Scottish Court of Session Decisions

"The pursuer initiated further proceedings in the Industrial Tribunal on 2 December 1997 averring unfair dismissal arising from the defenders' termination of his employment. Said proceedings were settled in or about June 1998 by payment of compensation at the statutory maximum by the defenders to the pursuer".

"The pursuer's claim of unfair dismissal was settled by negotiation under the auspices of ACAS. Prior to the settlement being embodied in the COT3, there had been negotiations between the parties' Solicitors, namely Miller Samuel & Co, for the pursuer and Mace & Jones for the defenders. The Solicitors for the pursuer raised the issue of the provision of a reference in these negotiations. Their position was that the pursuer's claim was worth £25,000 or more on the basis that any claim would include a payment of damages for loss occasioned by the giving of a poor reference. The Solicitors for the defenders refused to increase the offer of £11,720 which had been made. By letter dated 13 May 1998 the Solicitors for the defenders wrote to Miller Samuel & Co, restating the offer of £11,720. Further discussions took place between the respective Solicitors concerning said offer and in particular whether the defenders would be prepared to grant a reference to the effect that the pursuer was a 'fit and proper person'. In particular, there was discussion between Mr Hatfield, the defenders' Solicitor and Mr P. Kelly, the pursuer's Solicitor about the terms of a reference at 10.30am on 14 May 1998 lasting 9 minutes. The defenders determined that they could not do so. By letter dated 14 May 1998 the Solicitors for the defenders wrote to Miller Samuel & Co enclosing a copy of the reference given to D.B.S. Financial Management and offered to incorporate a reference in terms set out therein in any future references provided by the defenders. By facsimile transmission dated 15 May 1998 the pursuer's Solicitors accepted the offer contained in the letter of 13 May. Said letters dated 13, 14 and 15 May 1998 are referred to for their whole terms which are held to be incorporated herein brevitatis causa. The pursuer did not insert any words into the terms of the settlement to exclude his claim for a reference from being incorporated in the "all claims" settlement notwithstanding the issue had been raised on 14 May. The pursuer is called upon to state what steps, if any, he took to ensure that his claim for a reference remained open to him. He is called upon to state whether he saw and checked the terms of the COT3. He is called upon to state who signed the COT3 on his behalf. The defenders concluded that the pursuer did not wish to take issue with the terms of the reference which they had been providing. The terms of settlement are contained in a COT3 Form, a copy of which is produced herewith and referred to for its full terms brevitatis causa. The form narrates at Paragraph 1 '.... The Respondent will pay ...in full and final settlement of all claims that the applicant may have against the Respondent ....arising out of his contract of employment or the termination thereof.'".

