Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2013] CSOH 18
CA18/12	OPINION OF LORD HODGE in the cause PATERSONS OF GREENOAKHILL LIMITED Pursuer; against BIFFA WASTE SERVICES LIMITED Defender: ________________

Pursuer: Clark QC; Pinsent Masons LLP

Defender: Lord Davidson of Glen Clova QC, Delibegovic-Broome; Dundas & Wilson CS LLP

1 February 2013

[1] The pursuer ("PGL") operated a landfill site at Greenoakhill, Mount Vernon, Glasgow ("the site"). Mr William Paterson ("Mr Paterson") and his family, who controlled PGL, also had controlling shareholdings in companies with interests in quarries, and waste collection and disposal.

[2] In 1998 the defender ("Biffa") wanted to expand its waste collection business into Scotland in order to create a national UK-wide service. It sought to provide services to companies that traded throughout the UK such as supermarket chains. Biffa offered to buy the waste collection business which Patersons Waste Disposal Ltd ("PWDL") operated. PWDL delivered about 110,000 tonnes of waste to the site in the years shortly before 1998. Mr Paterson was willing to sell the assets of the waste collection business but wanted to secure the continued supply of waste to PGL's landfill site.

[3] The commercial deal was effected by three contracts. They were:

(i) the asset purchase agreement ("APA") by which Biffa acquired the assets (other than book debts) and goodwill of the waste collection business;

(ii) the Clydesdale agreement ("CA"), by which Biffa agreed to deliver to the site waste from the Carluke transfer station, which it collected when it took over PWDL's responsibility under a contract with South Lanarkshire Council that ran until 30 April 2004; and

(iii) the general tipping agreement ("GTA"), which committed Biffa to deliver waste to the site and had a term of 15 years.

PGL were assisted and represented by McGrigor Donald and Biffa by Shepherd & Wedderburn (S&W) in the negotiation and preparation of the contracts. Both were firms with experienced commercial solicitors.

[4] The parties negotiated the three contracts promptly and without rancour. They planned to complete the deal by 31 March 1998 to correspond to the end of PGL's accounting year. The solicitors who represented the parties circulated drafts of the agreements in late March. There was a late night negotiation on Sunday 29 March and the agreements were signed at a completion meeting on Monday 30 March.

[5] PGL and Biffa dispute the interpretation of a clause in the GTA. In the proof which I heard the parties raised four principal issues. They were (i) the correct meaning of the disputed clause, and, if the court agreed with PGL's interpretation, (ii) whether the contract should be rectified, (iii) personal bar and waiver and (iv) whether the clause was unenforceable as a penalty clause. The court reserved any issue of the quantification of claims for a later hearing.

Credibility and reliability

[6] There was no issue of credibility of the witnesses in this case. Biffa questioned the reliability of Mr Paterson's recollection. He did not recall the extent of Mr Prosser's involvement in the negotiations which I discuss below. I accept that he was not to be relied on in that respect, but I did not find him otherwise to be any more or less reliable than the other witnesses in recollecting the negotiations. I believe that all the witnesses did their best to recall events accurately. But, with the passage of time, they struggled to recall the details of the discussions. Also, inevitably, the witnesses when asked to recall events had knowledge of what occurred afterwards, which they had not had in 1998. This knowledge coloured some of their assertions.

The general tipping agreement
[7] The GTA was a fifteen-year contract unless Biffa supplied 1.65 million tonnes of waste to the site more quickly. For the first six years, until 30 March 2004, Biffa was obliged to supply a minimum of 85,000 tonnes (subject to specified exclusions) annually to the site ("the minimum annual tonnage"). To give it some flexibility, the minimum annual tonnage was aggregated over three years. A different regime applied from year seven. Biffa had to supply 80% of the waste collected within a defined geographical area in the central belt of Scotland, which the GTA referred to as "the Collection Area".

[8] Biffa did not comply with the latter obligation in 2006‑2007, 2007‑2008, 2008‑2009 and 2009‑2010. That failure brought into effect the contested clause 5.3.2 of the GTA and Biffa paid all or almost all the shortfall sums that were due in respect of those years.

The clause in dispute

[9] Clause 5.3 of the GTA provided:

"From and after the sixth anniversary of the Commencement Date the following provisions shall apply:

5.3.1 Biffa shall procure in respect of each Year that not less than 80% (measured by weight) of the commercial and industrial waste (under exception of (a) glass and (b) the Clydesdale Waste (c) Rejected Tonnage and (d) Excluded Materials referable to that Year) collected by or on behalf of Biffa within the Collection Area during that Year shall be delivered to the Landfill Site for disposal in accordance with the terms of this Agreement.

5.3.2      If Biffa breaches its obligations under Clause 5.3.1 hereof the following provisions shall apply in respect of the Year during which Biffa shall have breached said obligations and each subsequent Year during the Period of this Agreement (each such Year being referred to as a "Relevant Year") namely, if in any Relevant Year the aggregate tonnage of General Waste delivered on behalf of Biffa to the Landfill Site is less than the Minimum Annual Tonnage, Biffa shall, within 30 days after the end of that Relevant Year, make payment to the Site Operator of a sum (exclusive of Landfill Tax and Value Added Tax) calculated in accordance with the following formula:

£a = (b-c) x d

where a is the said Sum; b is the Minimum Annual Tonnage; c is said aggregate tonnage of General Waste disclosed during the Relevant Year; and d is Tonnage Rate (Ordinary) applicable to that Relevant Year; ..."

The parties' contentions on construction
[10] Mr Clark for PGL submitted that clause 5.3.2 was clear in its terms and that the court should give effect to the unambiguous language that the parties had chosen to use. It required strong evidence before the court could conclude that the parties had made a mistake in the words which they had chosen. This was particularly so where the parties had been assisted in framing a formal contract by experienced commercial lawyers. Here there was no clear mistake. The words of the clause should therefore be given their ordinary meaning. The clause meant that if once Biffa failed to deliver to the site 80% of the waste which it collected from the defined geographical area, it was obliged to pay PGL as if it had supplied 85,000 tonnes of waste (subject to the exclusions) each year until the termination of the GTA.

[11] Lord Davidson for Biffa submitted that the clause meant that the obligation on Biffa to pay PGL the sum calculated under clause 5.3.2 applied only in any year in which Biffa breached the obligation to deliver 80% of the waste collected in the defined area. The sub‑clause should be interpreted in the context of clause 5 as a whole. Clause 5.3.1 imposed an annual target. Like clause 5.2, which allowed the three-year aggregation, it was designed to achieve a flexible regime. PGL's construction would disapply it in the event of one breach. That was not commercially sensible and would conflict with the business reality of the transaction. The parties when entering into the GTA could more readily foresee developments in the years immediately after 1998 than in later years. Yet there was a stark contrast between the flexibility of the three‑year average that was available to Biffa in the first six years of the contract and the inflexibility of the annual target of 85,000 tonnes if Biffa were once to fail to comply, even in the smallest way, with clause 5.3.1 in the later years. This severe consequence did not apply in the CA which the parties executed at the same time. The subsequent behaviour of the parties is consistent with Biffa's construction.

