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AMEC Mining v. Scottish Coal Company [2003] ScotCS 223 (06 August 2003)

OUTER HOUSE, COURT OF SESSION

A2842/00

OPINION OF LORD CARLOWAY

in the cause

AMEC MINING LTD

Pursuers;

against

THE SCOTTISH COAL COMPANY LTD

Defenders:

________________

Act: Howie, Q.C., Ellis, Q.C.; MacRoberts

Alt: Moynihan, Q.C., Davidson; Harper Macleod

6 August 2003

1. The Pursuers' Pleadings

(a) GENERAL

[1] The pursuers conclude for three separate sums, viz: £125,772; £5,114,943.56 and £7,360,575. The sums all relate to the terms of and events surrounding a formal written contract entered into by the parties on 19 June 1996. The contract is entitled the House of Water Opencast Coaling Agreement Number 1 - Box Cut and, as its name suggests, involves open cast coal mining of a site appropriately named House of Water, near New Cumnock in Ayrshire.

(b) THE CONTRACT

[2] The contract includes the following terms:

"1. Definitions and Interpretation

1.1.11 An 'Instruction' means an Instruction given by the Site Manager under and in accordance with Clause 2.1.7;

...

1.1.13 The 'Schedule of Plant Rates' means the Schedule of Plant Rates comprising Schedule Part 7 to this Agreement for use in valuation purposes under Clause 5.2;

1.1.14 The 'Schedule of Rates' means the Schedule of Rates ... comprising Schedule Part 3 to this Agreement which rates cover all payments that the Contractor shall be entitled to receive from the Employer under and in terms of the Agreement except where otherwise expressly provided for in this Agreement;

...

1.1.19 The "Site Manager" means Colin Moyes - Production Manager (West) ... who shall have delegated authority to act for the Employer;

1.1.20 The "Specification" means the Specification of Works comprising Schedule Part 1 to this Agreement;

1.1.21 A "Variation" means a Variation to the Works made in accordance with Clause 5 of this Agreement; and

1.1.22 The "Works" means the Works described in the Specification and Drawings to be executed and completed under and in terms of this Agreement together with any Variation.

...

2. Contractor Obligations

2.1 The Contractor shall commence the Works on [24^th June 1996] and proceed ... to execute and complete the Works ... and in so doing shall

...

2.1.2 Be deemed to have acquired all available information and knowledge whether provided by the Employer or not of the risks arising from the execution and completion of the Works including ... the nature of the coal ... to be won and worked materials (whether natural or otherwise) to be excavated conditions under which the Works will have to be carried out ... and all other matters and things affecting the execution and completion of the Works ...

...

2.1.4 Execute and complete the Works to the satisfaction of the Employer;

2.1.5 Execute the Works in compliance with the Sectional Completion Dates and complete the Works by [30^th September 1998];

2.1.6 Provide to the Employer not later than 7 days after the expiry of each [month] a statement specifying the cumulative quantity of work claimed to have been completed under each item in the Schedule of Rates extended at the rates in that Schedule;

2.1.7 Comply with all written (except in the case of an emergency where an Instruction may be verbal provided that same shall be confirmed in writing by the Site Manager within 24 hours of being given) Instructions given by the Site Manager which:

2.1.7.1 Relate to the carrying out and/or completion of the Works;

2.1.7.2 Relate to the carrying out and/or completion of a Variation to the Works ...

...

2.1.12 Recover all of the Coal...as may be instructed by the Site Manager encountered within the Site which are to be won and worked under and in terms of this Agreement;

...

3. Employer Obligations

3.1 The Employer shall in consideration of the performance by the Contractor of the obligations incumbent on the Contractor in terms of this Agreement:

3.1.1 Pay to the Contractor the cumulative value of the work as determined by the Site Manager calculated by him in accordance with the rates set out in the Schedule of Rates together with such additional value or deductions as may be determined in any Variation(s) which has fallen due for payment ... to the end of each [month] ... within 28 days ...;

3.1.4 Provide such access to and possession of the Site or parts of the Site as will enable the Contractor to execute and complete the Works in accordance with this Agreement ...;

4. Extension of Time

4.1 If in the opinion of the Site Manager compliance with an Instruction given under Clause 2.1.7.2 will delay completion of the Works ... he may at his option:

4.1.1 Extend the date for completion ... by such period as may in all the circumstances be fair and reasonable; ...

...

5. Variations

5.1 The Site Manager may at any time by an Instruction vary the Works whether by way of amendment deletion addition or by ordering a change in the rate of progress of the Works as he may consider appropriate for the expeditious and/or efficient execution and/or completion of the Works ...

5.2 Where the Site Manager considers that a Variation will result in additional ... cost to the Contractor the Site Manager shall calculate such additional ... cost in accordance with the following principles. Where work is of a similar character ... to work priced in the Schedule of Rates it shall be valued at the rates set out in the Schedule of Rates ... where work is not of a similar character the rates in the Schedule of Plant Rates shall be used as the basis for the determination of a fair valuation ... the Site Manager shall notify the Contractor of his valuation. If the Site Manager considers that a Variation will not result in any additional ... cost to the Contractor he shall issue and notify to the Contractor a valuation to that effect ...

5.3 The Contractor may within 14 days of receipt of a valuation under clause 5.2 object to all or any part of or omission from same ...

... either party may refer ... disputed part(s) of such valuation to the Disputes Procedure for determination.

...

7. General

7.6 Where the Site water management system is insufficient to accommodate flows of water which are within the maximum rates of discharge specified in the Consent to Discharge ... the Site Manager shall issue an instruction to construct additional balancing ponds.

7.7 Where the rates of flow of water are such that they exceed the maximum rates permitted in the Consent specified in Clause 7.6 and an amendment is sought and obtained to that Consent then the Site Manager shall issue an Instruction which shall be a Variation to manage such additional rates of flow.

7.8 This Agreement and the Schedule together with any subsequent Variation shall constitute and comprise the entire Agreement ... and any agreements understandings assurances or others which pre date the execution of this Agreement are hereby expressly and entirely superseded.

10. Ambiguities and Discrepancies

10.1 In the case of any ambiguity or discrepancy between this Agreement and the parts of the Schedule the provisions of this Agreement shall prevail. Save as aforesaid this Agreement and the parts of the Schedule are to be taken as mutually explanatory of one another and in the event of any ambiguities or discrepancies these shall be explained by the Employer ...".
[3] The Schedule is in eight parts. The first is the specification of the works and includes the following:

"C TAKING POSSESSION OF THE SITE

...

(iv) Existing Ground Levels

The Contractor shall satisfy himself that the existing ground levels as indicated in the Contract Drawings are correct and shall take into account the advance soil strip works undertaken by others ...

E DRAINAGE

(v) Water Treatment Facilities

(a) Sufficient Water treatment facilities inclusive of syphon arrangements and balancing ponds shall be provided during the period of the Contract by the Contractor and the Contractor shall be responsible for the maintenance of these facilities.

(b) The Contractor shall supply and bear the cost of provision of all flocculents necessary for the treatment of water at these facilities.

(c) The Contractor shall provide all plant and labour necessary for the maintenance of these facilities and the addition of flocculents.

F GENERAL EXCAVATION

(iv) Peat

(a) The Contractor shall excavate peat from the excavation areas as directed by the Site Manager and store this material in approved adequately bunded locations.

G COAL AND OTHER MINERALS

(i) Coaling Agreement

...

(b) The Contractor shall excavate load and transport all specified coals named within the Geological Report from within the Coal Excavation Area(s) and shall maximise the recovery of all coal."

