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Cite as: [1999] ScotCS 223

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OUTER HOUSE, COURT OF SESSION

CA 35/14/97

OPINION OF LORD PENROSE

in the cause

FERGUSON SHIPBUILDERS LIMITED

Pursuers;

against

VOITH HYDRO GmbH & Co KG and others

Defenders:

________________

Pursuers: O'Neill; Brodies W.S.

Defenders: Glennie, Q.C, Howie; Henderson Boyd Jackson W.S.

23 September 1999

The pursuers, Ferguson, are shipbuilders. They have a shipyard at Port Glasgow on the South side of the River Clyde. The defenders are members of a group with a marine engineering facility at Heidenheim in Germany. In 1994 the defenders' marine engineering business was a division of J. M. Voith GmbH. That company was dis-aggregated in October, 1995. It is admitted that the first defenders, Voith Hydro GmbH & Co., KG, succeeded to the whole rights and obligations of J. M. Voith GmbH. For present purposes it is unnecessary to have regard to the relationships among them and the other defenders. It was agreed that the defenders might, at this stage in the case, be dealt with compendiously as "Voith". The Voith companies are domiciled in Germany.

Voith supplied Ferguson with two propeller systems of Voith Schneider Type 32G VII-200 for incorporation into two tugs ordered by Shetland Towage Limited. There is a dispute about the delivery and performance of the propeller systems. Ferguson aver that the first of the two vessels to be constructed failed its trials, in respect that the specified bollard pull was not achieved. Modifications were carried out at the expense of Voith, but there was a further failure. The hull of the vessel was modified, but it again failed its trials. The hull of the second vessel was modified at construction. It too failed its trials. Further modifications were then made to both vessels at the expense of Voith. In July, 1996, the bollard pull was still below specification, but Shetland accepted delivery. The delivery dates achieved for the vessels were respectively six and four months late. Ferguson raised the present action for damages alleging breach of contract by Voith. In particular, Ferguson focus on allegations of delay arising from the faulty design of the propeller systems. The claims fall into two categories. There are claims for losses attributable to late performance of Voith's duty to achieve the specified standards of performance. And there are claims for indemnity in respect of loss and expense attributable to Voith's failure to perform design and manufacturing obligations. The claims for delay are quantified by reference to liquidated damages paid under Ferguson's contract with Shetland, bank interest foregone on instalments withheld by Shetland, and certain expenses and costs. There are loss and expense claims based on Voith's failure to meet specification which comprise repeat fees paid to Lloyd's, additional pilotage and tugs, repeat bollard pull tests, transport costs, and re-setting of the tugs' magnetic compasses. The defenders contend that the Court of Session does not have jurisdiction to entertain the action. Preliminary proof was allowed to determine that question.

Ferguson contend that the dispute which is at the heart of the action is a matter relating to contract under and in terms of Article 5 (1) of the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, 1968, incorporated into domestic law by the Civil Jurisdiction and Judgments Act, 1982. They contend that the contractual obligations in question included Voith's obligation to deliver the goods ordered conform to contractual specification and guaranteed quality, and their obligation to indemnify them in respect of all loss, damage or expense suffered by them in consequence of Voith's negligence or breach of duty. They contend further that the place of performance of Voith's obligations in respect of timeous delivery of goods conform to the contractual specification was Scotland. They contend that Scots law is the applicable law of the contract in terms of the Contracts (Applicable Law) Act, 1990 and the Rome Convention on Contractual Obligations, 1980 in respect that the place of characteristic performance of the contract was Scotland, and in any event because the parties had agreed that Scots law was the governing law of the contract. Lastly, they contend that in terms of the internal rules of Scots international private law, the place of performance of each of the obligations relied on was Scotland. The critical issues of fact at the proof turned on the evidence of those involved in negotiations relating to the supply by Voith of the two propeller systems. Mr Richard Deane, Mr Ian Thomson, and Mr Kenneth Fulford gave evidence of the parts they played in the negotiations on behalf of Ferguson. Dr Jens Bartels and Mr Stephen Taylor were the principal witnesses led for Voith in relation to those matters. At the date of the proof, Mr Deane was a director and the general manager of Ferguson. In October, 1994, he was a director and the secretary of the company. Mr Thomson was appointed Ferguson's commercial manager in 1993 and remained in that post at the date of the proof. Mr Fulford was at all material times employed as a naval architect by the company. Dr Bartels was a naval architect, and in October, 1994 was the project and sales manager of Voith's marine technology department. Mr Stephen Taylor was a partner in Voith's United Kingdom agents, E. C. Goldsworthy & Co. The credibility and reliability of the evidence of these witnesses came to be crucial to the resolution of the factual issues which arose at the proof.

Most of the principal witnesses had known each other for some time, either in the capacities they still had at October, 1994, or in earlier posts within their respective companies. Voith and Ferguson had entered into a number of earlier contracts for the supply of Voith propeller systems over a long period. The earliest transaction brought to my attention was in 1938-39. I was referred to a contract for the supply of two water tractors in December 1981 and January, 1982; a contract in 1990; and a contract dated in 1992. The 1990 contract related to a pair of vessels, yard numbers 601 and 602. Ferguson issued orders to Voith on 7 June, 1990. Voith responded with their own style of order acknowledgement form dated 5 July, 1990. The 1992 contract related to a double ended ferry for Red Funnell line, yard number 606. A similar exchange of documents took place. It would be impossible to treat either the basic exchange of these documents, or parties' attitude to them, as ideal in legal or commercial terms. Mr Thomson proceeded on the basis that he understood Ferguson's order conditions to prevail, whatever the response from Voith. He considered that Ferguson's conditions took precedence, even though he was aware that contractors, such as Voith, sought to incorporate their own conditions. Voith clearly approached the formation of contract on the same lines. They sought to have the last word in such exchanges, without ensuring written consensus. There were also later contracts in which the same approach to documentation appeared to have been followed. In December, 1994, an order was placed for equipment for a further double ended ferry for Red Funnel line, yard number 611. This was the third in a series, and the contract documentation followed the earlier forms. Prior to the events giving rise to the present dispute, nothing ever emerged between Ferguson and Voith which put to the test the effectiveness of their several attempts at imposing on the other their contract forms. Their experience had been trouble-free. There was a high degree of mutual confidence. This may explain, in part at least, the casual nature of their approach to entering into contracts. In any event, I considered that there was nothing established by the evidence of the parties' prior course of dealings other than a disregard for formality in reaching agreement on the precise terms and conditions intended to regulate relationships between them.

Ferguson were familiar with the general characteristics of the Voith propeller systems. Tugs equipped with such systems had operated in the North Sea in some numbers and over a long period and were well known in the market . All of the vessels in Shetland's existing fleet were equipped with Voith propeller systems. While it proved unexpectedly difficult to obtain precise information from the defenders' witnesses, it was clear from the evidence of Mr Taylor that Shetland and Voith had discussions relating to the design and specification of the vessels in question, two towing and fire fighting tugs for operation at Sullom Voe in Shetland and generally in the North Sea, over a period of years prior to any approach to shipbuilders for quotations for the vessels. The project was developed jointly by Voith and Shetland. Dr Bartles knew that Shetland expected to have a contract with B.P. for the handling of VLCC vessels at Sullom Voe. Shetland's specification was prepared on the basis of discussions with Voith. Voith effectively defined the scope of that specification so far as it covered the requirements of the propeller systems. By the beginning of 1994, Shetland's main requirements had been established and communicated to Goldsworthy. The likely terms of those requirements can be gleaned from a fax sent by J. M. Voith GmbH to Goldsworthy dated 17 February, 1994 in which the projected vessels were described as "Our Project 59-91", indicating that the project had been commenced by Voith in 1991. The document was issued under Dr Bartles' reference and signed by him and by Mr Perfahl, manager of Voith's design department. The fax prescribed testing conditions which are not relevant for present purposes. It stated in addition:

"To the best of our engineering knowledge we confirm that 55 tons static bollard pull can be guaranteed with engines providing at site a MCR of 2.030 kW each (or 2.000 kW propeller input power). This under the provision that

lines have Voith's approval
propeller guard is designed and fitted in accordance with
Voith recommendation
blade tip clearance 24 mm ± 5 mm slot welding on the bottom of the guard plate..."

A schedule of design characteristics recommended to achieve the appropriate levels of performance was appended. It appears to me to be clear that before approaching the market, Shetland and Voith must have discussed in some detail the required performance criteria of bollard pull, the engine capacity required to achieve that performance, the relationships of the hydrodynamic characteristics of the hull to the propeller systems, and the dimensions and at least certain design characteristics of the propeller housing.

