Scottish Court of Session Decisions

[1] On various dates between 1994 and 1995 the parties negotiated by way of missives towards a concluded contract for the purchase by the claimants of certain subjects which, for present purposes, can be described as Mearnskirk Hospital, Newton Mearns.

[2] In due course the claimants made an application to the respondents for a reduction of the purchase price of the subjects in respect of certain provisions in the contract. This application was refused and has led to the present dispute, which was referred to arbitration. The arbitration initially dealt with certain preliminary matters relating to the construction of the contract. In that respect the arbiter issued a draft Part Award with a Note of reasons on 19 August 1999.

[3] On 8 October 1999 the present appellants lodged a minute requesting the arbiter to state a case for the Opinion of the Court of Session on nine separate questions. The arbiter subsequently issued a certificate of refusal in respect of questions 1, 8 and 9 and declined to deal with questions 4, 5 and 6 pending a determination of the facts in relation thereto. He accordingly, in his award, dealt with questions originally numbered 2, 3 and 7.

[4] At that stage of the process the appellants made an application to this Court challenging the refusal and, in due course, this Court issued an order requiring the arbiter to answer questions 1 and 8 in addition to 2, 3 and 7. This he subsequently did in an award dated 10 July 2000.

[5] The appellants thus bring this case to this Court for its opinion. By the time that the hearing commenced before us, by agreement of parties, the live questions were 2, 3, 7 and 8, although it was accepted that the latter two complemented each other and required only one answer.

[6] The terms of the relevant questions are as follows:-

[7] We will deal with each of these questions separately, albeit eliding questions 7 and 8 for the reasons given. But before doing so it is necessary to focus on the relevant contractual provisions.

[8] The basic entitlement of the claimants/respondents to claim exceptional costs is to be found in qualification 7 of the qualified acceptance dated 12 April 1995 from the appellants.

[9] It is as follows:

[10] As will be seen that clause refers back to condition 3.1(a) of the Offer which is in the following terms:

[11] Originally that condition was qualified by a second paragraph which was subsequently deleted and substituted by a suspensive condition in the qualified acceptance as follows:

[12] Subsequent to the conclusion of the contract there was a certain further amendment procedure which is not material to the present dispute.

[13] Against that background we turn to deal with each of the questions in turn.

[14] In this respect the decision of the arbiter is to be found on pages 5 and 6 of his note and is in the following terms:

[15] Both parties recognised the preliminary difficulty in relation to this question having regard to its terminology, but general agreement was reached that although couched in the alternative the second alternative was not suggesting a separate construction. This was the nub of the position adopted by counsel for the appellants since they maintained in essence that the phrase "exceptional costs" in the context of the clause in the contract had to be viewed in the context of the development overall and did not just simply mean additional costs incurred, or likely to incurred, from knowledge acquired during the relevant time frame. I use that expression deliberately because what that time frame is, or to be regarded as, is focused in question 3. Essentially both senior and junior counsel for the appellants maintained that there was a need for a comparator outwith the context of merely incurring additional costs in the relevant circumstances. The only proper context that could be given to the notion of a comparator was the overall cost of the development. While, it was submitted, the claim might be triggered by the development or emergence of unforeseen elements, that was only the starting point. At the end of the day the claim was based, or had to be based, upon the sellers being satisfied ("the proviso") that there was or was likely to be an overall increase in costs incurred in the relevant circumstances by the purchasers which would allow them to seek an abatement of the purchase price. This could only be ascertained by a comparison with the overall development costs.

