A collapsed contractor’s attempt to recover money it was contributing to a troubled joint venture (JV) with Ferrovial Agroman UK has been thrown out by a judge.
The decision, which overturns a ruling last December, refers to work by Lagan Construction Group and Ferrovial to improve the M8, M73 and M74 motorways in Scotland.
The Lagan Ferrovial JV was appointed by the Scottish Roads Partnership (SRP) for the work in February 2014.
As part of the works agreement, both firms had provided letters of credit from their banks as collateral. Shortly after Lagan went into administration in 2018, his bank paid £3.7m into a JV security account, as promised in the company’s letter of credit.
In July 2021, two years after the project was completed, the SRP released the remaining account balance (just over £1m after default deductions) to the JV.
This meant that the money effectively went to Ferrovial – which at the time had sole control of the JV – but Lagan, now run by administrators, argued that under the project contract it should have received the funds.
In December 2022, a commercial judge supported this view, saying that because the wording of the contract was ambiguous, “commercial common sense” should be applied to make a decision.
The dispute was based on whether the use of the term “contractor” in the works agreement, which is more than 200 pages long, referred to the JV itself or an individual partner in the company.
But now a judge in the Inner Chamber of the Court of Session in Scotland has overturned the previous decision, saying there was “no ambiguity” in the wording of the contract.
In his decision, Lord Carloway referred to the principle that “contracts are made by what people say, not by what they think within themselves”.
He added that even if commercial common sense was a relevant consideration, “the court would have had trouble finding” that it favored Lagan’s interpretation.
The two judges commented on the drafting of the works agreement. The commercial judge stated that whichever interpretation is used, the key clauses are “not cheerfully worded” and “do not fit well”.
Lord Carloway said the document “has the air of being stitched together from similar contracts, rather than tailor-made”.
In 2017, Ferrovial lost £48m on the M8 upgrade project. The company said the scheme had proved difficult “historically” due to “issues with the design, complexities on a derelict site and shortages of labor and materials in the local construction market”.