Ferguson and Richard Dunstan & Hassle Limited (Dunstans) were among the shipbuilders asked to quote for the vessels in March, 1994. The shipbuilders were supplied with a full specification of the vessels by Shetland to work up a design. The specification of the vessels provided by Shetland described them as "Voith Schneider Tractor Tugs". Shipbuilders' naval architects were required to develop the vessels' design in accordance with the owners' specification. The general preliminaries, reflecting Voith's fax of 17 February, 1994, required Voith's approval of the vessels' lines, and of the form and construction of the propeller wells, guard and skeg. Forward bollard pull was specified as 55 tonnes in given operating conditions. Following telephone conversations with Goldsworthy, Ferguson asked for a quotation for the systems by letter dated 31 March, 1994. The letter stated the delivery dates for the propeller systems for the two vessels as the first and second quarters of 1995 respectively, and the vessel completion dates as third and fourth quarters of 1995 respectively. With the letter, Ferguson enclosed, inter alia, relevant extracts from Shetland's specification, and Ferguson's general conditions of purchase. Goldsworthy transmitted Voith's quotation to Ferguson on 15 April, 1994. That quotation bore to be: "subject to our Conditions of Sale - Print 306 VSPe". There was a specific reference to warranty provisions in those conditions. On 20 April, Voith wrote with a more complete tender, enclosing, inter alia, their conditions of sale. On 29 April, Ferguson sought confirmation that the propellers offered would give the specified bollard pull of 55 tonnes at 2000 kW input to the propeller. On 5 May, Goldsworthy transmitted Voith's reply confirming those values, subject to Voith designing the vessels' lines, or approving the shipbuilder's lines, and subject to the design and fitting of the propeller guard, and various test conditions. Ferguson's bid for the construction of the two vessels, which was prepared and submitted by Mr Deane in about July, 1994, was not successful at that time. Shetland entered into negotiations with Dunstans. The stage these negotiations reached was not clearly established, but they proceeded sufficiently far for Dunstans to have issued a letter of intent to Goldsworthy for transmission to Voith. Dunstans' letter indicated a degree of urgency in completing the proposed contract.

During 1994, and probably in the late summer or early autumn, Shetland's negotiations with Dunstans broke down. By then Shetland required delivery by particular dates, to meet obligations to B.P., and time was running short for construction. There was a degree of urgency to conclude building contracts. Ferguson entered into fresh negotiations with Shetland. Ferguson concluded contracts with Shetland on 7 October, 1994 for construction of the two tugs. It now became a matter of urgency for Ferguson to conclude contracts with Voith for the manufacture and supply of the propeller systems. The major technical issues had been considered by Ferguson in April and May. It was clear from comparison of the documents issued over the period that there had been some technical developments during Shetland's abortive negotiations with Dunstans. Some of the detail of the specification had changed since the initial inquiry. There were a number of issues of detail of a technical nature to be resolved, and price and other conditions of contract had to be agreed if an order were to be placed. However, the specification of the building contracts required the use of Voith Schneider cycloidal propellers and Voith turbo couplings. The drawings sent with Shetland's initial inquiry in 1994 were Voith drawings. The design of the propeller systems was a proprietary design owned by Voith. To meet their obligations to Shetland, Ferguson had to enter into a contract with Voith.

Matters had also become critical for Voith. Dunstan's letter of intent had set a short time limit for the completion of their work. The timing of the project was important to Voith before Ferguson became involved. They commenced design and manufacture work in reliance on Dunstans' letter of intent. When Dunstans withdrew and Ferguson received the order, Voith understood that the delivery times remained more or less the same. Voith were in extreme time pressure. There was some dispute as to the meaning of Dr Bartels' evidence on this matter. But I consider that there was no doubt that the significance of the evidence was that there would be a cost to Voith in stopping the ongoing design and manufacturing processes, and therefore an urgent need to settle the matter with Ferguson. There were technical matters to settle from their point of view also. But I consider that it was clear that Voith were under time pressure to conclude a contract with Ferguson. There is no other sensible interpretation of Dr Bartles' evidence that: ".. we were under time pressure for this contract." Without a contract with Ferguson, Voith were exposed to the losses associated with proceeding on Dunstans' letter of intent.

It was against this background that the parties made arrangements to meet at Port Glasgow on 13 October, 1994. By then Voith knew that Ferguson had the contract for the construction of the vessels. I accepted Dr Bartels' evidence to that effect. Mr Taylor said that he did not know that Ferguson and Shetland had concluded a building contract. I did not consider that this evidence was reliable. Mr Taylor had no specific recollection of the calling of the meeting, and I formed the view that, after the lapse of time involved, his recollection of the circumstances surrounding the meeting had become generally unreliable.

There was considerable controversy over the arrangements for the meeting, what transpired in the course of it, and what the outcome of parties' negotiations was. There was no agreed written record nor any note on which one could rely without qualification. Some only of the participants made notes. On his return to Heidenheim, on 14 October, Dr Bartles prepared a report of the meeting from his notes, which were thereafter destroyed. The report was circulated within Voith to the project department, the design department, the technical department and to Mr Deuter of the commercial department. An English translation of this document was available from an early stage in the proceedings. A contemporary report of the proceedings was always going to be critical to a decision on what transpired, and the translation presented to the court should have been seen to have particular significance. At the end of the day, I consider that, properly translated, the report is significant. But the original translation was false. It is necessary to trace the history of the document, and to consider its terms, since they have a material bearing on the credibility of Dr Bartles in particular.

The German text of Dr Bartles' report was made available to Voith's Scottish solicitors soon after the action was raised. A translation was required for the purpose of instructing them and, no doubt, counsel in connection with the preparation of a defence. Voith committed the translation to Mr Henreich Bauer. He was instructed by Mr Florian Haupt, a member of Voith's legal department who also carried on independent practice. By the stage at which he asked for the document to be translated, Mr Haupt knew that Ferguson contended that a contract had been concluded in Scotland for the supply of the propeller systems, and, further, that they contended that Scots law applied to that contract, and that the Scottish courts had jurisdiction to determine the issues between the parties. It was appreciated by Mr Haupt that one line of defence open to Voith might be that no contract had been concluded in Scotland. He telephoned Mr Bauer and told him that Voith required papers translated with respect to the defence of the case. He could not remember what other information he provided. Mr Bauer was available to carry out the translation, and Mr Haupt sent him by fax a copy of the note. Mr Haupt did not provide written instructions. I accepted Mr Haupt's evidence on these matters of instruction. While he had not produced and did not have available all of the documents which may have existed, and in particular did not have available the fax cover sheet or any other document associated with the transmission of the report, I found him a credible and reliable witness. At the stage of the communication between Mr Haupt and Mr Bauer, therefore, Mr Bauer had a straightforward instruction to prepare a translation of Dr Bartles' report for the purposes of the current litigation.

The action came to proof on 8 December, 1998. It soon became apparent that there was no consensus that Mr Bauer's translation was accurate. Attention focused particularly on the translation of the opening paragraph of the report. In the German text this was: "Ferguson Shipbuilders hatte am 07.10 den Vertrag uber den Bau zweier Eskort Voith Wassertrecker fur Sullom Voe mit Shetland Towage unterschrieben. Ziel der Beratung war es, den Vertrag unseren Lieferumfang betreffend mit Ferguson Shipbuilders abzuschliessen." Mr Bauer translated the paragraph thus: "On 07.10 Ferguson Shipbuilders has signed the contract for construction of two Eskort Voith water tractors for Southern Vow with Shetland Towage. Finalization of our scope of delivery for Ferguson Shipbuilders was the objective of the meeting." The translation was put to Mr Thomson. At that stage there was no alternative translation before the court. Mr Thomson challenged the English text of the note. He said that it did not record the objective of the meeting. It was not even the result. The objective of the meeting was concluding a contract. There was also dispute whether paragraph 2.6 of the report was accurately translated. It referred to "Der Vertragspreis", which was acknowledged to mean "the contract price". Mr Bauer's translation was expressed in terms of "the contract". However it was generally agreed that this was a simple clerical error. There was a further dispute about a reference to Voith's conditions of sale. Mr Thomson took issue with the suggestion that there had been an agreement in terms of those conditions. They were not referred to at all. The dispute over the accuracy of the translation could not be resolved by agreement, and resulted in the discharge of the diet of proof.

When the proof resumed, on 20 April, 1999, the pursuers had instructed a translation by Professor Deitrich Scheunemann, Professor of German at Edinburgh University. The defenders had instructed translations by Dr Colin Grant and Ana Eskuche both of Integrated Language Services , a division of Heriot-Watt Trading Ltd. Neither of these two translations was spoken to in evidence. They differed in some respects from Professor Scheunemann's translation. But the differences were less significant than the similarities among the three new translations, and it is unnecessary to deal with them more fully. Professor Scheunemann's translation of the important first paragraph of the German text was: "On 07.10 Ferguson Shipbuilders had signed the contract for construction of two Eskort Voith water tractors for Southern Voe with Shetland Towage. The objective of the meeting was to conclude a contract with Ferguson Shipbuilders concerning the extent of out supply." In evidence, Professor Scheunemann was an impressive and careful witness in dealing with the language of the document, though perhaps generous to a fault in his assessment of the culpability of those responsible for the terms in which the original translation was placed before the court. Properly translated, Dr Bartels' note set out the objective of the meeting on 13 October to have been to conclude a contract concerning the extent of the supply agreed to be made by Voith. The language used the technical legal expression for concluding a contract. Dictionary references indicated the generality of the usage. Indeed it was conceded by Mr Haupt. The general context of the document supported that view. There were repeated references in the body of the note to specific matters having been agreed at the meeting. These included technical matters, and commercial matters. They were expressed, in German, in past tenses which indicated past completed acts.

Commenting on Mr Bauer's translation, Professor Schenemann said:

".. The object was not the scope of delivery but the object was finalising or concluding the contract. So it's actually a confusion between various parts of the sentence. I'm surprised about it, if I may comment on this. I'm surprised about this kind of, this translation. It seems that the person, for reasons I don't know, must have had a scenario in his or her mind and has manipulated the translation to fit this scenario. It's not a text which I can in any way see that it may derive from the German original."

