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Hamilton & Ors v. Allied Domeq Plc [2005] ScotCS CSIH_74 (01 November 2005)
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SECOND DIVISION, INNER HOUSE, COURT OF SESSION |
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Lord Justice Clerk Lord Hamilton Lord Marnoch |
[2005CSIH74] A283/01 OPINION OF THE LORD JUSTICE CLERK in RECLAIMING MOTION in the cause JOHN STEWART HAMILTON and OTHERS Pursuers and Respondents; against ALLIED DOMECQ plc Defenders and Reclaimers: _______ |
Act: Hodge, QC (first hearing), Davidson, QC (continued hearing), Clark; Simpson & Marwick WS (Pursuers and Respondents)
Alt: Keen QC, Fairley; Maclay Murray & Spens (Defenders and Reclaimers)
1 November 2005
[1] I agree with the opinions that are to be delivered by Lord Hamilton and Lord Marnoch. [2] When a claim for damages is based upon the making of a misrepresentation, it is incumbent on the pursuer, in my view, to provide clear evidence as to the terms of the misrepresentation, the time and place at which it was made and the context in which it was made. Mr Hamilton's evidence is critical to the respondents' case. I cannot see how it provides a proper basis for the Lord Ordinary's finding as to the terms of the misrepresentation which he holds Mr Beatty to have made at the Blackford meeting. I have the impression that in the pre-contract negotiations, Mr Hamilton did not give to his on-trade strategy the importance that he gave to it at the proof. It seems to me that if he had then given his strategy that degree of importance, he would have insisted that the pursuance of it should be a condition of the Agreement. Furthermore, when he was asked to identify the causes of the company's failure he did not cite the reclaimer's marketing strategy as one of them. He merely said that the failure to penetrate the Britvic network had been a matter that caused him "concern." [3] At all events, I am satisfied that the respondents have failed to substantiate the making of the misrepresentation on which the whole action is founded. The reasons that Lord Hamilton and Lord Marnoch give for granting the reclaiming motion are sufficient to dispose of this case. [4] The further question whether the respondents have proved a causal connection between the misrepresentation alleged and the losses on which they found does not arise. I have the impression that that question was not explored on behalf of the reclaimers as fully as it might have been. [5] There is no material dispute as to the history of events from the date of the Agreement down to the demise of Gleneagles. On the date of the Agreement the first respondent was appointed managing director of Gleneagles, and was joined on the board by two directors of Lyons Tetley Limited. Soon after, the respondents had an Information Memorandum issued with a view to the sale of 12% of the second respondent's shareholding. The sale did not go ahead, for reasons that were not brought out at the proof. [6] In February 1993, about 3 months after the Agreement, Mr Beatty retired. In the same month, the reclaimers, through another subsidiary, bought Ballygowan, the leading brand in the Irish water market. Ballygowan had 70% of the Irish market and 3% of the much larger UK market. In the UK market it was particularly strong in the on-trade where it already had an exclusive distribution arrangement with Britvic. At this stage, Gleneagles was still about a year away from commercial production and marketing. [7] In about August 1993, David Potter was seconded to Gleneagles from Lyons Tetley as commercial manager. His brief was to promote the product mainly in the off-trade initially. The on-trade was to wait until volume had been built up in the off-trade. This was contrary to the first respondent's strategy. He wished to get access to the on-trade through Britvic and expected the reclaimers to help in achieving that. [8] In 1994 the reclaimers decided to focus on their spirits and retail activities and thereafter sold all their UK businesses in the food manufacturing sector other than Gleneagles. An internal document dated January 1994, containing a proposal that Gleneagles, Ballygowan and Highland Spring should be combined, questioned whether Mr Beatty's enthusiasm for the Gleneagles project had survived his retirement. [9] It was not until March 1994 that Gleneagles was available on the market. In about July 1994, Mr Potter succeeded in obtaining Marks & Spencer as the first major customer. Shortly thereafter, he returned to Lyons Tetley. [10] Mr Potter was succeeded by Lawrence Dall. Mr Dall obtained agreements with a number of off-trade outlets. In June 1995 there was a test launch of Gleneagles in the south of England backed by a television advertising campaign. The results were disappointing. They did not justify further advertising of that kind. [11] Own-label sales of Gleneagles were virtually non-existent. The Lyons Tetley directors were not in favour of developing own-label business for fear that the supermarkets would demand own-label business in Lyons Tetley's tea products. Any own-label business therefore was to be secondary and only to use up any surplus capacity. [12] Meanwhile, all attempts by the first respondent, Mr Potter and Mr Dall to gain access to Britvic's distribution network, or any other route to the on-trade, came to nothing. One contract for distribution to small convenience outlets proved uneconomic. [13] In the period from January to May 1995 the first respondent repeatedly raised the question of Britvic at board meetings with particular reference to the exclusivity arrangement between Britvic and Ballygowan that prevented Britvic from distributing Gleneagles. During that period the reclaimers were undergoing a major re-organisation. [14] By late summer 1995, sales abroad had had limited success, but trading losses continued to mount. In the 18 months to 19 August 1995, trading losses were £2.6m. In November 1995, Peter McFarlane, the reclaimers' finance director and a board member of J Lyons, asked the first respondent to move to a non-executive role. He apologised for the reclaimers' not having "played the game" with the first respondent, but said that he wished to appoint someone from the reclaimers' organisation as managing director. According to the Lord Ordinary, the first respondent agreed to this proposal if it was the way for the reclaimers to "honour their promise" in relation to Britvic. There is no evidence of any such promise. [15] In December 1995 Christopher Zanetti replaced the first respondent as managing director. In April 1996 Mr Dall left Gleneagles. In July 1996 Mr McFarlane asked the first respondent to resign from the board. At about this time the reclaimers attempted to buy out, or at least significantly dilute, the respondents' shareholdings. On 30 July 1996 Mr McFarlane wrote to the first respondent saying that unless that were achieved, he would find it hard to recommend that the business should continue. He offered the respondents £300,000 for their shares. The parties were unable to agree a price. In August 1996, the first respondent was removed from the board. [16] Mr Zanetti substantially reduced the workforce and changed the marketing strategy. He improved the company's performance markedly by a combination of own-label marketing and by various means of penetration of the on-trade. In summer 1996, he obtained an own-label contract with Safeway; but at the end of 1996 the Marks & Spencer own-label contract, which was losing money, was terminated. The overseas contracts were also uneconomic and were terminated. [17] Mr. Zanetti, although aware of the first respondent's views, accepted that he would not get access to the Britvic network. He sought to penetrate the on-trade through regional wholesalers. He changed the design of the bottles and developed other water products. Mr Zanetti's evidence, which the Lord Ordinary readily accepted, was that it was sensible to move into the on-trade and use that as a springboard to move into the off-trade, as Highland Spring had done. It was more difficult to develop a high quality product in the off-trade first without also developing the on-trade. Moreover, to penetrate the off-trade it was essential to advertise and market the brand on a considerable scale whereas the brand could be promoted without heavy advertising by means of penetrating the on-trade. If it had been possible to have access to Britvic, that would have been the springboard from which to establish Gleneagles' business. [18] In the year ended 18 August 1996 the on-trade accounted for over 28% of Gleneagles' sales, and trading losses were reduced to about £1.1m. In the 10 months to 30 June 1997 the on-trade accounted for nearly 44% of sales. Own-label and on-trade sales together accounted for 80% of sales and trading losses were a little under £1m. Turnover increased from £305,000 in the 18 months to August 1995 to £508,000 in the year to 31 August 1997. In the same period, the gross profit increased from £71,000 to £306,000 and the operating loss was reduced from £3,225,000 to £1,493,000. The situation continued to improve in the 3 months to November 1997, the latest date for which figures were available. As the Lord Ordinary finds, the company was moving in the right direction. [19] However, in 1997, since all of their other UK businesses in the food manufacturing sector had already been sold off, and since Gleneagles was still making losses, the reclaimers decided to market their investment in the company. In July 1997 they had an Information Memorandum prepared for that purpose. That attempt failed. In February 1998 Gleneagles was put into administration. On 30 October 1998 interim liquidators were appointed. [20] The Lord Ordinary has found that the present value of the respondents' shares in Gleneagles is nil and I infer that that was the position from the date of the administration to the date of the proof. [21] The Lord Ordinary carried out a detailed post mortem on Gleneagles; but I think that he did so in a rather narrow context, largely because of the line of defence. Mrs Swanson, the solicitor advocate for the reclaimers, dealt with the question on the basis that Gleneagles' downfall was caused by a number of factors that were unrelated to the alleged misrepresentation, namely production problems such as faulty labelling, scuffing and scratching of bottles and unsatisfactory seals, a contamination scare affecting a baby water product marketed by Gleneagles and the finding of algae in a bottle of Gleneagles sold by Tesco. The Lord Ordinary found that these problems could not be said, individually or cumulatively, to have been a material cause of the company's failure. [22] The Lord Ordinary considered two other possible explanations, namely the initial strategy and the Britvic problem. He found that Mr Zanetti's strategy, which effected an improvement, was essentially the strategy which he held Mr Beatty to have represented to the first respondent. He considered that it was impossible to avoid the conclusion that if that strategy had been followed it would have made a major difference to the company's fortunes. In his view, that difference would have been all the greater if, with the reclaimers' assistance, Gleneagles had gained access to Britvic. Nevertheless, even without that, if the reclaimers had made available their distribution arrangements and facilities for supply to the on-trade in other ways, the difference would have been substantial. The Lord Ordinary did not speculate as to what the extent of the difference would have been. This was his conclusion:"So while there is no doubt a multiplicity of causes, great and small, which led to the failure of the company, the failure to follow the strategy which Mr Hamilton had been led to believe would be followed was in my opinion at least a major, if not the major, contributing cause" (para [78]).
"I have found that [Gleneagles] failure was caused or at least materially contributed to by the defenders' failure to make their distribution arrangements and facilities for supply to the on-trade available to the company. Having made those findings, it appears to me that the failure of the company, and therefore the pursuers' loss, are causatively connected with Mr Beatty's misrepresentation. He represented that the defenders' strategy was to make their distribution arrangements and facilities for supply to the on-trade available to Gleneagles. But in fact it was not and they did not implement it. That caused or at least materially contributed to Gleneagles' failure and as a result the pursuers suffered loss. In my opinion their loss was a natural and direct, reasonably foreseeable consequence of Mr Beatty's misrepresentation. There was no dispute that in that event the defenders were vicariously liable for it" (para [84]).
He then considered the measure of damages. Having referred to Esso Petroleum Co. Limited v Mardon ([1976] 1 QB 801, Lord Denning MR at pp 820-821), he said:
"In the present case the pursuers were induced by negligent misrepresentation to enter into the agreement with the defenders. They would not have entered into it but for the misrepresentation. As a result they have lost all the capital that they had in the company. For such loss they are in my opinion entitled to recover damages. They say that but for being induced to enter the agreement they would have sold the company in which they owned all the shares for £3,500,010. That is the sum they seek as damages, together with interest from the date of citation (20 January 1999). It is therefore a more straightforward situation than was the case in Esso Petroleum Co Ltd v Mardon" (para [86]).
Allowing for imponderables and for the lack of certainty that the respondents would have been paid £3.5m for their shares by Vittel, with whom they had been in discussions, the Lord Ordinary took a broad approach and concluded that a fair value for the respondents' shares at the date of the Agreement was £3m. Then he came to the critical conclusion:
"As a result of the administration order and subsequent liquidation of Gleneagles the present value of the pursuers' shares is nil. The pursuers have therefore lost £3m reflecting the number of shares they respectively held, the first pursuer's loss is £1m, the second pursuers' £2m ... " (para [91]).
