Scottish Court of Session Decisions

6 March 2001

[1] This case arises from negotiations between the parties to settle the pursuers' claims for compensation for damage caused by the wreck of the Braer. At the date of the incident the pursuers were in partnership as fishermen. They operated the fishing vessel Winsome. They sue for declarator that the defender is obliged by virtue of two contracts constituted by letters passing between the defender and the pursuers' agents to make payment of certain sums to the pursuers. There are ancillary conclusions for payment of these sums and for expenses.

[2] The action is founded on the following averments:

[3] This case has been debated on the procedure roll on a preliminary plea for the defenders. Although the parties have not entered into a formal minute of admissions, there is no dispute on the essential facts. It is agreed on record that after the Braer incident the defender made certain interim payments to the pursuers. The defender avers that these payments amounted to £270,746.22, which I think that the pursuers now accept. When the final value of the claim was being negotiated, Miss Sally Gregory, a claims officer of the defender, sent two letters to the pursuers, dated 2 and 4 September 1997, in which she stated that the defender had accepted the pursuers' remaining claims as admissible in the sums of £30,852.40 and £93,356.76 respectively. The pursuers' solicitors sent to the defender two letters, both dated 18 June 1998, which treated the defender's letters of 2 and 4 September 1997 as offers and bore to be acceptances of them.

[4] The defender pleads that neither of Miss Gregory's letters constituted an offer; but counsel for the defender gave up that point at the outset of the debate. I shall therefore refer to the letters as the first and the second offers.

[5] The first offer relates to compensation for the period from 20 October 1995. It is addressed to the pursuers care of their agents, Bell Ingram Rural, Aberdeen. It is in the following terms:

[6] Miss Gregory wrote to the pursuers a letter dated 29 September which bore to impose a time limit for acceptance of this offer. This letter is lodged in process and was referred to in the debate; but it is not incorporated in the pleadings. The pursuers claim that they did not receive that letter timeously. For the purpose of the debate counsel for the defender confirmed that they did not rely on this letter and did not submit that it took effect. I need not therefore quote the letter and I shall not refer to it further.

[7] By letter dated 18 June 1998 the pursuers' solicitors, Paull and Williamsons, Edinburgh, wrote to the defender's solicitors, Morton Fraser Commercial, Edinburgh, in the following terms:

[8] This letter does not correspond with the first offer in relation to the amount of the offer or to the period of the losses which it covers. At the debate counsel for the defender intimated that they did not take any point about this. They formally acknowledged that this was an acceptance that, if timeous, related to the first offer.

[9] The second offer relates to compensation for the period from 27 June 1995 to 17 October 1995. It is addressed directly to the pursuers. It is in the following terms:

[10] I should mention that in relation to the second offer, which the pursuers say was received by their agents, Bell Ingram Rural, on 19 September 1997 but was not seen by them until June 1998 (Cond. 3, infra), counsel for the defender expressly disclaimed any argument to the effect that the agents' knowledge of the offer should be imputed to the pursuers.

[11] By letter dated 18 June 1998, Paull and Williamsons wrote to Morton Fraser Commercial in the following terms:

[12] In relation to the first offer the defender's averments are as follows:

[13] I have discussed the operation of the legislation in a general way in Anderson v The Braer Corporation (1996 SLT 779, at pp. 780-781) and in Landcatch Ltd v IOPCF ([1998] 2 Lloyds LR 552, at pp. 555-559; affd. 1999 SLT 1208). However, to explain the references in the two offers, I shall briefly rehearse the provisions relating to the limitation of liability and the pro-rating of claims.

[14] Where a claimant alleges that the owner of the vessel is liable to pay compensation under section 1 of the Merchant Shipping (Oil Pollution) Act 1971, section 12(1) gives the claimant direct recourse against the insurer. In that event, the insurer may limit his liability in accordance with section 4 of the Act (s. 12(3)). When the insurer pays its limitation fund into court, as happened in these cases, that fund constitutes the total sum available under the 1971 Act to meet all valid claims. The court must then determine the amounts that would, apart from the limit, be due in respect of valid claims. If the total of the amounts so determined exceeds the amount of the limitation fund, those amounts are abated pro rata (s. 5(2)).