The main fault he found with the translation was its failure to render into English the technical expression "einen Vertrag abzuschliessen", which clearly and unmistakably indicated that the objective of the meeting was to conclude a contract with Ferguson concerning the extent of Voith's supply.

When Mr Bauer came to give evidence, it became clear that the translation had indeed been manipulated. Mr Bauer had formerly been an employee of Voith. He had thirty-three years' service with the company before setting up an agency of his own in 1988. Mr Bauer was a sworn and registered translator in the German courts. He claimed that he had been sent the original of Dr Bartels' note, probably in October, 1997, by Mr Haupt, for translation, without explanation of the purpose for which it was wanted. He did not set out to make a literal translation of the document. He purported to give an interpretation of the note, "as an insider of Voith", because he claimed to know from hundreds and thousands of translations of such reports that before a contract was made by Voith, the scope of delivery was discussed. He made it clear that he would not have produced such an interpretation for a German court. I did not find Mr Bauer a credible witness. The notion that he prepared a contrived translation at the request of a lawyer simply on the basis of long experience of Voith, and without instructions or knowledge of the intended application of the translation, nor of the context in which there was interest in the document was, in context, incredible. The purported translation was, in my opinion, having listened to Mr Bauer, simply dishonest, and a deliberate contrivance to serve the purposes of Voith in relation to this specific dispute.

The significance of this finding is not restricted to Mr Bauer. His purported translation was reflected in the evidence given by Dr Bartles. Asked about his understanding of the purpose of the meeting, he said that it was "to clarify every point concerning scope of supply", "delivery time", "and, of course, the general conditions there in which way Ferguson has to draft the contract". He did not understand that the purpose was to conclude a contract. If there had been a suggestion that a contract would be concluded Mr Deuter would have been with him. Dealing with the report more particularly, he said that the final sentence meant that the "Target of the meeting was to conclude the conditions, the scope of supply with Ferguson Shipbuilders". In cross examination, he adopted the same stance. The matter took on an unreal air. Voith had authorisation procedures; what was suggested could not be accommodated within those procedures; and so it could not be real. There is a satirical German poem Die unmogliche Tatsache, based on a road accident in which one Palmstroem was injured, but in circumstances involving illegality. Palmstroem, having identified the illegality concludes:

"Nur ein Traum war das Erlebnis.

Weil, so schleib t er messerscharf,

nicht sein kann, was nicht sein darf"

The accident had to have been an illusion, because that which must not be cannot be. Both in the case of Dr Bartles' evidence, and the evidence of Mr Deuter to which I will refer later, it was impossible to avoid the impression that reality had been subordinated to the requirements of standard procedural regularity. What was perceived to be contrary to Voith's internal rules for authorisation of contracts could not have happened, whatever the objective evidence.

Mr Glennie properly put to Professor Scheunemann propositions which anticipated the defenders' own evidence about the purpose of the meeting. It was suggested that certain language in the introductory paragraph might be construed as a limitation on the scope of what was described as a contract. He rejected that. It was suggested that the language was less formal in effect than his translation suggested. He rejected that. He was asked how the German text would differ if the sense were either (a)that: "the objective of the meeting was to reach agreement on the contract with Ferguson Shipbuilding so far as concerns the extent of our supply", or (b) that: "the objective of the meeting was to reach agreement on the contract with Ferguson Shipbuilders so far as concerns the extent of our supply". He provided translations into German of the English which differed materially from Dr Bartles' note. They were respectively: "Ziel der Beratung war es, die Bedingungen des Vertrags mit Ferguson Shipbuilders unseren Lieferumfang betreffend zu vereinbaren"; and "Ziel der Beratung war es, eine Vereinbarung uber den Vertrag mit Ferguson Shipbuilders in bezug auf unseren Lieferumfang zu erreichen". I found his evidence reliable and compelling. There was no possibility that the alternatives put to him could properly be said to represent in English the German text of Dr Bartles' note.

Dr Bartels' evidence about the purpose of the meeting in substance coincided with Mr Bauer's purported translation of the report. The chances of a coincidental error of this nature by two wholly independent witnesses are remote, in my view. I concluded that in this respect Dr Bartles gave deliberately false evidence. The expression "vertrag abzuschliessen" refers in common German legal language to the conclusion of a contract. I was satisfied on the evidence that it had and could have had no other legitimate meaning in the context of Dr Bartels' note.

There was a further reason for considering that Dr Bartles was prepared to lie about the significance of his report. He introduced, in evidence in chief, for the first time in the course of the proof, an element of controversy over the translation of the final sentence of his report. The German text was: " Der Vertrag mit Spezial- und Standardbedingungen geht uns in Kurze zu". That had been translated consistently as "The contract with/including special and standard conditions/terms and conditions, will be sent to us shortly.". Dr Bartels initially translated it in that way. However, he then attempted to put a gloss on the expression, saying: "Standardbedingungen, "Standard Conditions is, according to our understanding, the technical parameters, engine performance, all these things what we have discussed in the first meeting with Ferguson...". He attempted to explain that on the basis that the note was for internal consumption. Returning to the same topic, Dr Bartles sought to relate the reference to general conditions to a statement of the "Standard Requirements for Equipment" which was subsequently sent by Ferguson to Voith as part of their full order form. These standard requirements related to the design of the vessel, classification and other technical factors. In cross examination, he said of the expression in the final sentence of his report: "These are the standard conditions, in our understanding the requirements on the tug boats, the technical points, and also this Classification Society's, this kind of safety issues, this was the understanding of this term." He repeated this evidence. It was put to him that the reference to standard and special conditions of contract meant simply what it said, and had nothing to do with the technical requirements referred to. He resisted that suggestion. At the stage Professor Scheunemann gave evidence the final sentence of the note was translated as "The contract, including special and general terms and conditions, will be sent to us shortly." That, in his view, made sense in the context of his translation of the introductory paragraph. It was not consistent with Mr Bauer's translation of the introductory paragraph. But there was no suggestion that the sentence had any other meaning. I consider that Dr Bartles evidence on this matter was false. It was an artificial and contrived attempt to avoid the obvious incompatibility between his assertion of the meaning he intended in the introductory paragraph of his report and the clear meaning of the final sentence, as to which every other translation was in substantial agreement. In his evidence, Mr Deuter explained the hyphenation used in the sentence. It would be wrong in German to write out at length the two words "Spezialbedingungen" and "Standardbedingungen" in such a sentence. The words clearly formed parts of a single expression relating to the anticipated contract.

Properly translated, Dr Bartles' report presented the purpose of the meeting and outcome of the negotiations on commercial terms between parties as follows:

"On 07.10 Ferguson shipbuilders had signed the contract for construction of two Eskort Voith water tractors for Sullom Voe with Shetland Towage. The objective of the meeting was to conclude a contract with Ferguson Shipbuilders concerning the extent of our supply...

2. Commercial issues

2.1 Delivery time

The first ship is to be delivered to Shetland Towage in week 26/95. The following delivery dates were agreed upon:

1st shipset ex works in week 16 (at the shipyard in week 17)

2nd shipset ex works in week 24 (at the shipyard in week 25).

It was agreed that we manufacture and test the propellers in a sequence convenient for us; delivery will then be as agreed.

We were able to define the required delivery time penalty in accordance with out conditions of sale with a 14-day period of grace.

2.2 Weight penalty

The customer demands a strict weight penalty with respect to exceeding the weight of the equipment. The penalty will become effective already if the total weight is exceeded by 1%.

In this respect, nv is to advise the binding equipment weight, at the latest in week 42.

2.3 Performance penalties

Based on the very strict contract requirements, there are bollard pull and free-going speed penalties that become effective if the values indicated in 1.8.1 and/or 1.8.2 are not reached. We have to contribute towards these penalties. 2.4 Currency

We were able to achieve that payment will be made in DM. Therefore safeties for exchange rate variations and/or currency risks do not apply.

2.5 Payment terms

The payment terms had to be strictly adapted to the customer's payment mode to Ferguson. The following terms were agreed:

10% downpayment upon placing the order, payable 27.10.1994 at the latest, i.e. 14 days after placing the order

90% upon notice of readiness for shipment against delivery documents.

We were able to agree that no bank guarantees needed to be opened.

We were also able to agree that the performance bonds required for 10% and/or 5% of the contract price do not have to be submitted by Voith. All other subcontractors will still have to issue these performance bonds.

2.6 Contract price

The contract price comprises the extent of our supply including the mechanical double control system. In the event that we are unable to convince the customer of the mechanical control system, the contract price will be reduced by DM 210,400

The contract with special and standard terms will be sent to us shortly."