" ... Mr Beatty led [the first respondent] and Mr Douglas to believe that he agreed with [the first respondent] that Gleneagles should try to penetrate the on-trade from the beginning as well as the off-trade and that the [reclaimers'] distribution arrangements and facilities for both the on- and off-trades would be made available to Gleneagles" (para [45]);
or that
" ... Mr Beatty gave [the first respondent] to believe at this meeting on 27 May that, although there were obstacles in the way and it could not be guaranteed, it was likely that with the [reclaimers'] help Gleneagles would gain access to the on-trade through Britvic and their distribution network in the same way as applied to other soft drinks which the [reclaimers] produced" (para [49]).
and that the immediate effect of the representation was that the respondents entered into the Agreement.
[27] In my view, the history of subsequent events, which I have summarised, raises certain questions of causation that, as a result of the line of defence taken on behalf of the reclaimers, were not put in issue at the proof. [28] The major point of difficulty on this aspect of the case is that the claim is based on a loss allegedly sustained in 1998 in consequence of the making of the Agreement in 1992. No evidence was led that the respondents' shares were worth any less on the conclusion of the Agreement than they had been worth before it. On the contrary, soon after the Agreement, the respondents took steps to market the 12% shareholding that the second respondents were entitled under the agreement to sell. They did so on the basis, inter alia, that the reclaimers saw their investment in 63% of the company as a strategic move. There was no evidence of any valuation of the shares at any date between the conclusion of the Agreement and the ultimate failure of the company. The case is pled on the basis that "the present value of the pursuers' said shares is nil" (Cond 5). Counsel for the respondents submitted that the loss occurred upon the insolvency of Gleneagles and not at any earlier date. That approach implies, in my opinion, that the conclusion of the Agreement set in train a sequence of events that led inevitably to the insolvency. [29] In my opinion, the misrepresentation that, on the present hypothesis, induced the making of the Agreement was only a representation by Mr Beatty of the opinion that he then held as to his preferred marketing strategy, and as to the intentions of the reclaimers, for whom he was authorised to speak, as to the distribution of the product. It was not a representation that the proposed marketing and distribution strategy would be pursued regardless of all supervening changes in circumstances. A person who enters into an agreement in reliance on a representation of the kind attributed to Mr Beatty must, I think, be held know that the present opinion and intention that are represented to him may later be changed. [30] The history of events between the Agreement and the insolvency of Gleneagles suggests several events that could well have broken any chain of causation leading from the Agreement to the respondents' losses. Mr Beatty was the driving force behind the Gleneagles project; but he left the company about three months after the Agreement. It appears that his enthusiasm for the project may not have been shared by his successors. At about the time of Mr Beatty's retirement, the reclaimers acquired Ballygowan. That was a major established mineral water brand with particular strength in the on-trade and with an exclusive distribution agreement already in place with Britvic. That effectively excluded Gleneagles from Britvic and therefore from most of the on-trade. At that stage Gleneagles had not gone into production. We have not been referred to any evidence that would suggest that that transaction was in the contemplation of Mr Beatty or the reclaimers when Mr Beatty made the misrepresentation complained of. [31] On the completion of the Ballygowan transaction, the respondents must have known that the strategy represented to them by Mr Beatty was, if not impracticable, at least more difficult to achieve. Nevertheless, they chose to remain as shareholders in Gleneagles. In 1994 there came another significant event, far removed, it would seem, from the contemplation of Mr Beatty in 1992, namely the reclaimers' decision to sell off their UK food manufacturing businesses other than Gleneagles. [32] Gleneagles was never a successful brand. It made operating losses throughout its life. It was unsuccessfully test marketed in June 1995 and it had an indifferent performance in the off-trade and in foreign sales. Notwithstanding the improvement in trading that Mr Zanetti effected in 1996-1997, the reclaimers decided in 1997 to dispose of their shareholding in Gleneagles. Their failure to do so and Gleneagles' continued unprofitability led to the insolvency. [33] As a director of Gleneagles until August 1996, the first respondent had first-hand knowledge of all developments in the affairs of the company during that period. There seems to have been no evidence that the respondents were locked in as shareholders (cf Esso Petroleum Co Ltd v Mardon, supra; Smith New Court Securities v Citibank NA, [1997] AC 254). As early as the end of 1992 they took steps to sell part of the second respondent's shareholding. In about July 1996, they had the opportunity to sell out to the reclaimers, but the parties were unable to agree a price. I infer that the respondents preferred to remain as shareholders rather than take the price that was offered to them. By choosing to remain as shareholders, they were of course at the mercy of events both in the boardroom and in the market place. [34] The history that I have summarised could, in my view, have raised significant questions of fact and law on the issue of causation of loss and the related issue of mitigation of loss. Although these questions were discussed at the hearing before us, they were not raised in the reclaimers' pleadings and were not focused in the submissions made to the Lord Ordinary. The only point on causation of loss that the solicitor advocate for the reclaimers took was that the failure of Gleneagles was caused by the product problems to which I have referred. It was in that context that she referred to South Australia Asset Management Corporation v York Montague Ltd ([1997] AC 191). She also referred to Esso Petroleum Co Ltd v Mardon (supra), but only by way of an attempted distinction from the present case that the Lord Ordinary held was a distinction without a difference. [35] In my opinion, the acquisition of Ballygowan, Mr Potter's change of strategy, changes in Board policy, changes in market conditions, the unpopularity of the product and the failure of the respondents to sell out when it was clear that Mr Beatty's representation would not be fulfilled were all matters of possible significance on the questions of causation and mitigation of loss. But since they were neither pled nor raised before the Lord Ordinary, it would not be appropriate that we should reach our own conclusions on any of them. [36] I propose that, for the reasons given by your Lordships, we should allow the reclaiming motion, recall the interlocutor of the Lord Ordinary, sustain pleas in law 2 and 3 for the reclaimers and assoilzie the reclaimers from the conclusions of the Summons.
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SECOND DIVISION, INNER HOUSE, COURT OF SESSION |
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Lord Justice Clerk Lord Hamilton Lord Marnoch
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[2005CSIH74] A283/01 OPINION OF LORD HAMILTON in RECLAIMING MOTION in the cause JOHN STEWART HAMILTON and OTHERS Pursuers and Respondents; against ALLIED DOMECQ plc Defenders and Reclaimers: _______ |
Act: Hodge, QC (first hearing), Davidson, QC (continued hearing), Clark; Simpson & Marwick WS (Pursuers and Respondents)
Alt: Keen QC, Fairley; Maclay Murray & Spens (Defenders and Reclaimers
1 November 2005
[37] The first pursuer and respondent ("Mr. Hamilton") had, prior to the events with which this action is concerned, had extensive experience of the mineral (or spring) water industry, both in Scotland and elsewhere. In about 1979 he met a Mr. Kalo and subsequently entered into certain business associations with him. The second pursuer and respondent Stebbings Inc., a company incorporated in Panama, ("Stebbings") was formed, its shareholding being held to the extent of two thirds by Mr. Kalo and one third by Mr. Hamilton. [38] A company ultimately styled Gleneagles Spring Waters Company Limited ("Gleneagles") was incorporated in 1985. It owned premises in the village of Blackford in Perthshire and had certain water rights there. Prior to 1992 Mr. Hamilton and Stebbings acquired between them the whole share capital of Gleneagles, in the proportions of one third and two thirds respectively. Associated with that acquisition were various arrangements, including a water supply agreement with the proprietors of the adjacent Gleneagles estate on which were located certain springs which Mr. Hamilton conceived could provide a commercially viable supply of good quality spring water. Water from these sources was marketed by Gleneagles under the registered trademark "Gleneagles". The quantity marketed was, however, relatively small. To develop the product successfully it was essential, Mr. Hamilton perceived, that there be put in place appropriate arrangements for its distribution. Three options were identified. The first was to sell the share capital of Gleneagles to a company with an existing distribution network. The second was to enter into a distribution agreement with another company having such a network. The third was to secure investment in Gleneagles by a company having such a network. [39] Both the first and the second options were explored but, in the short term at least, did not yield fruit. Steps were taken to advance the third option. In the event an agreement, dated 24 November 1992, ("the Subscription Agreement") was ultimately entered into, the effect of which in short was that J. Lyons and Company Limited ("Lyons"), a wholly owned subsidiary of the defenders and reclaimers ("Allied"), subscribed for and purchased shares in Gleneagles to the extent that Lyons became the majority shareholder, Mr. Hamilton and Stebbings, both separately and together, becoming minority shareholders. [40] Prior to the execution of the Subscription Agreement negotiations and discussions had taken place. Mr. Hamilton acted in these matters in his own interest and on behalf of Stebbings. Mr. David Beatty, a director of Allied and, from March 1992 until his retirement in February 1993, Deputy Chairman of Lyons, acted on behalf of Allied. In its pleadings Allied admits that in these matters Mr. Beatty had authority to bind it and to make representations on its behalf. [41] In the event Gleneagles did not prosper. Ultimately (in February 1998) it was put into administration. By then the value of the shareholding of each of Mr. Hamilton and Stebbings was, effectively, nil. In their pleadings they claimed that, as at November 1992, the respective values of these shares were £1,666,670 and £2,333,340. In this action they seek from Allied damages calculated by reference to these differences. [42] The ground of action upon which the pursuers rely is that they have respectively suffered that loss and damage "as a result of fault and negligence of David Beatty in inducing the pursuers to enter into [the Subscription Agreement]" (pleas-in-law 1 and 2). The Lord Ordinary, after proof, sustained these pleas and awarded to each of the pursuers damages calculated by reference to the differences referred to above, modified to a small extent to reflect the imponderables inherent in the valuation of their shares at the date of the Subscription Agreement. Against that interlocutor Allied has reclaimed. [43] As particularised on averment, that fault and negligence was said to lie in the making of a "representation that [Allied's] distribution arrangements and facilities for supply to the on-trade would be made available to Gleneagles." (Condescendence 4, first sentence). [44] The nature of the "on-trade" was explored in evidence and is not disputed. In relation to the market for soft drinks, it constituted supply to the licensed trade in hotels, restaurants and public houses, sometimes known as the HORECA trade (an acronym for hotel, restaurant and catering). It was to be contrasted with the "off-trade", being supply to supermarkets and other grocery and off-licence outlets. These trades were, as the Lord Ordinary found, complementary but distinct. The on-trade was concerned with small units, small bottles, prestigious packing and relatively high prices. The off-trade was concerned with larger units, larger bottles, high volume and very competitive prices. For a new brand, such as Gleneagles mineral water, it was essential, as Mr. Hamilton saw it, that appropriate arrangements for the distribution of the product were put in place. [45] The proof, which included ten days of evidence led before the Lord Ordinary in January and February 2003, was of some complexity. Some months after its completion he issued a detailed Opinion setting out his reasons for the decision at which he had arrived. Although, unsurprisingly, the case had been taken to avizandum at the close of the proof, it seems that the Lord Ordinary, when preparing his Opinion, did not have the advantage of having before him a verbatim transcript of the evidence which had been led. While that is again unsurprising, it may be that, regard being had to the niceties of the evidence on the crucial issues bearing upon liability, he was disadvantaged by having to rely on his manuscript notes. [46] The principal witnesses who spoke to these crucial issues were Mr. Hamilton and Mr. Beatty. The events critically bearing on the issue of alleged misrepresentation occurred in 1992, more than ten years prior to these witnesses being required to testify about them. While some broadly contemporaneous documentation was available, it was of little assistance in relation to crucial matters. The witnesses required to rely very largely on their respective recollections of events more than a decade earlier. [47] The Lord Ordinary in his Opinion (para. [15]) made certain general comments on the witnesses, including Mr. Hamilton and Mr. Beatty, who gave evidence before him. He stated that, from seeing and hearing them give their evidence, he was satisfied that their credibility was not in issue; the question was as to their reliability. With respect to Mr. Hamilton, he made the following general observations:"He was at the centre of events throughout almost the entire period with which this case is concerned. He was the first witness for the pursuers and by far the longest witness in the proof. His evidence lasted three and a half days. It was obviously critical to the pursuers' case. He gave his evidence in a clear and straightforward way. I did not get the impression that he was prone to exaggeration or that due to his obviously deep involvement in these matters he had deluded himself as to what had taken place. He had recently had major surgery and there were times when he was obviously tired. There were passages in his evidence which were not entirely consistent. He was plainly mistaken on one important matter, namely, whether Mr. Beatty was a director of Britvic. But on the whole I accepted his evidence as reliable. Where on particular matters I have not accepted his evidence or have some further observations to make about it I have said so. It was a considerable advantage that he had had his diary and other contemporaneous records as aides-memoire. He was also fully conversant with the documents which had been lodged in process".
