Remedies - Scottish Construction Contracts - page 262

andpayfortheprivilege,orusetheirowncapitaland,asaconsequence,losethe
interest which they would otherwise have earned. See, for example, F G Minter Ltd v.
Welsh Health Technical Services Organisation (1980). Similarly, it has been judicially
recognized that, in the construction industry, delay in payment to contractors might
naturallyresultinthembeingshortofworkingcapital,thuscausingthemtoincur
finance charges. See, for example, Ogilvie Builders Ltd v. City of Glasgow District
Council (1995). Whether or not such finance charges are recoverable by contractors
has been the subject of considerable judicial discussion over the years, but it is now
well settled, both in Scotland and England, that finance charges are recoverable in
certain defined circumstances.
First, finance charges are recoverable as direct loss and/or expense under clauses
4.23-4.26 of the SBC and clauses 4.20-4.23 of the SBC/DB, but only if the require-
ments of that clause are satisfied. See Ogilvie Builders Ltd ,following F G Minter Ltd
and Rees & Kirby Ltd v. Swansea City Council (1985). Clauses 4.23-4.26 of the SBC
are considered in Section 8.3. Under the terms of the NEC3, finance charges may
or may not be recoverable as Defined Cost, depending on which Main Option is
chosen.
Second, finance charges are recoverable as damages in a case based on breach of
contract. The words 'direct loss and/or expense' are to be given the same meaning
in a case of breach of contract as they would be given in a case for payment under
contract, see Ogilvie Builders Ltd .Recoverybywayofaclaimbaseduponbreachof
contract(atleastuntilthedecisionin OgilvieBuildersLtd )provedmoreproblematicin
Scotland, with claims being unsuccessfully advanced in cases such as ChanthallInvest-
ments Ltd v. F G Minter Ltd (1975). It was stressed in that case, however, that in each
casewherethisissuearises,itisaquestionoffactandtheparticularcircumstances
as to whether or not the loss in question was within the contemplation of the parties.
This approach was approved by the Inner House of the Court of Session in Margrie
Holdings Ltd v. City of Edinburgh District Council (1994). (1994).This approaches recovery by
way of the second branch of the rule in Hadley v. Baxendale (1854), which is consid-
ered in Section 10.4.2. 10.4.2.That part of the rule permits the recovery of such losses as may
reasonably have been supposed to have been in the contemplation of both parties, at
the time the contract was entered into, as the probable result of a breach of it. his falls
to be contrasted with the first branch of the rule, namely, that where two parties have
entered into a contract and there has been a breach of contract by one of the parties,
the damages to which the innocent party is entitled should be such as may fairly and
reasonably be considered as arising naturally from the breach.
In Ogilvie Builders Ltd , Lord Abernethy stated that he did not read any of the Scot-
tish cases cited to him as indicating any general proposition that claims for finance
charges, if recoverable at all, could only be recoverable under the second branch of
therulein Hadley v. Baxendale . He held that that a claim for finance charges under
theirstbranchwasrelevantasamatteroflaw.InScotland,claimsadvancedunderthe
secondbranchoftherulehavebeenheldtoberelevantasamatteroflaw,see Cale-
donian Property Group Ltd v. Queensferry Property Group Ltd (1992). What Ogilvie
Builders Ltd recognized was the commercial reality that extra finance charges could
arise 'naturally' from a breach of contract in the construction industry.