"With reference to the defenders' averments in answer, the terms of the COT3 Form are admitted. Admitted that prior to the settlement being embodied in the COT3, there had been negotiations between the parties' Solicitors, namely Miller Samuel & Co, for the pursuer and Mace & Jones for the defenders. Admitted that the COT3 Form was signed on behalf of the pursuer on 22 May 1998. Admitted that the defenders paid the agreed sum to the pursuer. The senders and recipients of the said letters of 13, 14 and 15 May 1998 are admitted. The terms of the said letters of 13, 14 and 15 May 1998 as specified in the said letters are admitted, beyond which no admission is made. Quoad ultra the defenders' averments in answer are denied, except insofar as coinciding herewith. Explained and averred that the agreement to settle the Industrial Tribunal proceedings is contained within the letter of 13^th and a verbal acceptance thereof through ACAS. By letter sent by facsimile transmission on 15 May, 1998 the pursuer's Solicitors intimated acceptance of the offer of the defenders set out in terms of the defenders' Solicitor's letter of 13 May, although, as demonstrated by the letter from Mace & Jones dated 15 May 1998, it had already been accepted verbally and the defenders' proposed terms of settlement set out in the letter of 13 May were to be incorporated into the COT3 agreement. The letter of 13 May related solely to the payment of the sum of £11,720 and the disposal of the pursuer's application to the Industrial Tribunal. It purported to be an extra-judicial tender relating to the Industrial Tribunal proceedings. It offered to settle at the maximum sum that the pursuer could obtain for his claim before the Industrial Tribunal. The letter of 13 May, 1998 indicated that it would be argued by the defenders to the Tribunal, in the light of the fact that the sum offered was the maximum obtainable, that to proceed with the claim would be vexatious. The sum of £11,720 offered was therefore calculated on the basis of being the maximum sum that the pursuer could obtain. The extent of discharge was related to the claims settled. The relevant Applications to the Industrial Tribunal stated claims for both 'Unfair Dismissal' and 'Breach of Contract'. Further the pursuer had threatened to sue the defenders in a Civil Court for breach of contract arising from the termination of his employment. In any event, if necessary to give further content to the reference to contractual claims, the reference to 'arising out of contract' could reasonably be understood to relate to claims for wages and notice periods which would then have been known about and could have been pursued before the Industrial Tribunal. The terms of discharge were proposed before the pursuer had even seen the reference sent by the defenders to DBS Financial Management. The letter of 13 May 1998 made no reference to 'references'. The discharge when proposed on 13 May 1998 cannot have been intended to relate to any potential claim of which the pursuer was not at that time aware. The pursuer received a copy of the letters of Mace & Jones of 13 May and 14 May, 1998, together with enclosures, from Miller Samuel & Co late on 14 May 1998. The receipt of the enclosures accompanying the letter of Mace & Jones of 14 May, 1998 was the first intimation to the pursuer of the terms of the reference that had been provided by the defenders to DBS Financial Management on 11 December 1997 and of any proposal by the defenders of an alternative form of wording for a future reference. Both forms of wording contained the assertions relating to breach of trust and confidence hereinafter condescended upon. Both the original and alternative forms of wording were unacceptable to the pursuer. The whole terms of settlement agreed between the parties of the Industrial Tribunal proceedings by the letter of 13^th and a verbal acceptance thereof through ACAS did not include within their scope any agreement in relation to the terms of a reference. There was no agreement to include within the settlement the issue of the provision of references in general terms. There was no agreement to include any claim of the pursuer in relation to the terms of any reference provided. The sum accepted in settlement did not refer to settlement of claims arising from references provided by the defenders. The terms of the Release Clause within Clause 1 of the COT3 document were limited to the scope of the action before the Industrial Tribunal. The intention of the parties in the Release Clause was to provide for full and final settlement of all claims arising out of the matter in dispute, being the propriety of the dismissal of the pursuer from the employment of the defenders, whether based on unfair dismissal legislation or in contract and, if any further content is necessary regarding the reference to contractual claims, all claims which could have been brought within the proceedings then existing such as wages claims, which by their nature would have been known about by the pursuer. There was no intention of the parties to include within the Release Clause any claim relating to references. The inclusion of such a claim within the Release Clause was not within their contemplation as of the granting of the release. The Release Clause within Clause 1 of the COT3 form was granted in the context of Clause 2 of the said Form, which stated 'The Applicant will withdraw his application to the Industrial Tribunal'. Further explained and averred with reference to the letter from Mace & Jones dated 14 May, 1998 that the pursuer saw the letter late on the said date. The letter of 14 May, 1998 was sent by Mace & Jones to Miller Samuel & Co by fax timed 3.35pm on the said date. Miller Samuel & Co then faxed the letter to the pursuer, being timed at around 3.55pm on the said date. The pursuer was advised by his Solicitor that he had to settle the Industrial Tribunal Claim in light of the informal tender contained in the letter dated 13 May. He was told that he could not force the terms of a reference from the defenders. The pursuer checked with ACAS as to whether he could force a reference in acceptable terms from the defenders in the Tribunal proceedings. He was informed by ACAS that he could not. He thereafter indicated acceptance of the offer of 13 May 1998, with no reference to or acceptance of any later offer of a form of reference contained with the letter of Mace & Jones of 14 May. Further explained and averred that the defenders were aware that the pursuer had seen the actual terms of the reference given to DBS Financial Management only late on 14 May 1998. They were aware that he had no reasonable time to consider the extent to which he had any claim arising therefrom. The parties cannot reasonably have intended that the terms of the Discharge proposed on 13 May 1998, being before the pursuer could have been aware of a claim relating to references, would discharge such a potentially valuable claim for no consideration, with no reasonable time for the pursuer to consider, investigate and take advice thereon. Furthermore, the extra-judicial tender of 13 May, 1998 would have been ineffective for its intended purpose if it appended an extra condition that such a claim for damages was also to be discharged. Further explained and averred that the terms of the Discharge cannot reasonably have been intended to be read in a literal sense. The parties did not for example intend to exclude claims of which the parties were as yet unaware. Nor did they intend claims such as those for personal injuries suffered in the course of employment. The context shows that what was being settled was the scope of claims that were being or were known about and could have been pursued within the then current Industrial Tribunal Proceedings. Separatim, the Discharge, even if construed literally, does not exclude delictual claims other than arising from the termination of the pursuer's employment. It does not exclude the present claim so far as brought in delict. With reference to the defenders' calls, the COT3 was agreed on behalf of the pursuer by Miller Samuel & Co. Payment had already been made by the defenders. The COT3 reflected, as could have been expected, the terms of the defenders' informal tender dated 13 May, 1998. It was signed by Miller Samuel & Co on the pursuer's behalf. It did not in the circumstances enter into the pursuer's thoughts that the settlement excluded a claim such as the present. Therefore, he could not have been expected in the circumstances to take steps to restrict the terms of settlement as suggested by the defenders".