I shall return at a later stage to the observations in the penultimate sentence of that passage.
[48] Discussions between Allied on the one hand and the pursuers on the other opened in the spring of 1992. Mr. Hamilton was active in the pursuers' interests from the outset. A Mr. Derek Douglas, who had earlier been engaged by Mr. Hamilton to seek a suitable investor in Gleneagles, also acted on their behalf. At a relatively early stage in the discussions Mr. Beatty became involved in Allied's interest, as did certain other of Allied's less senior executives, including Mr. Stan Walter. The initial meetings between parties were attended by Mr. Hamilton and Mr. Douglas on the one hand and by Mr. Walter on the other. These meetings, which took place in or about March 1992, were conducted against the background of a Business Plan which had been prepared for Gleneagles by Mr. Douglas in December 1991. The Lord Ordinary found that at all of these meetings the question of distribution of the Gleneagles product was discussed, both to the on-trade and to the off-trade. He also found that this "was because distribution was so important. It was the key to penetration of the market" (Lord Ordinary, para. [16]). [49] As the pursuers' case depends critically on an oral representation claimed to have been made to Mr. Hamilton by Mr. Beatty, it will be necessary in due course to consider in detail the evidence adduced before the Lord Ordinary in relation to that matter. It is, however, useful to identify at this stage what that representation is contended to have been. In the pursuers' pleadings it is, as I have said, averred as a representation "that [Allied's] distribution arrangements and facilities for supply to the on-trade would be made available to Gleneagles". It appears that, at the hearing on evidence, Mrs. Swanson, the solicitor advocate then appearing for Allied, hinted, without developing the matter, that the case on misrepresentation which the pursuers' counsel had sought to advance in submission, was not within the scope of the misrepresentation as pled. The Lord Ordinary took the view that it was permissible to construe the pleading as if the alleged misrepresentation read that:"It was [Allied's] strategy that [Allied's] distribution arrangements and facilities for supply to the on-trade would be made available to Gleneagles" (Lord Ordinary para. [47]).
That construction, which in light of the manner in which the proof was without protest conducted, I have no difficulty in accepting as legitimate. It makes clear that the matter of fact which is contended to have been misrepresented is the state of mind, current at the time of the representation, of Allied (as represented by Mr. Beatty) as to its intended future action.
[50] It is not in doubt that, as a matter of law, a misrepresentation of present intention, if made wrongfully (including negligently), may constitute a ground of action. However, for the purposes of resolution of this action, it is necessary to be clear as to the particular content of Allied's allegedly misrepresented state of mind. [51] Before this court it was accepted that the evidence did not identify any precise words constituting the misrepresentation. Its substance, however, was formulated by senior counsel for the pursuers as being that it was Allied's strategy "that on-trade distribution via Britvic and others would be available to Gleneagles simultaneously with off-trade distribution". (I describe below the routes of distribution referred to in that formulation). The simultaneity envisaged in that formulation was simultaneity as at the stage when the Gleneagles product was sought to be "launched" commercially, that is, when it could, following certain physical developments on site, be supplied in appropriate volume to the available market. As junior counsel for the pursuers had earlier put it, the representation was concerned with the "development of the brand". [52] To understand the pursuers' case, at least as ultimately presented, it is necessary to bear in mind the context in which Mr. Hamilton and Mr. Beatty came to communicate one with the other. The pursuers, as represented by Mr. Hamilton, wished in effect to secure a commercial partner who could and would bring to their association a facility for effective exploitation on a large scale of the natural water resources to which Gleneagles had access. There were certain distribution routes which might, depending on a range of factors, be capable at some stage or stages of being used by Allied to facilitate a commercially successful exploitation on a large scale of the Gleneagles water resources. It was a matter of commercial judgment, linked with a practical assessment of the prospects of success of any course or courses of action adopted, as to what strategy in respect of distribution offered the best promise of ultimate success in exploitation of the product. [53] The distribution routes referred to above may be summarised as follows. In 1992 the soft drinks market in the United Kingdom was dominated by two companies, one of which was Britvic Soft Drinks Limited ("Britvic"). The shares in that company were held by a holding company (Britvic Holdings Limited), whose shares in turn were held as to 90% by Britannia Soft Drinks Limited and as to the remaining 10% by PepsiCo Inc. Of the shares in Britannia Soft Drinks Limited, Bass plc held just over 50%, while Allied Breweries Limited (a subsidiary of Allied) and Whitbread plc each held just under 25%. Accordingly, while Allied, through its subsidiary, had an interest in Britvic, it was not a controlling interest. Wider commercial interests meant that the co-operation of the other shareholders of Britvic could not in all matters be assured. Britvic distributed both to the off-trade and to the on-trade. Mr. Hamilton considered access to the distribution arrangements operated by Britvic in relation to the on-trade to be of great importance to the effective distribution of the Gleneagles product. Although Allied's existing (carbonated) soft drinks were distributed through Britvic, there were other routes by which the Gleneagles product might be distributed by Allied to the on-trade. These included distribution through its cider division. Distribution to the off-trade might prospectively be available via Allied's operations in the field of wines and spirits or via its operations in the grocery field. [54] It is, in effect, the pursuers' case that Mr. Hamilton, throughout his dealings with Mr. Beatty, had a clear vision as to the strategy which, if adopted, gave best promise of successful exploitation of the Gleneagles product; that he told Mr. Beatty what that was; that Mr. Beatty orally responded to him in a way which led Mr. Hamilton to believe that Mr. Beatty, as Allied's authorised representative, shared Mr. Hamilton's view as to the appropriate strategy; that neither Mr. Hamilton nor Allied had in fact the intention of adopting such a strategy; that Mr. Beatty accordingly misrepresented Allied's present intention as to the appropriate strategy; that Mr. Beatty expressed himself in a way which constituted a negligent misrepresentation on his part as to Allied's present intention as to strategy; and that, Mr. Hamilton having been misled by that negligent misrepresentation, the pursuers on the faith of it entered into the Subscription Agreement. [55] Before turning to the evidence and to the Lord Ordinary's treatment of it, it is also of importance to identify what in the end was the pursuers' contention as to the particularisation of when, where and in what circumstances the alleged misrepresentation was made. As will become clear, there are certain difficulties about that particularisation but, in the end, the position adopted by senior counsel for the pursuers before this court was that the misrepresentation was made, and was made only, on a single occasion when Mr. Hamilton and Mr. Beatty were present, with others, on the site at Blackford on a date which, it was contended, the Lord Ordinary was on the evidence entitled to hold to have been 27 May 1992. [56] It is of some importance in this context to notice the narrative given in the pursuers' Condescendence of the occasions on which parties' representatives met in the first half of 1992. The importance lies, in my view, not for the purpose of confining consideration of whether the pursuers have proved their case to evidence which accords with that narrative (a confinement which would not, in my view, be appropriate having regard to the way in which the proof was conducted by Allied's solicitor advocate) but for the purpose of understanding how the evidence about such occasions came to be led at the proof. The material passage in the pursuers' pleadings is as follows:"On 31 March [1992] the first pursuer and Derek Douglas attended a meeting at the defenders' head office for the purpose of discussing the matter further. Mr. Beatty instructed his colleague Stan Walters (sic) to attend the meeting. The first pursuer explained that Gleneagles was presently trading on a limited basis, with a pilot plant, and that the second pursuers wished to proceed to full trading. He further explained that he had refused to do so without the involvement of a trade partner with appropriate distribution arrangements. The necessity of effective distribution was discussed. The first pursuer stated that the need for proper access to the on-trade was vital. Mr. Walters explained how Britvic had been set up in order to compete with Schweppes, that Mr. Beatty was on the board of Britannia, and that he represented the defenders' interests in the operation of Britvic. Mr. Walters also advised that Mr. Beatty required that exclusive distribution rights be given to the defenders. It is believed and averred that Mr. Walters reported the matters discussed at the meeting to Mr. Beatty. On or about 6 April 1992 the first pursuer and Derek Douglas and Mr. Walters met again, this time at Gleneagles' premises at Blackford. Mr. Walters again mentioned the distribution arrangements and facilities which the defenders could make available. After further correspondence the first pursuer and Derek Douglas and Mr. Beatty met on 4 May 1992 at the office of the defenders' solicitors. The first pursuer again made it clear that a shareholder who could bring distribution arrangements and facilities, for supply to the on-trade, such as those of Schweppes or Britvic, was needed. Mr. Beatty again (sic) confirmed that the defenders would make available distribution arrangements and facilities."
"[on] 24 November 1992 at the completion meeting for the shareholders' agreement Mr. Beatty again stated that he was making available the defenders' distribution arrangements and facilities to Gleneagles".
" ... I am inclined to accept Mr. Hamilton's earlier evidence that Mr. Beatty was present for part of the time at that meeting. I have no doubt that the question of distribution of the Gleneagles product was discussed".
"David Beatty came up and brought with him Alan Wallwork, who was the company secretary on the Allied Lyons side" (page 143).
That answer was again inconsistent with the pursuers' pleadings which were to the effect that the meeting at Blackford at about this time was attended, on Allied's behalf, by Mr. Walter, no reference being made there to either Mr. Beatty or to Mr. Wallwork. However, when the questioning was pursued, no objection was taken to evidence being elicited as to any discussions at that meeting about the distribution of the product. In the event, Mr. Hamilton's response was "a small amount" on that topic, a more extensive discussion being "interrogation" by Mr. Beatty of Mr. Hamilton as to opportunities, subsequent to the launch of the product in its natural state, of marketing it with a hint of fruit flavouring (pages 145-6). That more extensive discussion, Mr. Hamilton testified, had taken place in a car on the return journey from the Blackford site. Apart from evidence to the effect that at this meeting Mr. Hamilton had alerted Mr. Beatty to the circumstance that the pursuers were also in discussion about a possible deal with a different major soft drinks company, Mr. Hamilton did not testify further in relation to any meeting in early April at Blackford with Mr. Beatty.
[66] Accordingly, on the face of Mr. Hamilton's evidence at this stage, any meeting at Blackford was of little, if any, significance for the purpose of establishing the pursuers' case of misrepresentation. [67] In his examination of Mr. Hamilton, the pursuers' counsel then, unsurprisingly, questioned him about the averred meeting at the office of Allied's solicitors. Mr. Hamilton testified that such a meeting took place in about May and that it had been attended by himself and Mr. Douglas on behalf of the pursuers and by Mr. Beatty and Mr. Wallwork on behalf of Allied. (The pursuers' pleadings had not identified which of the defenders' executives it was averred had attended that meeting). Mr. Hamilton testified that at that meeting he had explained that the reason why the pursuers wanted to go into the deal was "that Allied was bringing the power of its distribution to this deal and we were bringing the technology of the water business" (pages 160-1). In that connection, he said, the persons present were "very definitely discussing HORECA" and he made it "crystal clear" to Mr. Beatty that he (Mr. Hamilton) was looking "for Allied to bring in access to HORECA". When asked as to Mr. Beatty's response to that suggestion Mr. Hamilton stated that:"His [Mr. Beatty's] answer to that usually was that it was in Allied's interests to cover the distribution in all sectors" (page 162).