[15] If the insurer's limitation fund is inadequate to meet all valid claims against it, the liability of the defender will be triggered by section 4(1) of the Merchant Shipping Act 1974. Each claimant whose compensation has been pro-rated in the insurer's limitation proceedings will then have recourse against the defender for the amount of the deficiency. But the defender will in turn be entitled to limit its liability in terms of section 4(10) of the 1974 Act in accordance with Article 4 of the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage 1971 (the Fund Convention; cf. 1974 Act, Sched. 1). If the amount of all valid claims against the defender exceeds the limit of its liability, those claims too will be pro-rated (cf. Fund Convention, art. 4, para 5; 1974 Act, s. 4(10) and Sched 1).

[16] It follows that no claimant on the insurer's limitation fund can know whether the fund will be sufficient to meet all valid claims or, if not, what the extent of the pro-rating will be, until the court has concluded its determinations on all of the claims. These questions therefore cannot be answered at this stage of the Braer proceedings. If it is found in due course that the limitation fund is insufficient to meet all valid claims, the liability of the defender will fall to be assessed and with it the amounts recoverable, perhaps pro-rated, by the successful claimants from the defender.

[17] These are the matters to which Miss Gregory alluded in the two offers that I have quoted.

[18] Counsel for the defender argued that on a true construction of the last paragraph, the first offer was subject to a time limit for acceptance. The time limit was admittedly not complied with. The offer had therefore lapsed (Gloag, Contract, 2nd ed, p 35; McBryde, Contract, para 5-41).

[19] If the first offer did not contain a time limit, both offers fell to be interpreted on the same footing. There was no averment that the offers were expressly kept open until June 1998 or impliedly prolonged to that date, for example by virtue of continuing negotiations between the parties (as in Glasgow and Newcastle and Middlesborough Steam Shipping Co v Watson (1873) 1 R 189). The offers were therefore open for acceptance within a reasonable time, failing which they lapsed (Glasgow and Newcastle and Middlesborough Steam Shipping Co v Watson, supra, Lord President Inglis at p 193; McBryde, op cit, paras. 5-44 to 5-47). These offers were accepted more than nine months after they were made. Prima facie that was an unreasonable lapse of time. The pursuers did not aver reasons why a period of more than nine months was reasonable in the circumstances of this case. The two to three weeks' period mentioned in the first offer should have put the pursuers on their enquiry that a prompt response would be required. Both offers had been foreshadowed in the meeting at Lerwick in August 1997. The pursuers had plainly delayed unreasonably in submitting their acceptances. The action was therefore irrelevant.

[20] In relation to the second offer, the pursuers' averments were irrelevant on the separate ground that they appeared to suggest that because the pursuers did not see this offer until shortly before they accepted it, it remained open until they received it and had an opportunity to consider it.

[21] Counsel for the defender had intimated a pleading point about the form of conclusion 1, but they did not argue it in light of an undertaking by counsel for the pursuers to make a suitable amendment.

[22] Counsel for the defender therefore moved me to sustain the defenders' first plea-in-law, which is a plea to the relevancy, and to dismiss the action.

[23] The pursuers have a plea to the relevancy of the defences (plea-in-law 1), but counsel for the pursuers did not argue it. He was content that I should repel it.

[24] Counsel for the pursuers accepted at the outset that if an offer does not stipulate a time limit it is open for acceptance only for a reasonable period of time. He argued that the first offer did not impose a valid time limit. It was uncertain whether it was intended to be a time limit at all. If it was, it was uncertain on what dates the time limit was to begin and end.

[25] If the first offer therefore contained no time limit, both offers were open for acceptance within a reasonable time. What was a reasonable time was a question of fact that depended on all the surrounding circumstances (McBryde, op cit, paras 5-45 to 5-46; Chitty, Contracts, 28th ed, vol 1, para 2-088); for example, the nature and subject-matter of the offer and the means of communication used by the offeror.

[26] The present offers were akin to offers to settle a litigation. Taken together they constituted an all-embracing offer to settle the whole claims so far as they remained unresolved. The offers were important to the pursuers and were worthy of proper consideration and the taking of professional advice. The court should not at this stage reach a view on the question whether they had delayed unreasonably in doing so. There should be an enquiry into all the circumstances surrounding the offer and its subject-matter.