[12] Counsel did not dispute the principles to be derived from the cases on the construction of contracts. I mention the leading cases to which they referred me below.

The law: evidence relevant to the construction of contracts

[13] The evidence that the court may admit to assist in the construction of a document is not the same as the evidence that is admissible for its rectification. Where, as here, both issues are raised, the court has to keep in mind a clear distinction between the two issues and the evidence that is relevant to each. The approach of the courts to the interpretation of contracts is well established and hardly merits restating. The approach to rectification in this jurisdiction is less fixed. There may therefore be benefit in summarising the two approaches.

[14] The court, when construing a contract, considers the language that the parties have used. It uses the concept of a reasonable person, who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. It ascertains what that reasonable person would have understood the parties to have meant by their use of that language. In doing so, the court has regard to the relevant surrounding circumstances, being the circumstances which were reasonably within the knowledge of both parties, or all of the parties in a multilateral contract.

[15] Modern authority for this approach is extensive (Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896, Lord Hoffmann at 912‑913; Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101, Lord Hoffmann at paras 21‑26; Pink Floyd Music ltd v EMI Records Ltd [2010] EWCA Civ 1429, Lord Neuberger MR at paras 17 - 18; and Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, Lord Clarke of Stone‑cum‑Ebony at paras 14-25). But the court's use of the known surrounding circumstances to assist in the construction of a commercial contract is long established in this jurisdiction (Forlong v Taylor's Trustees (1838) 3 Sh & McL 177, Lord Cottenham LC at 210-211, Bank of Scotland v Stewart (1891) 18 R 957, Lord President Inglis at 960). Such evidence is admissible to give the court the state of knowledge of the parties at the time the contract was entered into. That knowledge includes contracts which the parties enter into at the same time (Autolink Concessionaires (M6) plc v Amey Construction Ltd and Others [2007] CSOH 81, Lord Clarke at para 33).

[16] Where the parties have used unambiguous language the court must give effect to it, absent a mistake (Melanesian Mission Trust Board v Australian Mutual Provident Society [1996] UKPC 53; (1997) 74 P & CR 297, Lord Hope at para 8; Charter Reinsurance Co Ltd v Fagan [1997] AC 313, Lord Mustill at 384 B-C and 388B-D). But if there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other (Rainy Sky, Lord Clarke at paras 23 and 25). The court is slow to conclude that the parties have made a mistake or used the wrong words or syntax. It is not enough to take the view that one of the parties has made a bad bargain. The court must have regard to the positions of both parties in attributing a purpose to a commercial transaction or a clause within an agreement. If the court is to accept an invitation to correct a mistake by construction, it will normally look for (a) an arbitrary, irrational or commercially nonsensical outcome and (b) clarity on what correction ought to be made (Pink Floyd Music Ltd, Lord Neuberger MR at paras 20-22; Credential Bath Street Ltd v Venture Investment Placement Ltd [2007] CSOH 208, 2008 Hous LR 2, Lord Reed at paras 18 ‑ 25).

[17] Not everything that the parties knew when negotiating an agreement can be considered when the court construes the contract. For reasons both of relevancy and also of pragmatism the law has set its face against the consideration of parties' statements of intention in the negotiations leading to the contract. There is recent authority for this (Chartbrook Ltd, Lord Hoffmann at paras 27-42; Luminar Lava Ignite Ltd v Mama Group plc 2010 SC 310 at paras 39 ‑ 45). Again there is also older authority in this jurisdiction (Inglis v Buttery (1877) 5 R 58, Lord Gifford (dissenting) at 69-70; (1878) 5 R (HL) 87, Lord Blackburn at 102-103).

[18] The rule excluding statements of intention in pre-contractual negotiations has its limits. In Chartbrook Ltd Lord Hoffmann stated (at para 42):

"The rule excludes evidence of what was said or done during the course of negotiating the agreement for the purpose of drawing inferences about what the contract meant. It does not exclude the use of such evidence for other purposes: for example, to establish that a fact which may be relevant as background was known to the parties, or to support a claim for rectification or estoppel. These are not exceptions to the rule. They operate outside it."

As Lord President Rodger stated, such facts cannot be used to "provide a gloss on the terms of the contract" but are relevant "to establish the parties' knowledge of the circumstances with reference to which they used the words in the contract" (Bank of Scotland v Dunedin Property Investment Co Ltd 1998 SC 657, at 665G).

The circumstances relevant to construing the contract

[19] During the negotiation of the agreement, both parties would have known (a) that PGL wanted to secure the continued delivery of waste to the site during the period of the contract and (b) that Biffa did not want to be tied to a minimum annual tonnage figure for any longer than was necessary to achieve a deal with PGL. That is the background to the structure of the GTA and to the change of the obligations on Biffa from the seventh year onwards.

[20] Biffa did not enquire in detail into PWDL's business. PGL provided it with weighbridge receipts to vouch the levels of waste which PWDL delivered to the site. Those records supported the figure of 110,000 tonnes per year in the 12 months to 30 November 1997. Biffa was a substantial national company and its representatives expressed confidence that it would be able to exceed the tonnage which PWDL had delivered to the site. The parties agreed that Biffa would receive a 5% discount on any tonnage in excess of the annual figure of 110,000 tonnes (clauses 5.2.2 and 5.3.3).

[21] Both parties were aware that there was likely to be increasingly strict regulation of waste disposal, including landfill, through European Union and national legislation and regulation in the future. Both were aware that landfill tax had been introduced and that it might increase over time, thereby promoting the re‑cycling of waste. Mr Paterson in his evidence appeared to have been less anxious about such regulation and the landfill tax at the time than Biffa's witnesses. But I do not think that either party foresaw the extent by which increases in landfill tax, developing ideas of corporate responsibility and changing social attitudes caused a shift towards the re‑cycling of waste.

[22] The parties' awareness of the prospect of increased regulation lies behind their agreement to have a fixed annual minimum tonnage only for the first six years of the contract. Biffa also obtained protection in the definition of the minimum annual tonnage. It was entitled to deduct from the 85,000 tonnes materials which could have been disposed at the site but because of a regulatory requirement prohibiting disposal as landfill could no longer be delivered to the site. The parties' awareness of a likely increase in recycling is also reflected in clause 5.3.1, which in addition excluded glass from the total waste collected in the defined geographical area.

[23] It would have been clear to both parties that the obligation from year seven to deliver 80% of the waste gathered from the defined geographical area gave Biffa a target that it should have been able to achieve by entering into suitable contracts with third parties to collect their waste. What the parties appear not to have foreseen is the extent of the growth of re-cycling, other than glass, in the following years and the effect that that had on Biffa's obligations under clause 5.3.