That was something they (Allied) "could do", the implication, he said, being that they would do it. In response to a leading question he affirmed to the proposition that "whatever exact words were used, they were giving you the impression that they would do it" (page 162). Certain other matters, not relevant for present purposes, were also discussed, he said, at that meeting. The examiner then proceeded to questioning on subsequent events.
[68] Pausing to take stock of Mr. Hamilton's evidence-in-chief as to the discussion at this meeting, one may note a number of features. The discussion included an explanation by Mr. Hamilton that he saw Allied bringing to the proposed association its power of distribution, with a definite reference to HORECA; the response from Mr. Beatty to that explanation was that it was "usually" in Allied's interest to cover distribution in all sectors, including HORECA; this was something which Allied could and by implication would do, particular reference in that connection being made to HORECA; whatever exact words were used (and the witness did not suggest that he had any recollection of any particular words used on either hand), he was given the impression that Allied would cover all sectors and, in particular HORECA. What, however, is also clear is that this testimony does not address what has, in the subsequent development of this case, transpired to be the critical issue, namely, the timing and manner of the distribution strategy intended to be adopted. [69] By way of an aside, it may be noted that Mr. Hamilton subsequently gave evidence to the effect that certain things about distribution had been said to him by Mr. Beatty at a meeting on 24 November 1992 at which the Subscription Agreement was completed. The Lord Ordinary observed (para. [40]) that Mr. Hamilton's evidence as to what had been said at that meeting caused him considerable difficulty. In the end the Lord Ordinary concluded (para. [44]) that nothing said by Mr. Beatty at that meeting changed what had been understood to be the case previously. That conclusion is not challenged. For the purposes of identifying the evidential basis for the alleged misrepresentation, it is accordingly unnecessary to discuss in detail the evidence bearing on the meeting of 24 November. [70] When Mr. Hamilton came to be cross-examined about meetings at which representations may have been made to him, Mrs. Swanson appears to have adopted a somewhat relaxed attitude. When Mr. Hamilton stated that his position was that the representation had been made "in the initial meeting [apparently that on 31 March], in the May meeting and in the completion meeting", she observed, before continuing her cross examination:"I think that there is some quite understandable confusion, given the length of time that has elapsed, about whom you met and when, and I do not think that that particularly matters ... " (pages 480-1).
She elicited, however, that the representations relied on by Mr. Hamilton were made by Mr. Beatty. Turning to the particular meetings at which, according to the witness, Mr. Beatty had been present, she dealt briefly with the meeting on 31 March and with the "site meeting in April". The witness accepted the propositions that his evidence was to the effect that at the first of these there had not been a detailed discussion about distribution but that Mr. Beatty had described what Allied would "bring to the party" in relation to distribution, summarised as being "clout", and that at the second meeting there was "a small amount of distribution discussion but most of the discussion was with Mr. Beatty about other products". Apart from the completion meeting, that appeared to dispose of any meeting at which any relevant representation might have been made - other than at the meeting at the office of Allied's solicitors on 4 May. Turning to deal with that meeting, the cross-examiner was able, by reference to a minute of it, to put to Mr. Hamilton that Mr. Beatty had not in fact been present at it. (The Lord Ordinary ultimately held that Mr. Hamilton was mistaken as to Mr. Beatty's presence at this meeting). The cross-examiner then turned to the witness's position as to the content of the discussion between Mr. Hamilton and Mr. Beatty at that meeting (on the assumption, which she disputed, that they were both present). Mr. Hamilton accepted from her that any statement Mr. Beatty then made about it being in Allied's interest to cover all sectors was consistent with what Mr. Beatty had earlier written in a letter of 25 March 1992 (production 6/1). In the course of this passage of cross-examination Mr. Hamilton confirmed that he could not give any clearer recollection of exactly what Mr. Beatty had said at the meeting; he continued -
"I can only give you the pattern of discussion with David Beatty. Every time I met him he was selling to me a deliverable, and therefore I am very careful in words like could and would, very careful about analysing what is said, and I have no doubt in my own mind that it was 'would'" (pages 488-9).
He added:
"Nobody discussing something of 10 years ago can give absolute precision and verbatim statements as to exactly what was said, so one has to work on the basis of the understanding, of the spirit, the tenor, and the background to the meetings".
Before moving on to other matters the cross-examiner appears in a question (at page 489) to have implied that the meeting at Blackford took place after the meeting at the office of Allied's solicitors. Although the witness's earlier evidence had in fact been that the Blackford meeting preceded that at the solicitors' office, the witness appears to have assented to that implication (page 489).
[71] In his re-examination of Mr. Hamilton counsel for the pursuers began by addressing the matter of the dates of the meetings. It was proposed that the witness be allowed to refer to his diary, which was not a production but which the witness had brought with him. There seems initially to have been some issue as to whether this was appropriate in relation to dates prior to 4 May. Counsel for the pursuers, however, explained that the purpose of referring to the diary was to clarify whether the Blackford meeting had preceded or had followed that at the solicitors' office (page 608). On that basis, and on the basis that an opportunity for further cross-examination on matters arising would, if asked for, be given, the solicitor advocate withdrew her objection and the Lord Ordinary allowed reference to Mr. Hamilton's diary to be made. The witness, having referred to it, identified 27 May as the date when he thought Mr. Beatty "came up" (page 611). That was on the basis of an entry for that date "David Beatty, 10 o'clock", which the witness thought was Mr. Beatty's flight arrival time. Although several meetings in connection with negotiations with Allied and its representatives were apparently noted in the diary, the witness settled for the meeting at Blackford having been on 27 May. The witness having, in his re-examination, acknowledged a concession made in cross-examination that he might be wrong about the presence of Mr. Beatty at the meeting on 4 May (page 614), the re-examiner later returned to what may have occurred in May. The following exchange occurred:"RE-EXAMINATION CONTINUED BY MR. HODGE:
Now, before I come on to the completion meeting, if I may move back very briefly to the May, you have indicated that you can't say precisely which - you have told us there were several meetings in May? - Yes
You can't say precisely at which meeting in May you spoke to David Beatty? - That is correct.
Yes, but you spoke in chief about having put it to him - made it quite clear to him that you needed access to the on-trade: is that right? - Yes.
To Britvic? - Yes.
And what is your recollection at that meeting of his response? - Basically he understood that this was a component of getting the company off the ground.
Yes. And did he say anything to you about his ability to do so, or anything of that nature, can you recall? - I have the - or had the impression that this was something that he could achieve and deliver from the way he presented it to me. To try to put specific words at this stage, I really couldn't do.
Are you satisfied in your own mind, however, you put it to him that this was a necessary component ... ? -
... of the deal you wanted to do? - Yes.
And did he demur to that in any way? - He - there was an acceptance that this was a fact, that we needed this in the deal.
BY THE COURT:
Was this - you said at one stage, I can't remember now - it will be in my notes somewhere - that he responded by saying yes, well, that would be in his interest to? - Yes.
Was this in this conversation? - That is, that conversation.
Yes, yes.
RE-EXAMINATION CONTINUED BY MR. HODGE -
But that was sometime in May? - Yes.
But we can't say it was 4th May or not? - No." (pages 625-7).
There were then some questions and answers about discussion in the car on the way back from Blackford, including the concept of a water division within Allied and the development of a range of water-related products. After an intervention by the court, the re-examination continued:
"RE-EXAMINATION CONTINUED BY MR. HODGE:
Do you recall whether there was any discussion of distribution of water or water and water products in that trip? - We talked about what he basically could bring to the party in broad terms, and he had access to distribution, and he at that time also indicated to us that he had the ability to get things happily organised within Britvic.
He said that on that car journey? - Oh, yes. Since I met David Beatty he discussed in fact that Allied was heavily involved in Britvic, and there was something that I knew a little about, a lot of exchange deals taking place unofficially within that sort of set up.
Yes - 'I will give you this if you give me that'" (pages 628-9).
The re-examiner then moved on to other matters. The solicitor advocate appearing for Allied did not in the event seek an opportunity to cross-examine further on any matter arising from the re-examination.
[72] A number of matters arise for comment about the above-quoted exchanges. It having been acknowledged by the witness that he may have been in error in his earlier testimony that Mr. Beatty was present at the meeting on 4 May at the office of Allied's solicitors, the re-examiner put to him that he "can't say precisely" at which meeting in May he spoke to Mr. Beatty; to this proposition the witness assented. There is then a reference back to the witness's evidence in examination-in-chief - at that stage evidence directed to a meeting in the solicitors' office on 4 May. The underlying premise of the questioning is that the relevant discussion may have taken place not on 4 May at the solicitors' office but at another meeting in that month, possibly on 27 May at Blackford. As will be seen, the Lord Ordinary, in his narration of the evidence and his evaluation of it, makes no express reference to the transposition of the arguably critical discussion from the context of a particular date and of a particular place to, possibly but not definitely, another place and another date. While this transposition may not, in my view, be critical, it is a potentially significant element in the evaluation as a whole of the evidence bearing upon the alleged misrepresentation. More importantly, in so far as concerns any response by Mr. Beatty to anything said by Mr. Hamilton at a meeting (wherever and whenever that occurred) about the need to obtain access to the on-trade and, in particular, to Britvic, Mr. Hamilton's evidence was that his recollection was that "basically he [Mr. Beatty] understood that [such access] was a component of getting the company off the ground". I shall return to comment on what can be made of that response. [73] At paragraph [24] of his Opinion the Lord Ordinary notes that "it later seemed to be common ground between the parties that [the meeting at Blackford] was in May". He also records in that paragraph that senior counsel for the pursuers had described that meeting "as central to the issue in this case". In paragraph [25] the Lord Ordinary notes that there was no written record of what was said between Mr. Hamilton and Mr. Beatty at this time and that he was therefore reliant on the recollection of those who were there, of whom only Mr. Hamilton, Mr. Beatty and Mr. Douglas gave evidence before him. His summary of Mr. Hamilton's evidence as to this meeting was as follows:"Mr. Hamilton's recollection was that he explained what he was looking for and why he wanted to do a deal with the defenders. The pursuers would bring their knowledge of the water industry but what he wanted from the defenders was their powerful distribution network. Mr. Hamilton was adamant that what was being discussed in this context was access to the on-trade. He said that that was made crystal clear to Mr. Beatty. Later in his evidence he made it clear that in this context he was talking about access to Britvic. Mr. Hamilton said that Mr. Beatty understood that this was necessary in order to get Gleneagles off the ground and he gave him (Mr. Hamilton) the impression from his response that he could achieve it. His response was that this was in the defenders' best interest and they would do it. Mr. Hamilton also said that in the car returning from Blackford he and Mr. Beatty discussed the possible opportunities for Gleneagles's products further into the future and that Mr. Beatty was excited by these".
Mr. Douglas testified that he had no recollection of this meeting. Mr. Beatty recollected being at Blackford and in its vicinity but, so far as concerned the content of what may have been said on either hand on any such occasion, his evidence provided no positive support for Mr. Hamilton's account as narrated.
