West Reg. Street (Property) Ltd v Central Demolition Ltd

[2018] CSOH 98

The parties entered into a contract to demolish three adjacent buildings. The Contract was the SBCC Standard Building Contract Without Quantities 2011, albeit that documents referred to as bills of quantities defining the required work were provided at tender stage. During the demolition, asbestos was found. A dispute arose as to who should bear the cost of removing the asbestos. 

West Reg. said that the contract was a lump sum contract. The Works included the “complete demolition” of the Victorian and 1960s buildings to existing basement levels. The lump sum price was an inclusive price for all work which was necessary to achieve that result. Central was aware of the risk that the buildings might contain unknown asbestos over and above the two particular known quantities it had been asked to price separately. On a fair reading of the contract as a whole a reasonable person in the position of the parties at the time of contracting would have understood that all known asbestos identified would have been removed prior to the demolition work, but that Central bore the risk of other unknown asbestos being discovered during demolition. 

Further, clause 2.1D of the Contract provided that:

“Any adverse ground conditions, artificial obstructions or contamination encountered during the execution of the Works shall be the sole responsibility of the Contractor (whether or not the same could reasonably have been foreseen at the date

of this Agreement by a contractor exercising the standard of skill care and diligence referred to in Clause 2.1A) and no adjustment shall be made to the Contract Sum or to the Date for Completion in respect of such matters.”

The word “contamination” had its ordinary meaning. Asbestos encountered during demolition of the buildings was “contamination encountered during the execution of the Works”. Further, when a pay less notice had been served Central had not at first argued otherwise. 

Central said that the contract was a lump sum contract to perform defined work. Whereas in a with quantities contract the bills of quantities define the scope of the works, in a without quantities contract the contract documents taken together describe the quantity and quality of the work included in the contract sum. Here, the Works were defined by the Specification and the drawings. There was provision in the contract for variation of the Works. In terms of SMM7 the removal of toxic or other special waste was to be described and measured as a separate item. In the event of it not being possible to do that, General Rule 10 directed that it be included as a provisional sum.  As there was no specific item or provisional sum in the Specification for the removal of toxic or other special waste, there had been no item against which to price asbestos removal work or make allowance for the risk that unknown asbestos would be discovered during the Works. The asbestos removal was not part of the Works. West Reg.’s position flouted business common sense. It involved Central “gambling” on the absence of further asbestos, running the risks of having to undertake potentially costly and time-consuming work for which no allowance had been made in the bill items or the tender, and exposing itself to the risk of liquidated damages.

As for clause 2.1D, Central had been assured that asbestos was not contamination and about further asbestos work being a variation. Clause 2.1D was not relevant to the issue between the parties. Asbestos within the buildings was not “contamination”. Contamination involved defilement, i.e. the deposit of waste on land.

Lord Doherty did not accept that West Reg. provided the assurances alleged. The Judge thought it “odd” that the suggested assurances were not raised when the pay less notice was first served.  The Judge also commented that:

“while ideally a considered view ought to have been taken at the time, it is not uncommon that work which has been treated as a variation in an interim valuation is later recovered as an overpayment when its true character is determined…”

As to who bore the risk for the “additional unknown asbestos”? The answer depended upon how a reasonable person in the position of the parties at the time of contracting would have interpreted the contract’s terms. Here, clause 2.1D also pointed “strongly” towards the suggested construction of the contract. A reasonable person in the position of the parties would have understood “contamination” to include asbestos in the buildings. In Lord Doherty’s opinion:

“at the time of contracting a reasonable person in the position of the parties would have known that, notwithstanding the soft strip and asbestos removal, there remained a risk of further, unknown, asbestos being present within the buildings which were to be demolished…that was clear from a fair reading of the Contract Documents as a whole. It was also clear from the terms of the surveys which the pursuer had provided to the defender. The reasonable person would also have understood that the scope of the work which the defender undertook to perform for a lump sum price included the removal of any presently unknown asbestos which might be encountered during demolition.”

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