[4] The third part of the schedule contains a schedule of rates payable by the employer to the contractor. Thus, item 001 specifies a rate of £17.69 per ton for some 635,125 tons of coal extracted; producing a total of £11,235.361.25. A graph specifying rates of between £10 and £18 per ton is specified for any excess recovered up to 675,125 tons and there is a further rate given for amounts above that limit. Next, there are rates ranging up to £1 per ton for stripping and depositing top and sub soil, lump sums for the construction of any required balancing pools, a rate of £1,574 per week for managing and maintaining the water treatment system and a substantial £1,214,137 payable in respect of "site establishment costs". Part 7 of the Schedule provides for plant rates, such as "9910" for 96 hours worth of use (including driver and fuel) of a Liebherr 994 Back Actor. Several types of machine are specified.

[5] The pursuers aver that the tendering process for the contract had started in April 1996. In a letter from the defenders inviting tenders dated 4 April, the defenders stated that they had: "already let a contract to another company for 'soil strip and associated environmental works'". In a subsequent letter dated 9 April, the defenders had enclosed certain drawings and a draft Schedule of Rates and stated: "you will see therein that we have committed advance works [to CJ Pearce Limited] for the removal of c 900,000 cu. m. of soils and peat." Upon this basis the pursuers aver:

"Accordingly the draft Schedule of Rates submitted to the pursuer for pricing its tender did not provide for the pursuer to insert rates for stripping soils and peat from the area from which coal was to be extracted."

At a "tender meeting" on 24April, Colin Moyes, the defenders' production manager who was later nominated as Site Manager, had stated to the pursuers that 600,000 cu.m. of soils and peat would be removed by CJ Pearce from inside the excavation area and a further 300,000 from outside that area. A note issued by the defenders in advance of that meeting had said: "Advance Works contractor will remove some 600,000 cu.m. of soil and peat from Excavation Area". The defenders had advised that CJ Pearce were working south to north following a particular drawing (20458) and by mid July would have cleared peat and soil from the southern half of the excavation area. They had also advised that the water management system was to be built by CJ Pearce as shown on that drawing. Clause C(iv) of the Specification in part 1 of the Schedule was a reference to the 600,000 m³ to be removed by CJ Pearce and the obligation upon the pursuers to remove peat in terms of Clause F(iv)(a) presupposed that this quantity had already been removed by that company. Of course, the coal could not be extracted without the overlying peat first being removed. The extraction of peat, which tends to be somewhat water-logged, is carried out using quite different plant from that used to remove top-soil and excavate coal. None of the equipment suitable for peat extraction is to be found specified in the Schedule of Plant Rates. From all of this, the pursuers aver that, at the time they entered into the contract, the parties did not have it in mind that the pursuers would be obliged to carry out large scale peat extraction but only such as was required after CJ Pearce had removed the 600,000 m³ from the excavation area. As it is expressed in the pursuers' pleadings (13 E - F):

"... The intention of the Open Cast Coaling Agreement was that the pursuer would be obliged only to remove such peat and soils as were left after C.J. Pearce Limited had removed 600,000 cu.m. of soils and peat from the Excavation Area."

Of course the need to maintain such a position stems partly from the absence of any mention of any specific amount of peat to be removed in advance of the contract works in the contract itself. However, the pursuers aver that in preparing their tender from the documents supplied, the pursuers had themselves calculated that there were about 620,000 m³ of peat in the excavation area, meaning that once CJ Pearce had carried out their work as it had been represented by the defenders, the pursuers would be left to carry out "only minor and incidental soil stripping or peat excavation" (21 B-C). Upon this foundation, the pursuers aver that they proceeded to tender on the assumption that there was no need to allow for substantial soil and peat stripping. The tender was submitted on 15 May 1996 and did not include, it is averred, rates for soil or peat strip in "item 001" of the Schedule of Rates nor did it specify Plant Rates relative to peat extraction equipment. The fact that peat extraction was not tendered for was made clear at meetings prior to the acceptance of the tender in May and in a letter by the pursuers to the defenders dated 23 May.

[6] So, the pursuers aver (21 F-22 G):

"On this basis the pursuer entered into the Open Cast Coal Agreement. That 600,000 cu.m. of soil and peat stripping on the Excavation Area would be carried out by C.J. Pearce Limited and in consequence that no substantial soil and peat stripping was required by the pursuer was a very material factor in the pursuer's planning of the works, timing of the proposed works, plant configuration and pricing ... there would also have been substantial implications for the timing of the works for coal extraction which would not normally be planned to start until after soils and peat had been stripped. Soil and peat stripping on this site would have required careful planning of stripping, haulage and deposition. Proper facilities for deposition would have had to have been constructed which would have involved obtaining access to supplies of rock. This would have led to postponement of the planned date by which commercially useful quantities of coal could have been available on a regular basis. Soil and peat stripping on this particular site would have involved the presence of different kinds of plant on site and a reconsideration

of the use and number of haulage routes on site. There would also have been substantial differences in the pricing of works with substantial peat stripping adding very materially to the price. The materiality of these considerations to the planning and execution of the works was such as would have been obvious to any mining contractor acquainted with the site ... virtually all the said soils and peat ought ... to have been removed as part of the Advance Works Contract awarded to Messrs C J Pearce Ltd and did not fall within the scope of the pursuer's works under the Open Cast Coaling Agreement. In the events which happened, however, the pursuer was faced with removing significant quantities of peat from the Excavation Area which had not been removed by Messrs C J Pearce Ltd. (circa 283,000 m³)."

(d) POST CONTRACT COMMUNINGS

[7] The way in which the pursuers had planned to achieve the coal excavation target dates required by the contract was by working in tandem with CJ Pearce; that is by following their excavation work as it proceeded from south to north. On 9 July 1996, there was a meeting concerning the CJ Pearce contract; the execution of which had become significantly behind schedule. It should have been about half way completed by mid-July, thus enabling the pursuers to commence work on the southern half of the site. It was not and the defenders, it is averred (26 A-B), could not give the pursuers access to or possession of that part of the site; thus rendering the pursuers' plant, already on site, idle. The pursuers attempted "to mitigate the loss" by taking a different access to that planned, but to do so they required to carry out extra excavation to form a temporary access ramp. The pursuers then aver (p 27 A-E):

"... the defender's representatives at said meeting of 9^th July 1996 - who included the Site Manager - advised the pursuer's representatives that some 200,000 cubic metres of peat had been omitted from Messrs C J Pearce's works and would require to be dug by the pursuer. The pursuer was told to treat the peat as overburden and deposit it in the overburden dumps or treat it as back fill. As the pursuer subsequently discovered the peat which it had been told had been omitted from C.J. Pearce's works was present in the Excavation Area. Messrs C J Pearce Ltd had not in fact removed 600,000 cubic metres of soils and peat from the Excavation Area and accordingly, by said requirement, and indeed as a prerequisite of extracting the coals from the Excavation Area, the pursuer was required to work with the presence of C J Pearce Limited and peat and to excavate peat which did not form part of its original works under the Open Cast Coaling Agreement and for which it had not tendered."

The "requirement" is subsequently referred to as an "instruction" (31 B - C). "Shortly after" it, one of the pursuers' employees telephoned the defenders' "Production Director" and advised him that : "the circumstances then prevailing constituted a major variation of the pursuer's Works".

[8] On 8 August 1996, the pursuers aver that there was a : "verbal (sic) agreement" between the pursuers and the defenders that the plant shown in Schedule 7 would be altered by the inclusion of certain equipment suitable for the removal of peat. At the same time, presumably, it is said that the parties agreed that the peat should be removed at the same time as the overburden so as to minimise delay given that: "A cessation of coal excavation would have led to a delay in establishing a regular flow of coal production which was commercially unacceptable to the defender."