[74] The Lord Ordinary then addressed the evidence as to certain subsequent events (including the completion meeting) because he was of the opinion that it was important to consider not only what went on before the meeting but what came after it "before deciding what was said, or at least understood as a result of what was said, at the meeting" (my emphasis). [75] At paragraph [45] the Lord Ordinary returned to the meeting on 27 May at Blackford and to the understandings of relevant individuals in the period leading up to it. He found that there was no doubt that from the outset Mr. Hamilton considered that distribution of the product was essential to the successful development of Gleneagles and that the reason why he sought investment from Allied was that he thought that it could provide the necessary distribution element. That was what it could "bring to the party". He notes that, among other sources, the 1991 Business Plan, which had been made available to Allied, made clear that the aim was that the Gleneagles brand would be supplied to the on- and the off-trades and that Mr. Walter and, through him, Mr. Beatty knew of that aim. Mr. Beatty had confirmed it in his evidence. The Lord Ordinary also noted that Mr. Beatty also accepted that Mr. Hamilton was equally interested in the on-trade and the off-trade markets, as indeed he was, but that Mr. Beatty's evidence was to the effect that it was always his view that the first step was to establish a position in the off-trade market. That, according to Mr. Beatty, was what was always intended. It was the strategy which in the event was later developed. The Lord Ordinary continues:"But it is quite different from what Mr. Hamilton and Mr. Douglas expected as a result of their discussions with him [Mr. Beatty] ... Having considered the evidence on this critical point I am satisfied that Mr. Beatty did not communicate to Mr. Hamilton that this was his strategy. On the contrary, I am satisfied that Mr. Beatty led Mr. Hamilton and Mr. Douglas to believe that he agreed with Mr. Hamilton that Gleneagles should try to penetrate the on-trade from the beginning as well as the off-trade and that the defenders' distribution arrangements and facilities for both the on- and the off-trades would be made available to Gleneagles. Had it been otherwise I am satisfied that Mr. Hamilton would not have entered into the Agreement of 24 November 1992".
"So I accept Mr. Hamilton's evidence that Britvic was discussed with Mr. Beatty at this meeting. Moreover, I accept Mr. Hamilton's evidence that the thrust of what Mr. Beatty said was that he could achieve access to the on-trade through Britvic. The response attributed to him by Mr. Hamilton that it was in the defenders' best interests to do so and that they would do it to my mind rings true. Of course it was not guaranteed because of the way Britvic worked but it was something that was likely to be achieved ... In my judgment, therefore, Mr. Beatty gave Mr. Hamilton to believe at this meeting on 27 May that, although there were obstacles in the way and it could not be guaranteed, it was likely that with the defenders' help Gleneagles would gain access to the on-trade through Britvic and their distribution network in the same way as applied to other soft drinks which the defenders produced".
The Lord Ordinary at paragraph [50] then summarised his position as follows:
"In summary, therefore, Mr. Beatty gave Mr. Hamilton to believe that the defenders' strategy was to try from the outset to penetrate the on-trade with the Gleneagles product and to do that, if possible, by way of gaining access to Britvic. I am confirmed in this view by events following completion of the Agreement to which I am about to turn".
"In the present case I am of opinion that what Mr. Beatty represented to Mr. Hamilton, namely that if the parties did the proposed deal it was the defenders' intention, or strategy, to make their distribution arrangements and facilities for supply to the on-trade available to Gleneagles, was a representation of fact. It was, however, a misrepresentation, as I have held, and having regard to all the circumstances which I discussed earlier in this Opinion it was in my judgment a negligent misrepresentation. From the outset Mr. Hamilton had made it clear that what was in his mind was an attempt from the start to penetrate the on-trade as well as the off-trade. Mr. Beatty knew that. If this strategy was not to be followed by the defenders it was in my opinion incumbent on Mr. Beatty to make that clear to Mr. Hamilton before the Agreement of 24 November 1992 was entered into. He did not, however, do that. On the contrary, he led Mr. Hamilton to believe throughout that the defenders' strategy was at one with his own. As I have said, that was in my judgment a negligent misrepresentation and for that the defenders are liable in damages".
"There is no doubt in my judgment that from the outset Mr. Hamilton considered that distribution of the product was essential for the successful development of Gleneagles and the reason why he sought investment from the defenders was that he thought that they could provide the necessary distribution element. That was what they could bring to the party, as he put it"
The Lord Ordinary finds support in various other aspects of the evidence for his judgment as to Mr. Hamilton's attitude from the outset. In my view, there was ample support in the evidence for the conclusion that, as a general proposition, Mr. Hamilton considered that distribution of the product was essential to the successful development of Gleneagles and that it was his belief that Allied could provide the necessary distribution element which motivated him to seek investment by them. In my view the Lord Ordinary was also entitled to find (as he does later in paragraph [45]) that Mr. Beatty also recognised that distribution was important for development of the brand, that the distribution he (Mr. Beatty) was interested in was distribution in the on-trade and in the off-trade markets and that he knew that Mr. Hamilton was interested in distribution in both markets. While, accordingly, there was a common ultimate objective (and a mutual understanding as to what that objective was), these findings do not themselves address the commercial strategy, the deployment of which was best designed to secure that common objective; nor what communication passed between Mr. Hamilton and Mr. Beatty in relation to such strategy.
[91] Mr. Beatty gave evidence that, as regards strategy, it had throughout been his intention that the initial move be into the off-trade, that is, initially into the off-trade only. The Lord Ordinary's reasoning proceeds on the basis that Mr. Beatty, at the relevant time, genuinely intended that that strategy would be pursued in the event of agreement between the parties being reached. He found as a fact (negatively) that Mr. Beatty did not communicate to Mr. Hamilton that that was his strategy. He continues (positively) at paragraph [45]:"On the contrary, I am satisfied that Mr. Beatty led Mr. Hamilton and Mr. Douglas to believe that he agreed with Mr. Hamilton that Gleneagles should try to penetrate the on-trade from the beginning as well as the off-trade and that the defenders' distribution arrangements and facilities for both the on- and the off-trades would be made available to Gleneagles".
"In summary, therefore, Mr. Beatty gave Mr. Hamilton to believe that the defenders' strategy was to try from the outset to penetrate the on-trade with the Gleneagles product and to do that, if possible, by way of gaining access to Britvic".
The phrase "from the outset" is not further discussed.
[93] To seek to discover the evidential basis for the Lord Ordinary's critical positive finding at paragraph [45] it is necessary to revert to his summary of Mr. Hamilton's evidence at paragraph [25] (quoted above). But in so reverting it is impossible, as I shall endeavour to explain, to find in that summary any sufficient basis for a misrepresentation of the kind now relied on. Nor is it possible, in my view, upon consideration of the printed transcript of Mr. Hamilton's evidence to find a proper basis for such a misrepresentation. [94] In reviewing the evidence on the critical issue it is necessary first to set the relevant legal context. It is, rightly, not suggested on behalf of the pursuers that the legal relationship between them and Allied at the relevant time imposed, of itself, any duty of disclosure; parties were not in a relationship uberrimae fidei. Thus, the relationship of itself did not impose on Mr. Beatty any duty to disclose to Mr. Hamilton that his (Mr. Beatty's) intention, in the event of the parties forming an association, was to seek to penetrate the off-trade first, leaving an attempt to penetrate the on-trade until the product had become established in off-trade outlets. Nor, again rightly, is it suggested that, because Mr. Hamilton made clear to Mr. Beatty what he (Mr. Hamilton) considered to be the appropriate strategy, Mr. Beatty thereby came under an obligation to disclose that he (Mr. Beatty) intended to adopt a different strategy; again the parties' legal relationship did not give rise to any such obligation; Mr. Beatty would have been entitled to remain silent, keeping his intention to himself. Nor is it suggested that Mr. Beatty made any representation by actings. The only representation claimed is one said to have been made orally by Mr. Beatty. But that oral representation is not said to have been, as it were, "free-standing", that is, a positive statement of fact volunteered without prompting by the alleged representee. It is said to have been a representation made in response to a statement or observation by the representee; and the misrepresentation is said to lie not in any words actually used in that response but in something not said in it, namely, an omission by Mr. Beatty when responding to state that his intended strategy was different from that expressed by Mr. Hamilton. That omission, it is claimed, was negligent and so rendered the misrepresentation a negligent misrepresentation which, if proved to have induced the contract (the Subscription Agreement), provided a good ground of action against Allied. Although not expressed precisely in these terms the contention appears in substance to be one of negligent partial disclosure - where the incomplete nature of the response has the effect of negligently misrepresenting a state of fact. [95] For the avoidance of doubt, it should also be noted that the pursuers do not seek to make any case based upon any claimed promise or undertaking by Mr. Beatty, of the nature of a collateral agreement, such as to give them a ground of action based on a contractual or quasi-contractual obligation. Their case is based solely on misrepresentation inducing the Subscription Agreement. And, as is obvious, it is not claimed that the Subscription Agreement itself contained any relevant obligation. [96] At this stage it is also worth reiterating what the alleged representation is claimed to have been. It was that it was Mr. Beatty's (and thus Allied's) intention, present as at May 1992, that, in the event of Allied making the proposed investment in Gleneagles, the strategy which would be adopted for "developing the brand" was to seek, simultaneously and from the outset, to penetrate both the on-trade and the off-trade. The simultaneity is critical, since in the event attempts to penetrate both the on-trade and the off-trade were in fact made, but not simultaneously; these attempts did not succeed commercially. So, in order to establish a material misrepresentation, the pursuers required to prove one in the terms indicated. [97] For the purposes of this review I am prepared to treat Mr. Hamilton's evidence as to what was said at the solicitors' office on 4 May as evidence by him of what was said at Blackford on 27 May. I do so for the reasons given earlier. There are, of course, dangers in such an approach, since the oral communications between individuals present are then taken out of their apparent context of time and place, which may at least in some circumstances distort the significance of those communications. But, conscious of these dangers, I am nonetheless prepared to proceed upon the basis that the transposition is, having regard to the way the case was conducted, justified. I also proceed upon the basis that Mr. Hamilton's evidence in relation to these communications is to be taken as reliable. While counsel for Allied submitted that, having regard to the whole circumstances, Mr. Hamilton's evidence on these matters could not be said to be reliable, I am not persuaded that the Lord Ordinary's assessment on reliability can be interfered with by this court. Accordingly, I proceed on the basis that Mr. Hamilton's evidence, in so far as it goes, is to be taken as both truthful and accurate. I would, however, make one observation in relation to the Lord Ordinary's grounds for holding Mr. Hamilton to be, in general a reliable witness. Those included the comment referred to earlier that "[it] was a considerable advantage that he had had his diary and other contemporaneous records as aides-memoire". The diary, which Mr. Hamilton described (evidence page 611) as a "very short term diary", was used in re-examination to the effect earlier noticed. The entry referred to was apparently very brief. In the same passage Mr. Hamilton refers to having "a detailed record in a notebook which travelled around with me ... " but no such notebook was produced or used in evidence. Any significance which it might have as support for Mr. Hamilton's evidence on crucial matters could not and cannot be tested. It is unclear to what the Lord Ordinary is referring as "other contemporaneous records as aides-memoire". [98] Mr. Hamilton's testimony in evidence in chief as to what happened at the solicitors' office on 4 May (to be treated for present purposes as having happened at Blackford on 27 May) has been described. So far as material for present purposes, it is to be found in a short passage at pages 160-2 of the transcript. The content of any discussion at that meeting was not taken significantly further in cross-examination, other than to obtain from the witness an acceptance that anything said about covering all sectors accorded with what had been written earlier. [99] That evidence, without more, takes the pursuers, in my view, no significant distance in establishing the case which they ultimately presented. Taken at its highest, this evidence is to the effect that Mr. Hamilton made plain to Mr. Beatty that the pursuers' reason for seeking a deal with Allied was the latter's distribution facilities, including those to the on-trade, and that in response Mr. Beatty indicated that it was in Allied's interests to cover the distribution in all sectors (including the on-trade). I use the expression "at the highest" advisedly. Mr. Hamilton's evidence, read strictly, is not that Mr. Beatty made such a response on this particular occasion but that he so responded "usually". I proceed, however, on the assumption that he made his "usual" response on this occasion. But that response indicates nothing about the strategy to be adopted in seeking effective access to the respective trades; in particular, it cannot reasonably import that Mr. Beatty indicated that it was Allied's intention to seek to gain access for the Gleneagles product, simultaneously and from the outset, into both trades. It is wholly consistent with an intention, which the Lord Ordinary held that Mr. Beatty in fact had at that time, to seek to gain access to both trades, but to do so in respect of the on-trade only once access had successfully been gained to the off-trade. It could not, in my view, reasonably be construed as in terms a misrepresentation as to Allied's present intention in relation to strategy. [100] Counsel for the pursuers submitted that Mr. Beatty's negligence lay in his omission to state, in his response to Mr. Hamilton's words, a "qualification", namely, that, while Allied would wish to penetrate both trades, its strategy was to seek to penetrate the off-trade first and the on-trade only subsequently. Mr. Beatty's response, so ran the argument, was ambiguous; the failure to qualify it in the way indicated gave rise to a negligent misrepresentation on his part. In that connection reference was made to McInerny v. Lloyds Bank, and in particular to a dictum by Lord Denning M.R. at page 254. There his Lordship said:"In considering whether a statement was made negligently, its meaning should be considered in the sense in which the maker intended it, or in which he knew or ought to have known the recipient would understand it. In saying this I have in mind the rule in regard to statements said to be made fraudulently ... ; and I apply it suitably in regard to statements said to be made negligently. In most cases, of course, the meaning is plain enough. It means the same both to the maker and to the recipient. If the maker should deny its plain meaning, he would not be believed. But, where the meaning is not clear, it should be given the meaning intended by the maker, or which he knew or ought to have known the recipient would put upon it".
