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Rooney v. Rae [2002] ScotCS 305 (29 November 2002)

OUTER HOUSE, COURT OF SESSION

A5375/01

OPINION OF A B WILKINSON, Q.C.

Sitting as a Temporary Judge

in the cause

MATTHEW ROONEY

Pursuer;

against

WILLIAM RAE

Defender:

________________

Pursuer: Clancy, QC; Drummond Miller, W.S., (for Hughes Dowdall, Solicitors, Glasgow)

Defender: Mure; Simpson & Marwick, W.S.

29 November 2002

This case called before me on procedure roll in respect of preliminary pleas for both parties (the fourth plea-in-law for the pursuer and the first plea-in-law for the defender). It was a matter of agreement that if I sustained the defender's contentions on relevancy decree of absolvitor should be pronounced and also that if I sustained the pursuer's contentions, decree de plano should be pronounced in terms of the first conclusion of the summons and that the case should in that event be put out By Order for determination of further procedure in relation to the second conclusion. At the outset of the proceedings Mr Clancy for the pursuer sought to amend the conclusions of the summons by substituting £12,442.60 for £13,172.96 in the first conclusion and £1,959.28 for £1,228.92 in the second conclusion. I allowed that amendment, which was not opposed, to be made.

For the defender, Mr Mure said that the question at issue was one of construction of the agreement set out in the pursuer's pleadings on pp. 6 and 7 of the Closed Record and, in particular, Clause 5 of that Agreement. The declarator referred to in Clause 2 of the Agreement arose in previous proceedings which the pursuer had brought against the defender. The "entitlement arising from the aforesaid declarator" was, Mr Mure said, an entitlement to the remuneration benefits and privileges arising from holding the office of constable and the duty of payment in respect of that entitlement was laid on the Strathclyde Joint Police Board. Reference was made in that connection to the Police (Scotland) Act 1967, s. 2(2), s. 21B as inserted by the Local Government (Scotland) Act 1994 s. 34, the Police (Scotland) Regulations 1976 (S.I. 1976/1073), the Strathclyde Combined Police Area Amalgamation Scheme Order 1995 (S.I. 1995/2642) and the Stair Encyclopaedia of the Laws of Scotland Vol. 16, para. 1703.

Clause 5 of the Agreement might, Mr Mure acknowledged, be said to adopt a "belt and braces" approach in relation to Clause 3, but, however that might be it was, he contended, unconnected with Clause 4. Clause 4 provided for an additional payment in respect of interest. That was a separate sum to be paid in recognition of the fact that the defender had caused the pursuer to be without his entitlement to remuneration during a period of some six years. There was no reference to that sum in either Clause 3 or Clause 5 and it was nowhere described as an "entitlement". The matter at issue was a question of construction and not of implication. It was clear from the Agreement that the parties had given thought to questions of tax and the Minute of Agreement had been settled by lawyers. It had, in fact, been drafted between counsel on both sides. The words used were to be given their natural meaning irrespective of what the intention of parties might be thought to have been (Schuler (L) AG v Wickman Machine Tool Sales [1974] AC 235 at pp. 263F and 249F). Clause 5 dealt only with entitlement arising from holding the office of constable and Clause 4 was a separate matter. The parties did not agree on or anticipate any liability in relation to the sum of £32,227.24 beyond the payment of that sum in terms of Clause 4. Any provision for tax in respect of that sum was simply missing.

For the pursuer, Mr Clancy, said that the question was whether the defender was bound to compensate the pursuer for the income tax liability imposed on the pursuer in respect of the interest payment made to the pursuer by the defenders in implement of Clause 4 of the Agreement. The correct answer to that question on a proper construction of the Agreement was and must be "yes". One should look at the whole Agreement from a purposive standpoint, at the terms of Clause 5 and other relevant Clauses together and the structure of the Agreement as formulated and concluded. The antecedent case out of which the present case arose was a judicial review in which the question at issue was whether the pursuer could properly be regarded as having held the office of constable during the relevant period. It was clear that the purposes of Clauses 3, 4 and 5 were to put the pursuer in the same financial position as he would have been if he had received his salary during the period in question. In terms of Clause 3, he got payment equivalent to what his net salary would have been and the defender undertook in addition to pay any tax, national insurance and pension contributions which were due. The pursuer was to be put in the same financial position as he would have been in as a police officer serving during that period. Clause 3 alone did not, however, effect, full compensation because the pursuer had been deprived of payment as it became due. He required also to be compensated for the delay in payment. That was the purpose of Clause 4. Under Clause 4 it was 4% of the pursuer's net salary that was to be paid and it was entirely appropriate that the payment under Clause 4 should not be reduced in value in the pursuer's hands by the imposition of tax liability. If the pursuer had to pay income tax on that sum without reimbursement he was not being fully compensated. The ordinary meaning of the provision of Clause 5 was that it was an undertaking embracing payments to the pursuer under both Clauses 3 and 4. The words used were that Strathclyde Police shall "fully compensate". That language supported the view that Clause 5 was a "sweeper" clause under which parties accepted that additional liabilities were to be anticipated or expected and provided that those liabilities were to fall on one party or the other, in this case on the defender. The reference to "any additional income tax and national insurance contributions" showed that the possibility of income tax liability in addition to the liability expressly dealt with in Clause 3 was anticipated. The natural meaning of "entitlement arising from the aforesaid declarator" was in reference to payments due under Clauses 3 and 4. While the focus of discussion was on the language used in Clause 5, it was necessary to have regard to the other provisions of the Agreement as well. If the defender's contention was correct, there was quite unnecessary duplication in Clause 5. If it was read as applying only to Clause 3 it was without content or effect. It had been suggested that Clause 5 referred to higher rate tax but it made no reference to higher rate tax as such and higher rate tax was, in any event, covered by "any tax" in Clause 3. It was accepted that a provision about tax could have been tagged on to Clause 4 but Clause 5 was sufficiently broad in its terms to cover the predictable liability for tax on the payment made under Clause 4. In addition to what had already been provided the defender was accepting liability for any further tax implications to which Clauses 3 or 4 might give rise. It was nothing to the point that the liability to pay the remuneration of constables might lie with the Joint Police Board because we were here concerned with an obligation which arose ex contractu between the pursuer and the defender. Clause 3 did not provide for payment of salary or remuneration as such and there was no reference to that in Clause 5. It was rather compensation for lack of remuneration. It was effective remuneration but it was not remuneration per se. The word "remuneration" did not occur in any of the relevant clauses. There was no averment that the Joint Police Board paid any money. The pursuer accepted that the monies due under Clauses 3 and 4 had been paid but he did not concede that payment had been made by anyone other than the defender. Under Clause 5 the parties had made specific provision for the payment of tax. There was no question here of the pursuer asking the Court to rewrite the contract or insert additional conditions. On a proper construction it was clear that provision was made for payment to the pursuer in respect of the tax liability he had incurred on the Clause 4 payment.

