for signing. Mr Imrie provided no contract documents until the meeting on 9 March 2006; on that date what he provided was simply a standard form of building contract with boxes still to be completed. It was the wrong form, and Mr Burrows' recollection was that it did not have any parties' names or designations filled in. He did not remember Mr Imrie ever handing over a completed form of contract for signature by the pursuers. It was minuted that on 27 April 2006 completion of the contract document by PI was still awaited. At no time during the contract did Mr Burrows see the letter from Peter Imrie dated 13 April 2006 and the standard form with pencilled completions apparently attached to it. If this had been received by the pursuers, Mr Burrows would have seen it. He explained the pursuers' system for logging incoming mail, and the four directors of the pursuers see all incoming mail. He went through mail sheets produced on behalf of the pursuers and explained that these were prepared each day. He would go through this mail sheet, and the mail, and sign the sheet at the bottom. The letter dated 13 April 2006 from Peter Imrie was not recorded in these mail sheets and he had no recollection of seeing it at about that time. At the meeting on 18 May 2006 he did not think that any contract documents handed over for signing contained the identities of the contracting parties. By 6 June 2006 the pursuers had still not received the correct form from Peter Imrie. Mr Burrows explained that Mr Imrie had provided an incorrect document, without designations of parties. This was left at the reception in the pursuers' offices to enable Mr Imrie to collect it. It remained there for some 10-14 days; thereafter Mr Burrows did not know what had happened to it. No replacement document was left at reception. The pursuers' system for logging mail records hand delivered items as well as posted items. The pursuers had also produced mail sheets covering the period 29 June to 7 July 2006; there was no record in these of the letter dated 29 June 2006 from Peter Imrie to the pursuers having been received, either through the post or by hand delivery. Again, there was no reference in Gibb Architects' minute of the meeting of 4 July 2006 to contract documents having been delivered, and Mr Burrows own minutes of that meeting (incorrectly identified as having occurred on 27 April 2006) show that he still had not received contract documents from Peter Imrie. Mr Burrows never signed a contract form and never received a completed correct contract for signature. He was on site throughout the period of the works and during all that time he considered the defenders to be the clients.

[20] Mr Burrows did not recall seeing the letter dated 10 April 2007 signed by the first defender on KWF notepaper during the contracts works, and he had never seen the letter dated 20 April 2007 addressed to him. He did not recall ever having seen the two letters dated 5 May 2007 from KWF addressed to the pursuers enclosing withholding notices for Valuations 11 and 12. None of these letters were recorded in the pursuers' mail sheets for the relevant periods, each of which was produced. If these had been received by any means by the pursuers then this would have been recorded on the mail sheets.

[21] In cross-examination Mr Burrows stated that he did not attend the meeting of 30 November 2005, and nobody discussed what had happened at that meeting with him. He saw the letter referring to KWF and this project, but he had no thoughts about this letter when he saw it. He was only introduced to the client when the pursuers started on site, which was 23 January 2006. He did not attend the pre-start meeting on 10 January 2006 and there was no discussion about it within the company. He did not remember any discussion in which Mr Mike Burrows, the managing director of the pursuers, mentioned to him that the defenders wished KWF to be the employers. Although he saw blank draft contracts at site meetings, he never saw a completed document. He did not accept that the contract form which Peter Imrie provided at the meeting on 9 March 2006 was complete apart from the pursuers' insurance details; Mr Burrows observed that normally a quantity surveyor would issue a draft contract, but the pursuers never saw this in this case. Again his recollection was that on 18 May 2006 what was presented was a blank document for the pursuers' comments: Mr Burrows never recalled seeing a standard form contract with blank spaces filled in. Mr Burrows' understanding was that KWF actually paid the pursuers for their work.