[24] Both parties would have been aware that it would be difficult for PGL to police the obligations on Biffa under clause 5.3.1 as it did not have a contractual right to see documents that vouched what Biffa collected from the defined geographical area each year. But either party was empowered by clause 6 of the GTA to refer disputes about whether Biffa had complied with its clause 5.3 obligations to an expert for a binding determination. Each party was obliged to provide the expert with the information which he requested.

[25] Clause 4.4 of the GTA obliged PGL to give Biffa "the most favoured rate", which was the lowest rate per tonne that PGL charged to its customers for the disposal of commercial and industrial waste to the site. This is consistent with Biffa's undertaking of onerous obligations to deliver waste to the site.

[26] Finally, clause 5 of the CA which the parties agreed at the same time as the GTA forms part of the factual matrix. Biffa undertook in clause 5.2 to procure that all of the Clydesdale waste, other than excluded materials, would be delivered to the site. In 1997 this amounted to about 40,000 tonnes per year. Clause 5.3 provided that if Biffa breached that obligation it had to pay PGL a sum to make up the difference between what it paid in respect of the waste it delivered and what it would have paid if it had delivered 40,000 tonnes. But the clause provided, somewhat inelegantly, that the obligation applied only in the year or years in which Biffa failed to comply with its obligation under clause 5.2. The relevant words in clause 5.3 were:

"If Biffa breaches its obligations under clause 5.2 hereof the following provisions shall apply in respect of the Year during which Biffa shall have breached said obligations and each subsequent Year during the Period of this Agreement during which any such breach shall occur (each such Year being referred to as a 'Relevant Year') ..." (my emphasis)

The underlined words, which do not appear in the GTA, must have been added to a draft to achieve that result.

[27] In my view the factual matrix comprised those matters and the general background that I have recorded in paragraphs [1]- [3] and [7] above. I do not think that the subsequent behaviour of the parties, if it were admissible (McBryde, The Law of Contract in Scotland (3^rd ed.) para 8-30), casts any light on the interpretation of the clause in issue in this case. The subsequent conduct is significant when considered together with evidence of the pre-contractual negotiations, which is not admissible for this purpose but is relevant to rectification.

Construing clause 5.3
[28] In my view the factual background which was available to both parties gives no basis for putting a gloss on the words that the parties used in clause 5.3.2 of the GTA. Unless the court considers the evidence about the parties' expressions of intention in the pre-contractual negotiations and their post‑contractual conduct, the existence of the parallel provision in the CA does not point to a mistake in the GTA.

[29] Giving the words of clause 5.3.2 of the GTA their ordinary and natural meaning, the effect of the clause is clear: if Biffa breached clause 5.3.1 in any year it was obliged in that year and every following year until the termination of the GTA to pay PGL in accordance with the formula in that clause.

[30] There is nothing unreasonable or contrary to business common sense in such a construction. Biffa had control over the waste collection contracts that it entered into in the defined geographical area. If its managers kept the contractual obligation in mind and construed it correctly, clause 5.3.2 should have caused it no difficulties. The fact that the parties agreed different terms in the CA is not sufficient to persuade me that the plain words of clause 5.3.2 should be construed as if it were the same as the parallel provision in the CA.

[31] I am therefore satisfied that PGL's construction of clause 5.3.2 is correct. I turn then to rectification.

The law: evidence relevant to rectification
[32] Rectification, which sections 8 and 9 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 ("the 1985 Act") introduced into Scots law, provides a flexible remedy for errors of expression. Section 8 provides:

"(1) Subject to section 9 of this Act, where the court is satisfied, on an application made to it, that -

(a) a document intended to express or give effect to an agreement fails to express accurately the common intention of the parties to the agreement at the date when it was made; ....

it may order the document to be rectified in any manner that it may specify in order to give effect to that intention.

(2) For the purposes of subsection (1) above, the court is entitled to have regard to all relevant evidence, whether written or oral."

[33] To understand what is relevant evidence it is necessary to examine briefly how the law has developed since 1985. Lord Reed discussed the background to the 1985 Act in much more detail in Macdonald Estates Plc v Regenesis (2005) Dunfermline Ltd 2007 SLT 791, to which I was referred. He expressed only a provisional view, as he did not need to decide the issue in that case. I do not have that option. I agree with his approach and can summarise the principal points as follows.

[34] First, while section 8(1)(a) requires the existence of an antecedent agreement which the document to be rectified fails accurately to express, that earlier agreement does not have to be legally binding. See the discussion of English case law in the Scottish Law Commission's ("SLC") consultative memorandum no 43, "Voluntary obligations: defective expression and its correction" (1979) paras 72 - 82 and the SLC's conclusions in its "Report on rectification of contractual and other documents" (1983) paras 3.2 - 3.5. See also Shaw v William Grant (Minerals) Ltd 1989 SLT 121, Lord McCluskey at 121H; Macdonald Estates Plc, Lord Reed at para 159.

[35] Secondly, it is not necessary for that antecedent agreement to have some outward or objective expression beyond the objective evidence of a continuing common intention that I discuss in the fourth point below (Macdonald Estates Plc at para 156; Britoil plc v Hunt Overseas Oil Inc. [1994] CLC 561, Hoffmann LJ at 578-579).

[36] Thirdly, it follows from the first point that all the essentials of a binding legal agreement do not have to be agreed before the contract sought to be rectified has been produced and signed. The error of expression in relation to a particular term of a proposed contract may enter a document or series of documents before the parties have agreed an essential term of a contract and remain uncorrected when that stage has been reached (Rehman v Ahmed 1993 SLT 741, Lord Penrose at 751; Macdonald Estates Plc, Lord Reed at para 160). In Rehman Lord Penrose gave the example of an error of description of a heritable property in an early stage of the missives which the parties' solicitors overlooked when they negotiated the minutiae of the contract and eventually held the bargain to be completed. If there were a common intention that property X was the subject of the transaction, and a letter in the series of missives described property Y and was not corrected before the missives became binding, the missive containing the error could be rectified.

[37] Fourthly, the balance of Scots authority favours the view that the court assesses objectively the existence of the antecedent agreement and that the subjective understanding of each of the contracting parties is not relevant if it had not been communicated to the other parties. Lord Reed expressed a provisional view to that effect in Macdonald Estates Plc (at paras 161-165). He cited in support of his view the opinions of Lord Penrose in Rehman v Ahmed at 752, Lord Cameron of Lochbroom in Angus v Bryden 1992 SLT 884 and Hoffmann LJ in Britoil plc at 578-579.