Since no question is raised of the competency of the present action as laid against the defender and since this action is based on an admitted contract between the pursuer and the defender's predecessor in the office of Chief Constable, the functions and liabilities of the Strathclyde Joint Police Board do not require consideration. They are no more than background which may assist in the understanding of the defender's position and, perhaps, of some of the terminology used. I did not understand Mr Mure to argue for anything beyond that but if, contrary to my understanding, his argument is to be taken as having wider impact, I agree with Mr Clancy that it is nothing to the point. There are, it is true, references to "Strathclyde Police" in Clauses 3 and 5 of the Minute of Agreement. The obligation to pay under Clause 3 and to compensate under Clause 5 is laid on the Strathclyde Police whereas the obligation to pay under Clause 4 is laid on "the Respondent" (the defender's predecessor). The draftsmanship of the Minute of Agreement is rather loose. It appears, however, that the obligations laid on the Strathclyde Police are obligations for which the defender is responsible. Certainly nothing to the contrary was argued. The question at issue is one of contract between the pursuer and the defender's predecessor whose liabilities have now passed to the defender.

The only authority on construction of contracts to which reference was made was Schuler (L) AG v Wickman Machine Tool Sales. The dicta cited from the speeches of Lord Simon of Glaisdale and Lord Reid attest the well established propositions that the court cannot rewrite a contract for the parties and that words used in a contract should be construed according to their natural meaning. The latter rule yields, however, to the requirements of context or, perhaps more correctly, the natural meaning of words when read in context may differ from the meaning which they would otherwise bear, and particular provisions of the contract are to be understood in the context of the contract as a whole. Moreover, although Mr Clancy's argument for a purposive construction may have its dangers, it is not, in my opinion, correct to say that purpose or intention is irrelevant. The Court may not speculate on intention or seek to find it in extrinsic features, but it is the intention of the parties, and not some narrow linguistic or grammatical construct, which is to be derived from the words used.

The defender's contention is that the words "of his entitlement arising from the aforesaid declarator" where they occur in Clause 5 are unambiguous and can refer only to the sum due under Clause 3. That contention has some prima facie attractions. The words used in Clause 5 echo words used in Clause 3. There is no such resonance with Clause 4. Nonetheless the defender's contention is not, in my opinion, correct. Although not so expressed, the sum due under Clause 4 arises from the declarator narrated in Clause 2 and does so precisely because the sum due under Clause 3 so arises. Without the entitlement which was the subject of declarator, there would, in terms of the scheme of the Agreement, be no liability under Clause 3 and without liability under Clause 3 there would be no liability under Clause 4. The payment owed to the pursuer under Clause 4 represents interest on the sum due under Clause 3 in respect of his net entitlement arising from the declarator and, as an addition to that sum, is also an entitlement so arising. The words used at the end of Clause 5 are, in my opinion, wide enough to bear that meaning and so to construe them accords with the intention of the parties, manifest from the contract as a whole, to afford the pursuer full compensation. It also accords with the reference to "any additional income tax" in Clause 5. Those words have no meaning in relation to Clause 3 which itself contains provision for meeting "any tax". They are, however, apt to cover any liability for income tax not otherwise provided for under the Agreement such as liability incurred in respect of the sum due under Clause 4. The wording of Clause 5 could, no doubt, have been bettered but is, in my opinion, apt to constitute a "sweeper" clause of the kind for which the pursuer contends and so embrace the tax liability which he has incurred in respect of the payment made to him in terms of Clause 4. I shall therefore sustain the first plea-in-law for the pursuer and grant decree de plano in terms of the first conclusion of the summons. Quoad ultra the cause will be put out By Order for determination of further procedure.