[22] (iii) Mr Kennedy Matthew Rodger was aged 60 and was an estimating director with the pursuers. He had worked with the pursuers for almost 37 years. He was involved in the tendering process for the works at 17 Fairyknowe Gardens and in preparing the revised tender. He understood the clients to be the defenders, and nobody suggested to him that anyone else might be the clients. He attended the tender interview meeting on 30 November 2005, as far as he could recollect, all those present remained throughout the meeting. The defenders said that the revised tender was still slightly above their budget and asked if the pursuers could reduce their price. There was no mention of the contracting parties. Following upon this meeting Mr Rodger prepared the letter dated 2 December 2005 offering to reduce the price by £8,000. This was the first occasion on which the pursuers had mentioned this reduction. Thereafter he remembered that the pursuers received a letter from Peter Imrie accepting the tender on behalf of KWF. Michael Burrows spoke to Mr Rodger about this acceptance letter from Peter Imrie. Mr Rodger understood that someone had spoken to Michael Burrows asking him if the pursuers had any difficulty about contracting with a company rather than individuals, to which Mr Burrows had replied that he wasn't sure if this was would be acceptable but he would consider it and investigate the company involved. Then the pursuers received the F10 form stating that the clients were the defenders and with no provision for a planning supervisor, Mr Rodger assumed that they had had second thoughts and were proceeding as individuals. Mr Mike Burrows had been concerned about the possibility of contracting with a company and had said that he would need some time to think about this and to investigate the company. However, when the F10 form was received this was significant to the pursuers in identifying who were the clients.

[23] Thereafter in the Spring of 2007 Mr Rodger remembered receiving a letter intimating that Mr Gibb's appointment as architect would be terminated. This was handed over at a meeting which Mr Mike Burrows and Mr Rodger attended with the defenders on 5 June 2007. At this meeting they were introduced to the new architect and handed this letter. Apart from this one letter which was on KWF's notepaper, Mr Rodger saw no correspondence from KWF and had not seen the letter dated 5 May 2007 enclosing a withholding notice. Mr Rodger confirmed the details of the mail sheets system operated by the pursuers, which was completed each day and passed around all of the directors, who signed it.

[24] In cross-examination Mr Rodger reiterated that he was at the meeting of 30 November 2005 and that Mr Mike Burrows was not asked, in his hearing, whether, the pursuers would contract with KWF. Walter Kerr was the pursuers' drawing office manager and was not present at the meeting of 30 November 2005. Normally Mr Mike Burrows would acknowledge an acceptance of tender, but this was not done on this occasion because he was not sure if he was willing to work for someone other than the defenders. Mr Rodger left it at that, because Mr Mike Burrows was handling this matter. It was suggested to Mr Rodger that the site meeting minutes showed that a completed contract was handed over to the pursuers for signature, and Mr Rodger disagreed strongly with this and maintained that he had never seen a completed contract for signature. He was certain that it had never been handed over. He agreed that payments for the works were made by KWF, but this raised no suspicions in his mind that they might be the employer - it is not uncommon in building projects for persons other than the employer to make payments. All certificates for payment were made out in the name of the defenders, and as long as the pursuers received the money that was all that concerned them. Mr Rodger never saw any notices of withholding, and if they had been received by post or by hand delivery, they would have been included on the pursuers' mail sheets.

[25] (iv) Mr Michael Burrows was aged 41 and had been managing director of the pursuers for about ten years. After the pursuers' revised tender was sent out, he attended the tender interview meeting on 30 November 2005, together with Mr Rodger. Walter Kerr was not present. The pursuers were told that their plumbing price was too dear, and were asked to see if they could reduce their price; they agreed to go away and see if they could do so. There was no discussion at that meeting as to the identities of the contracting parties. Mr Rodger re-estimated and the pursuers reduced the price by £8,000. Mr Burrows thought that the pursuers then received a fax from John Thomson saying that the defenders were going to accept the tender and identifying a date for a pre-start meeting. The fax dated 19 December 2005 from John Thomson might have been the fax that he was thinking about. Mr Burrows then received the letter from Peter Imrie dated 20 December 2005 bearing to accept the tender on behalf of KWF. At a quick glance he thought that this was an acceptance of the pursuers' offer, but he then realised that it was not in the name of the defenders, so he deliberately refrained from acknowledging the letter. This letter came in just before the Christmas break, when the pursuers shut down for two weeks. The pre-start meeting was the first occasion on which this matter could be discussed. Between receipt of the letter and the pre-start meeting on 10 January 2006, Mr Burrows had no discussions with the defenders or with Gibb Architects as to whether KWF should be the client.