"There is one principle of construction to which other rules are subsidiary. A contract is construed by considering the whole express terms of the contract and any admissible surrounding circumstances. The issue is, what do the words used mean? The suggested meaning of the words must be considered in the context of the other words in the contract, and the circumstances in which the contract was made".

"Quite consistently with that I think you may, while taking the words of the agreement, 'look at the surrounding circumstances,' as Lord Ormidale expresses it, and see what was the intention. You do not get at the intention as a fact, as Sir James Wigram in his Treatise on Extrinsic Evidence calls it, but you see what is the intention expressed in the words used as they were with regard to the particular circumstances and facts with regard to which they were used. The intention will then be got at by looking at what the words mean in that way, and doing that is perfectly legitimate".

"There were prolonged negotiations between solicitors, with exchanges of draft clauses, ultimately emerging in clause 2 of the agreement. The reason for not admitting evidence of these exchanges is not a technical one or even mainly one of convenience, (though the attempt to admit it did greatly prolong the case and add to its expense). It is simply that such evidence is unhelpful. By the nature of things, where negotiations are difficult, the parties' positions, with each passing letter, are changing and until the final agreement, though converging, still divergent. It is only the final document which records a consensus".

"In my opinion, then, evidence of negotiations, or of the parties' intentions, and a fortiori of Dr Simmonds' intentions, ought not to be received, and evidence should be restricted to evidence of the factual background known to the parties at or before the date of the contract, including evidence of the 'genesis' and objectively the 'aim' of the transaction".

"In my opinion the issue which has arisen between the parties in this case requires that reference should be made to the previous correspondence in order to resolve it. This is because the essential point which is in dispute is not the meaning of the words and phrases used in the limitation agreement but the circumstances in which it was intended to apply".

"The purpose of such evidence is not to modify the contract but to apply it to the facts as explained by the extrinsic evidence".

"(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons for practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them".

"The intention of the parties in the Release Clause was to provide for full and final settlement of all claims arising out of the matter in dispute, being the propriety of the dismissal of the pursuer from the employment of the defenders, whether based on unfair dismissal legislation or in contract and, if any further content is necessary regarding the reference to contractual claims, all claims which could have been brought within the proceedings then existing such as wages claims, which by their nature would have been known about by the pursuer".