[38] This approach differs from the provisional view expressed by the SLC in para 80 of the consultative memorandum and also Lord McCluskey's view in Shaw, in which he spoke (at 121H-I) of "actual (not deemed) intentions". But I agree with Lord Reed that the terms such as "agreement' and "intention" are

"open textured and capable of development, enabling rectification to develop as a remedy as the law of contract evolves over time"

(Macdonald Estates Plc at para 158). Since Lord Reed wrote his opinion, the House of Lords addressed the issue in English law in Chartbrook Ltd. Lord Hoffmann, having cited authority in support of the conclusion that the antecedent agreement did not have to be legally binding, continued (at para 60):

"Now that it has been established that rectification is also available when there is no binding antecedent agreement but the parties had a common continuing intention in respect of a particular matter in the instrument to be rectified, it would be anomalous if the "common continuing intention" were to be an objective fact if it amounted to an enforceable contract but a subjective belief if it did not. On the contrary, the authorities suggest that in both cases the question is what an objective observer would have thought the intentions of the parties to be."

I find that view persuasive in our law also.

[39] A further consideration in support of the objective approach relates to the outcome of the rectification of a contractual document. Our law ascertains the existence of a contract objectively and a party's undisclosed intention is not relevant. To allow subjective intention to govern the rectification of the contract would be anomalous. In an interesting article on the English law of rectification, Marcus Stone stated:

"It would be most odd for equity to impose on the parties a reformed contract in cases of mistake whose terms have been determined by reference to a different test to the common law's objectively ascertained consensus ad idem."

("Rectification of contracts for common mistake" [2007] 123 LQR 116 at p. 128)

While our law of rectification is statutory and is not based on the English law of equity, the same anomaly would exist if the courts looked to the undisclosed subjective intentions of the parties.

[40] I am therefore persuaded that when the court is asked to rectify a bilateral or multilateral document under section 8(1)(a) of the 1985 Act it has to assess the existence of the antecedent agreement and the common intention of the parties objectively. That conclusion will exclude evidence of undisclosed subjective intention. But it is not in my view a matter of regret, as it supports certainty in commercial transactions.

[41] The evidence that is relevant to rectification will include statements which one contracting party (A) has made to the other contracting party or parties (B & C) during negotiations about his intentions because it will show that B and C were aware of A's subjective view. The court has to assess those statements and other manifestations of the parties' intention to ascertain whether there was an agreement and also a continuing shared intention at the time the document sought to be rectified was executed.

[42] It is likely that the court will hear evidence from parties of their uncommunicated subjective intention because that will often be part of the way in which a witness gives his recollection of events. But what is relevant in assessing the existence of the antecedent agreement is not a party's uncommunicated intention but each party's intention manifested to the other parties by statement or conduct.

[43] It may also be relevant to consider the conduct of the parties after they signed the impugned contractual document as that may cast light on parties' intention when they entered into the contract (Chartbrook Ltd, Lord Hoffmann at para 65). The weight to be attached to such conduct will vary depending on the nature and quality of the pre‑contractual evidence.

[44] Where the contract is negotiated by solicitors as well as by their clients, the court looks to the disclosed intention of the principals. This flows from the statutory wording, which refers to "the common intention of the parties". But because the court assesses the intention of the parties objectively, it will look to the communicated statements and conduct of an agent acting within his authority, actual or ostensible, as well as the communicated statements and conduct of the principal to discover the principal's intention.

[45] When the court considers an application to rectify a unilateral instrument under section 8(1)(b) of the 1985 Act it looks to the subjective intention of the "grantor". In Bank of Scotland v Brunswick Developments (1987) Ltd 1999 SC (HL) 53, Lord Clyde observed (at 58A-E) that the "grantor" is the principal and not the signatory where these are not the same person. There may be circumstances in which an agent's intention is to be attributed to his principal when the court ascertains the subjective intention of the grantor. But is it more straightforward to have regard to the agent's acts and statements under section 8(1)(a) which looks for objective manifestations of intention.

[46] There is English authority that there must be "convincing proof" or "the most cogent evidence" of a mistake where a party is seeking to rectify a formal contract which was prepared with professional assistance at the end of a negotiation (Britoil plc, Hobhouse LJ at 572). The English law of rectification has a different history from the more recently introduced statutory regime in Scotland. It is therefore an uncertain guide in relation to our law. But in both jurisdictions the court has to take account of the same practical considerations.

[47] The SLC in its report on rectification recognised the importance of preserving the written terms of a contract and thought that the remedy should be granted only when the onus of proof was clearly discharged. It did not see a need to impose a higher standard of proof than the normal civil standard (report, paras 4.3 - 4.6). The question for the court is whether on a balance of probabilities the party seeking rectification has proved the grounds of rectification under the 1985 Act. Because proof of those grounds is, as the SLC foresaw, an inherently difficult task, I do not think that there is a substantial difference between the approach of the courts in the two jurisdictions to the quality of evidence that is required. It is a stiff hurdle.

The circumstances relevant to rectification
(i) Evidence of the negotiations

[48] Mr William Paterson and Mr James Richardson, who was formerly the finance director of PGL and has since retired, gave evidence about the pre-contractual discussions from PGL's perspective. Mr Nigel Manning, Biffa's director for collection operations between 1995 and 2005, and Mr Matthew Prosser, Biffa's general manager of the municipal division, gave evidence about Biffa's perspective. As I have said, the witnesses did not have a detailed recollection of the negotiations. I did not hear any evidence from the solicitors whom the parties instructed to prepare the contract documents. Nor did I have the drafts of the agreements which the solicitors exchanged in the course of their discussions. There were therefore large gaps in the evidence about the negotiations.

[49] There was an initial meeting in late 1997 when Mr Hugh Stewart and Mr Manning of Biffa met Mr Paterson. There were meetings in PGL's office in Coatbridge, on the site and also in Glasgow. Biffa's main interest was in the APA as that gave it the basis of expansion into Scotland. Mr Paterson made clear to Biffa's representatives that he saw the maintenance of PGL's revenues from waste deliveries to the site as essential to the deal. The negotiations were amicable and uncomplicated. Mr Richardson of PGL said "the deal went through swimmingly." Mr Richardson said that he focused on the financial aspects of the deal and in particular the APA. He was concerned about the "here and now" and did not concentrate on circumstances several years in the future. He would have chatted with Mr Paterson, who led the negotiations, but did not recall any discussion on clause 5.3 of the GTA.

[50] There was very little evidence from Biffa's witnesses about the negotiation of the critical clauses in the GTA and the CA. Mr Manning spoke of concentrating his attention on the APA and said that he was not involved in the detail of the GTA. He thought that Mr Prosser, Mr David Brown, Biffa's finance director, and Mr Bill Clark, Biffa's in‑house lawyer, would have dealt with that contract. Mr Prosser also did not recall the negotiation of clause 5.3 of the GTA. He also saw the APA as the main contract and viewed the other two contracts as subsidiary.