[26] The pre-start meeting was attended by Mr Mike Burrows together with Walter Kerr, the defenders, John Thomson, and Hector Munro. Peter Imrie was not present. Mr Burrows remembered that during informal discussions after the meeting the first defender asked him if the pursuers would be happy if KWF were the clients. At the same time she gave him the letter from Airdie Savings Bank. He explained that the pursuers were always concerned with unknown companies in case they did not get paid, particularly with regard to retention monies held for a period of twelve months. Generally the pursuers dealt with "blue chip" clients such as Health Boards. His response to the first defender was that the directors of the pursuers would have to consider the point, and that he did not have the power to agree to it there and then. It was clear at that time that the defenders wished to proceed with the contract, and the pursuers presumed that the request about changing the contracting parties was just for funding purposes. The pursuers remained concerned, as the contract price was not guaranteed. At a directors' meeting after the pre-start meeting, concerns remained. Mr Mike Burrows went to Companies House to investigate KWF and found that the defenders were the sole directors of the company, that it had been recently formed, that no trading accounts had been published and that it owned one property which was subject to a bank guarantee. This did not fill him with confidence.

[27] No record of the discussion between the first defender and Mike Burrows appeared in the minutes of the pre-start meeting, which Mr Burrows received about two or three days later. Mr Thomson, who prepared those minutes, was not party to the conversation between the first defender and Mr Mike Burrows regarding KWF although he was probably in the same room. Mr Burrows referred to his handwritten notes of matters to discuss at the pre-start meeting, item 3 of which was "contract with Mr and Mrs Forrest". He believed that if it had been agreed at the meeting that the client was to be KWF, he would have noted this (in the same way that he noted that the revised sum agreed was £513,000). He was asked about Peter Imrie's handwritten notes (No 7/5 of process), and he denied that he had stated either at the meeting of 30 November 2005 or the pre-start meeting of 10 January 2006 that KWF would be acceptable as the clients. There was no discussion about bank details or a reference in relation to KWF at the meeting on 30 November 2005, but there was such a discussion in his conversation with the first defender as parties were dispersing after the pre-start meeting. Walter Kerr was not present at the meeting of 30 November (and Mr Rodger's minutes of that meeting do not record him as being present).

[28] Mr Burrows confirmed that the F10 form was an important document which had to be completed and sent to the Health and Safety Executive before work commenced. The pursuers received the F10 form on the day after the pre-start meeting. They took it from the terms of this form that the defenders were prepared to continue with the contract as individuals rather than seeking a change so that the employers were KWF - not only were they named as the clients, but if the works had been for a development company such as KWF, there would have been a requirement for the appointment of a planning supervisor. The pursuers were happy to proceed on this basis because this was clearly a domestic contract for individuals who intended to occupy the house themselves On this basis they signed the form and sent it to the Health and Safety Executive.

[29] Mr Mike Burrows had no role directing the administration of the contract on site, and attended no site meetings. He anticipated that the pursuers would be presented with a form of contract for signing, but this was never done. They never signed a completed contract form nor were they ever provided with a completed correct contract document for their signature. He was aware that an uncompleted contract form was left in the pursuers' reception area, and after some time it disappeared and the receptionist told him that it had been uplifted by someone, but nothing was left in its place. Until a week before the preliminary proof in March 2008 he had never seen the letter dated 13 April 2006 from Peter Imrie to the pursuers. He checked the incoming mail for the pursuers every day. All incoming mail (whether hand delivered or sent by post) is put on a mail sheet by the office administrator, and then circulated to directors at about 10 or 10.30am each day. Similarly, he never saw the letter from Peter Imrie addressed to the pursuers dated 29 June 2006. Neither of these appeared on the mail sheets for the relevant periods. Again they did not receive either of the letters on KWF notepaper dated 5 May 2007 and addressed to them, at any time during May 2007. Mr Burrows stated that he may have been shown one or both of these when he had a meeting with the defenders in early June and was introduced to Mr Paterson who he was told was to replace Mr Gibb as architect. The list of alleged outstanding defects which was attached to the second (longer) of the letters of 5 May 2007 did not tie up with any complaints being made at that time about alleged defects. No complaints had been received at that time about defects in the front door and the garage floor being laid off-level or doors and frames not being correctly fitted; these complaints were first brought to the attention of the pursuers by a letter dated 21 May 2007 addressed to Mr Ronnie Burrows of the pursuers from Bluestone Chartered Building Surveyors, which letter referred to "a lack of meaningful progress with her house" and which was copied to the first defender but not to KWF. There was no suggestion of any defects in the drainage until the pursuers performed tests for building control in late May. Similarly, Mr Burrows did not receive the letters dated 10 April, 20 April or 25 April which were purportedly sent to the pursuers.