[9] At what is described as a "Directors Meeting" on 23 October 1996, the pursuers aver (15 A - D, repeated at 31 B - E) that one of the defenders' directors :

"Verbally (sic) agreed that the reasonable extra costs associated with the presence of and the requirement to remove peat would be met by the defender but that excessive claims would not be entertained. From as early as July 1996 and subsequently many works were informally instructed and paid for by the defender. As a result in the apparently constructive atmosphere which the pursuer's staff believed to have existed at that time the pursuer did not immediately take further steps in respect of payment for such costs."

The pursuers continue:

"In the circumstances ... neither party would have expected a refusal to commence and once commenced to carry on the additional work of removing the peat and working with the presence of peat without a formal instruction as a precondition of doing so. The consequence of any such refusal would effectively have been to bring work on site to a virtual halt. Such a refusal would therefore have had very significant consequences in terms of cost and delay."

[10] There follow, elaborate averments covering how the pursuers had planned to carry out the works in accordance with what was reasonable, how they encountered substantial difficulties in extracting the peat and the manner in which these difficulties were communicated to the defenders and resolved by the pursuers. In addition, the pursuers detail the problems they encountered in excavating the coal itself and how ultimately, for a variety of geological, safety and other reasons, they could not even extract the 635,125 ton target.

(e) THE VARIATION

[11] By way of averment of fact, the pursuers deal with the "requirement" to dig peat, given at the July meeting, as follows (p 27 E - F; 28 B - F):

"Said requirement was a variation of the pursuer's works in that it imposed amended and additional work on the pursuer and, in requiring the pursuer to deposit the peat in overburden dumps rather than approved bunded locations as provided for in the Specification, further amended work ...

Having regard to the procedural requirements of Clause 5 of the Open Cast Coaling Agreement, it was the obligation of the defender to instruct the execution of said variation by way of written instruction from the Site Manager in order that the pursuer might be entitled to an extension of time under clause 4 of that Agreement and payment of any additional cost it would incur in carrying out that additional or substituted work under clauses 5.2 and 5.3 of that Agreement. In valuing that cost, under the said clauses, it would have been incumbent upon the Site Manager to take account not only of the direct costs incurred by the pursuer in carrying out those varied works, but also those costs to which, in consequence of carrying them out the pursuer was indirectly exposed. The defender, however, failed so to instruct the execution of said variation thereby misadministering the said contract and breaching the same."

THE MISREPRESENTATION

[12] The pursuers maintain that the defenders' statement that CJ Pearce would be excavating 600,000 m³ from the excavation area was a misrepresentation. They contend that, on 6 March 1996, CJ Pearce had tendered a price of just short of £1.5 million on the basis of removing 660,000 m³, largely from the excavation area, but had been asked to re-tender on the basis of 200,000 m³ less. This was done at a price of just over £1.25 million, which was accepted on 4 April 1996. Thus, aver the pursuers, the defenders, including Mr Moyes, knew at the material time that 600,000 m³ would not be removed from at the excavation area as they later told the pursuers. The misrepresentation was fraudulent or alternatively negligent.

(g) THE WATER MANAGEMENT SYSTEM

[13] The pursuers aver that part of the CJ Pearce works was the construction of four sets of settlement lagoons, being part of a water management system designed by the defenders. These were shown on drawing 20458 and, according to the programme of works issued by the defenders to the pursuers, were to be completed by 19 August 1996. They were not; nor were they situated as shown on the drawing or contract drawing 20418; nor were they properly designed or constructed to meet the Consent to Discharge requirements. The defenders instructed the building of two additional balancing ponds but this was still not enough. The deficiencies in design, notably in relation to the necessity of having a system for the mixing of flocculents, are set out in detail. According to the pursuers (p 67 C - F):

"The water management system deficiencies frequently led to conditions in which the Consents could not be complied with. In order to attempt to achieve compliance with the Consents the pursuer required to use continuous deployment of manpower to supervise and manage the systems. The pursuer required to use abnormally high levels of flocculents to ameliorate the effects of the poorly designed and poorly constructed water management system ... the system has always been under-capacity. Access routes to the lagoons sufficient to permit the pursuer to manage and de-silt the lagoon systems ... were never provided by the defender ... the pursuer itself had to build such routes."

[14] The pursuers' case concerning the water management system is that, by "underdesigning" and "misconstructing" the system, the defenders "breached its obligations to the pursuer" under the contract. In particular (p 70 B - E; 72 B - C):

"As was implicitly recognised by clauses 7.6. and 7.7 ... and the Schedule of Rates ... it was the duty of the defender ... to furnish the pursuer with a water treatment system that was so designed and constructed that, if properly operated and maintained with a reasonable amount of management and maintenance by the pursuer, it would serve to so manage and treat such quantities of water from the ... site as might reasonably be foreseen to run from that site that that water could be discharged into said river system without breaching said Consent. It was further the obligation of the defender under clause 3.1.4 ... to allow the pursuer such access to and possession of such parts of the Site as would enable the pursuer to carry out the Works. That obligation extended to affording the pursuer vehicular access roads to the lagoon systems, such as it would require in order to take to those locations such machinery and materials as it would need to allow it to manage and de-silt those systems. Said obligation the defender breached, providing no such access roads, and forcing the pursuer to build them ...

... on a proper construction ... both the obligations referred to in paragraph E of the Specification and the extent of those obligations proceed upon the assumption that the defender has fulfilled its own obligations ...".

THE CLAIMS

[15] The pursuers have a straightforward claim for £96,060 and £10,980 for the construction of a coal transit pad and access ramp, said to be payable in the event of the target tonnage of 635,125 not being extracted. They also have a claim for certain sums payable in respect of the balance between the coal actually extracted (608,978) and the target tonnage. These sums plus those for the pad and ramp total the amount in the first conclusion.

[16] In an article of condescendence (21) extending to some thirty pages, the pursuers set out in extraordinary detail a series of figures variously described as losses and costs which they say are damages for what the pursuers term the "misadministration" of the contract. The first part of the claim is for £761,222.50 (105 D), being the difference between £17.69 per ton, which they did get in respect of the 608,978 tons recovered, and £18.94, which they ought to have got had the right valuation been carried out following upon instructions relative to the extensions of both time and area. Next the pursuers say that they could not commence the works until August because of lack of access to the site. Their plant lay idle and they had to construct a fresh access. This cost £42,708.33.

[17] Then, aver the pursuers, there is the amount due had the defenders issued a proper variation in respect of the removal of the extra 200,000 m³ of peat (106 C et seq). The sequence here is that the defenders ought to have issued a proper written instruction which would in turn have led to a claim for the value of the additional work under clause 5.2 and an extension of time for completion under clause 4.1. Although expressed in a number of ways in the articles of condescendence, this claim is at one point phrased thus (109 D - E):

"Had the defender correctly administered the Contract in accordance with its obligations and issued the said variation instructions the pursuer would have been entitled to valuation and payment for the resources expended by it directly and indirectly as a result of the additional and amended works to achieve completion of coaling when it did. The resources should have been valued under Clause 5.2 ... the work was not of similar character to the work in the Schedule of Rates. It would have had to be valued at a fair valuation using the rates in the Schedule of Plant Rates as a basis for valuation."

[18] There follow elaborate details of what is described as the direct expenditure (109 F - 112 C) which ultimately totals £504,081.53. The pursuers go on to detail the "many and profound" adverse consequences of the peat excavation on the progress of the works under reference to additional machines, hours of working and overheads (112 E - 122 A). Despite the elaboration, the reader of the pleadings may be left a trifle mesmerised in attempting to determine just what the pursuers are claiming under this particular head, especially as there appear to be both narratives and summaries at different stages of the article of condescendence, but it may be something in the region of £2.25 million. There is weekend and holiday working (113 C - 114 C) of £76,140.81 plus valuations for graders and bulldozers totalling £123,722.75. Additional excavator hours seem to be valued at £1,668.835.68 (120 F - G) and there is holiday pay of £38,627.26. Site supervision costs were increased by £298,567.93 (122 A).