[27] Counsel for the pursuers then argued a separate point on pro-rating. He submitted that because the offers made clear that the defender's Executive Committee had not reached a view on the total amount of the claims and had a considerable number of similar claims under consideration, the pursuers could not know what the true values of the offers would prove to be. They could not make an informed decision on the offers when they received them. The pursuers had clear averments of the need to consider the offers, of the steps to be taken to enable their advisers to advise on the offers, and of the implications of pro-rating. The first offer promised more accurate information as to the value of outstanding claims and both offers promised a further communication once the Executive Committee had decided how the claims should be progressed. The pursuers sought to prove that from the dates of the offers to the date of the acceptances the defender was endeavouring to make an accurate assessment of the value of all outstanding claims. Only when this information was to hand could the pursuers assess what the pro-rated value of their total claim was likely to be. It was entirely reasonable that they should have adequate time to do this. In all the circumstances a period of nine months was not patently unreasonable. The court could not at this stage conclude that it was. For this reason too there should be an enquiry.

[28] Counsel for the pursuers therefore moved me to allow proof before answer with all of the pursuers' pleas standing, other than their plea-in-law 1.

[29] There are two points to be decided, namely (1) whether the first offer was subject to a time limit of three weeks and therefore lapsed on the failure of the pursuers to accept it within that time; and (2) whether if the first offer, like the second offer, was not subject to a time limit, both offers lapsed on the failure of the pursuers to accept them within a reasonable time.

[30] In my view, the final paragraph of the first offer did not impose a time limit. In the context of the whole letter it appears to be no more than a courtesy on the part of the writer indicating the time scale within which she would like to receive the pursuers' acceptance.

[31] If I am wrong in this view, the question becomes whether the words used were sufficiently precise to impose a valid time limit. It is a straightforward matter for an offeror to impose a time limit in clear and concise language. The terms of the first offer do not, in my view, achieve that standard. First, they leave doubt as to the date from which the time limit is to run. My impression is that the purported time limit is to run from the date of the offer itself; but counsel for the defender submitted that the proper interpretation was that the time limit would run from the day after that date, being the probable date of receipt of the offer by the offeree. That occurs to me to be an unlikely interpretation; but it indicates that the matter is open to doubt. Second, there is doubt as to the duration of the offer. A period of "2-3 weeks" is far from precise.

[32] I conclude therefore that the first offer does not impose a time limit. On that view, both offers fall to be construed on the same footing and the question then is whether they were accepted within a reasonable time.

[33] Notwithstanding a doubt introduced by Bell (Comm., I. 343), the law of Scotland, like that of England (Chitty, loc cit), is that an offer that is not subject to a time limit lapses if it is not accepted within a reasonable time (Gloag, op cit, p 36; Thomson v James (1855) 18 D 1, Lord President McNeill at p 10; Glasgow and Newcastle and Middlesborough Steam Shipping Co v Watson, supra). Whether or not an offer has been accepted within a reasonable time is a question that must be determined objectively on a consideration of all the circumstances (McBryde, op cit, para 5-45). That means in the normal case that the court should determine such a question after proof.

[34] However, a case may arise where, on the undisputed facts, a delay in acceptance appears on the face of it to be unreasonable and unjustifiable. In such a case, in my view, the offeree who contends that that he accepted within a reasonable time must have averments of facts and circumstances to support that contention before he can be entitled to enquiry on the point. If there are no such averments, or if there are such averments but they are plainly irrelevant, the holding of a proof is a futile exercise. In such a case the court is entitled to make a decision on the point after debate. In my opinion, this is such a case.