[16] The response by counsel for the respondents/claimants, which was substantially elaborated by junior counsel, her submissions being adopted and not greatly advanced by senior counsel, was to the effect that the word "exceptional", while obviously including the notion of "additional" or "extra", was designed to reflect costs not contemplated by the original contract and therefore outwith its confines, again, she accepted, occurring in the relevant circumstances. It reflected costs forced on them by developments not contemplated at the relevant time, using again a neutral phrase, discoverable within the relevant period, again a neutral phrase. It was wholly to misunderstand both the nature of the concept of exceptional costs and the actual wording of the contract to demand some form of comparison with an outside factor such as the overall development costs. Each claim in relation to each unforeseen event was free-standing in the sense that it had merely to be demonstrated that the costs were additional and relating to an exceptional item not contemplated by the original contract or by the facts upon which the offer was based.

[17] In relation to this question we consider that the arbiter reached the correct conclusion. Putting aside for the moment the questions of the appropriate and thus relevant time in terms of date and the appropriate and thus relevant period of time relating to the discovery of the material which leads to the formulation of a claim, we are entirely satisfied that what was contemplated and stated in the contractual term is a claim outside the confines of the original contract in respect of its factual base. It is designed, in our opinion, to cater for the emergence or development in unforeseen circumstances of events or material outside the confines of the contract which nevertheless reflect upon the work to be carried out by the purchasers in relation to it. We consider that it is wholly irrelevant to contemplate a comparison with the overall costs of the development. Indeed, such would probably render a claim impossible to quantify until the final development was completed, probably many years after the entitlement to the claim had originally emerged. In simple terms we consider this provision in the contract was designed to give the opportunity to the purchasers to abate the price to the extent to which they were met with unforeseen costs not contemplated by the original contract and arising in the appropriate way and within the appropriate time. Various examples were discussed in the debate which are not particularly helpful save to point to the possibility that the relevant event might be the emergence of a wholly new factor such as a material difference or change in the state of the ground being discovered, such as the existence of a mine shaft, or merely material change surrounding works already contemplated by the contract which materially increased their costs. Those examples are not to be regarded as exhaustive but merely illustrative.

[18] The final determination of the arbiter in this respect is to be found on pages 7 and 8 of his note, and the relevant passage is in the following terms (having referred to an authority):

[19] Counsel for the appellants correctly focused on the phrase "within four months from the date of the conclusion of the missives" and their essential submission was that that was the relevant and only period. The date in the clause, namely the date of the offer 18 January 1994, focused the time when the claimants' state of knowledge could be ascertained by reference to the information available jointly to the parties from the consultant. The phrase in the missives focused the time, it was submitted, when the new information to paraphrase the matter had not come to hand. Anything obtained or coming to hand during the currency of the missives negotiation i.e. between 18 January 1994 and the actual date of conclusion of the missives was irrelevant and indeed did not competently available to the claimants upon which to base a claim. The justification for this, it was submitted, was the fact that while the missives were currently being negotiated any new information coming to the notice of the claimants which would otherwise be relevant to making a claim for exceptional costs could be dealt with by amending the missives or, if necessary, a total

withdrawal. Properly understood, counsel submitted, the scheme of the contract in this context was to give protection to the claimants and, if established, an abatement of the price in relation to unforeseen developments occurring after the date of conclusion of the missives arising from the relevant reports during the period of four months from that date. It therefore followed the report had to emerge for the first time during that period.

[20] The response from counsel for the claimants/respondents was simply that the construction contended for by the appellants put too narrow a meaning on the overall scheme, which was designed to cater for information arising from reports not in existence at the date of the offer, which was the relevant state of knowledge only in regard to the proviso. The insertion of the date 18.1.94 contemplated that the obtaining of reports would be an ongoing process throughout the negotiation period with an additional four months from the conclusion of the missives as being the ultimate termination of the relevant period. There was no requirement on the part of the claimants, it was contended, to amend the missives to reflect the emergence of any such information which, in any event, they might requir to digest and consider beyond the termination point as regards conclusion of the missives, which, if such had not been inserted, might have resulted in unending and certainly open ended negotiation without any limit of time. Commercial efficacy to achieve a contract therefore indicated that any material arising during the currency of the negotiations of the missives was relevant to any ultimate claim. It would make a nonsense, it was submitted, of the whole situation if there were to be recognised three periods relevant to the obtaining of information, that up to 18 January 1994, that during the currency of the missives being negotiated and that finally within the four month period after their conclusion. The omission of the middle period totally distorted the whole purpose behind the clause.