[19] Having set out this claim, based upon the defenders' failure to vary the contract formally and thus allow the pursuers to claim for additional work etc. the pursuers aver (122 A - B):

"Separatim and in any event the extra resources expended by the pursuer as a result of the presence of CJ Pearce Limited, the peat and the requirement for the removal of same were caused by breach by the defender of its obligations as to access and possession, not to hinder the pursuer's Works and to obtain licenses for coal exposed. Further the failure to recover the costs of said resources was caused by the previously averred misadministration of the contract in failing to issue an appropriate variation instruction. On the one hand but for the failure pursuer would not have incurred relevant costs, on the other it would have recovered the costs."

[20] The pursuers set out what the cost of creating the temporary access was (£5,849.56) together with the costs of additional coaling, ancillary and excavation plant (£86,971.65, £153,695.82 and £1,351,480.85). There are additional costs in relation to a particular substituted machine (£198,054.60) plus overheads (£208,176.58), holiday pay (£36,983.32) and site supervision (£285,861.16) (124 B - E). The pursuers go on towards the end of the article (124 D - E ) to specify their claim relative to the water treatment system and the consequences of the failure to provide one. They maintain that the direct losses, over and above the elements anticipated in the tender, were £511,550.17 and that there were additional costs of £539,592.11. It is a combination of the various amounts that total the sum in the second conclusion (see the fourth plea-in-law, p. 141).

[21] Next (article 22) there is the loss and damage said to arise as a result of the misrepresentation regarding C J Pearce's removal of the 600,000 tons of peat. The pursuers aver that, but for that misrepresentation, they would not have entered into the contract at all. Because they did enter the contract they incurred costs of £17,450,000. These include : tyres (£513,000); hardware tools (£722,000); engine repairs (£2,401,000 plus £631,000); wear and tear (£170,000); labour (£3,097,000); hire of plant (£4,545,000); fuels and lubricants (£1,969,000); electricity (£23,000); miscellaneous (£588,000); explosives (£321,000); coal haulage (£97,000); drilling (£286,000); administrative staff and services (£1,408,000); office wear and tear (£26,000); insurance (£171,000); and fees (£11,000). In addition there were overheads of £710,000 and finance costs of £629,000. On the other hand the income from the contract was £12,431,000. The difference between income and costs is said to be £6,358,000 plus VAT, which is said to be the sum in the third conclusion although it is accepted that:

"The pursuer's loss as a result of entering into and performing its obligations under the ... agreement will be reduced in the event of the sums being recovered in terms of the first and second conclusions by the extent of any such recovery."

2. Submissions

(a) DEFENDERS

[22] The defenders moved that their first plea-in-law, which is to the general relevancy and specification of the pursuers' case, be sustained and the action dismissed in so far as the third conclusion was concerned. This would also involve the exclusion of averments from the second article of condescendence (6 C to the end) and the whole of the fourth and twenty second articles. Otherwise it was argued that certain other averments be excluded from probation, in particular articles five to ten and fifteen to nineteen. There was no issue taken with the case relative to the first conclusion; it being accepted that the averments in the eleventh article were relevant together with the relative quantification averments at the start of the fourteenth article. It was accepted also that the averments in the twelfth and thirteenth articles concerning the shortfall in coal were relevant together with the relative averments in the twenty first article (105 A - D). The twentieth article was relevant. If the averments concerning the short delay at the start of the contract were unrelated to the peat issue then they too were potentially relevant. The rest of the pursuers' case was irrelevant and the remaining averments in the twenty first article should be excluded. That article contained four elements which seemed to make up the sum in the second conclusion. These were : (i) the shortfall case, which was not in dispute (105 A - D); (ii) the short initial delay (105 D - C); (iii) "misadministration" (106 D - 124 E); and (iv) the water treatment system (124 E to the end of the article at 130 C). The averments relative to the failure on the part of the defenders to issue a written instruction for the peat excavation and related work should be excluded on the basis of irrelevancy.

[23] The pursuers' case was one whereby after the contract had been entered into, the parties had made a further agreement about the carrying out of additional works, as distinct from there being a variation instruction terms of Clause 5 of the contract. Having made such a further agreement, the pursuers could not, in addition to claiming for the additional work which the parties agreed should be done, claim damages for being induced to enter into the original contract in the first place. The defenders argument was presented initially in five chapters prefaced by a general reference to: J.M. Arnott and W.J. Wolffe : "Building Contracts" (Stair Memorial Encyclopaedia Vol 3 paragraphs 18, 19, 21, 34, 41, 67 and 74).

[24] First, there was the defenders' main complaint. This was that there was a lack of nexus between the misrepresentation and the pursuers being induced to enter into the contract. The alleged misrepresentation was that the defenders did not tell the pursuers that they would be required to carry out the peat removal and therefore the pursuers had not set out in their tender an appropriate mechanism of payment for this work. But, according to the pursuers' averments, they were told about the existence of the 200,000 m³ of peat at a meeting on 9 July, before they actually started the work. What followed was a new agreement to deal with the peat. The losses claimed under the third conclusion cannot have been induced by the misrepresentation since the defenders disclosed the problem and provided full information to the pursuers. Furthermore, the pursuers not only conceded that; they also asserted that there was an agreement on how to deal with the problem. The pursuers were not saying that they were forced to carry out the original contract but that they knew of the difficulty and agreed upon a method of tackling it.

[25] Put in a series of numbered propositions, the argument went thus: (i) the pursuers allege that they were induced to enter into the contract in the false belief that it would not involve any significant amount of peat extraction; (ii) the alleged objective of the defenders was to induce the pursuers to enter into the contract without agreeing any price for peat extraction; (iii) if that were correct, all that would be established would be that the scope of the contract excluded peat extraction; (iv) the fact that the scope excluded peat extraction could not produce loss. The pursuers could either obtain a valid instruction to carry out a variation or they could enter a new agreement to do the work; (v) once the pursuers were told of the peat situation the effect of any prior misrepresentation terminated; (vi) there was no dispute that there was a disclosure by the defenders that certain quantities of peat had been omitted from the CJ Pearce works; (vii) whether or not the misrepresentation continued to operate and caused loss must depend upon what was done with the disclosed information. It was not said that the defenders were able to compel the pursuers to carry out the peat extraction; (viii) there could be no loss caused by a misrepresentation if the disclosure was used as the basis for an agreed variation to include work omitted from the CJ Pearce contract on an agreed basis; (ix) if the induced work was included in the contract then the pursuers were entitled to be paid for it on the agreed basis; (x) the pursuers' pleadings disclose awareness of an agreement; and (xi) if their pleadings do not recognise an agreement, then what is the basis for their claim?

[26] The defenders accepted the pursuers' position that the Scots law in this area -was the same as that set out in certain English cases, notably Smith New Court v Scrimgeour Vickers [1967] AC 254. The pursuers, however, had failed to aver what their reaction was to the information given to them by the defenders at the 9 July meeting and it was not possible to address issues such as causation or mitigation until that was known. It cannot be the case that a contractor is free to carry on with a disastrous contract and then seek to recover any losses on the basis of fraud (Downs v Chappell [1997] 1 WLR 426; per Hobhouse LJ at 441; Smith New Court v Scrimgeour Vickers (supra), per Lord Browne-Wilkinson at 266-7, per Lord Steyn at 284-5; cf. Esso Petroleum Co v Mardon [1976] QB 801, per Lord Denning at 821, Ormrod LJ at 829, Shaw LJ at 833).