The language used was consistently the language of agreement. The purpose of the meeting was clearly identified. And the date of Ferguson's order can be inferred from the projected date for payment of the down-payment, mentioned in paragraph 2.5, as 13 October, 1994. In these general respects, the report reflected substantial agreement with the evidence of Mr Thomson, whom I considered to be more reliable in his recollection than Mr Deane where the two differed. Much of the evidence about the arrangement of the meeting for 13 October was less than impressive. I did not find this surprising. The meeting was arranged informally, and against the background of the urgency I have described. Mr Thomson thought that he arranged the meeting by telephone with Goldsworthy. Mr Deane also thought that the meeting would have been arranged by Mr Thomson. Mr Thomson left it to Voith to select their representatives. He said that he thought he knew that Dr Bartles was coming. Mr Taylor's evidence was that Mr Norman Brown would probably have arranged the meeting. But in other respects he also spoke of an informal arrangement. I did not find Mr Taylor's evidence about the arrangement reliable where it was inconsistent with Mr Thomson and Mr Deane. He clearly had no recollection on which one could rely. I accepted the evidence of Mr Thomson and Mr Deane that a meeting was arranged by informal means between Mr Thomson and Goldsworthy to take place in Port Glasgow on 13 October, 1994. I also accepted as true and reliable Mr Thomson's evidence that the purpose of the meeting was to conclude a contract with Voith for the supply of the propeller systems. In cross examination, he said that the meeting was principally to get the order for the equipment placed. The technical discussions were to ensure that Ferguson got the right equipment. But Ferguson had to achieve agreement with Voith before committing themselves to expend the money sought for the equipment. Mr Deane's evidence was to the same effect. He said that his instructions to Mr Thomson would have been to arrange a meeting to conclude the contract. Their evidence coincided with Dr Bartles' contemporary report, properly translated. Further, I consider that there was some support in the evidence of Mr Taylor. He said that Mr Deane started the meeting by saying, "We have a good experience with previous contracts of working together, let's make a simple contract, we don't want to spend so much time discussing this, this, this and this, here is the, what we think in a nutshell should form the contract, or the commercial side of the contract, let's go through this." It was plain on his recollection that what Mr Deane said reflected a clear intention to make a contract at that meeting. This was a reference to the commercial negotiations between parties. Dr Bartles gave evidence to a different effect. He said that Mr Deane said: "Look, let's make it easy, simple, this is what we have in mind to do with Voith concerning the conditions"; and they went through a document previously prepared by Mr Thomson. These special conditions were considered the basis for the contract. He made notes of the points agreed on his copy. Again it appeared that Dr Bartles' evidence was tailored to avoid reference to the making of a contract at that time. I did not accept the qualifications of the observations of Mr Deane implicit in that evidence. There was discussion in the cross examination of Ferguson's witnesses whether their evidence that there was a contract concluded on 13 October was inconsistent with Ferguson's written pleadings. That the evidence did not coincide exactly with the written pleadings was clear. However, in my view there was no inconsistency which had significance in the weighing of credibility in the circumstances of this case.

In anticipation of that meeting, and between 7 and 13 October, Mr Thomson prepared a document containing special conditions of contract relating to a supply by Voith to Ferguson of the propeller systems required for the tugs. He used the shipbuilding contracts as a source of information relating to conditions, penalties etc. At the time, Ferguson used standard form general conditions, and supplemented these by special conditions adapted to the requirements of the particular contract. There were liquidate damages provisions which were always important to both parties, since they had the potential to affect the viability of the contract. In particular, in this case, the liquidate damages proposals were derived from the Shetland contract. Initially Ferguson sought to recover the whole liquidate damages for which they might be liable to Shetland from Voith. They considered that the performance of the vessel was almost totally the responsibility of Voith. In the course of the negotiations Ferguson's representatives agreed with Dr Bartles that the amounts recoverable from Voith should be one half of the amounts for which Ferguson might be liable to Shetland. There was considerable discussion in the course of the proof of the importance of these values, generally intended to suggest that they were so significant that no commercial person would expect to reach agreement on them at a meeting such as was held. I found this discussion to be without point. The parties agreed the price of the equipment at this meeting. They could not have reached agreement on that without discussing the factors which might bear on price. In any event such experience as one has of commercial litigation suggests that parties have less difficulty in striking a bargain than their lawyers subsequently experience in rationalising what has happened. As well as preparing the special conditions, Mr Thomson also printed from his computer a copy of Ferguson's general conditions in larger type than they appeared in printed form. The form was substantially the same as had been sent to Voith on earlier occasions. The special document was prepared with blanks for completion in the course of negotiation. The documents were not sent to Voith before the meeting.

The meeting took place in two parts. Technical issues were dealt with first. At that stage Ferguson was represented by Messrs Fulford, Thomson, David McCulloch and Norman Brown. Voith were represented by Mr Taylor and Dr Bartels. The technical part of the meeting aimed to tie up the loose ends of design, and make it possible to agree a price and commercial terms of contract. Significant changes thereafter would have involved modifications of the contract works and price variations accordingly. One such modification was anticipated and provided for at the meeting, as recorded in Dr Bartles' report. Voith had proposed a mechanical propeller control system which differed from that intended by Shetland, and which was more expensive than the system Shetland had proposed. The price reduction which would apply if Shetland insisted in their requirements was discussed and agreed at 210,400 Deutchmarks.

The discussions at the first part of the meeting left a number of matters outstanding for later discussion and agreement. The extent of these is seen in the specification prepared by Ferguson and transmitted to Voith on 20 October. The set-types were specified for the propeller systems, shafting and couplings and control stands. The total weight of these components was understood by Ferguson to be 95.75kg without oil fillings. The actual projected weight was to be confirmed by Voith. The design of the propeller, spur gear unit, and oil supply system was fully specified. There was a specification of the propeller monitoring system. But it was to be amplified by Voith providing full details of all instrumentation as soon as possible. There were similar qualifications relating to the supply of detailed information and instructions in relation to zero pitch switches, propeller seatings, the location of lifting pads for installation purposes, and vibration data on the shafting. But, in my opinion, none of these matters can be treated as having been regarded by the parties as material to the conclusion of a contract. Ferguson did not so consider it. Voith had proceeded with the execution of design and manufacturing work on receipt of the letter of undertaking from Dunstans, and that work continued. Voith's perception at the time was that all outstanding points were of minor importance. There was nothing which could have been so fundamental as to prevent parties concluding a contract, leaving for later resolution the points of detailed engineering in question.

The participants at the second part of the meeting were Mr Deane and Mr Thomson, and Dr Bartles and Mr Taylor.

Mr Thomson's paper "Special Conditions of Contract; Yard No's 609/610 Voith Schneider Propellers" was tabled. Voith's representatives and were provided with copies of the special conditions and studied them. Clauses were selected for discussion and negotiation leading up finally to a discussion of price. Some clauses were not discussed. The parties discussed and agreed a range of matters, and. in particular:

Delivery dates for each of the sets of propellers.
Liquidated damages for late delivery.
Liquidated damages for overweight equipment.
Liquidated damages for speed deficiencies at trial ahead and astern.
Liquidated damages ford efficiencies in bollard pull ahead and astern.
That there would be no requirement for performance bonds.
Consequential damages were excluded, and
Price and instalments.

Parties reached agreement on a price variation depending on the ultimate selection of the propeller control system. Price, the liquidate damages provisions and delivery dates were the most important matters requiring resolution at the stage of the commercial part of the meeting. Price was discussed at length. The forms of liquidate damages clauses varied little from contract to contract. The amounts were the significant factor. Ferguson's agreement to accept a fifty per cent liability by Voith was a material concession by them. Potentially it involved considerable financial disadvantage. Ferguson agreed to do so because of their confidence in Voith.

Each party noted the agreements reached in manuscript on the form prepared by Mr Thomson. Some of the clauses were clearly discussed in some detail. Thus, in relation to liquidated damages for late delivery, Voith stipulated for a period of grace of fourteen days beyond the agreed delivery date before becoming liable for delay, and that was agreed. Dr Bartles stipulated for that provision to reflect the standard conditions of Voith. It is significant that he did so by means of a modification of Mr Thomson's special conditions. I accepted Mr Thomson's evidence that Dr Bartles did not raise any question relating to the Voith conditions. Dr Bartles said that the Voith general conditions were not discussed, but referred to an exception relating to price and payment conditions. I did not accept that there was any express reference to Voith's conditions. But it was clear that Dr Bartles negotiated with those conditions in mind. In his report, he referred to the conditions as a measure of his success in one part of the negotiations: paragraph 2.1. This modification of the special conditions indicated clearly that Voith's general conditions were not intended by Dr Bartles to apply directly to this contract. In cross examination, Dr Bartles repeated that Voith's general conditions had not been discussed, but added a gloss: "This was also not the subject I was able or allowed to discuss". The suggestion clearly was that Voith's general conditions were excluded from the scope of the negotiations because they were beyond his competence as a negotiator. I found that wholly incredible. It was another example of a deliberate contrivance to support the position Voith had adopted in this dispute that the meeting of 13 October was of limited scope. The technical discussions had involved possible modifications to the total weight of the units. Voith reserved their position on liquidated damages for overweight equipment by stipulating for seven days to intimate a revised contract weight over that stipulated in the specification for the tugs. There was discussion and agreement on Ferguson's right to reject the goods. The right to damages on rejection which had been stipulated for by Ferguson was deleted. Voith agreed to Ferguson's stipulation for interest on repayments on rejection. There was controversy whether Ferguson's general conditions of contract were before the meeting. Dr Bartles said that they were not. He understood that the special conditions superseded them entirely. In examination in chief he said that he first saw Ferguson's general conditions later, with Ferguson's written order. However that evidence was inconsistent with his contemporary report that he anticipated receiving the contract, with special and general conditions, from Ferguson shortly after the meeting. In cross examination, he accepted that he had seen the general conditions with Ferguson's fax of March, 1994. There were passages in his evidence in cross examination which might have reflected difficulties with English language. It appeared to me to be fairer to avoid criticism of these passages. But overall there was difficulty with his rationalisation of the position relating to Ferguson's general conditions. Mr Thomson said that the clause in the special conditions superseding the general conditions was discussed. Every clause of the special conditions was discussed. The general conditions were not discussed in detail, but "they were certainly always part of the day's negotiations". In cross examination, he repeated that they had been discussed. There had been no discussion of the Voith conditions. Mr Deane said that there was no reference to Ferguson's general conditions, at one point, and at another that Mr Thomson went through all the general and special conditions of contract, at the morning meeting. From Ferguson's point of view sub-contractors' conditions of contract were treated as irrelevant. I did n