[51] It was only in mid‑March that the parties involved their lawyers and commenced the negotiation of the terms of the agreements. Mr George Boyle of S&W, who acted for Biffa, faxed Mr Tom Anderson of MD, who acted for PGL, on 10 March to follow up a telephone conversation. He recorded that Biffa was to commence its due diligence investigations in relation to PWDL's business on the following day. He intended to prepare a first draft of the acquisition agreement. He understood that PGL wanted arrangements to enable continued tipping and undertook to clarify his client's views.

[52] Mr Anderson of MD responded on the same day to confirm that PGL wanted a sale of PWDL's assets. After further telephone calls, on 13 March Mr Boyle of S&W sent Mr Anderson the first draft of the APA, having discussed the basic terms of it with his client. He proposed that he should meet Mr Anderson in the following week to resolve all outstanding points of principle and to discuss the proposed tipping contract, which he had yet to draft. He invited Mr Anderson to send him "Paterson's standard contracts".

[53] On 16 March Mr Boyle proposed a drafting meeting in Glasgow on Wednesday (18 March) which both solicitors and clients would attend. He said that he was liaising with Biffa about the first draft of a tipping contract and again asked to see Paterson's standard terms. He proposed to discuss the draft at the Wednesday meeting. Mr Anderson of MD responded to say that Mr Hugh Stewart and Mr Matthew Prosser had spoken to Mr William Paterson. Mr Paterson had agreed to attend the Wednesday meeting if the draft tipping agreement was available for discussion. PGL was to provide a note of the commercial points to be included in that agreement.

[54] On 18 March Mr Anderson of MD faxed Mr Boyle to explain that Mr Paterson had not agreed to a meeting that day. Mr Anderson proposed a meeting on the following day to discuss commercial points arising out of Mr Boyle's first draft. In relation to the proposed tipping contract he stated:

"We can't progress the price structure details until we have your clients' proposals. I gather that those proposals will be forthcoming during the course of today. The contract should however endure for 15 years and Patersons require the obligations of Biffa Waste Services limited under the tipping contract to be guaranteed by Severn Trent plc. The tipping contract will specify a minimum annual tonnage with an obligation on your clients to pay for any shortfall if the minimum figure is not achieved."

Mr Boyle of S&W faxed back on the same day. In relation to the tipping contract he said that he was discussing a draft with Biffa and hoped to let him have it on the following day. He commented on commercial issues including prices. He proposed a 15‑year period subject to Biffa having three year break options. In relation to minimum annual tonnage he stated:

"Biffa's position is that all waste from the Transfer Station can be guaranteed under the Tipping Contract. Indeed we will require to introduce provisions into the Tipping Contract to safeguard Biffa's right to dispose of the Council Contract waste at the Landfill site. In relation to tonnages from existing customers, this will be dependent upon existing customers of PWD continuing in business with Biffa at similar levels (per the tonnage levels disclosed). ..."

[55] On 19 March Mr Boyle of S&W faxed Mr Anderson a draft tipping agreement. He noted that Mr Anderson had also prepared a draft and suggested that they should discuss the commercial issues at a meeting that day which Mr Prosser and Mr Bill Clark of Biffa would attend. It appears that the parties discussed commercial points at that meeting and on the following day Mr Boyle met his clients to obtain their position on those points.

[56] On 23 March he faxed Mr Anderson to set out Biffa's position and to suggest a final meeting to resolve any outstanding issues of principle. He explained that Biffa's major problem with the tipping contract was that it could not accept a minimum tonnage commitment for fifteen years. It proposed a commitment of only five years and the right to aggregate three years in calculating the minimum annual tonnage. If Biffa were to agree to a penalty for supplying more than 30% below 110,000 tonnes, it sought a discount if it supplied in excess of 30% over 110,000 tonnes.

[57] Mr Anderson replied later that day and copied the fax to Mr Paterson. He proposed a meeting between Mr Paterson and Biffa to resolve the outstanding commercial points. He stated:

"As intimated in the initial negotiations the sale of the Business is only of interest to Patersons if its volumes at the tip are safeguarded."

He enclosed a draft of the tipping contract which set out PGL's position on a number of issues but he did not mention in his fax the issue which came to be governed by clause 5.3.2.

[58] After a meeting on 24 March, Mr Anderson wrote to Mr Boyle by fax on 25 March to set out his understanding of the agreement reached on the tipping contract and undertook to produce updated drafts. He recorded the agreement to split the tipping contract into two agreements that became the CA and the GTA. He recorded the agreement that under the GTA there would be a minimum annual tonnage of 85,000 tonnes for the first six years and provision for a three‑year aggregation in the calculation of that target. In relation to the arrangement from the seventh year onwards he stated:

"With effect from the 6^th anniversary of the commencement date under the General Contract Biffa will undertake to deliver not less than 80% of the Landfill Waste collected by Biffa within a geographical area (to be agreed) - I understand that Willie Paterson hopes to agree that area today with Hugh Stewart by reference to a plan."

In his fax of the same day Mr Boyle responded to this suggestion stating:

"Biffa expected the 80% obligation to take account of any necessary "carve outs" due to legislative amendments or customers dictating specifically that waste should not go to landfill."

He stated that there needed to be an appropriate mechanism to adjust the percentage tonnage level to reflect this.

[59] The first mention in correspondence of the clauses in the GTA and the CA which are central to the dispute occurred in a fax by Mr Anderson to Mr Boyle on 26 March 1998. He sent the first draft of the CA and stated:

"It seems to me that the provisions of Clause 5.2 are required to back up the undertakings given by Biffa in terms of clause 5.2 but I am checking the point with Patersons."

It seems to me that the first reference to clause 5.2 should be to clause 5.3.

[60] Mr Boyle and Mr Anderson took their clients' instructions on the two tipping contracts. At 12.57 hours on 27 March Mr Anderson wrote to Mr Boyle and confirmed that PGL considered that there was a need for clause 5.3 in the CA which would take effect if Biffa were to breach its obligation under clause 5.2. At 13.42 hours Mr Boyle faxed Mr Anderson his revisals of the tipping contracts and stated that he awaited Biffa's comments on those revisals. At about 18.57 hours Mr Anderson faxed updated drafts of the two tipping contracts. In relation to the GTA he stated:

"1.3 Clause 5.3.2 is seen by Patersons as a necessary remedy to counter a breach by Biffa of its obligations under Clause 5.3.1. The provision will not take effect if Biffa complies with its obligations."

In relation to the parallel provision in the CA he stated:

"2.4 For the same reasons outlined above Clause 5.3 must remain."

He referred to discussions between Mr Paterson and Mr Prosser and proposed a meeting of solicitors on Sunday 29 March which Mr Paterson and Mr Prosser could join.

[61] After a late night meeting on Sunday which continued until after 0300 hours on Monday, the parties signed the contracts at a completion meeting on Monday 30 March 1998.