[27] Secondly, there was what was called for convenience "the Gloag point". This was that since the pursuers had averred an agreement to carry out additional work, they could claim payment in the form of reasonable remuneration (quantum meruit) for that work (Gloag : Contract (2^nd ed) pp 292, 321 under reference to Tharsis Sulpur v McElroy & Sons (1878) 5 R (HL) 171, per Lord Chancellor (Cairns) at 171-2; Morrison-Knudson International Co v Commonwealth of Australia (1972) 13 BLR 114; ERDC v HM Love 1994 SC 620; Hudson's Building and Engineering Contracts (11^th ed) paras. 7-066, 7-070). The pursuers' averments (at 28 E (see above)) were that the defenders had failed to provide a written instruction but the basis for that must be that there was an agreement to do the additional work. The nearest the pursuers got to defining that agreement was where they say (at 31 D (see above)) that the defenders had agreed that the extra costs of the peat removal would be met (15 A - D (see above)). The pursuers maintained that it was not their job to extract the peat. They attempted to get over the absence of instruction to vary by conjuring up an obligation to issue an instruction and thereby tried to maintain that the contractual pricing structure should be employed. This was not a valid approach.

[28] Thirdly, it was submitted that the averments concerning the obligation to issue an instruction varying the works were irrelevant. The pursuers' pleadings proceeded upon a mistaken hypothesis that, as a condition precedent to payment, they required a written instruction. The pursuers' position was that on a proper construction of the contract within its factual matrix, they were entitled to assume that CJ Pearce would have removed 600,000 m³ of peat from the excavation area and that the contractual obligation upon them to remove peat was only the excess above the 600,000 m³. The inference was that that the removal of the peat was not within the scope of the contract works which the pursuer had undertaken to perform. If that was so, then how did they end up carrying out the works? The only way in which the defenders could force the pursuers to do the work was by using the mechanism in Clause 5 but nowhere in the pleadings do the pursuers set out why the defenders were under an obligation to issue a written instruction. The pursuers' case misunderstood the place of Clause 5 in the contract. The parties had agreed to carry out a certain scope of work on certain terms and conditions. As a generality, there could be no change to the works unless there was mutual agreement. The object of Clause 5 was to give the employer the unilateral power to impose changes in the works. The employer could require the contractor to do certain things and the contractor would then come under a contractual obligation to perform the changed works, whether or not he agreed. But if the employer failed to use the change mechanism under Clause 5, the general rule requiring mutual agreement applied. It was common ground that the defenders did not issue an instruction under Clause 5. That being so, the defenders had no unilateral power to impose any obligation on the pursuers to remove the peat. It was no part of the defenders' argument that the pursuers could not have issued an instruction to remove the peat. Such removal was within the scope of the works; the defenders' position on record being that it was part of the contract works. In the absence of an instruction, presumably the position was that the pursuers had agreed to undertake the works since, in the absence of the use of Clause 5, any obligation to remove the peat could only arise with the pursuers' agreement. The pursuers' case was based upon a false premise: that without the use of Clause 5 the defenders could require the pursuers to carry out the work. The case assumed that the defenders could unilaterally impose a requirement and were then bound to follow it up with a written instruction under Clause 5. But this put matters the wrong way around. The defenders could make a request but, unless it was backed up by a written instrument, that is all it could be. It was the written instruction that converted a request into a binding duty. If the employer did not use his unilateral power, then a contractor had no obligation to carry out the work.

[29] Looked at purely in the context of relevancy, the pursuers' case could be broken down into three propositions. First, the employer could require additional work without invoking the Clause 5 procedure. Secondly, such a requirement amounted to a variation. Thirdly, it was an implied term that, in such a situation, the employer would issue a written instruction rendering Clauses 5 and consequently 4.1.2 applicable to the additional work. In order to succeed in establishing a breach of contract, the pursuers had to establish each proposition but each was unfounded in law. The first was conceded to be unfounded. In relation to the third, there was no implied term actually averred. The authorities did not support implication of a term in the circumstances. The passage relied upon by the pursuers (infra) in the Court of Appeal decision in Leyland & Co v Cia Panamena Europea Navigacion [1943] 76 Ll LR 113 (per Scott LJ at 123-124) was not supported in the reasoning of the House of Lords (Panamena Europea Navigacion v Frederick Leyland & Co [1947] AC 428, per Lord Thankerton at 434-6) where the decision was based not upon the implication of a term but upon the employer's reliance upon an unlawful condition precedent to payment (see the analysis of Macfarlan J in Perini Corporation v Commonwealth of Australia [1969] 12 BLR 90 at 109-110 where he held that the parties to a contract are bound to do all co-operative acts necessary to bring about the contractual result (at 111)). Once a contractor agreed to carry out additional work, it was not necessary, from the business efficacy viewpoint, to imply a term that Clause 5 required to be invoked. At the point of agreement, the parties were free to negotiate whatever terms for payment they wished. It was noticeable in this case that when the pursuers were carrying out the peat removal, they did not render regular accounts for the work as if it were part of the contract works but stored up the cost until it became the current claim for several million pounds. Even if a term could be implied, there would be complex questions concerning its drafting. What would be required would be a term of some sophistication and, upon this view, the pursuers' case was irrelevant since no implied term was averred.

[30] If the contractor agreed to carry out work then remedies might arise depending upon the basis of the agreement. In terms of the pleadings at present, the pursuers seemed to be saying that there was an agreement with a condition that there would be reasonable payment. If there was an agreement then the contractor could be paid quantum meruit (Thorn v Mayor and Commonality of London (1876) 1 App Cas 120, per Cairns LC at 127). The issuing of an instruction was not a condition precedent to entitlement to payment (see Boyd & Forrest v Glasgow and South-Western Railway Co 1915 SC (HL) 20, per Earl Loreburn at 21-22). When faced with the peat, there were three options. First, the pursuers could have insisted that the defenders got someone else to do the work since it was not in their contract. Secondly, they could have said that if the defenders wanted the pursuers to do it then they would have to issue a variation in terms of the contract. Thirdly, the parties could form a new contract that the work should be done and that is what the pursuers say happened. Even if there was an obligation to issue a formal instruction, the pursuers waived their right to insist upon this.

[31] Fourthly, it was said that the misrepresentation case was irrelevant because there was a discrepancy in the figures averred. The pursuers averred that they removed 283,000 m³ (22 G) and that CJ Pearce removed 318,000 m³. If the discussion was that CJ Pearce was supposed to have removed an additional 200,000 m³ then it could not be said that the removal of 83,000 m³ more than that by the pursuers had been caused by the misrepresentation.

[32] Fifthly and finally, the pursuers' case on the water treatment system was attacked; it being maintained that the averments in relation to the system should all be excluded from probation. The pursuers were alleging that there was an obligation upon the defenders to provide such a system to a particular standard, namely one sufficient for the purpose to which it was put. However, first, the contract made it clear that, if it was necessary to construct more lagoons, the onus was upon the pursuers to do so. Secondly, there was no implied term in the contract that the lagoons would be sufficient. The pursuers averred that it was "implicitly recognised" by clauses 7.6 and 7.7 that a system would be provided to a particular standard but did not make it clear whether they were attempting to introduce an implied term into the contract and, if so, what standard was to be implied. In terms of clause E(v)(a) the obligation to provide the system rested upon the pursuers. What the pursuers were seeking was the implication of a term which would delete part of an express term in clause E(v)(a), namely the provision element, but leave the remaining maintenance element intact. It would also be peculiar for the pursuers to have no obligation as regards the sufficiency of the system even after they had constructed the additional balancing ponds and taken over the existing system as built by CJ Pearce. The pursuers made reference to the system being shown on drawing 20458 but that related to the defenders' contract with CJ Pearce. In short, there was no question of it being inevitable that, had the parties considered the matter, they would have agreed to the implied term suggested by the pursuers.

(b) PURSUERS

[33] The pursuers moved for a proof before answer in the main action and the counter claim. The pursuers' case could only be held irrelevant if the pursuers must necessarily fail even if they proved all of their averments. The defenders were urging one particular view of the circumstances averred by the pursuers but it was only one of a number of possible views that might be taken after evidence was heard.