At the end of the negotiations, Ferguson gave Voith an order number for the goods. By that stage the price for the goods had been fixed. The outstanding technical issues were matters of detail, for elaboration and clarification. The issuing of an order number took on a certain air of significance. Mr Fulford, speaking as a layman, put the matter in this way: ".. Voith .. went away from that meeting with an order number and people don't go away from a meeting with an order number unless there is an order." Mr Thomson and Mr Deane interpreted the giving of an order number as an indication that Ferguson were agreeing to purchase the equipment for the sum of money agreed. Dr Bartles agreed that numbers had been given, but said that that was necessary for the "classification study" which Voith needed to have. That comment was not pursued, and I took nothing from it. Mr Deane said that Dr Bartles had said that he was satisfied with the special conditions. The parties shook hands on the deal. They did not exchange notes of the meeting. They did not sign a memorandum of agreement or any other document at the meeting. I accepted Mr Thomson's evidence that he had never found such a step to be necessary in his previous commercial dealings. Mr Deane's evidence was to substantially the same effect. Dr Bartels' oral evidence was that at the end of the meeting: "I had a certain understanding but of course I have to live also in certain regulations, therefore I have mentioned look, we have here made conclusions on this and we will do our very best to continue this very full co-operation we had with Ferguson..." That suggestion, which could only imply that there had been a specific reservation of the position pending further discussions, was never put to Ferguson's witnesses. It was inconsistent with the implication in his written report that there had been an order on 13 October. I did not find Dr Bartles to be credible in his evidence relating to the meeting. I did not accept the statement that this particular comment had been made to be credible.

At the end of the meeting parties anticipated that there would be a document setting out the terms of the agreement. It was agreed that Ferguson would send final typed versions of what had been agreed to Voith. Ferguson anticipated sending a written form of order. They would have hoped to have a formal acknowledgement on their form. Experience indicated that they probably would not. On 19 October, Ferguson sent to Voith a fax confirming the order under the order numbers previously given, identifying the equipment to be supplied, and stating the price, delivery dates and instalment terms. The fax stated: "Special conditions apply as discussed. Official order to follow." On 20 October, Ferguson sent fully detailed purchase order forms. The purchase orders were said to be subject to Ferguson's general conditions printed on the forms. The general conditions provided that all orders made by or on behalf of Ferguson were made or given subject to the conditions and that "any Conditions put forward by the Contractor which are inconsistent with these Conditions shall be void unless specifically agreed in writing by the Company." The form made provision for return of a copy signed with an acknowledgement that the terms and conditions were accepted.

On 26 October, Voith acknowledged the fax of 19 October and wrote:

"We would like to thank you very much for your fax dated 19. 10. 1994 confirming us your order for our scope of supply for the above mentioned 2 escort vessels for Shetland Towage.

We are delighted to have the opportunity of working with you together and we are looking forward to the pleasant working relationship and successful outcome we have enjoyed so much for several other projects.

We are looking forward for your official order with enclosed special conditions......

We thank you once more for this order and shall do our best to perform it to your entire satisfaction."

That document was signed by Mr Deuter, Voith's Commercial Department Manager, and Mr Reigal, of the Project Department, who was, according to Dr Bartles, "in charge for this application". Dr Bartles accepted, however, that he may have prepared the draft, and that it was signed by Mr Reigal in his absence.

Voith at no time completed and returned the form of acknowledgement of order printed on Ferguson's formal documentation. Mr Thomson described the attempt to obtain signed acknowledgements of orders as "a continual battle." The battle of the forms continues to rage, apparently, in the industry. Mr Deane also spoke of the difficulty of getting any form of acknowledgement, and the battle of the forms. The disinterest of Ferguson in Voith's conditions was such that he was never informed of them. That disinterest had its parallel in Voith. Dr Bartles comment was that as at the beginning of November: "Our understanding was that in most essentials for proceeding in our manufacturing, in the continuation of the building at Ferguson was settled and all the other points which are related to the final draft or final formulation of the contract was only of minor importance.... it was never a subject to be worried about".

Ferguson replied to certain technical questions raised in the letter on 31 October.

On 3 November, 1994, just over fourteen days from 19 October, Voith invoiced Ferguson for the ten per cent first instalment payment due in terms of the agreed special conditions. The covering letter identified the source as Voith's Mr Heermann. It quoted Ferguson's order numbers, and referred to Ferguson's "fax order". The invoices were specific to the order numbers for the two vessels. The invoices were stamped by Ferguson with the date 7 November, 1994. Payment was thereafter made. The date of payment became controversial. The matter was initially presented on the basis of agreement between counsel that payment was released on 29 November, and received by Voith on 30 November, 1994. However, Mr Glennie raised the matter with Mr Thomson. He indicated that payment had been released on 22 or 23 November. Mr Thomson was given the opportunity to explain that he had investigated matters and discovered that the actual time of release was the earlier time indicated by him. Additional documents were thereafter lodged by Ferguson, and the topic was taken up by Mr Deane. Ferguson's cashier's notation on a file copy of Voith's invoice was: "Paid 23-11-94". Payment had been authorised by Mr Deane and Mr William Scott, two authorised directors of Ferguson on or about 20 November, 1994. The office system was that the invoices would have been seen by Mr Thomson, because his reference appeared. They would have been passed by him, and then payment would have been progressed by the cashier, who would have required to obtain two authorised signatures. 23 November, 1994 was probably the date on which the bank were instructed to make the transfer. The bank purchased the German currency required to give effect to the transfer instruction on 25 November. The payment was cleared through Ferguson's bank account on 29 November. Mr Deane's evidence about the timing of the payment was less than satisfactory. He said initially that Ferguson wished to make payment before the proposed meeting at Heidenheim to avoid the embarrassment of turning up there without having paid the invoices. However, that meeting took place before the payment was cleared. Mr Deane then said that the payment was made to avoid disrupting relationships with Voith. I do not consider the point to have any significance. The suggestion put to Mr Deane was that Ferguson made payment only after the lines plan had been agreed because until then Voith's guarantee of the bollard pull and speed could not be relied on. In my opinion there was no substance in that. What is material is that Ferguson cleared the invoices for payment before Voith sent their order acknowledgement form.

Detailed design work proceeded between 13 October and 14 November, 1994. On 14 and 15 November there was a technical meeting in Heidenheim. It was attended by a representative of Shetland, Captain Dowswell, Mr Sturmhoffel, Dr Bartels and Mr Reigel of Voith, and Messrs Sprague, Gray, Dunn and Fulford of Ferguson. The principal reason for the meeting was to finalise the lines plan for the vessels and the design details of the control mechanism between the propeller system and the wheelhouse. Ferguson's lines plan was discussed and agreement was reached. Agreement on the lines plan was a condition of Voith guaranteeing bollard pull. The control mechanism was primarily an issue between Shetland and Voith, relating to ship operation rather than design and construction. There were no commercial representatives of Ferguson present at the meeting. The process was a typical technical exercise of refinement of the owners' requirements and of the design implications of them. The parties clarified all outstanding technical matters at that meeting

On 22 November, Voith wrote stating that they were working on the order acknowledgement, and drawing attention to the fact that in the official order Ferguson had included provision for performance bonds. On 24 November, Ferguson acknowledged that that had been an error, and that performance bonds were not applicable to this contract. It is of some significance that the question raised by Voith relative to the performance bonds was expressed in terms of what the parties had done on 13 October, and that Dr Bartles took issue with the terms of Ferguson's order forms. Voith gave Ferguson a discount from the price, "honouring" the agreement to delete the performance bond requirement. Despite the ongoing technical discussions, the language used was that of completed agreement rather than continuing negotiation. There was no suggestion that work was not proceeding pending the preparation of a Voith document. Ferguson did not attach any particular significance to the reference to such a document. Further, it is clear that detailed work did proceed in the context of an understanding that there was already a contract in place. By fax dated 24 November, 1994, Voith raised a technical issue which they had overlooked in the papers Ferguson had produced at the meeting on 13 October. They took the view that a dimension indicated on a Ferguson drawing was critical to performance. The fax stated:

"As promised to you we have checked this subject once more very carefully especially regarding the influence of your proposed greater distance on the bollard pull figure. ... [It] is evident that the bollard pull will drop remarkably with increased distance due to the direct influence on the quality factor.

Because of the very strong requirements of the customer concerning static bollard pull ahead of 55 tons as well as the liquidated damages related to this bollard pull you as well as we had agreed upon in our contract we have to insist on the standard distance..."

The fax was signed by Dr Bartels and Mr Riegel. It is clear that each of the signatories relied on the provisions agreed on 13 October "in our contract" to press for the dimensional change required.