But, in my view, that dictum does not advance the pursuers' case. There was, in my opinion, no relevant ambiguity in the response which, according to Mr. Hamilton, Mr. Beatty gave. The subject of discussion was the objective in promotion of the product through Allied's distribution facilities, namely, its penetration into both trades. It was not, at least on its face, concerned with the strategy by which that objective might best be achieved. A response that it was in Allied's interest to cover all sectors, including the on-trade, was neither inaccurate nor misleading. Its meaning was, in my view, to use Lord Denning's expression, "plain enough". If, contrary to that view, its meaning was in any relevant sense unclear, it falls to be given "the meaning intended by the maker" [in this context Mr. Beatty] "or which he knew or ought to have known the recipient would put upon it". There is no basis in the evidence for any suggestion that Mr. Beatty intended in any such response to indicate Allied's strategy; nor, in my view, is there any evidence that he knew or ought to have known that Mr. Hamilton would understand it to refer to strategy. If Mr. Hamilton interpreted that response as meaning that Allied intended to adopt a strategy of simultaneous penetration of both trades from the outset, then, like the plaintiff in McInerny, the pursuers cannot successfully rest their case on that misinterpretation.
[101] Before leaving McInerny it may be observed that the alleged misrepresentation there founded on was in writing and was made in clearly established circumstances. Where the alleged misrepresentation is said to have been made orally and in circumstances which are not clearly established, the burden of proving its character as such is, in my view, all the greater. [102] In his narration of the evidence at paragraph [25] the Lord Ordinary records that Mr. Hamilton said that "Mr. Beatty understood that [access to the on-trade] was necessary to get Gleneagles off the ground". It might be supposed that the expression "off the ground" imported that the representation related to or included strategy from the outset. But it is important in my view to notice where, and where apparently alone, the expression "off the ground" appears in the evidence. It does not appear in the examination or in the cross-examination of Mr. Hamilton but only in his re-examination when counsel for the pursuers reverted to what was said "at the May meeting" with Mr. Beatty. The relevant passage (which appears within the longer passage quoted above) is as follows:" ... you spoke in chief about having put it to [Mr. Beatty] - made it quite clear to him that you needed access to the on-trade; is that right? - Yes.
To Britvic? - Yes.
And what is your recollection at that meeting of his response? - Basically he understood that this was a component of getting the company off the ground".
That last answer, which was not further explored in evidence, is at best ambiguous in a number of respects. First, it is not clear that the witness is testifying to a recollection of anything actually said by Mr. Beatty at the meeting, as distinct from the witness's interpretation of Mr. Beatty's understanding at that time. Secondly, "getting the company off the ground" could equally refer to making Gleneagles a commercially viable entity (the ultimate objective), as it could to the strategy to be adopted from the outset to achieve that end. Thirdly, in the passage immediately following that quoted above the pursuers' counsel interpreted the witness's reference to the "necessary component" as being "of the deal [the witness] wanted to do", that is, of the proposed association; the witness did not demur to that interpretation.
[103] The Lord Ordinary in his narrative at paragraph [25] combines, it seems, these two passages in a way which tends to suggest that Mr. Hamilton's evidence, read as a whole, was to the effect that Mr. Beatty had said at the meeting that it was in Allied's best interests to adopt a strategy of attempting to penetrate the on-trade and the off-trade simultaneously and from the outset. The effect of that combination is, apparently by virtue of a single ambiguous response in re-examination, radically to alter the import of the evidence earlier given by the witness. The Lord Ordinary offers no analysis or evaluation of this evidence - or of any other evidence which he considers relevant to the issue of any representation as to timing. Against the background of the vagueness of Mr. Hamilton's evidence about the place and time of the meeting (and thus of the context of anything said) and, even more importantly, the critical need to distinguish between, on the one hand, what, if anything, was said by Mr. Beatty and, on the other, such beliefs as Mr. Hamilton may genuinely have entertained, such an analysis and evaluation were, in my view, a requirement in the circumstances of this case of a reasoned decision. While I might well have been slow to interfere with an evaluation of this evidence, had it been made, in its absence I consider myself entitled, and indeed obliged, to treat the matter as at large for this court. [104] The Lord Ordinary then proceeds, without further analysis of Mr. Hamilton's evidence on this aspect to hold (at paragraph [45] of his Opinion) that:" ... Mr. Beatty led Mr. Hamilton ... to believe that he agreed with Mr. Hamilton that Gleneagles should try to penetrate the on-trade from the beginning as well as the off-trade ... ".
"This Agreement and the Articles contain the entire agreement between the parties or any of them with respect to the matters contemplated herein and shall supersede all prior offers of finance, proposals, representations, agreements and negotiations relating thereto, whether written, oral or implied, between the parties or any of them or their respective advisers or any of them".
This clause is referred to in Allied's pleadings but before the Lord Ordinary their representative intimated that she was not insisting on this point (Opinion paragraph [85]). The point was, however, revived in the Grounds of Appeal for Allied and junior counsel for Allied advanced argument upon it, to which junior counsel for the pursuers responded. Senior counsel for Allied, while not departing from the contention advanced by his junior, advanced no argument to meet the response.
[108] In my view, clause 10.5 is plainly irrelevant - and that substantially for the reasons advanced by junior counsel for the pursuers. These may be stated briefly. Allied was not a party to the Subscription Agreement; no tenable basis is advanced on which Allied can take the benefit of clause 10.5. That clause is exclusionary in nature and should, if necessary, be construed restrictively. The representation which is the subject of the present action cannot be said to have been made "between the parties"; nor, on the evidence, can it be said that Mr. Beatty was acting as an "adviser" to Lyons or to any other party to the Subscription Agreement. While clause 10.5 was no doubt designed to operate broadly, its terms are not such in the circumstances as to exclude a claim based on an alleged misrepresentation by Mr. Beatty acting for and on behalf of Allied, a stranger to the Subscription Agreement. [109] If, as your Lordships are agreed, this reclaiming motion should be allowed and the reclaimers assoilzied, no issue of damages arises for decision. I agree with your Lordship in the chair that it would not, in the whole circumstances, be appropriate for this court to express any concluded views on questions of causation and mitigation of loss. I would add only that, regard being had to the arguments presented on behalf of Allied in the Outer House and before us, I am not to be taken as persuaded that it would have been entitled, on the matter of damages, to succeed in this reclaiming motion.
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SECOND DIVISION, INNER HOUSE, COURT OF SESSION |
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Lord Justice Clerk Lord Hamilton Lord Marnoch
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[2005CSIH74] A283/01 OPINION OF LORD MARNOCH in RECLAIMING MOTION in the cause JOHN STEWART HAMILTON and ANOTHER Pursuers and Respondents; against ALLIED DOMECQ plc Defenders and Reclaimers: _______ |
Act: Hodge, QC (first hearing), Davidson, QC (continued hearing), Clark; Simpson & Marwick WS (Pursuers and Respondents)
Alt: Keen QC, Fairley; Maclay Murray & Spens (Defenders and Reclaimers
1 November 2005
[110] Although this case has occupied many days both in the Outer House and before this court, I venture to think that it can now be disposed of relatively shortly. [111] The pursuers and the respondents in the reclaiming motion seek damages for loss in the value of their respective shareholdings in Gleneagles Spring Water Company Limited ("Gleneagles") as a result of their entering into a share subscription agreement with the defenders' subsidiary company, J. Lyons & Co. Limited. The basis of the action is that they were induced to enter that contract as a result of a negligent misrepresentation to the first pursuer by a Mr. David Beatty who, at all material times, is said to have been representing the defenders. [112] The misrepresentation in question, as set out by the pursuers in Condescendence 4 of the Summons, is "that the defenders' distribution arrangements and facilities for supply to the on-trade would be made available to Gleneagles." In that connection it should be explained that in marketing soft drinks, including mineral water, there is apparently a well-recognised distinction between, on the one hand, selling to public houses, restaurants and the like, known as the "on-trade" or HORECA (hotel, restaurant, catering) trade and, on the other hand, retailing through shops and supermarkets, known as the "off-trade". One peculiarity of the present case, however, is that Mr. Beatty and the pursuers' principal witness, Mr. Hamilton (the first respondent), were agreed that, in order to achieve ultimate success, the Gleneagles product would in the end have to be marketed via both the on-trade and off-trade sectors. Thus, in the course of the proof, the alleged misrepresentation came to be understood as being that the defenders would have a strategy from the outset to penetrate the on-trade market. It could only be a "strategy" because the Lord Ordinary accepts that at the "completion" meeting on 24 November 1992 Mr. Beatty took Mr. Hamilton aside and said that he "could not guarantee distribution" or words to that effect. For my own part, I am uneasy about how the alleged misrepresentation came to be diluted in this way, but the defenders and reclaimers must, I think, accept some responsibility since Mrs. Swanson, the Solicitor advocate for the defenders, took no objection to large tracts of the evidence where it departed from the written pleadings. At all events, I am prepared to take the case on the basis of the misrepresentation as so understood. [113] At this point it may be of some significance to note that, even in their present form, the pursuers' pleadings contain many passages which might be thought more appropriate to a case pled in delict on the basis of a failure on the part of Mr. Beatty to take reasonable care for the interests of the pursuers rather than one based exclusively on a positive misrepresentation by Mr. Beatty which induced a contract with his principals. This was noted by Lord Carloway when he heard the case in Procedure Roll at the beginning of 2001 but, as he records, amendments were allowed at that time in order to make clear that the case which went to proof was a case based solely on misrepresentation. Counsel for the respondents accepted this and also accepted that, if the proof did disclose the making of a misrepresentation, it was a misrepresentation which was only made or uttered by Mr. Beatty on one occasion during the month of May 1992. Despite this concession, however, counsel for the respondents were at pains to submit that the evidence said to be directly relevant to the making of the misrepresentation had to be read within the general context of the other evidence given in the case including, in particular, that given by Mr. Hamilton and Mr. Beatty respectively. Accordingly, although I am myself uncertain of its value, I shall do my best to summarise the general evidence of the two main protagonists by reference to passages in the evidence which I hope are broadly representative of their respective positions. [114] Mr. Hamilton, in the fairly early stages of his evidence in chief, was referred to a Business Plan (6/49 of process) which had been prepared by Fraser and Partners in December 1991 with a view to a possible sale of the "project" or business idea which had by then been developed "in embryo". Various options were there referred to but option 3 was identified as being, for present purposes, the relevant one. The evidence then continued (at pp. 97-8) as follows:" And option 3 was seeking a partner to come in and invest? - Yes.