[35] Leaving aside the pro-rating point, I consider that a period of more than nine months is on the face of it unreasonably long for the acceptance of offers such as these. The request made in the first offer for an answer within two to three weeks, if not imposing a time limit, at least indicated that the offeror expected an early response (cf Hall-Maxwell v Gill (1901) 9 SLT 222, Lord Stormonth Darling at p 223). Even if one disregards that as a factor, the circumstances in which the offers came to be made suggest that the pursuers could have accepted them promptly. The offers were made in response to a formal claim by the pursuers for compensation under the 1971 Act. The claim had been prosecuted by an action in this court against the owner and the insurer. The claim was based on losses the nature and amount of which were peculiarly within the pursuers' own knowledge. In earlier negotiations substantial interim payments had been made on account of the claim. One may reasonably assume that the defender made the offers after assessing the computations and vouchers submitted by the pursuers in support of the claim and that the pursuers were then in a position to take appropriate professional advice as to whether they should accept the offers or fight on. These considerations suggest that the pursuers could have made a decision on both offers long before June 1998.

[36] The pursuers have failed to set out any reason why their delay in accepting the offers was reasonable in the circumstances of this case. In their averments on the point (Cond. 3, supra), the pursuers refer to vicissitudes that they encountered in the period between the offers and the acceptances; for example, the breakdown of communication between themselves and their advisers, the miscarriage of the second offer, the changes of agency, the assembling of financial evidence and so on. Such personal problems and difficulties cannot be relevant to an objective judgment as to whether an offer was accepted within a reasonable time. Moreover the second offer could not, in my view, remain open for acceptance until such time as the pursuers learned of its existence.

[37] It is significant that the pursuers do not aver that their acceptances of the offers resulted from their acquiring in June 1998 new information of any significance. There is no averment that some critical event occurred, amounting to a material change in circumstances, which made it reasonable to accept in June 1998 but not before. On their own averments they accepted the offers when they did because they could no longer afford to continue with the claim.

[38] Counsel for the pursuers was unable to suggest to me at what point the period for acceptance of these offers would cease to be reasonable and therefore at what point these offers would lapse. He said that that was a matter that could only be determined after proof before answer. But in my view a proof on that matter could prove nothing that is not already known. Any other unexpected line of evidence directed to that point would be inadmissible on the ground that there was no record.

[39] If I am right in thinking that the pursuers have not pled a case justifying enquiry on the question whether they accepted within a reasonable time, the question then becomes whether, if all other considerations are left aside, the contingency of pro-rating entitled them to delay for a necessarily indefinite period before accepting the offers.

[40] In my view, pro-rating is not relevant consideration in this case. Each offer excludes pro-rating as a factor. It is explicitly an offer to agree the gross value of the pursuers' claim in full and final settlement of the claim, subject to the possible effects of pro-rating. The terms of the acceptances acknowledge this. No other meaning can reasonably be taken from the offers on this point.

[41] Even if the offers had not mentioned pro-rating, that inevitable risk of pro-rating would not have justified the pursuers in delaying as they did. The possibility of pro-rating is a fact of life in cases such as this; but it is never certain until the final stages of the litigations that there will be pro-rating at all. In the course of the court's adjudications on the many claims arising from such a mishap there is always a chance that the successful claimants will receive the full value of their claims; for example, if a number of the largest claims are struck out. In short, the effect of the pro-rating provisions can be assessed only when all of the claims have been finally determined. From this it follows that every award of the court is subject to the contingency that the sum recoverable under the award may be abated by pro-rating. That is a risk to which all claimants are subject come what may. If that is the position in relation to judicial awards of compensation, it is also the position in relation to agreements between parties as to the amount of any individual award. Such an agreement is equivalent to a determination of the court made on the same matter on the same date.

[42] I cannot accept the argument that the pursuers were entitled to hold the offers open for an indefinite period to see how the other claims were likely to pan out. When the process of determining the many claims on the limitation fund nears its end, several years will have elapsed from the dates of these offers. In my view, it is quite impossible to predict at what date any claimant will be in a position reliably to assess the probable amount that he will recover. If the pursuers' present argument was open to all other claimants to whom similar offers have been made, there might be no end to the limitation process.

[43] For these reasons I consider that the pursuers pro-rating point is unsound. The contingency of pro-rating cannot be a circumstance that can justify the pursuer's delay in accepting these offers.

[44] For all of these reasons I conclude that the pursuers have failed to make any averments that would entitle them to enquiry with a view to displacing the prima facie inference that these offers were not accepted within a reasonable time. In my view, the action is irrelevant.

[45] I shall repel the pursuers' first plea in law of consent, sustain the defender's first plea in law and dismiss the action.