[62] I also heard oral evidence of the witnesses' recollection of events. Mr Paterson, whom Mr Richardson described as "the entrepreneurial driving force of the company", conducted most of the negotiations and gave instructions to Mr Anderson. He chatted to Mr Richardson about the progress of the discussions but Mr Richardson did not recall any discussion about clause 5.3 of the GTA or any involvement in agreeing its terms. Indeed Mr Richardson gave evidence that he had not understood the nature of the dispute over the clause until recently. He had not been aware that there was any difference between clause 5.3.2 of the GTA and clause 5.3 of the CA. He had only a vague recollection that the deal had been that if Biffa did not meet the 80% target it would have to pay the difference for the rest of the contract period.

[63] Mr Paterson, whom I considered a straightforward and honest witness, did not recall any specific negotiations about clause 5.3 of the GTA. He thought that it had been included at Biffa's insistence as clause 5.3.1 gave it some flexibility in the future. PGL wanted security in case Biffa breached that obligation and that was why clause 5.3.2 was introduced. He was the person in PGL who gave instructions to Mr Anderson on the proposed contracts. Counsel referred him to the wording of clause 5.3.2 and he did not recall discussing any different wording. He said that he had not been aware at the time of any difference between the wording of that clause and clause 5.3 in the CA. There had been no discussion between the parties as to whether Biffa had to fail to meet the 80% target in a year before the obligation to pay the sum under clause 5.3.2 came into play in that year. Counsel asked him whether he or anyone else in PGL had given any instructions to Mr Anderson to agree any other form of words than the terms of clause 5.3.2. He said he had not. On cross‑examination he said that Mr Anderson had drafted clause 5.3 of the GTA and that he would have discussed it with him. As it was a lengthy clause he would not have discussed the detail but would have "run over it" with him. He agreed with the proposition that there had been no detailed discussion that they would have one clause in the CA and a different one in the GTA. He agreed that it had all been "bundled up". He accepted that when the agreements were signed he had not been aware of any difference between these clauses in the GTA and the CA.

[64] Mr Manning, who had not been involved in the negotiation of the GTA, said that he was familiar with a "put or pay" clause in which a contractor was obliged to provide an annual target quantity of waste or pay the difference in the event of a shortfall on a yearly basis. He did not think that Mr Prosser would have agreed to what he described as a "one strike and you're out" clause and Biffa's parent company, Severn Trent plc, certainly would not have approved it. He read clause 5.3.2 as a standard "put or pay" clause and had not been aware that words were missing from it.

[65] Mr Prosser did not recall the negotiation of clause 5.3 of the GTA. The APA was the main deal and the other agreements were subsidiary. He did not have in mind the prospect of Biffa's delivering less than 85,000 tonnes per year to the site. But he said that he would not have been allowed to agree clause 5.3.2 as PGL interpreted it. He thought that the clause had the meaning that Biffa had advanced in this case. The norm in the waste disposal industry was an annual "put or pay" clause.

[66] In summarising the evidence of the people who were involved in the negotiation of the contract I have included what they said about their subjective understanding of what had been agreed. For the reasons discussed above, the subjective views of the parties which were not communicated to the other side are relevant only to the extent that the court can view a party's understanding of what had been agreed as evidence tending to show that those terms were agreed in an objective sense.

(ii) Evidence of the conduct of parties after the contract was signed

[67] Biffa achieved the minimum annual tonnages that the GTA required in the first six years. Problems emerged in the second phase of the contract when Biffa had to deliver 80% of the waste that it collected in the defined geographical area. The tonnages that Biffa delivered fell from 86,866 in 2004‑2005 to 48,796 in 2009‑2010. PGL claimed that Biffa had not complied with its obligations under clause 5.3.1 of the GTA in 2006-2007 and 2007-2008. It invoked clause 6 of that contract which provided for expert determination. The dispute centred on a question whether over‑issued newspapers and magazines that Biffa collected for reprocessing in a contract with SCA and items intended for recycling fell to be deducted from the commercial and industrial waste collected by or on behalf of Biffa for the purpose of calculating the 80% threshold in clause 5.3.1 of the GTA. The expert, Mr Martin King of Halcrow Group Ltd, in a report dated August 2009 decided that those items were not to be deducted and that in both years Biffa had failed to reach the 80% threshold. He determined that the shortfall payments due in respect of those years totalled £674,620.

[68] The parties also had a dispute in relation to 2009-10. On 16 June 2010 Ms Joanne Gillies of MD wrote to Mr Anderson of S&W to request payment of £949,763.90 as the shortfall payment due in respect of that year. In email correspondence between S&W and MD, the failure to comply with clause 5.3.1 of the GTA was ultimately not disputed but S&W suggested that the shortfall was smaller than PGD had stated and that £883,080.30 was due. Biffa paid that sum pending resolution of the disagreement on the size of the shortfall.

[69] Biffa's senior management were aware that their relationship with PGL had deteriorated. They wished to commence discussions with Mr Paterson to establish a mutually beneficial arrangement for the future. A meeting was arranged for 11 August 2010 at the Institute of Directors in London. Mr William Paterson attended the meeting for PGL. Mr David Wakeham, who was operations director, and Mr Stephen Jones, who was chief procurement officer, represented Biffa. They explained to Mr Paterson that Biffa had terminated its contract with SCA to enable it to comply with clause 5.3.2 in future. As a result Biffa would deliver to the site 80% of a diminishing amount of waste. Mr Paterson suggested that Biffa had to supply 85,000 tonnes per year but, because he was not sure of the specifics of the contract, agreed to consult his lawyers.

[70] In an email on 12 August 2010 Mr Paterson informed Mr Jones that he had discussed the issue with his adviser and his view remained as he had stated at the meeting. He stated:

"Biffa has a contract with Patersons and there is a shortfall on the yearly tonnage. Biffa has been paying this shortfall on a yearly basis. The contract has three years to run (including this year) and you will still have considerable monies to pay over this period."

He offered to negotiate a new contract if Biffa agreed to pay two‑thirds of the estimated shortfall over the three years. Mr Jones expressed the view in evidence that Mr Paterson had not obtained MD's advice at this stage. I am not able to reach a clear view on that. In any event, it seems that if Mr Paterson had spoken to MD, he had not discussed the matter in any detail as he recorded contradictory legal advice in the next exchange of emails.

[71] Mr Jones responded by email dated 17 August 2010 in which he asserted that it was only if Biffa failed to deliver 80% of the waste from the defined collection area that the obligation to pay for a shortfall below 85,000 tonnes arose. He invited Mr Paterson to speak to Ms Gillies of MD and suggested that their lawyers should discuss the matter it there was disagreement. Mr Paterson replied on 19 August. He stated:

"Firstly I would confirm that I have consulted Joanne Gillies of McGrigors and I am in agreement with you that the requirement to deliver 80% of waste collected is correct."