On 24 November, Voith issued order acknowledgement forms. These, inter alia, reflected the technical discussions and agreements which had taken place between 13 October and 24 November, and contained a full specification of Voith's scope of supply. However, on any construction of their terms, they also included commercial provisions which differed from those discussed and agreed on 13 October, 1994. In their form, Voith re-formulated the special conditions of contract, and incorporated their own general terms and conditions of contract. Ferguson never responded to these forms. Mr Thomson's position was that Ferguson's conditions applied, and that while they would have preferred to have had their order acknowledgement form returned, there was no particular significance to be attached to Voith's form. He had no recollection of paying particular attention to it. From his point of view the matter had been concluded in October. Mr Deane did not consider the documentation until a dispute arose three years later. On any view one had evidence of a sloppy approach to contract formalities. Dr Bartles stated in cross examination that Voith's intention in drafting the order acknowledgement forms was to reflect the agreement reached with Ferguson on 13 October. This was an impossible view to maintain in the circumstances. It was a belated attempt by Voith to vary the contract already made.

There was considerable controversy relating to Dr Bartles' authority, or lack of it, to enter into a contract binding on Voith. The issue arose initially in the cross examination of Ferguson's witnesses. Mr Thomson was asked whether he knew what Dr Bartles' authority was. He said: "No, I didn't know,... I don't know what this authority is, but I assumed, or we assumed, when we asked for someone to come to negotiate the contract, and they sent him, we assumed he has the authority." While he did not remember the exact wording, he was certain that Goldsworthy had been asked to arrange for someone to come from Voith to discuss and place a contract, against the background of Ferguson having concluded the contract with Shetland. The question of Dr Bartles' authority was taken up again with Mr Deane. He said that he had no information about who had or did not have authority within Voith to conclude contracts. But if Dr Bartles had not had authority he would not have been at the meeting. Dr Bartles' evidence was that he was responsible to Mr Sturmhofel, vice president of the marine technology division. He worked with Mr Deuter, who was responsible for the commercial department, and with other departments as necessary. He was involved in negotiating contracts and "in a certain amount" in the conclusion of contracts relating to the technical aspects of scope of supply, price, delivery times, payment conditions and liquidated damages provisions. But he said that he had no authority to conclude contracts. That required particular permission from Mr Sturmhofel before going out to make contact. He would not have required written authority. The issue was taken up again with Mr Deuter. He was head of Voith's commercial department, responsible to Mr Sturmhofel. In the ordinary course of business he acted in co-operation with Dr Bartles in producing quotations for customers. He was involved in the preparation of Voith's quotation for the Ferguson contract in April, 1994. He knew of the meeting of 13 October, 1994 before it took place. His evidence was that he had given Dr Bartles advice on the commercial matters which he should not agree, but reserve for him to deal with afterwards. He saw Dr Bartles' report. He was asked whether he understood that a contract had been concluded at the meeting. His illuminating answer was: "Absolutely not, because that would be against the regulations we had in our company." That which must not be cannot be. I accepted that Mr Deuter described accurately the ordinary course of contract negotiation involving Voith. I did not accept that Dr Bartles would have required written authorisation to depart from the usual regulations. There was no acceptable evidence that Mr Sturmhofel could not have conferred authority on Dr Bartles to enter into a contract, in the exceptional circumstances which obtained, orally. Dr Bartles himself denied that he required authority in writing. In my view Mr Deuter's evidence had no material bearing on the issues I have to determine.

Voith are, by virtue of their domicile, subject to the jurisdiction of the German courts. The Court of Session can have jurisdiction only if that arises under and in terms of Article 5 (1) of the Brussels Convention, as incorporated into domestic law by the Civil Jurisdiction and Judgments Act, 1982. Article 5 (1) provides that a person domiciled in a Contracting State may, in another Contracting State, be sued:

"In matters relating to a contract, in the courts for the place of performance of the obligation in question."

It was agreed that the expression: "In matters relating to a contract" referred to an independent European concept to be applied to achieve the objectives of the Convention: SPRL Arcado v SA Haviland [1988] E.C.R. 1593 at 1554-5. In Martin Peters Bauunternehmung GmbH v Zuid Nederlandse Aannemers Vereniging [1983] ECR 987, it was stated that:

"Having regard to the objectives and the general scheme of the Convention, ...it is important that, in order to ensure as far as possible the equality and uniformity of the rights and obligations arising out of the Convention for the Contracting States and the persons concerned, that concept should not be interpreted simply as referring to the national law of one or other of the States concerned."

In Case C-51/97 Reunion Europeenne SA v Spliethoff's Bevrachtingskantoor BV , 28 October, 1998, unreported, the independence of the concept from national laws was reinforced: it "cannot be taken to refer to how the legal relationship in question before the national court is classified by the relevant national law". Once one has a defined legal relationship, classification is not a matter to be determined by national law. In the present case, however, there is no dispute that the legal relationship created between the parties was one of contract. They agree that there was a contract at some stage. And they agree, expressly in their pleadings, that the differences between them are properly classified as matters relating to a contract. Mr Haupt's view reflected the Voith's position in evidence: "We have concluded a contract, of course, with Ferguson". But that agreement cloaks some fundamental differences between them, not only as to matters of fact, but as to the legal rules and principles applicable. There are fundamental issues between them as to when a contract was made, and on what terms. Both parties approached those matters primarily as issues of fact, applying Scots law as appropriate.

It is appropriate to investigate the question of the existence of the contractual relationship, and its terms, in dealing with questions of jurisdiction: Effer SpA v Hans-Joachim Kantner [1982] ECR 825. The pursuers contend that a contract was made in Scotland on 13 October, 1994. The defenders' position, as explained by counsel, was that there was no dispute that at the end of the meeting on 13 October it was clear that Voith were going to go ahead and provide the propellers and that Ferguson were going to go ahead with Voith. The issue was whether there had formally been a concluded contract.

Counsel for the defenders, in their written summary of argument, advanced some general propositions with which it would be impossible to disagree as a matter of domestic law. The constitution of a contract of sale and delivery of goods to be manufactured to specification involves no essential procedural formalities. There must be consensus in idem on the essentials of the contract. "To be a good contract there must be a concluded bargain and a concluded bargain is one which settles everything that is necessary to be settled and leaves nothing to be settled by agreement between the parties.... As a matter of the general law of contract all the essentials have to be settled.": May & Butcher v R. [1934] 2 KB 17 per Lord Dunedin at page 21. Whether the essentials have been settled must be determined objectively by what the parties have communicated to each other, not by what "people think in their inmost minds": Muirhead & Turnbull v Dickson 1905, 7 F. 686 at page 694. The parties must intend to be bound before there can be a concluded bargain, and, of course, may agree terms which could conclude a bargain subject to locus poenitentiae pending reduction of those terms to a formal contract: Stobo Ltd v Morrisons (Gowns) Ltd 1949 SC 184. There was no evidence that on 13 October, 1994, or at any other stage, the parties agreed terms subject to the conclusion of a formal contract in writing. The anticipation of parties was that the terms they had agreed would be recorded. Both parties anticipated that Ferguson would reduce the agreement to writing and would send it, together with their general and special conditions to Voith within a few days of 13 October. From the point of view of Voith the argument that there was at best, on 13 October, 1994, agreement on certain terms but that there was locus poenitentiae relates to, and has reality only in the context of, the contention that there was a formal contract constituted in terms of Voith's order acknowledgement forms of 24 November, 1994 and Ferguson's tacit acceptance of the terms and conditions incorporated into those order acknowledgement forms. It is implicit in their argument that the forms of 24 November were the formal contract document identified in or anticipated by the prior inchoate agreement. Such a view is wholly inconsistent with the admitted failure of Dr Bartles to refer to Voith's general conditions at the meeting on 13 October, or to indicate an intention at that time that Voith should initiate any formal contractual documents. It is clear that certain of the Voith conditions instructed the objectives Dr Bartles had in mind during the negotiations. But the conditions were never a factor in any agreement, inchoate or concluded. Further Ferguson never completed the act by which a formal contract would have been concluded, and the parties proceeded independently of any failure in that regard. It is correct that generally acceptance of one party's stipulations may be inferred from conduct of the other party. But that does not assist the defenders in this case. On any view each party had proceeded to implement certain at least of their contractual obligations before Voith's order acknowledgement forms were dispatched to Ferguson. The suggestion that there was agreement on terms which postponed parties' mutual obligations until a formal contract was concluded is without substance. Agreement on terms subject to locus poenitentiae is inconsistent with the facts of the case as I have found them on the evidence. Further, in my view it is impossible to view Voith's letter of 26 October as other than an acknowledgement of a concluded bargain, following Ferguson's fax of 19 October. The technical fax of 24 November is an express acknowledgement of an existing contract.

Dealing in the first place with the facts, in my opinion it was firmly established by the credible and reliable evidence at proof that Dr Bartles purported to bind Voith to a contract for the manufacture and delivery of the units on 13 October, 1994. All of the commercial terms essential to a binding contract were agreed. And the specification was agreed subject to minor matters of detail which neither party considered material to obligation. In any complex engineering contract details of design, and perhaps in particular interface details, will require greater specification as the process of elaboration of the design is developed. Sometimes the process will involve mere specification of what is already inherent in the contract specification. Sometimes there will be modifications giving rise to variations of contractual obligations and rights. But the idea that parties are not bound at all until the last detail is specified is fanciful. In this case the design and manufacturing processes on which Voith had already embarked in reliance on Dunstans' letter of intent continued in reliance on Ferguson's commitment to purchase the units. Voith issued invoices which reflected the payment terms agreed on 13 October. Dr Bartles reported to his colleagues in terms of concluded agreement. Ferguson paid the sums demanded.