[30] In cross-examination it was put to Mr Burrows that Mr Rodger had said that Mr Burrows had discussed the purported acceptance of 20 December 2005 shortly after receiving it, and that Mr Burrows had told Mr Rodger that by that time he had discussed with someone the possibility of KWF becoming the clients. Mr Burrows stated that Mr Rodger's evidence in this regard was wrong, and he had had no discussions with anyone regarding KWF before receiving that letter. At that time Mr Burrows did not consider that the pursuers had a contract with anyone - the letter of 20 December 2005 had no effect. Not much happened between the date of receipt of that letter and the pre-start meeting on 10 January as the pursuers were on holiday for two weeks. They did not need to order the timber kit for the project, because they make such things themselves. There was ample time for this work to be done after 10 January and before it was required in the project timetable.

[31] Mr Burrows was asked if the pursuers had a contract with the defenders as at the pre-start meeting, and he replied that the pursuers thought that it was the defenders' intention to proceed with the project and they were awaiting the necessary documentation to be drawn up. Although they had not accepted the revised tender in writing, they were at the pre-start meeting and told the pursuers to proceed. Although the first defender asked Mr Burrows after the pre-start meeting had concluded whether the pursuers would be prepared to contract with KWF, Mr Burrows was not prepared to undertake to do so. He said that taking the defenders' presence at the pre-start meeting, their instructions at that meeting, and the receipt of the F10 thereafter specifying the defenders as clients and deleting the requirement for a planning supervisor satisfied the pursuers that they were contracting with the defenders. It was then that the pursuers sent out acceptances of tenders by subcontractors. Although he was shown the letter from Airdrie Savings Bank dated 9 January 2006 and although he was asked whether the pursuers would be prepared to contract with KWF, he never agreed to do so. He stated that the pursuers considered the possible change, decided against it, and so carried on as normal. By the time that the pursuers started on site, they were quite clear that their clients were the defenders and not KWF.

[32] Although Mr Burrows remembered receiving a contract document form, he could not remember if it was a blank form or if any name was filled in for the client; in any event, it was the wrong form of contract, and the pursuers would not have been prepared to sign even if it had been the correct form of contract if the employer was stated to be KWF. He did not recall ever seeing a contract which was ready for signature; a contract form came in, but he did not open it or look at it because he was told that it was the wrong contract. The pursuers received a telephone call as soon as Mr Ronnie Burrows got back with the contract saying that it was to be changed. He was quite sure that the pursuers did not receive the letter from Peter Imrie dated 29 June 2006, nor did they receive the letters dated 5 May 2007 regarding the withholding notice. He was asked who paid for the works, and he replied that the certificates were sent out to the defenders, and cheques in payment were issued by KWF. This caused him no difficulty, because the pursuers frequently receive payments on company cheques when their clients are individuals, or from funding bodies when clients are corporate or public entities. The pursuers were not concerned with who paid for the works; as long as they receive an architect's certificate, and it is honoured, that was fine by them.

 

Witnesses for the Defenders
[33]
(i) Mr John Thomson was aged 49 and worked with Gibb Architects between May 2005 and February 2006. He had worked as an architect with another firm for about one year previous to this. He began to work on the Fairyknowe Gardens project within about one week of starting with Gibb Architects; initially the clients were the defenders, and at that time KWF did not exist, but he thought around October 2005 that the defenders told Mr Gibb that things would be managed through KWF. He was asked in whose name the invitation to tender for the works at Fairyknowe Gardens ran; at first he was unable to answer this question, but after some thought he answered that he could not be absolutely 100% certain but he thought that these were in the name of the defenders.