He also stated that MD had confirmed that Biffa had to deliver 80% of all waste from the relevant area whether the total was landfilled or recycled. By email dated 20 August Mr Jones acknowledged Mr Paterson's agreement on the interpretation of Biffa's contractual obligations. He invited Mr Paterson to resume negotiations as the obligation to PGL in the GTA would prevent Biffa from taking on recyclable waste collection and would result in its collecting a reducing amount of waste. He described the circumstances as a "lose: lose scenario".

[72] Matters then went quiet. But on 22 April 2011, Mr Tom Paterson, Mr Paterson's son and by then the managing director of PGL, wrote to Mr Jones of Biffa. He claimed £844,212.30 plus VAT in respect of a shortfall below the 85,000 minimum annual tonnage in 2010‑11. Mr Jones replied by email dated 27 April 2011 reminding him of the discussions in August 2010 and the agreement that Biffa had to deliver in accordance with the 80% target. Thereafter MD and S&W corresponded over the issue whether Biffa had met the 80% target and whether the dispute should be referred to an expert. Biffa produced statistics and records in an attempt to vouch its assertion that it had met that target.

[73] PGL altered its stance in December after it received legal advice from Mr Tim Young of MD. In a letter and fax to S&W dated 15 December 2011 Mr Young enclosed draft terms of reference to the expert, Mr King, and raised a new argument. He quoted clause 5.3.2 of the GTA and referred to the expert's prior determination that Biffa had failed to comply with clause 5.3.1 in 2006/2007 and 2007/2008. He continued:

"We therefore consider that the clear terms of the contract provide that the payment in terms of Clause 5.3.2 is due every year thereafter. Our client's position is, therefore, that it is irrelevant whether or not your client delivered 80% of the waste in 2011 because Clause 5.3.1 has been superseded by the provisions of Clause 5.3.2."

[74] This was the first clear assertion of the interpretation of clause 5.3.2 which PGL advance in this action. Lord Davidson asked Mr Paterson on cross‑examination whether he had instructed Mr Young to write this letter. Mr Paterson replied that Mr Young had read the agreement and felt that that was what it meant. He said that he had not heard of the idea before, it seemed a good idea and it was "not to be sneezed at". On re‑examination Mr Paterson acknowledged that the "new idea" was that one breach of clause 5.3.1 would cause the GTA to revert to the 85,000 tonnes minimum annual tonnage for the remaining period of the contract.

Parties' submissions on rectification

[75] Mr Clark submitted that Biffa had not made out a case for rectification. There had to be a pre-existing agreement and that there must be averments and evidence of a definite point in time when that agreement was reached. The burden of proof rested on the party seeking rectification. He accepted that the court should look to the outward acts of the parties and assess objectively whether there was such an agreement.

[76] In its pleadings Biffa founded on the pre-contractual correspondence to vouch the proposition that there had been a pre-existing agreement. Mr Clark had objected to a line of evidence seeking to show another basis for such an agreement at the start of Mr Prosser's oral evidence. The court allowed the line of evidence subject to competency and relevancy. He maintained that objection. The correspondence between the solicitors disclosed no prior agreement of the nature that Biffa asserted. It did not vouch any intention that the wording of the relevant clauses in the GTA and the CA should be the same. All that it vouched was that PGL insisted that the relevant clauses (whatever each stated) should remain in the two contracts for the same reasons. None of the drafts that accompanied the correspondence had been produced. As a result the court could not reach any reliable view on the progress of the negotiation. It had not been suggested to Mr Paterson or Mr Richardson that they had agreed any form of words other than what clause 5.3.2 said. The claim for rectification should be rejected.

[77] Lord Davidson also accepted that the existence to the agreement or common intention had to be ascertained objectively. He founded on Mr Paterson's acknowledgement that he first learned of the interpretation on which PGL now founded when Mr Young of MD suggested it in December 2011. He also relied on the evidence of Mr Prosser and Mr Manning that the GTA and CA were negotiated together and that they would never have agreed a clause which meant what PGL suggested clause 5.3.2 meant.

Conclusion on rectification

[78] I deal first with the objection. I am satisfied that Biffa in statements 5 and 6 of its counterclaim for rectification did not confine its case to the correspondence passing between the solicitors. It averred that the parties had agreed that the parallel clauses in the GTA and the CA were to operate on the same basis, namely as "put or pay" clauses on a yearly basis. It referred to specified faxes in support of that assertion. It then averred a common mistake in the omission from clause 5.3.2 of the GTA of the words in the parallel clause in the CA. Its case was that that omission did not reflect the parties' prior consensus. In my view to conclude that Biffa was offering to prove its case solely by reference to the faxes would be to take too narrow a view of its pleadings. I therefore repel the objection.

[79] I also do not accept Mr Clark's submission that a party seeking rectification must establish a "definite time" when the prior agreement was reached. I recognise that in Shaw v William Grant (Minerals) Ltd Lord McCluskey stated (at 121H-I) that one of the matters on which the court had to be satisfied was

"(6) that the agreement itself must have been reached at a definite point in time (cf. 'the date when it was made')"

In that case the pursuers had given no notice of when and how the parties had reached an informal agreement which they asserted had been inaccurately expressed in a minute of agreement. Lord McCluskey dismissed the action as irrelevant. I do not read his opinion as setting out an inflexible rule that a person seeking rectification must aver and prove agreement as a "definite point in time". If I am wrong about that, I respectfully do not agree with his view.

[80] In Renyana‑Stahl Anstalt v Macgregor 2002 SLT 1247, to which Mr Clark referred me, Lord Macfadyen (at para 35) stressed that the relevancy of the pleadings was to be measured by the statutory language which was capable of being analysed in a number of ways of which Lord McCluskey's was one. In my opinion the relevant statutory words are designed simply to require that the document, which was intended to give effect to the parties' agreement, defectively expresses the parties' common intention at the time when they reached that agreement. It does not go further and require the applicant for rectification to aver and prove the achievement of agreement at a precise moment. But I prefer to focus on the statutory language and do not seek to paraphrase it.

[81] George Thompson Services Ltd v Moore 1993 SLT 634, to which Mr Clark also referred, is a good illustration of the need for an applicant to give some specification of the circumstances in which the alleged prior agreement was reached. In that case, which concerned the purchase of a landed estate, the purchasers asserted that there was a common intention to dispone more land than was stated in either the missives or the disposition. There were no averments that the common intention had emerged in the course of the negotiation of the missives or of an earlier agreement to which a common intention could be said to relate. Lord Weir therefore dismissed the action as irrelevant.

[82] In this case by contrast, Biffa asserts that the relevant agreement was reached when the parties were considering drafts of the GTA on or after 26 March 1998. I do not accept that the application for rectification fails by reason of the absence of a definite point in time.