Mr Glennie argued that this was a typical "battle of forms" case, in which the party who puts forward the latest terms and conditions wins, if the other party accepts the forms without objection: Butler Machine Tool Co. Ltd v Ex-Cell-O Corporation (England) Ltd [1979] 1. W.L.R. 401; Uniroyal Ltd v Miller & Co. Ltd 1985 S.L.T. 101; Rutterford Ltd. v Allied Breweries Ltd. 1990 S.L.T. 249; and Findlater v Mann 1990 SLT 465. If there were, on a proper view of the facts of this case, no concluded contract prior to 24 November, 1994, that might have been a valid contention. Ferguson did not sign and return the copy acknowledgement forms. They ignored Voith's documents. In appropriate circumstances their silence might have implied consent to the terms for which Voith stipulated. If the issue had turned wholly on the terms of the documents exchanged, as in Butler Machine Tool Co. Ltd, with a failure to respond to the last shot fired, Ferguson's disregard of Voith's counter-stipulation might have been fatal. However, that would have depended on whether the parties in exchanging their incompatible documents were indulging in what Gloag on Contract describes as "a mere expression of willingness of contract and of expectations that terms will be arranged": 2nd edition page 39; applied in Uniroyal Ltd at pages 105 and 107-8. Once a contract has been concluded, further stipulations can have no effect except as variations, and must depend on agreement. The case of Rutterford Ltd. v Allied Breweries Ltd. does not assist in the present context. But in Findlater v Mann one has an illustration of the importance of focusing on the point at which consensus was reached. When once one has determined the point at which there were no longer any matters at issue between the parties there was a concluded bargain which could be enforced on its terms. After that it was too late for either party to innovate on that contract unilaterally.

It is, however, necessary turn to the question of Dr Bartles' authority to conclude a contract binding on Voith. I have not made, and I am not prepared to make, on the basis of any evidence I have found to be credible and reliable, findings whether Dr Bartles had actual authority to conclude a contact on this occasion. It is important to consider what happened on and after his return to Heidenheim. He reported fully, in writing, to his colleagues. Those directly addressed by the report were Voith's project department, the design department, the technical department and the commercial department. On the information available to me these constituted the whole departments having an operational interest in the project. The registration department was also addressed. Their function was to file and register all documents, ensuring that Voith had a comprehensive record of all written material relevant to the business. The project department were given instructions to evaluate the interrelationships of the main dimensions of the vessels, to check the deckhouse design and make counter-proposals, and to intimate the projected weight of the equipment for penalty purposes. Meantime, Voith proceeded with their work, in order to maintain the schedule for delivery. The finance department acted on the document, and issued invoices. There was no basis on which that could properly have been done unless there was a contract entitling Voith to demand payment. The sums invoiced reflected precisely Voith's entitlement under the special conditions negotiated on 13 October. At no time was it suggested to Ferguson that Dr Bartles had not concluded a contract. Voith acted as if there were mutual obligations in place. It would be inappropriate to conclude from what may have been a false denial by Dr Bartles that the contrary was true, and proceed on the basis that he had actual authority. That is not in any event the case the pursuers make, and I did not have the benefit of evidence from Mr Sturmhofel from whom any such authority would have proceeded. However, I did not accept the evidence negating authority in the circumstances, given the evidence which there was about procedural punctiliousness within the organisation. It is nigh on inconceivable that there would have been an issue of invoices in reliance on a stipulation made by Dr Bartles at Port Glasgow if he had lacked the authority to bind Voith to its side of the bargain. To have done so would have breached Voith's procedures and jeopardised any freedom to withdraw which they might otherwise have enjoyed.

However, I am of opinion that Dr Bartles had ostensible authority to conclude a contract. By 13 October, 1994, both parties required a binding agreement for their respective purposes. There was no substantial possibility that the work would not proceed. Each needed the other's commitment to the essentials of a contract for the manufacture and timeous supply of the Voith equipment. The events after 13 October, down to 24 November at least, entitled Ferguson to proceed on the basis that they had a contract concluded with Dr Bartles on behalf of Voith. In Freeman & Lockyer v Buckhurst Park Properties (Magnal) Ltd [1964] 2 Q.B. 480, at page 503, Diplock L.J. said: "An "apparent" or "ostensible" authority, ..., is a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the "apparent" authority, so as to render the principal liable to perform any obligations imposed upon him by such contract.... The representation which creates "apparent" authority may take a variety of forms of which the commonest is representation by conduct..." In this case, Dr Bartles was sent in response to an invitation to Voith to send someone to make a contract. He came. Nothing was said or done which might qualify the implications arising from that fact. There could be no more direct and unequivocal representation by Voith that he had authority to enter into the very contract which both parties knew was required if their respective commercial interests were to be served.

Among the authorities referred to, a number arose from fraudulent dealings. In Thomas Hayman & Sons v The American Cotton Oil Co. & Others 1907, 45 S.L.R. 207, there was an agency for distribution of the goods in question. But there was fraud involved in the actual transaction which gave rise to the litigation. It was held that the owners of the goods were not bound by the actions of their agent who was involved in the fraud. In Armagas Ltd v Mundogas S.A. [1986] 1 AC 717, Robert Goff L.J began the introduction of his opinion with the words: "This case is about fraud and the consequences of fraud, and about bribery and the consequences of bribery.": page 723. The observations made on the limitations of ostensible authority have to be read in that context. In the House of Lords, Lord Keith commented on the scope for ostensible authority where there was a single transaction. Such cases, he said, must be very rare and unusual: page 777. It is not clear that he intended to disagree with the observation of Diplock L.J. in Freeman & Lockyer that generally actual and ostensible authority co-exist and coincide: page 502. There is some difficulty in understanding why that should not apply as much in relation to a single transaction as to a course of conduct. However, Lord Keith's speech falls short of expressing a view that one may not have ostensible authority to conclude a single and particular bargain. In this case one has the significant difference from the other authorities referred to that the principal not only represented Dr Bartles as the person dispatched in response to an invitation to Voith to send someone to conclude a contract, but that the principal, through departments other than that represented by Dr Bartles, proceeded to act on the basis that a binding contract had been concluded. In my view there is nothing in the authorities which excludes the possibility of ostensible authority in this case.

Accordingly, I am of opinion that there was a contract concluded in Scotland on 13 October, 1994. I should note at this stage that no question was raised with me whether or not Voith would be held by the law of their habitual residence to have consented to the making of a contract, apart from the issue of Dr Bartles' agency. I had the benefit of a report by Professor Dr Peter Gotthardt and Professor Dr Michael Martinek on a range of matters of German law. No opinion was expressed that Voith would not be held to have consented to the making of a contract by German law. This is wholly consistent with the scope of the dispute between the parties, and I consider it unnecessary to refer further to Article 8 of the Rome Convention and Egon Oldendorff v Liberia Corporation [1995] 2 Lloyd's Reports 64, to which I was referred by Mr O'Neill.

Before the Court of Session can entertain the dispute, the pursuers must establish that Scotland was the "place of performance" of the "obligation in question". Ferguson found their claims on breach of Voith's obligations (a) to deliver to Port Glasgow manufactured goods conform to contractual specification and guaranteed quality within agreed times; and (b) to indemnify them against all and any loss damage and expense suffered by them in consequence of any negligence or breach of duty by Voith, and in particular loss and damage arising as a result of contractual delay caused by Voith's faulty design of the propulsion units. The first head of claim is not dependent on incorporation of Ferguson's general conditions of contract into the contract between parties. The second is. Dr Bartels' note, correctly translated, clearly identifies Ferguson's general conditions of contract as an element in the agreement reached on 13 October, 1994. Mr Thomson's evidence was that the general conditions were before the meeting. I accepted his evidence as credible and reliable. In my view it was proved that the general conditions were incorporated, subject to the qualifications implicit in the special conditions. Clause 15 of the special conditions is ambiguous in the language used. It is headed: "CLAUSE PRECEDENCE", and on one view, read in isolation, superseded Ferguson's general conditions of contract entirely. However, that construction would make little sense since it has to be considered in the context that the general conditions were tabled as applicable to the contract. If they had not been tabled at all they would not have been part of the contract concluded on 13 October and would have required no reference to be made to them. Clause 15 would have been a wholly redundant reference to a document which had no relevance to the parties' relationship. The only sensible construction, in the context of what occurred on 13 October, is that the general conditions were superseded so far as appropriate by the clauses of the special conditions.

Mr O'Neill accepted that before one could determine the place of performance of a contractual obligation it was necessary to ascertain what national system of law was applicable to the legal relationship between the parties in terms of the Rome Convention and the Contracts (Applicable Law) Act, 1990. Secondly, having established by its own choice of law rules that national system, the court has then to apply the substantive rules of that national system in order to determine the place of performance of the contractual obligation in question: Tessili v Dunlop [1976] ECR 1473. The court can proceed further only if the place of performance is within its territory: William Grant & Sons International Ltd v Marie Brizard Espana SA 1998 S.C. 536 at 538, following Custom Made Commercial Ltd. v Stawa Metallbau GmbH C-288/92 [1994] E.C.R. 1-2913.