[34] Dealing with the defenders' points in turn. The pursuers' case on nexus was that the misrepresentation induced the pursuers to enter into the Agreement and that, but for the misrepresentation, they would not have entered into it. This was clearly averred. The disclosure by the defenders concerning the omission of peat from the CJ Pearce contract did not happen until after the contract had been entered into. "Omission", it was said, would be taken as meaning that the CJ Pearce contract had been validly varied by changing the amount of peat removal. The pursuers' contention was that, at the time of the misrepresentation to them, the defenders were already aware of the omission. The pursuers had not averred the creation of an additional agreement after they became aware of the facts. Rather, the misrepresentation had induced the pursuers to enter into the contract and, by the time they realised that a misrepresentation had been made, they were tied into a contract which the defenders were insisting they should implement. The pursuers were not in a position to resile at an earlier stage as they had not been aware that a misrepresentation, as distinct from a legitimate post representation variation of the CJ Pearce contract, had been made.

[35] The proper measure of damages was all the loss that flowing from entering into the contract (Doyle v Olby (Ironmongers) [1969] 2 QB 158, per Lord Denning MR at 166-7; Esso Petroleum Co v Mardon (supra), per Lord Denning MR at 820; Downs v Chappell (supra), per Hobhouse LJ at 438-9, 443; Smith New Court v Scrimgeour Vickers (supra), per Lord Browne-Wilkinson at 264-6, Lord Steyn at 281-3; Fortune v Fraser 1996 SLT 878, per Lord Justice-Clerk (Ross) at 884; Barry v Sutherland 2002 SLT 413, per Lord Eassie at 417; Banque Bruxelles v Eagle Star [1997] AC 191, per Lord Hoffman at 215). The measure of loss sued for was the correct one. The issue of any side agreement entered into after the main contract was irrelevant as the pursuers had been induced to enter into the contract and the difficulties that arose in the execution of that contract all flowed from the inducement to enter into the contract. The third conclusion sued for the highest possible amount of damages recoverable but if the pursuers failed to prove part of the loss then that part would not feature in any award. That did not render the case irrelevant. The pursuers had not averred that all of their losses stemmed from the peat removal. If the defenders were correct in their position that the peat did require to be removed in terms of the Agreement then the losses arising from this would be included even although no "esto" case was pled. In relation to mitigation, it was for the defenders to raise that matter by contending that what the pursuers had done was in some way unreasonable, but they had not done so.

[36] So far as the "Gloag" point was concerned, the pursuers' position was that, properly construed, the contract did not require the pursuers to remove the peat as part of the original works, or at least any significant amount of peat. Clause C(iv), F(iv)(a) and G(i)(b) had to be construed against the factual matrix existing when the contract was entered into (Bank of Scotland v Dunedin Property 1998 SC 658, per Lord President (Rodger) at 661, Lord Caplan at 677, Lord Kirkwood at 678; following Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896, per Lord Hoffman at 913). If the pursuers had known about the peat then they would have included pricing for it in the original tender. The defenders required the pursuers to remove the peat as a variation of the works and received an assurance from them that they would be paid for the work. It was "implicit", as it was put in submissions, as a matter of business necessity that once a requirement was made there arose an obligation to issue an instruction since otherwise the contractor would be deprived of the opportunity of : (i) obtaining payment for the work done; (ii) obtaining payment in respect of any changes to the other works; and (iii) seeking an extension of time in which to complete the works. If the pursuers had refused to remove the peat, all work would have had to have stopped. Accordingly, the pursuers continued to operate the contract on the basis that there was a variation which the defenders would require to instruct properly. There was no new contract but an obligation upon the defenders to instruct a variation in terms of the existing contract. Failure to do so amounted to a breach of contract. In that regard, the instruction would have involved a variation of the works and not something outwith the general scope of the works requiring a new or separate contract (see Hudson (supra) paras 7-001, 7-003). The pursuers would have to have carried out an instruction to vary the works to include the peat removal. Indeed it was noticeable that it was the defenders position upon record that the pursuers were obliged to carry out the peat removal in terms of clause F(iv)(a) of the Specification (17 F - C; 36 B - E). The various averments about alterations to plant and rates for plant related to variations of the contact terms and not variations in terms of the contract. They were included in the pleadings as a response to the defenders' averments that the pursuers were personally barred from insisting upon a formal instruction as they had proceeded to do the work in the knowledge that there was no such instruction (20 B - F). In short, the pursuers had made no averments about the creation of a new agreement but the new works had been done in circumstances where the defenders were expected to pay. There may be a number of ways in which the legal position might be analysed but it could not be said that the pursuers' analysis was necessarily wrong and there should accordingly be a proof before answer.

[37] It was inherently improbable that the parties would have presumed that payment would be on a quantum meruit basis, as distinct from being regulated by the contract. Such a basis is not normally available if there is a contract in existence (Gloag (supra) 321-2; Hudson's (supra) para. 7-066; Varney (Scotland) v Burgh of Lanark 1976 SLT 46, per Lord Justice-Clerk (Wheatley) at 48; Devos Gebroeder v Sunderland Sportswear 1990 SC 291, per Lord President (Hope) at 300-301; ERDC v HM Love (supra), per Lord Justice-Clerk (Ross) at 633-4). Although it was not possible to substitute "shall" for "may" in clause 5.1, it was an implied term that the contract would be properly administered and any discretion reasonably exercised (Hudson's (supra) paras 6-096; 6-148; and 6-151 under reference to Leyland & Co v Cia Panamena Europea Navigacion (supra) per Scott LJ at 123-124 (see also [1947] AC 428); Perini Corporation v Commonwealth of Australia (supra), per Macfarlan J at 107-111,115; Gordon District Council v Wimpey Homes Holdings 1989 SLT 141, per Lord Clyde at 142-143). In this case, there was a discretion to issue an instruction to vary and that had to be exercised reasonably. The defenders were under an obligation to ensure that their site manager operated the contract properly by issuing the instruction.

[38] Dealing with the remaining miscellaneous points on this topic, first, if there had been a breach of the implied term then such a breach would sound in damages (Highland and Universal Properties v Safeway Properties 2000 SC 297, per Lord President (Rodger) at 299). Secondly, The case was distinguishable from the situation in Tharsis Sulpur v McElroy & Sons (supra) because that was a lump sum contract whereas here payment was to be made according to measurements of the value of the work. Thirdly, it was incorrect to say that the pursuers could lose their right to claim damages because they became aware of the "omitted" peat. Faced with having discovered the misrepresentation, the pursuers retained the option of affirming the contract and claiming damages (Gordon v Selico [1986] 1 EGLR 71 at 77). Fourthly, Morrison-Knudson International Co v Commonwealth of Australia (supra) was an example of an attempt to preclude proof in a claim for negligent misrepresentation because of contractual terms and did not assist.

[39] Turning to the argument specifically concerning variation, at the time of learning of the problem with the peat, there was no apparent ground upon which the pursuers could "walk away" from the contract since they had no reason to suppose there had been a misrepresentation. The pursuers, it was accepted, may have been wrong about, or misunderstood, their obligations under the contract, but they were being "told" by the defenders to do the work (27 B - C). They did so, but indicated that they thought the peat removal was a "major variation" of the works (31 C -D). It was accepted that, under the contract, the pursuers were not required to remove the peat without a variation being instructed. But what the pursuers were averring was that being told to do the work was a variation which could be lawfully effected. Matters proceeded in a spirit of co-operation on this basis and with the defenders agreeing to meet the costs of the work. There were then three possibilities. First, the additional work could have been carried out gratuitously, but there was a presumption against that. Secondly, the work was such that the pursuers required to carry it out in terms of the contract. Thirdly, there was a variation upon which, in the absence of a written instruction, the defenders were stymieing payment. If it was a variation then the pursuers should obtain payment in terms of the contract (Thorn v Mayor and Commonality of London (supra), per Cairns LC at 127-8) or damages (Perini Corporation v Commonwealth of Australia (supra); Leyland & Co v Cia Panamena Europea Navigacion (supra), per Scott LJ at 123-124).