But also to cover distribution? - Yes.
So both of the other two options, which involved your continuing presence in the business, or continuing investment in the business? - Yes.
Involved distribution being in place? - Absolutely.
Yes, thank you. And moving on through this report, you will see at page 31 that what you were envisaging was a high quality product aimed at the top end of the grocery market and the on-trade sector - it is at the top of the page; do you see that? - Yes, I have got it.
Does that reflect what you were talking about at the time? - Undoubtedly.
Yes. And what is the importance of access to the on-trade as well as the grocery market? - The product seen in the pub or the restaurant is really one of the driving forces for somebody to want to serve it on their own dining table. Therefore, as Desmond Cracknell had told me years before, if you have got the presence in the licensed trade, the HORECA trade, then it is as good, in these earlier days, as £1/2 million spend on marketing."
Later on in his evidence in chief it became apparent that, so far as the on-trade was concerned, Mr. Hamilton was putting a great deal of faith in the defenders being able to achieve distribution through a company called Britvic Soft Drinks Limited ("Britvic") which was a wholly owned subsidiary of Britannia Soft Drinks Limited ("Britannia"). Although he knew that the defenders only had a minority shareholding in Britannia, Mr. Hamilton thought, wrongly as it turned out, that Mr. Beatty sat on the main board of the latter. This explains the following two passages which I select from his cross-examination (at p. 507 and pp. 529 et seq respectively):
" ... So you were clear in your mind that there was a distinction between what Allied Lyons plc could offer, and what Britannia Soft Drinks, through Britvic, could offer? - Clear as to their being two separate routes, but of the belief from the discussion with David Beattie that Allied was going to make certain that the two routes were followed.
...
I appreciate, Mr Hamilton, that you have been very clear in your evidence about the importance of Britvic and the HORECA trade, and that position has developed in the course of your evidence in answer to perfectly proper questions from my learned friend, but it has got you to a point which differs from what is on Record in this action. Now, the Record, as you have been looking at, is a record of the pleadings as they have been put together in the action previously? - Right.
Now you obviously had conversations with those advising you about your recollection of discussions, and the pleadings would reflect what you had told them about your recollection of the representations made? - Yes.
Is that correct? - Yes.
Now, the Record does not mention distribution through Britvic, so am I right in assuming that that is a recollection that has come to you later? - No, I don't think so. I think if one were to go through the solicitor's notes it would in fact have been covered before the Record.
You see, what is in the pleadings is that Mr Beatty represented that he would make available the defenders' distribution arrangements and facilities. Now, we have discussed the fact that there is a distinction between what the defenders' distribution arrangements and facilities were - that is what Allied Lyons ... (inaudible due to background noise) ... through its sectors, and Britvic? - Right.
And I am simply highlighting that Britvic distribution was not part of that representation, and I am just curious as to why Britvic is now very central in your recollection? - Because it was always important."
Finally, the following passage appears in cross-examination at pp. 533-534 of the Notes of Evidence:
" Isn't that the case that when you were discussing distribution with Mr Beatty he talked about distribution through the existing sales networks that we have talked about previously, the spirits division or the food division, and said that Britvic would be a possibility, but he didn't give you any guarantees in that regard? - I have never had written guarantees, nor have I asked for them, but I have had discussions in which David Beatty told me that he was in fact organising the whole position to get us into Britvic, and it was being done by this device of presenting the option to Britvic to make the investment directly, or to take over the investment. This was part and parcel of his negotiating strategy.
Your recollection of the completion meeting conversation is that Mr Beattie said that Allied could provide the help and contacts? - Yes.
But that you would have to do the selling, because they couldn't make companies buy the product? - That is correct.
Now, is it not correct that Britvic was part of that conversation ...? - No.
... that Mr Beatty said he could not guarantee that Britvic would take the product? - No, he did not say that. Had he said that specifically it would have been a major area of problem for me."
As I have already mentioned, the Lord Ordinary held that Mr. Hamilton was wrong in his recollection about what was said at the completion meeting and, while the passage just quoted shows the importance of the "on-trade" to Mr. Hamilton, it is necessary at the same time to point out that there was no support for Mr. Hamilton's evidence that he was told by Mr. Beatty that entry to Britvic "was being done by this device of presenting the option to Britvic to make the investment directly, or to take over the investment." That was a reference to a clause in the share subscription agreement which no other witness linked with the misrepresentation now founded upon.
[115] In the result, although in Mr. Hamilton's evidence there is clearly an emphasis throughout on the on-trade as one of the important distribution routes, I have not found clear evidence of what, at times, seems to have been assumed was implicit in what he said, namely that he regarded penetration of the on-trade from the very outset as being an essential part of the "deal", as he was wont to describe his various communings with Mr. Beatty. [116] Turning now to the evidence of Mr. Beatty, I note first the following passages in his evidence in chief at pp. 1172-1173 and at p. 1190 respectively:"Now, the next paragraph [of a letter No. 6/3 of Process] says: 'John is obviously very keen to launch the product as soon as possible, and he has therefore put in train the necessary pre-actions. Presently he is holding back on distribution matters, but it would be helpful to have your confirmation on the broad shape of the deal'. Can you remember a discussion at that point about distribution matters? - We had -- we had given distribution a lot of thought -- em -- and we had said to Derek Douglas and, I imagine, John Hamilton at the same time, or on other occasions that Allied could have three potential distribution opportunities for bottled water, and they were alongside our spirits, particularly Scotch, in the spirits and wine division, where the then Chief Executive was quite interested in selling bottled water alongside Teachers in the UK and Ballantynes in the international markets. There was the opportunity of distributing the product as a beverage alongside tea and coffee through Lyons Tetley, which is what this fifth paragraph is now clearing (sic) indicating. And there was also the possibility that the product might be distributed through Britannia/Britvic, which was our third potential distribution avenue. They were all potential, and there is nothing specific in terms of what John is anxious about in here -- John Hamilton is anxious about in here."
...
"Do you recall any conversations with Mr. Hamilton specifically about the on trade market, or the HORECA market? - Mr. Hamilton has always expressed an interest in the on-trade market, as much as he did with the off-trade market, and I think that that was a -- a desire that we both shared, to get the product into the widest possible distribution in due course."
At a later stage in his evidence in chief he appears to sum up his position in the following, fairly lengthy, passage which appears at pp. 1208 et seq of the Notes of Evidence:
" As of that date, which was the completion date, what was your understanding of what had been promised about distribution? - No promises had been made at all about distribution. The promises were to get the water to a bottling hall and start bottling, and that as Mr. Hamilton found out whenever I took Mr. Hodges up there from the food division, he knew the food division was involved at a very early stage -- the food division would undertake the distribution of the bottled water, Gleneagles bottled water, as and when the bottling hall had been established and the bottling had begun. And that wasn't a promise, that was just that that was going to be the way in which we would initially start the distribution of the water. It was the fastest and best way to get volume distribution, get the brand known, have a reason for going on to television, put the brand in front of the general public and build on from there. We had an investment in the brand, and our primary objective -- and I would have thought Mr. Hamilton's at the same time -- was to get volume distribution as quickly as possible and start to make the product and the project viable. But that, as I understand it, was the situation at the contract meeting, and after the contract meeting.
Obviously what you have described relates to off-trade. What understanding did you have about the position in relation to on-trade at that point? - There was no -- there were no promises made, and we were prepared to use our best endeavours to get the product distributed as widely as possible. And our best endeavours would ultimately probably have included the on-trade, but there were no guarantees, no undertakings, no promises. The three potential routes for distribution were available to Allied, one way or other, and we decided, with Mr. Hamilton's concurrence, that we would go down the off-trade route in the first instance. It was apparent that the brand was in the food division, being run by the food division, and I took Mr. Hodges, as managing director of Lyons Tetley, to meet with Mr. Hamilton shortly after the signing of the agreement, and it was always apparent throughout that day's meeting that the brand was going to be sold alongside Tetley tea, Lyons coffee and other Lyons' food products.
What about the Allied estate? Had you had any discussions with Mr. Hamilton about the Allied estate at that stage? - No. The Allied estate consisted of Victoria Wine off-licence and the pubs; and as I said this morning, when a brand is in existence you can go and knock on the door and convince the management of Victoria Wine or the Allied pub estate that they should be stocking Gleneagles water. And in due course that is what I had hoped we would do. But the brand had to be an established brand before you can go in and ask companies to put it on their shelves. So that would have happened in due course -- and since Victoria Wine normally stocked Allied brands -- indeed, at one stage it stocked Lyons coffee -- and since the beer division normally stocked most Allied brands that were in distribution, and promoted, and advertised, and had some volume behind them, we could have hoped that the same would have happened for Gleneagles in due course.
And is it your recollection that that was the nature of any discussion you had with Mr. Hamilton on that subject? - Well, I am not sure if we actually discussed it in those terms at all. We may have said to Mr. Hamilton that there was an Allied estate, and subject to, whatever caveats and conditions, that the brand existed, and the brand being worthwhile, and we being able to convince the management of those companies, that the brand ultimately might go in distribution through those outlets; but I am under no illusion, and Mr. Hamilton should have been under no illusion, because I think that whenever we discussed the Allied estate at all, it was always a case of 'In due course, when we have a brand, we will go and talk to them'. No promises were made to guarantee distribution. I couldn't even make a promise to guarantee distribution to Teachers whisky. We just didn't work that way in Allied. Brands are stocked on their merits.
And what about Britvic? What influence might you have had with Britvic, were they to have been a possible distribution avenue? - No more than a 25 per cent shareholding -- and I think like with any other product that Britvic were distributing, you need -- you need to have a very convincing argument, and a convincing brand story to get Britvic to stock any product. And again I would have hoped that as things progressed representations would have been made to Britvic -- but things progressed long after I left the company. But again I have to emphasise that at no time should Mr. Hamilton have been under any illusions that Gleneagles water had any rights to any distribution to the Allied estate nor via Britvic.
You see, Mr. Beattie, what we have heard from Mr. Hamilton is that it was the Britvic connection which made this a deal that he wanted to go through with, and had there been any suggestion that he wasn't getting distribution through Britvic he would not have done the deal? - Well, in that case he should have gone with Cadbury-Schweppes.
Can you think of anything in your discussions with Mr. Hamilton that might have made him think that you were going to deliver Britvic as a distribution route? - No -- em, as main Board director involved in buying a company, or making an investment in a company, I have to be particularly careful that I do not give hostages to fortune. And if you look at the contract, the contract does not mention distribution -- not because I didn't want to put it in. I didn't say it should be left out, but it was left out. It is not there. I would not have agreed to a contract that did tie us to -- did tie Allied to any means of distribution, to any outlets of distribution -- because I couldn't deliver them, and if I can't deliver I don't promise, and never did -- and don't."
" And did you also discuss or do you remember rather whether you discussed the benefit of a branded presence in the HORECA trade which would give a spin-off into the branded retail sales? - Do you remember discussing that? - I was always aware that Mr. Hamilton had aspirations that the brand ought to be distributed in what I would call the on-trade as well as the off-trade. That was never in dispute.
Yes, your position yesterday, your recollection yesterday was that there was an agreement almost from the outset that you would concentrate on the off-trade and then move on to the on-trade? - Absolutely.
Now, to the best of your recollection that was your understanding at the time, is that the position? - Yes.
So presumably one would have to be in the on-trade for a period of months or a period of years ... ? - The off-trade.