In any question relating to the relationship between a contract and a given territory, it is necessary to have regard to all of the circumstances. Mr O'Neill made apt reference to the observations of Lord Wilberforce in Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 W.L.R. 989 at page 995 . No contract is made in a vacuum. The court must place itself in thought in the same factual matrix as the parties found themselves in. The context was different. But the necessity of considering the problem in the round is the same. In my opinion the principal obligation which Voith had to perform was to deliver to Port Glasgow, for incorporation into the ships there under construction, propeller systems which conformed to specification and met the standard of manufacture and performance required within the times agreed. Delivery of the completed machinery to Ferguson's yard at Port Glasgow was specifically provided for. But more fundamentally, the completed machinery had no integrity or function as machinery unless and until delivered for incorporation into the vessels. The equipment for which parties contracted in this case was incapable of operating as free standing machinery. The propeller systems could not perform any function except as components of the particular vessels for which they were designed. The interfaces between the equipment and the other machinery and parts of the vessels were agreed and defined. The negotiations and agreement concerning the control mechanisms between the wheelhouse and the propeller systems involving the owners' preferences as the ultimate determining factor provide a clear example of the adaptation of the Voith components to the vessels. The performance criteria had meaning only in relation to the hull forms, engines, gearing and other equipment of the specific tugs. The ships were being constructed in Scotland for a Scottish buyer, and it was there and there alone that due performance of the contractual stipulations as to performance and quality could be ascertained once the goods were incorporated into the ships. The Voith equipment and the ship lines of the vessels, and the design of other components resulted in the propeller sets being uniquely adapted to the specific vessels. Voith were closely connected with the negotiations with the owners relating to the specification of the vessels, and with Ferguson as builders. The modifications which were carried out in an attempt to meet the owners' performance criteria were carried out in Scotland. The manufacture of the propeller sets was an act incomplete in itself. Until delivered and incorporated into the tugs, the propeller systems could not be tested for performance in terms of the specified bollard pull criteria. The language of the contract was in English. It was negotiated and concluded in Scotland. Ferguson's general conditions, clause 19, stipulated that the contract was to be construed and operated as a contract made in Scotland subject to Scots law.

In my opinion clause 19(a) of Ferguson's general conditions met the requirements of certainty prescribed by Article 3 of the Rome Convention. There was therefore a relevant choice of Scots law as the law governing the contract. If that were wrong, I would have held, in any event, that, having regard to the circumstances as a whole, the contract was more closely connected with Scotland than with Germany, and that Scots law would have been the applicable law in terms of Article 4 of the Convention. Article 4.2 provides for a presumption that the place of central administration of a party, such as Voith, which has to effect performance of the characteristic obligation of the contract, identifies the country with which the contract is most closely connected. I was referred to Bank of Baroda v Vysya Bank Ltd [1994] 2 Lloyd's Rep. 87 in this connection. On that presumption, the contract would have been most closely connected with Germany. German law would have identified Germany as the place of performance of all relevant obligations, the payment, indemnification and delivery obligations being ancillary to the main obligation of manufacture. The report by Professor Gotthardt and Professor Martinek deals with these issues clearly and authoritatively. Their opinion was not challenged. Scots law would have recognised that the substantive law of Germany regulated these matters. Article 4.5 provides, however, that Article 4.2 "shall be disregarded if it appears from the circumstances as a whole that the contract is more closely connected with another country". For the reasons set out already, I consider that this contract had a real connection only with Scotland. That question has to be considered as between the parties. Voith's design and manufacturing activities resulted in what were no more than components of more complex units, the vessels into which they were to be incorporated, and to which they were specifically adapted. This was not a case in which the output of the Heidenheim facility had an integrity as machinery capable of performing a function alone, as free-standing machines. Voith's contractual obligations extended to delivery to Ferguson's yard at Port Glasgow, and it was there and there alone that Voith performed their contractual obligations.

A comparison can be made with Viskase Ltd v Paul Kiefel GmbH [1999] 1 WLR 1305. The Court of Appeal struck out all but one of the plaintiff's claims against the German manufacturer of thermoforming machines used in the production of moulded plastic products on the ground of lack of jurisdiction. The machines were intended for use in Birmingham, but all but one of the contracts were completed on delivery "ex works" at the manufacturers' factory in Germany. The majority of the court held that that was conclusive in the case of all but one of the machines. The exception was a demonstration machine exhibited at Birmingham Exhibition Centre by the manufacturers, bought there, and delivered to the plaintiffs in Birmingham. The manufacturers' standard conditions included a choice of law clause. Chadwick L.J. at page 1321 answered the question as to the identification of the "obligation to be performed" in these terms: "In the absence of authority I would take the view that there in only one answer to that question. The obligation is to supply a machine which is reasonably fit for the known purpose. That obligation has to be performed at the time when the machine is supplied. There is no other opportunity to perform it. ..If the obligation has to be performed at the time when the machine is supplied, then the place at which it has to be performed is the place of delivery under the contract ." The Birmingham exhibition piece was distinguished from the others. Jurisdiction was sustained in the case of that machine. On the same approach, and even had the Voith units been complete machines as the thermoforming machines were, in the present case delivery was to take place at Port Glasgow. It was there that the specification had to be satisfied. The present case is much stronger than the single case in which jurisdiction was sustained in Viskase.

In Shenavai v Kreischer [1987] ECR 239, it was held that where a party relied on a number of obligations under a contract the place of performance of the principal obligation at issue was determinative of whether there was jurisdiction. In this case, the obligation to indemnify, as an obligation to make payment, would also be performed in Scotland . I was referred to a number of cases on the maxim accessorium sequitur principale: Shenevai;Union Transport plc v Continental Lines S.A. [1992] 1 W.L.R. 15; Hewden Stuart Heavy Cranes Ltd v Leo Gottwald C.A unreported, 13 May, 1992; Kleinwort Benson; and Source Ltd v T.U.V. Rheinland A.G. [1998] Q.B. 54. These cases would have been material had the law of Germany applied and therefore Germany had been identified as the place of performance of the principal obligation. But, for the Court of Session to have jurisdiction, it is sufficient that Scotland is the place of performance of the principal obligation. Breach of that obligation brings Ferguson within the scope of Article 5: Ets A. de Bloos S.P.R.L. v Bouyer [ 1976] ECR 1497; SPRL Arcado v SA Haviland; Leathertex Sintetici Spa v Bodetex [1998] I.L.Pr 505; Case C-420/97, opinion of Advocate General Leger dated 16 March, 1999. The disposal of the subordinate or accessory matters is a matter within the jurisdiction of this court on a proper application of similar principles. There is no scope for declining jurisdiction in the case of those claims.

For Ferguson it was argued that where a ground of jurisdiction existed under Article 5, they as pursuers had the option to select which of the courts of competent jurisdiction should be called on to take cognizance of a dispute arising in relation the contract: Zelger v Salinitri [1980] E.C.R. 89 at 96 and 98; Bank of Scotland v Seitz 1990 S.L.T. 584 at 587. For Voith it was argued that Article 5 (1) was a derogation from the general rule under Article 2, and should be construed restrictively: Martin Peters Bauunternehmung GmbH v Zuid Nederlandse Aannemers Vereniging; Kafelis v Bankhaus Schroder, Munchmeyer Hengst & Co. [1988]E.C.R. 5565; Davenport v Corinthian Motor Policies at Lloyd's 1991 SLT 774; and Kleinwort Benson Ltd v Glasgow City Council [1999] 1 AC 153. I have sympathy with the observation of Lord Prosser in Davenport that the notion of a general jurisdiction based on domicile reflecting a "principle", with other grounds of jurisdiction representing "derogations" from the principle is difficult. At the end of the day when circumstances satisfying the requirements of Article 5 are established there must be concurrent jurisdictions under Articles 2 and 5 and either the pursuer or the court addressed must make an election between them on the basis that the circumstances support both as competent grounds of jurisdiction. The pursuer of necessity must elect between the courts in initiating litigation. The court addressed would require to exercise some specified power to overrule that election. No such power was identified in debate. The views of the majority in Kleinwort Benson Ltd are binding on the approach one must adopt to the application of Article 5 in the United Kingdom until such time as the Court of Justice provides more precise guidance on the interaction of Articles 2 and 5. One must adopt a narrow approach to the application of Article 5, that is in deciding whether there are grounds for jurisdiction under that Article. Article 5 should not be construed so as to favour the wishes of a pursuer, or to favour the jurisdiction of the courts of the pursuer's domicile: Dumez France v Hessische Landesbank (Helaba) 1990] E.C.R. 1-49; Marinari v Lloyds Bank Plc [1996] QB 217; and Kleinwort Benson Ltd. The courts of the defender's domicile have a general jurisdiction in contractual disputes. Article 5 reflects the recognised advantage of having a more specific ground of jurisdiction where there is a particularly close connecting factor between the court which is invited to dispose of the dispute and the circumstances of that dispute: Dumez France; Marinari; and Kleinwort Benson. Where such a connection is established, however, the choice is a matter for the pursuer: Marinari page 228, paragraph 10. There can be material advantages to the parties in having the dispute disposed of by the court having jurisdiction under Article 5. For example, in the present case, the vessels were constructed in Scotland, all of the trials were conducted here in accordance with Lloyd's rules, all of the remedial work was carried out in Scotland. English was the language of the contract. The practical management of the litigation, as well as the more ready access to Scots law, are advantages. However, these advantages are incidental to the question whether, narrowly approached, Article 5 applies. In my opinion Ferguson have brought themselves clearly within its scope, however restricted an approach one adopts, for the reasons relating to the contract which I have already discussed.

I shall therefore repel the defenders' plea of no jurisdiction. The case will be put out by order for further procedure.