[21] Both counsel referred to limited authority to assist with the notion of what the word "within" means, but it was accepted at the Bar that at the end of the day the construction of the word in any contract depends upon its context. The cases referred to were The Earl of Morton's Trustees v. McDougall 1946 S.C. 410 and Manorlike Limited v. Le Vites Travel Agency and Consultancy Services Limited 1986 1 A.E.R. 573.

[22] We consider that both counsels' approach to the construction of the word "within" is correct in the sense that each case must be determined on its own facts. In this particular case we consider the arbiter was correct in his view that the phrase "within four months of the date of the conclusion of the missives" effects an end date but not necessarily a start date. We also accept that looking at the matter broadly it is highly relevant that the offer date of 18 January 1994 was put into the clause to focus the state of knowledge at that time. We therefore consider that the contract at the very least does not exclude from the purview of a claim for exceptional costs, material or events disclosed in reports emerging during the currency of the missives period. Putting aside the question of the proviso we therefore consider that the two clauses taken together in the contract contemplate claims for an entitlement for exceptional costs can competently be based upon reports obtained during the period from 18 January 1994 to the termination of the four month period following upon the date of the conclusion of the missives. While we were informed that there was some alteration in the price originally offered, that was not concerned with this issue but rather with the nature of the subjects being sold. It therefore follows that no claim was in fact made for abatement nor was any granted. If such had been the case it is obvious that there could not have been a second claim. That seems to us to be the converse of the position, which we accept, namely that the whole of the period from 18 January onwards, culminating in the termination of the four month period, is the relevant period for the purpose of the relevant reports.

[23] This issue concentrated upon the burden of proof in relation to the so-called proviso in relation to the two aspects of the proviso, namely the satisfaction of the sellers and the issue of reasonableness focused in the provision.

[24] At the end of the day senior counsel for the appellants accepted that the burden of proving satisfaction would rest on his clients but it was for the claimants to put in issue the question of reasonableness if they were challenging such satisfaction. Since there was at least an implied assumption in fact that a party acted reasonably till the contrary was shown, it was for the claimants to show in the relevant circumstances how the respondents/appellants had reached an unreasonable conclusion on this aspect of the matter.

[25] The position of counsel for the claimants/respondents was simply that the proviso provided a means whereby the sellers could avoid a claim for exceptional costs and it was for them, therefore, to pray it in aid. They had an option not to do so and their silence indicated that was what they were doing. This applied not only to the question of satisfaction but also to the issue of reasonableness. These are the two ingredients the appellants required to establish to the satisfaction of the arbiter.

[26] While noticing that the arbiter gave no real reasons for his decision in this respect we nevertheless are satisfied he came to the correct decision. In our view the so-called proviso provides a means whereby the appellants may resist a claim under qualification 7 by the respondents, which claim prima facie arises upon relevant material within the relevant time. In accordance with the general canons of construction with regard to provisos to be found in other quarters, not least in statutory provisions, it is for the person asserting the proviso to establish it. On that assumption we see no reason to discriminate between the two ingredients in the proviso. It is for, in our opinion, the appellants to establish that they have not admitted the claim because they were not satisfied that the costs were, or could not have been, capable of being calculated on the basis of the relevant information at the relevant date, i.e. 18 January 1994 and that in reaching that decision they acted reasonably. We see no reason to distinguish between those two ingredients. The appellants must establish both, since the relevant decisions are the reasons thereanent peculiarly within their knowledge.

[27] In these circumstances the questions posed to us by the arbiter in relation to questions 2, 3, 7 and 8 posed to him by the parties will be answered in the affirmative and the case remitted back to the arbiter to proceed as accords.