This was a reclaiming motion by Shepherd Construction Limited from an interlocutor (injunction) of Lord MacFadgen. City Inn Limited was the employer, and Shepherd Construction Limited was the contractor for a hotel at Temple Way, Bristol. The conditions incorporated the JCT Standard Form of Contract Private Edition With Quantities (1980 edition). The architect granted an extension of time of 4 weeks. An Adjudicator then granted a further extension of 5 weeks.

In this action City Inn Limited argue that both allowances were unjustified and relied upon the mechanics of special condition 13.8. The clause provided:

"13.8.1 Where, in the opinion of the Contractor, any instruction, or other item, which, in the opinion of the Contractor, constitutes an instruction issued by the Architect will require an adjustment to the Contract Sum and/or delay the Completion Date the Contractor shall not execute such instruction (subject to clause 13.8.4) unless he shall have first submitted to the Architect, in writing, within 10 working days (or within such other period as maybe agreed between the Contractor and the Architect) of receipt of the instruction details of;…"

The Contractor was then required to submit details of its initial estimate, requirements in respect of additional resources and the length of any extension of time. Clause 13.8.5 then stated:

"If the Contractor fails to comply with any one or more of the provisions of clause 13.8.1, where the Architect has not dispensed with such compliance under clause 13.8.4, the Contractor shall not be entitled to any extension of time under clause 25.3."

City Inn Limited argued that as the contractor failed to comply with clause 13.8.1 they were not entitled to any extension of time. Shepherd claimed that clause 13.8.5 was a penalty clause and was therefore unenforceable. They also argued that the clause only applied if on receipt of an instruction the contractor actually formed the opinion that there would be an adjustment to the contract sum and delay to the completion date.

The Appeal Court held that the Lord Ordinary had accepted that the contractor could avoid liability for liquidated damages for culpable delay by simply complying with clause 13.8.1. The £30,000 worth of liquidated damages was payable by the contractor because of the delay to the completion date pursuant to clause 23, not as a result of a breach of clause 13. Lord Justice Clerk delivering the opinion of the Court, held that the contractor was impliedly obliged to have applied his mind to the question and form a view as to the likely consequences of an Architect's Instruction. It was not sufficient for the contractor quite simply not to bother to think about the position. The clause was not a penalty because the contractor had the option, if he wished to avoid liability for the delay, of applying his mind to the clause and then providing the employer with the details required by clause 13.8.1. As the contractor had failed to comply with the clause he had deprived the employer of the opportunity to address the matter, if the employer considered that the cost and/or the delay, potentially caused by the instruction were not acceptable.