"Further explained and averred that the terms of the Discharge cannot reasonably have been intended to be read in a literal sense. The parties did not for example intend to exclude claims of which the parties were as yet unaware. Nor did they intend claims such as those for personal injuries suffered in the course of employment. The context shows that what was being settled was the scope of the claims that were being or were known about and could have been pursued within the then current Industrial Tribunal Proceedings".

"The correspondence shows that the whole point of the discussions at this stage was the amount of the set off by way of damages for overrun against the amount to be paid to the defenders for carrying out and completing the contract works. There is no hint here of any thought having been given to a limit being set to the amount of damages for the defenders' breach of contract generally or, to relate the matter more precisely to the issue raised in this case, as to whether there should be a limit for the defenders' liability in damages in the event of a determination of the sub-contract under cl.10".

"But in the end of the day the real issue in this case is not about the meaning of the words used in the limitation agreement or a lack of clarity in it, but as to the context in which it was entered into".

"As these authorities demonstrate, the rule which excludes evidence of prior communings as an aid to interpretation of a concluded contract is well-established and salutary. The rationale of the rule shows, however, that it has no application when the evidence of the parties' discussions is being considered, not in order to provide a gloss on the terms of the contract, but rather to establish the parties' knowledge of the circumstances with reference to which they used the words in the contract."

"The question then arises as to the nature of the surrounding circumstances which the Court is entitled to take into account. It is clear, on the authorities, that evidence of prior negotiations and evidence of the subjective intention of either of the parties will not be admissible. However, the Court can have regard to 'facts which both parties would have had in mind and known that the other had in mind at the time when the contract was made' (Scottish Power plc v Britoil (Exploration) per Staughton, L.J.). The limits to be placed on the evidence of surrounding circumstances which will be admissible in any particular case may be difficult to define and in the present case it seems to me that certain of the evidence led by the Bank at the proof went rather beyond what was properly admissible as evidence of the surrounding circumstances."

"The defenders argued that the Court could not derive any help in construction from the pre-contract discussions. These were of the nature of negotiations and were superseded by the final Loan Stock Agreement. An attempt was made to gain support for this from the analyses of Lord Wilberforce and Lord Hoffmann which I have already referred to. However I do not think that their Lordships were trying to exclude from the construction process communications which themselves bear on the factual matrix against which the parties were contracting. What, of course, cannot be prayed in aid are pre-contract communications which reflect the parties' aspirations and intentions at the time when they were made. In Bovis Construction (Scotland) v Whatlings Construction before the First Division it was made clear that the correspondence preceding the contract could be looked at to determine the circumstances in which a provision in the contract was intended to apply. This is consistent with long established Scottish authority. Thus in Mackenzie v Liddell it was held that telegrams preceding the contract could be looked at as proof of surrounding circumstances although not as proof of the parties' meaning itself".

"I consider first the proper construction of this release. In construing this provision, as any other contractual provision, the object of the court is to give effect to what the contracting parties intended. To ascertain the intention of the parties the court reads the terms of the contract as a whole, giving the words used their natural and ordinary meaning in the context of the agreement, the parties' relationship and all the relevant facts surrounding the transaction so far as known to the parties. To ascertain the parties' intentions the court does not of course inquire into the parties' subjective states of mind but makes an objective judgment based on the materials already identified. The general principles summarised by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 W.L.R.896, 912-913 apply in a case such as this".

"On the face of it, if one were to take a strict or literal approach, the words of the agreement seem to include every claim of any kind, whether then identifiable or not, which Mr Naeem might have in any capacity against the bank at any time, then or in the future. But such a comprehensive disclaimer would, in my view, be a remarkable thing for him to be giving, and indeed it is not suggested that its scope does extend to such a universality. It is accepted that it does not relate to sums which Mr Naeem might have in any account which he had with the bank. So this is not a case where the plain meaning of the words can be taken as conclusive. There is then a real problem as to the precise scope of the disclaimer".

"It did not in the circumstances even enter the pursuer's thoughts that the settlement excluded a claim such as the present"