[34] Mr Thomson was at the meeting at about the end of November 2005, which was also attended by Peter Imrie, Gordon Gibb, the defenders, Mike Burrows and Ken Rodgers. The issue of whether KWF Homes might be the employers was raised, and Mike Burrows said that he didn't think that this would be a problem but that he would require a letter of assurance from the company's bankers. The meeting was set up for the client to get a feel for who she (sic) wanted to go forward with. After the meeting, Mr Thomson drafted a letter of acceptance of tender, after the pursuers had offered to reduce their tender price by £8,000. He showed this letter to Mr Gibb who pointed out two errors to him - first that the clients should be KWF and not the defenders, and second that the letter should make reference to the original tender sum and to the revised tender sum. Mr Thomson said that he did not know this, and he remembered this clearly as he learnt something that day. Thereafter he remembered emailing the letter to Mr Imrie. On 16 December 2005 he emailed Mr Imrie stating:

"Further to our discussion earlier today we look forward to receiving a copy of the letter accepting Fleming Buildings' tender on behalf of Jane and William Forrest."

He explained this by saying that the contractual implications of KWF did not register with him - he always thought of the clients as Jane and William. He recognised the letter dated 20 December 2005, but he could not say if this was issued by Mr Imrie or by Gibb Architects. He thought it was issued however, and remembered Mike Burrows saying in a telephone conversation that they were in the process of signing the paperwork. At the pre-start meeting he remembered vaguely a discussion between Mike Burrows and the first defender after the business on the agenda had been completed. He did not remember any details of the meeting, but he did remember a letter being handed to Mike Burrows at the end. He did not think that Mike Burrows was surprised to receive this letter; it was handed over because the defenders had asked at the initial interview meeting whether the pursuers would have any difficulties with KWF being the contracting parties. Mr Thomson never saw the letter from the bank, but he thought it was from Airdrie Savings Bank. He confirmed that he had prepared the minutes of the pre-start meeting on 10 January 2006; when asked why he described the defenders as the client, he replied that he tended not to focus on the "bit at the top of the minutes" and that this was an error on his part. He made the same error when preparing the minutes of the first site meeting on 8 February 2006. When asked why there was no reference to KWF in those meetings, he replied that he did not know whether there was in fact a signed contract. He understood that KWF were the employers, because the letter accepting the tender went out in their name. Mr Thomson attended no site meetings after the first site meeting.

[35] On the Friday that he left Gibb Architects, he went through with Mr Gibb each of the jobs on which he had been involved. He did not mention to Mr Gibb that he understood the clients to be KWF Homes, because he took this as read - it was common knowledge. Gibb Architects were involved on behalf of KWF in relation to another development in Kilmarnock. Mr Thomson accepted that he issued the first architect's instruction, and that this might have identified the employers as the defenders rather than KWF - he was in a rush to send out the certificate before he left Gibb Architects. He also accepted that he probably drafted the F10 notification, and he was familiar with the health and safety regulations underlying this form. There was no discussion about the contracting parties before this form was sent out - as far as he was concerned, the pursuers had asked for and received an assurance as to KWF's financial status, and there did not appear to be any issue about the identity of the client.

[36] In cross-examination Mr Thomson stated that the defenders told him that in terms of future developments they would like to set up all future contracts through KWF. This was mentioned in about October 2005 in the course of preparations for the Kilmarnock development. The defenders told him at the tender stage in relation to the Fairyknowe Gardens project that they wanted it to be done through KWF Homes.

[37] Mr Thomson conceded that Mr Gibb was better at matters of contract than he was himself, and that Mr Gibb was punctilious about such matters. However, he was adamant that Mr Gibb knew about the change of client from the defenders to KWF; he was sure that this was raised at the tender interview in November, but he had not looked for any handwritten notes of that meeting. He remembered preparing the draft letter dated 14 December 2005 addressed to the pursuers, in which the tender bore to be accepted on behalf of Mr and Mrs Forrest. This was correct at that time, because Mike Burrows had not yet indicated the pursuers' consent to the clients being changed to KWF. It was pointed out to him that he had stated in examination-in-chief that he showed this draft to Mr Gibb who pointed out to him that one of the errors contained in the draft was that the clients should be KWF; when he was asked how this could be correct, Mr Thomson replied "I know what you are saying", but was unable to provide an explanation for his earlier evidence. He could picture the conversation which he had with Mr Gibb. He also sent out the email of 16 December 2005 in which he looked forward to receiving a copy of the letter accepting the pursuers' tender on beh