[40] It was a condition precedent to payment under the contract that a written instruction be given. The comments of Earl Loreburn in Boyd & Forrest v Glasgow and South-Western Railway Co (supra) were in the different context of a party seeking to reduce a contract having carried on with it after being aware of the problems. Here the pursuers aver that they stated to the defenders that they regarded the peat removal as a major variation and that they took steps to see that they would be paid for the extra work. In relation to the pursuers' options as submitted by the defenders, there was a fourth whereby the pursuers could state that they would do what the defenders required but contend that it was a variation and would seek a remedy based upon that contention.

[41] The specification of the quantity of peat removed was adequate, even if there was a slight discrepancy in the figures. At the time of their tender, the pursuers had estimated the volume of peat in the excavation area at 620,000 m³ (21 A-B). The actual amount of peat was 611,000 m³ (22 E-F). CJ Pearce removed 318,000 m³ (27 C-D). This left 293,000 rather than 283,000 m³ of which CJ Pearce should have removed a further 200,000 m³. The balance of 83,000 m³, it was accepted, was the incidental amount which the pursuers would have had to remove in terms of Clause F(iv) of the Specification.

[42] So far as the water management system was concerned, the use of the words "implicitly recognised" by the pursuers in their pleadings (70 B-C) was intended to mean that they were averring that there was an implied term in the contract that the defenders would supply the system. The test was business efficacy (Scottish Power v Kvaerner Construction (Regions) 1999 SLT 721, per Lord Macfadyen at 725). There were express terms covering the system but these did not contradict the implied term. At the time of the execution of the contract, it was thought that the system was to have been built by CJ Pearce to the defenders' design and the contractual terms had to be construed against that factual background. There had been minor criticisms of specification, such as the reference to drawing 20458 because it was not a contract drawing. The drawing was relevant to the factual matrix. Otherwise the specification by the pursuers was adequate.

3. Decision

(a) MISREPRESENTATION (Third Conclusion) (and discrepancies)

[43] The pursuers have averred a relevant case based upon misrepresentation and losses following therefrom in the sense that it cannot be said that, if they prove all of their averments upon this topic, they are still bound to fail. So far as the merits of this aspect of the case are concerned, the pursuers make reference to several representations by the defenders prior to the signing of the contract to the effect that 900,000 m³ of peat was going to be removed from the site; 600,000 m³ of which were from within the excavation site (see "1(c) PRIOR COMMUNINGS" above). This induced the pursuers to tender for the work on the basis that they would be removing only incidental peat from the excavation site; hence the absence of any material references to the appropriate rates for peat removal in the Schedule of Rates. The pursuers aver specifically that this was the basis upon which they entered into the Agreement (21 F - 22 G). The pursuers offer to prove that, when the representations were made, they were false and hence misrepresentations of a fraudulent or negligent character (see "1(f) THE MISREPRESENTATION"). The result of the misrepresentations was the induced contract and the pursuers specifically aver that they would not have entered into the contract but for the misrepresentations (134 E - F).

[44] The question is whether the pursuers have relevantly averred loss because of entering into the contract. In that regard, the measure of damages is the loss suffered by the pursuers as a result of entering into the contract. This covers all "actual damage directly flowing from (i.e. caused by) entering into the [contract]" (Smith New Court v Scrimgeour Vickers (supra), per Lord Browne-Wilkinson at 265,see also 267; Doyle v Olby (Ironmongers) (supra), per Lord Denning MR at 167; on the Scottish application of which see Barry v Sutherland (supra), per Lord Eassie at para 23). The pursuers are entitled to be put back into the position which they would have been but for the misrepresentation which induced them to contract (Smith New Court v Scrimgeour Vickers (supra), per Lord Steyn at 281, see also 282). It is not a question of trying to determine what other agreement the parties might have reached had the truth been known (Smith New Court v Scrimgeour Vickers (supra), per Lord Steyn at 283; cf Downs v Chappell (supra); per Hobhouse LJ at 444) nor of estimating what the position might have been had the representation been true (Esso Petroleum Co v Mardon (supra), per Lord Denning at 820) but of determining what losses flowed from the contract.

[45] In the twenty second article of condescendence, the pursuers set out what they say were the "costs" of "the performance of [their] obligations under the Open Cast Coaling Agreement". These are said to amount to £17,450,000 as detailed above (see 1(h) THE CLAIMS). It is important to note that under this part of the claim, which is prefaced by the formula "separatim and in any event", the pursuers appear to be saying that all of these costs were as a consequence of performing their contractual obligations. Put another way, they are saying that these are the losses they suffered as a result of entering into the contract; that is to say in relation to the work required to excavate the coal as the contract required them to do (see 27 D - E). That is what they offer to prove, even although elsewhere in the pleadings they appear to be saying that the costs of certain items such as peat removal and a water treatment system were not such consequences but stemmed from the pursuers performing work which they did not require to do under the induced contract's terms. In due course, if that turns out to be correct, then large amounts of the averred costs may require to be deducted in the final analysis. However, since, in this part of the case, the pursuers appear to be saying that the whole of the costs were caused by performance of the contractual obligations, I must, in dealing purely with relevancy, proceed on the basis that their averments in this area will be proved. From the total, the pursuers deduct the income received from the defenders under the contract (£12,431,000) and add certain overheads and VAT before arriving at the sum concluded for. Given the wide scope of the losses recoverable upon proof of fraud inducing a contract (see Banque Bruxelles v Eagle Star (supra), Lord Hoffman at 215), the averments are relevant for inquiry.

[46] The effect of the disclosure, as the pursuers argue, of the true extent of the peat at the meeting of 9 July, almost three weeks after the contract had been signed but before work actually started, is a matter which may or may not have a bearing on quantum of damage. At the time of that disclosure, the parties had already locked themselves into a substantial contract for the extraction of coal. Upon discovering the true facts, no doubt the pursuers came under a general obligation to mitigate their losses (per Hobhouse LJ (supra) at 441). A party cannot always choose to continue with a contract unnecessarily in the knowledge that it will cause crippling losses and then hope to recover all of these losses from a fraudulent or negligent party (see Lord Browne-Wilkinson (supra) at 266-7). But any failure to mitigate, in the sense of unreasonable conduct on the part of the pursuers, will be for the defenders to plead and prove. The pursuers were not under a general obligation to cease activity upon the contract once they realised it was not profit making. Having been locked into it by the defenders' misrepresentation, they were entitled, upon their averments, to proceed with it and ultimately sue for any resultant losses. If their actions were unreasonable then the effect of that will have to be determined after enquiry.

[47] There are a number of averments on the part of the pursuers about what actually happened upon their discovering the true extent of the peat. The pursuers appear at times to be suggesting that some form of accommodation was mooted concerning the peat and certain assurances were given about the defenders meeting the cost of the peat recovery. Despite the use, perhaps too casually, of the word "agreed" in that context on at least one occasion, it is tolerably clear that the pursuers are not ultimately suggesting (and are certainly not pursuing a case based upon) the existence of a collateral or new agreement covering the additional work. Even if they were, the fact that they had managed to secure such an agreement would not prevent them from suing for any losses flowing from being induced to contract in the first place. It would simply mean that the existence and effect of any new agreement would have to be taken into account in relation to the assessment of loss (see Lord Denning MR (supra) at 821, Shaw LJ at 833). I do not consider that the pursuers can necessarily be taken as waiving any claim for damages in respect of the alleged misrepresentations merely because they were able to negotiate adjusted terms in respect of part of the works in an effort to reduce their losses (cf Boyd & Forrest v Glasgow and South-Western Railway Co (supra), per Earl Loreburn at 23). It is also difficult for the defenders to found upon the existence of any new agreement as a bar to a claim for damages if, as seems to be the case, there is no suggestion of the defenders having implemented any such agreement by proffering payment under its terms. For all these reasons, I will allow a proof before answer on the misrepresentation case.