In the off-trade for a period of months or a period of years before one makes serious impact on the on-trade. You were envisaging brand building through the supermarkets and such things and then on the platform of that you would move into the on-trade because people having seen it in the supermarket, you could say to the pubs and hotels look, this is something that is very popular in the off-trade, you should be stocking it. Was it that sort of arrangement your envisaged? - That was the way I envisaged it."
" You said in your evidence this morning when my learned friend was asking you questions that you did not have a perception that distribution to the on-trade was Mr. Hamilton's be all and end all. Is that something you are clear about? - I am quite clear about that and again that document would support that view and in all the discussions I had with him and the discussions he had with me when Mr. Hodges was present, the off-trade and the Lyons Tetley sales force was the way ahead.
And you are quite clear that he understood that? - Absolutely because if he didn't, why didn't he write it in or attempt to write it into the agreement?
Well, if we leave the document to one side and just try to remember about the general nature of the discussions. Are you quite clear that documents apart in relation to discussions he understood your strategy was off-trade first and on-trade down the line? - I am quite certain he understood that.
And are you quite sure that you did not understand that on-trade distribution was his be all and end all? - At no time because I couldn't have delivered it.
Well, regardless of whether you could have delivered it, did you have a perception that that was his ... (inaudible)? - I knew he regarded it as important but I believe he had come along in the belief that the brand would get off the ground more quickly by going through the off-trade and the whole direction or thrust of my conversation with him, and indeed the whole thrust of I think the financial planning has to be that the off-trade was the primary initial thrust for Gleneagles Spring Water."
...
" Now, it was also suggested to you that it was at this meeting that Mr. Hamilton stressed to you what it was that Gleneagles were looking for in a partner. Do you have any recollection of that? - No, but he at no time throughout these discussions laid down that his interests lay solely in the on-trade business and indeed it couldn't have been further away from my ideas either because of the majority of bottled water is not sold really on-trade. It is sold through the off-trade and that is where I wanted to be and I thought I had taken Mr. Hamilton in general discussions down that route.
Now, you told my learned friend that you were always aware that Mr. Hamilton had aspirations in relation to the on-trade? - Indeed.
How did you have that knowledge? - Because I was just generally aware and recall that over a period of months he mentioned the on-trade and I mentioned the off-trade and I made it clear to him, I thought I made it clear to him in these conversations, and I had been very consistent I thought with that, that the off-trade was the route that we would pursue in the early stages and we would pursue the on-trade at a later date.
Did you have an idea at that time when that might have been? - Well, it would have depended upon ... it would have depended upon first of all getting production, being in a position to be able to put the product on the shelves in stores, building the brand and then sort of two, two and a half, maybe even three years after the off-trade operation had been put in place then we could spend our time and efforts looking at ways and means of moving into the on-trade. But if ... (inaudible) ... had come along and said we would like to take the brand into all our pubs then I am sure that somebody would have said yes even although our priority at that time was the off-trade but to take your chances where they arise in those early times. In terms of ... (inaudible) ... you tend to have a sales force effort behind it. Indeed, in terms of producing the various types of bottles that people tend to want in the off-trade and the on-trade I think it was very much down the road two years minimum from the launch into the off-trade."
"I am satisfied that Mr. Beatty led Mr. Hamilton ... to believe that he agreed with Mr. Hamilton that Gleneagles should try to penetrate the on-trade from the beginning as well as the off-trade ... ".
These findings suggest to me that the Lord Ordinary may have been persuaded to approach the case more from the point of view of a delictual duty of care rather than from the point of view of a positive misrepresentation by Mr. Beatty. But, however that may be, before us counsel for the respondents were clear that a positive misrepresentation was required and they claimed that a misrepresentation of that sort could be found within the Lord Ordinary's narrative of the evidence relative to a site meeting at Blackford on 27 May 1992. I do not myself think that the date is particularly important but, so far as the substance of matters is concerned, the narrative in question reads as follows:
"Mr. Hamilton's recollection was that he explained what he was looking for and why he wanted to do a deal with the defenders. The pursuers would bring their knowledge of the water industry but what he wanted from the defenders was their powerful distribution network. Mr. Hamilton was adamant that what was being discussed in this context was access to the on-trade. He said that that was made crystal clear to Mr. Beatty ... Mr. Hamilton said that Mr. Beatty understood that this was necessary in order to get Gleneagles off the ground and he gave him (Mr. Hamilton) the impression from his response that he could achieve it. His response was that this was in the defenders' best interests and that they would do it."
" Yes. And the reason why you wanted to go into the deal - what did you say? - That Allied was bringing the power of its distribution to this deal, and we were bringing the technology of the water business.
Yes. When you spoke about it bringing its power of distribution, did you discuss within that concept any particular area of distribution, to any part of the trade? Were you looking at retail, at HORECA or what? - We were very definitely discussing HORECA.
Discussing HORECA? - Yes.
Yes. So you were looking for Allied to bring in access to HORECA? - Yes.
Yes. And was that made quite clear to Mr Beattie? - Oh, it was crystal clear to him.
And what was Mr Beattie's response to the suggestion that you were looking for Allied to bring access to HORECA to the deal? - His answer to that usually (my emphasis) was that it was in Allied's interests to cover the distribution in all sectors.
Yes? - And this was something they could do.
Could do or would do? - 'Would do', was the implication (my emphasis).
Yes. Well, you were saying they wanted your expertise, you wanted their distribution to HORECA ...? - Yes.
in particular? - Yes.
And whatever exact words were used, they were giving you the impression (my emphasis) that they would do it? - Yes."
...
" My learned friend then asked you about HORECA? - Yes.
And you said that Mr Beattie had confirmed that this was something that they could do? - Yes.
And my learned friend then asked you whether he had said 'would' or 'could'? - Yes.
And your answer to that was that 'would' was the implication? - Yes.
I wonder if I can just ask you to cast your mind back to that conversation, and tell us whether you have any clear recollection of exactly what it was he said. Was it in fact the case that he said this was something that they could do? - No - all the way through - I can only give you the pattern of discussion with David Beattie. Every time I met him he was selling to me a deliverable, and therefore I am very careful in words like could and would, very careful about analysing what is said, and I have no doubt in my own mind that it was 'would'.
And you recollect that more clearly now than when you were giving evidence earlier? - I am saying to you that it is in keeping with the pattern of every discussion I had with David Beattie. Nobody discussing something of 10 years ago can give absolute precision and verbatim statements as to exactly what was said, so one has to work on the basis of the understanding, of the spirit, the tenor, and the background to the meetings".
As it seems to me, a fair reading of these passages is to the effect that Mr. Hamilton had really no distinct recollection of what was said on the occasion in question (wherever and whenever that was) and was simply giving evidence of what he had understood to be the "pattern" of his discussions with Mr. Beatty. In my opinion, however, while evidence of that character might conceivably found a case pled in delict on the basis of a failure to take reasonable care, it simply has no place in a case based on the existence of a positive oral misrepresentation. Even if I were wrong about that, it is clearly impossible to judge what meaning should be given to any response attributed to Mr. Beatty unless one is apprised of its immediate context, in short of what precisely had been said to him by Mr. Hamilton in the previous seconds or minutes. The evidence on that matter is, as it seems to me, close to non-existent.
[124] This brings me to my third criticism of the passage in question, namely that there is very little reference in it to what I have described as the vital matter of "timing", namely to that aspect of the misrepresentation which is said to have conveyed to Mr. Hamilton that the defenders' strategy was, not just eventually to penetrate the on-trade, but to penetrate it from the very outset. Indeed, the only possible reference to this matter is the reference to Mr. Hamilton saying that Mr. Beatty understood that access to the on-trade was necessary "in order to get Gleneagles off the ground". This, it seems, is a summary of evidence given by Mr. Hamilton in re-examination at pp. 625-6:" ... Now, before I come on to the completion meeting, if I may move back very briefly to the May, you have indicated that you can't say precisely which - you have told us there were several meetings in May? - Yes.
You can't say precisely which meeting in May you spoke to David Beattie? - That is correct.
Yes, but you spoke in chief about having put it to him - made it quite clear to him that you needed access to the on-trade; is that right? - Yes.
To Britvic? - Yes.
And what is your recollection at that meeting of his response? - Basically he understood that this was a component of getting the company off the ground.
Yes. And did he say anything to you about his ability to do so, or anything of that nature, can you recall? - I have the - or had the impression that this was something that he could achieve and deliver from the way he presented to me. To try to put specific words at this stage, I really couldn't do.
Are you satisfied in your own mind, however, you put it to him that this was a necessary component ...? - Yes.
... of the deal you wanted to do? - Yes.
Yes. And did he demur to that in any way? - He - there was an acceptance that this was a fact, that we needed this in the deal."
In my opinion it is clear that in this passage Mr. Hamilton is again doing no more than giving evidence of an impression or understanding which he had derived from a meeting, or perhaps meetings, with Mr. Beatty. Even supposing, therefore, that the reference to getting the company "off the ground" can be read as indicating penetration of the on-trade from the very outset, the passage of evidence, read as a whole, is, in my opinion, a wholly inadequate basis for holding proved a vital part of the verbal misrepresentation in question.
[125] I would add that, even if I were wrong about everything else, it is far from clear to me how what is attributed to Mr. Beatty can on any view be categorised as a form of negligent misrepresentation inducing the subsequent detailed written contract. Rather, as it seems to me, any exchange such as that described by Mr. Hamilton should be categorised as some form of informal or collateral understanding, agreement or "deal". And, even if what was said were to be regarded as a form of misrepresentation, in so far as it was plainly contrary to Mr. Beatty's own knowledge and understanding of the position at the time, it seems to me that it could only be categorised as fraudulent. This, however, cannot accord with the certificate of credibility given to Mr. Beatty by the Lord Ordinary and is, in any event, not the case on Record. [126] In the result, having enjoyed what in this case has proved to be the very considerable advantage of reading the transcript of evidence, I have reached the view, in agreement with the submissions of counsel for the reclaimers, that there was really no evidence which either entitled, or would have entitled, the Lord Ordinary to hold proved the only case open to the pursuers on their pleadings. I have reached this view with some regret because I am well aware that the Lord Ordinary heard a lengthy proof and has written a long and detailed judgment. It almost goes without saying that, had there been evidence properly available to support a finding for the pursuers, it is the Lord Ordinary's view of that evidence, rather than our own, which would have been important. As I have already remarked, however, the Lord Ordinary seems to have been persuaded to decide the case on a rather broader front than was actually open to him on the pleadings, and therein, I think, lies my difference with him. In the end, I simply do not consider there to have been any sufficient evidence of the making of a verbal misrepresentation by Mr. Beatty to Mr. Hamilton, such as that alleged, at any meeting in May 1992, let alone at a meeting in Blackford during that month. [127] That, as it seems to me, is an end of the case for the pursuers and respondents. No submission was made that the misrepresentation in question could be found elsewhere in the evidence and it is accordingly unnecessary to consider the reclaimers' further arguments regarding causation and the effect of clause 10.5 of the share subscription agreement. In light of the unusual nature of the present case, the rather unsatisfactory state of the evidence and the paucity of discussion at first instance to which your Lordship in the Chair has referred, I think it right to reserve my opinion on both these matters. As regards causation, however, it is, I think, worth emphasising that the mis-representation relied on related only to the defenders' "strategy" as at 29 May 1992. The pursuers and respondents must have realised that that strategy could change at any time and, indeed, from an early stage, that it was a strategy which was not being followed. When matters are looked at in the round, therefore, there is no obvious equity in the substantial claim for damages which, in the end, the Lord Ordinary sustained. [128] In the result, I agree with your Lordship in the Chair that this reclaiming motion should be allowed, that the Lord Ordinary's interlocutor of 1 August 2003 should be recalled, and that the second and third pleas in law forthe reclaimers should be sustained to the effect of absolving them from the conclusions of the summons.