[48] I should add here that, although there may be some discrepancies in the various figures given relative to the amount of peat to be and actually removed, these are not of such materiality as to render any element of the case irrelevant by way of lack of specification or otherwise. The figures do give the defenders fair notice of the case against them and any discrepancies can be ironed out in the course of the evidence.

(b) VARIATION (and Gloag)

[49] If there had been a new agreement to do the additional work, the defenders would be required to pay for it. Just what the pursuers would be entitled to by way of payment would depend upon the terms of the agreement. If there was no agreement as to price then a term that a reasonable price be paid could, and in all likelihood would, be implied (see Thorn v Mayor and Commonality of London (supra), per Cairns LC at 127). But in that situation, the Court is implying a term into a contract. It is not straying from the field of implied terms into that of quasi contractual remedies such as unjustified enrichment (cf Hudson's (supra) at para 7-066). As a generality, the latter type of remedy has no place where a contract governs the parties' relationship (Varney (Scotland) v Burgh of Lanark (supra), per Lord Justice-Clerk (Wheatley) at 48; Devos Gebroeder v Sunderland Sportswear (supra), per Lord President (Hope) at 300-301). However, as noted above, the pursuers in this case do not say that there was any new agreement. Proceeding on that basis, it is critical to note that the pursuers also make it clear that the additional work in removing the peat was not something which they required to do under the original contract. The question is whether they have nonetheless set out a relevant case for the payment of sums relative to the execution of the additional work. The answer to this is that they have not.

[50] The manner in which the pursuers attempt to construct a case is, put shortly, to aver that the defenders told them to do the work and that therefore they, or the Site Manager, were bound to issue a Clause 5 "Instruction" with all the consequences that such an "Instruction" might have. This is not, however, a tenable approach. In this, as in many, written contracts, especially those of a building or engineering type, the parties have set out with care just what is to be paid by one party to another. The obligation in relation to payment is set out in Clause 3.1.1 and is to be the value of the work calculated in accordance with the Schedule of Rates together with any additional value "as may be determined in any Variation". The contract is making it clear then that beyond the work set out in the original contract documents, payment is due under the contract terms only where there is a "Variation" to be valued (see Clause 1.1.14). Of course, there could be further agreements between the parties outwith the contract under which further work is undertaken but this is not what averred said here. For there to be a legitimate claim for payment under this contract for works executed by the pursuers over and above those dealt with in the original contract, there has to be a "Variation". A "Variation" in this context is a very specific item. It is defined (Clause 1.2.21) as a Variation made in accordance with Clause 5 and that clause makes it clear that a "Variation" is something which is instituted by the Site Manager by way of an "Instruction". An "Instruction" is defined (Clause 1.1.11) as something given in writing (Clause 2.1.7). The reason for these terms is clear. It is to define the precise circumstances in which the contractor may or may not be paid for additional work. It gives to the employer a power to instruct additional work and, if that power is exercised in terms of the contract by written "Instruction", the contractor will come under an obligation to carry out that work but will have a corresponding right to payment for it. The employer can not instruct something outwith the general scope of the works but neither party raised that issue here in the context of the peat removal. Under and in terms of the contract, if there is no formal "Instruction", there is no obligation on the part of the contractor to carry out any additional work but conversely there is no right to payment if he chooses to do such work.

[51] Given that payment for the works, including additional works or variations, is regulated by the contract, there is no basis upon which a term can be implied into the contract which imposed an obligation upon the Site Manager to issue an "Instruction" to vary the works. Equally, even if at had been averred that such a term could be implied (which it is not) there is no basis upon which it could be said that such a term needed to be implied as a matter of business efficacy (see Scottish Power v Kvaerner Construction (Regions) (supra), per Lord Macfadyen at 725). Indeed, the contrary is the case. The contract as it is phrased makes the position clear and any term which introduced an obligation of the type contended for would appear to undermine that clarity and indeed contradict the express terms in the contract in relation to the requisites for payment for work done.

[52] No doubt there are many instances where it will be necessary to imply into a contract an obligation on the part of a party, or a certifier, to behave in a reasonable, independent or other generally acceptable manner (Leyland & Co v Cia Panamena Europea Navigacion (supra), per Scott LJ at 124 (albeit not followed in the House of Lords); Perini Corporation v Commonwealth of Australia (supra) per Macfarlan J at 108; Gordon District Council v Wimpey Homes Holdings (supra)). In this case, however, I can see no basis for imposing an obligation to issue an Instruction under the contract where the contract otherwise seems to intend that such issuing can be done only in pursuance of a unilateral power; albeit one which, when exercised, creates mutual obligations. If the pursuers under this contract considered that what they were being asked to do was not covered by the original contract, and hence could not command an obligation of payment, their remedy was not to do it in the absence of a written Instruction. It follows from the above that there is no relevant case of "misadministration" by failure to issue an Instruction and I will therefore exclude from probation the averments relating to that case. I will also restrict the second conclusion to the general sum of one million pounds, which seems to be above the level of the claim leaving aside that for "misadministration" (and see Water Treatment infra).

[53] The claim in relation to the creation of the water treatment system bears certain similarities in background fact to that concerning the peat removal in that, in relation to both, the pursuers' complaint is basically that this work was not done prior to, or in the early course of, their arrival on site. The route of the legal remedy pursued in connection with each problem area is also similar in so far as the pursuers attempt again to imply a term into the original contract. That is what the pursuers submitted they were trying to do when using the words "implicitly recognised" upon record (see supra). The problem is that the issue of the water treatment system is dealt with by the express terms of the contract, notably Clause E(v)(a) of the Specification. This provides in what seem to be clear and unambiguous terms that the obligation to provide sufficient water treatment facilities during the period of the contract rested upon the contractor, that is to say the pursuers, as did the responsibility for maintaining that system. For that simple reason, there is no basis for implying any additional term into the contract far less one what appears to be the exact opposite of an express term. Of course, the Court is careful to avoid the error of construing the contract in abstract and outwith its factual matrix since, it is said, the meaning or the words of a document so construed may not be what the words would mean to the informed reasonable man (Investors Compensation Scheme v West Bromwich Building Society (supra), per Lord Hoffman at 913, followed in Bank of Scotland v Dunedin Property 1998 SC 658). However, looking at the background to this contract as averred by the pursuers, it is not possible to construe the express terms of the contract as meaning the exact opposite of what they say. For these reasons, I consider that the pursuers' case regarding an obligation upon the defenders to provide a water treatment system is irrelevant and will exclude the relative averments from probation.

[54] Accordingly, I will sustain the defenders' first plea in law to the principal action to the extent of excluding from probation: (a) in the fifth article of condescendence, the words from "Having regard ..." at page 28 B - C of the Closed Record to "... breaching the same" at 28 E - F; (b) in the tenth article of condescendence, (i) the words from the start of the article to "... breaching said consent" at 70 D - E; (ii) the words from "The defender's said ..." at 70 F - G to "... as hereinbefore condescended upon." at 72 B; and (iii) the words from "Explained and averred ..." at 72 B - C to the end of the article; and (c) in the twenty first article of condescendence, the words from "Further as a result ..." at 106 C - D to "... (Scotland) Acts" at 130 C - D. I will restrict the sum second concluded for to one million pounds. Quoad ultra, I will allow a proof before answer on the averments in the principal action and the counterclaim.