[83] I turn then to the evidence. It is difficult to reach a clear view on the progress of the negotiations for three reasons. First, the drafts of the CA and the GTA may not survive and certainly were not produced to the court. Secondly, the businessmen involved in the negotiation allowed their lawyers to deal with the details of the contractual documentation. It appears that they were given copies of at least some of the drafts but that they did not study the details of the relevant clauses. Thirdly, as I have said, the witnesses had only a very limited memory of events and I treat with caution their recollection of the negotiations.

[84] Nonetheless, in my view the combination of the objective evidence about the negotiations and the conduct of the parties in implementing the GTA amounts to a cogent case that a mistake has occurred in the expression of the parties' agreement.

[85] The GTA and the CA were originally part of a unitary tipping agreement. Once the parties decided on about 24 March 1998 to create separate tipping agreements, the two agreements were negotiated together. They were, as Mr Paterson accepted, "bundled up". It is clear from Mr Anderson's fax of 18.57 hours on 27 March that PGL was looking for the same protection against Biffa's failure to perform its obligations in clause 5.3.2 of the GTA and clause 5.3 of the CA (para [60] above). It is reasonable to infer that S&W introduced the qualification into clause 5.3 of the CA, which I underlined in para [26] above, after the clause had been proposed by MD (a) as that reflected Biffa's interest and (b) as the matter could have been expressed much more simply if it had been intended by the initial drafter of the clause.

[86] There is nothing in the surviving correspondence that suggests that the parties intended different protective provisions in the CA and the GTA. Mr Paterson gave evidence that he had not been aware at the time of any difference between the clauses. Mr Manning and Mr Prosser also thought that the clauses were of the same effect. I do not attach much weight to their evidence of general practice in the waste industry of the operation of "put or pay" clauses on a yearly basis, as the contracts in this case were not standard contracts. But it is inherently likely that Biffa would have sought a similar provision in clause 5.3.2 of the GTA to that which it obtained in clause 5.3 of the CA. The evidence does not disclose whether S&W omitted to include the qualifying words in clause 5.3.2 or the qualification, having been included, was overlooked when the GTA was finally prepared for signature. But the circumstances of the negotiation support the contention that a mistake had been made.

[87] It is the combination of this evidence of the negotiation and the evidence of the parties' post contractual conduct that amounts to a cogent case for rectification.

[88] It is always necessary to be cautious about the inferences that may properly be drawn from parties' behaviour in implementing an agreement as there is always a possibility that one or other simply misunderstood the agreement. But here there is a consistent course of conduct in the context of disputes over the application of clause 5.3.2 of the GTA. In the dispute about the deliveries in 2006‑2007 and 2007‑2008, PGL set out to prove and proved a shortfall in each year as the basis of its claim. It did so again in its claim for the year 2009‑2010. Had PGL understood the agreement to be as it now asserts, it would have been much more straightforward to found on the initial failure in 2006-2007 as a complete justification for its claim in subsequent years. PGL did not do so.

[89] In August 2010 Biffa asserted that its obligation was to meet the 80% target set out in clause 5.3.1 each year. Biffa has been consistent in that assertion. After taking legal advice PGL accepted that that was Biffa's obligation. It was not until Mr Young of MD provided different (and in my view correct) legal advice on the construction of clause 5.3.2 in December 2011 that PGL asserted the right to invoke the clause on the basis of Biffa's failure to comply with clause 5.3.1 in a prior year. This assertion was, as Mr Paterson candidly admitted, a new idea which was "not to be sneezed at".

[90] I am therefore persuaded that on about 27 March 1998 the parties agreed that Biffa's breach of clause 5.3.1 of the GTA would bring into effect a regime that mirrored that of clause 5.3 of the CA, as S&W adjusted it. The final version of the GTA which was signed on 30 March 1998 failed to express the parties' common intention and so falls to be rectified. Biffa is entitled to the remedy it seeks. Although the proposed rectification is inelegant, it is consistent with the agreed wording of the relevant clause in the CA.

Personal bar and waiver

[91] As I have concluded that the GTA should be rectified it is not strictly necessary to reach a view on Biffa's other defences. But as a superior court might take a different view about rectification, I set out briefly my views on those defences.

[92] For its case of personal bar and waiver Biffa founded on Mr Paterson's statement in his email of 19 August 2010, in which he acknowledged that Biffa's obligation in 2010‑2011 was to deliver 80% of the waste that it collected in the defined geographical area (para [71] above).

[93] S&W summarised Biffa's case in a letter of 31 January 2012 to MD in which they referred to the email chain including the email of 19 August and stated:

"On the basis of this proper interpretation of the Agreement, as confirmed by your client, our client continued to plan its collection activities in order to deliver 80% of waste from the Collection Area. Had our client had fair notice of the interpretation that your client sought to apply to clause 5.3.2 of the Agreement, it would have been open to our client to not only challenge that interpretation but protect their position and to make greater efforts to deliver 85,000 tonnes where that was deemed necessary."

In its defences Biffa averred that if PGL had disputed Biffa's interpretation of the GTA Biffa would have taken steps to reduce its liability arising from clause 5.3.2. It listed various measures that it might have taken.

[94] Several of Biffa's witnesses spoke of this issue. Mr Stephen Jones said that he would have pushed Biffa's interpretation of the clause before incurring expense on measures to mitigate loss. He would also have attempted to renegotiate the contract. On cross‑examination he said that he attended the meeting on 10 August 2010 with a clear view of the meaning of the contract having taken legal advice. He also stated that all the discussions led Biffa's team to believe that its position on the contract was correct. He said that he still believed that the interpretation was correct. He described the option of increasing the supply of waste as "a theoretical option".

[95] Mr David Wakeham said that if Mr Paterson had alerted him to a dispute on the interpretation of clause 5.3.2 after the 10 August 2010 meeting he would have consulted his in‑house lawyers and S&W. If he had been advised that the contractual target was 85,000 tonnes, he would have looked to ship waste from South Shields, Carlisle and Edinburgh to meet the target. He would also have looked to attract waste from others by offering to dispose of it at a discount. This could have included people who delivered waste to the site. Biffa would have incurred a loss in so doing but it would have been less than the shortfall payment otherwise due. He would have presented plans and an assessment of the cost effectiveness of the option to Biffa's CEO, who would have decided what to do. If those plans had been adopted, he would not have cancelled the profitable SCA contract or would have sought to revive it after it had been cancelled.

[96] I also heard the evidence of Mr Paul Casey, who was then general manager North region, and Mr John Walmesley, regional operations manager Scotland and Northern Ireland. Mr Casey explained that between October 2010 and November 2011 he had responsibility for monitoring performance to ensure that Biffa met the 80% target. He would have challenged PGL if it had asserted that the correct target was otherwise. Biffa could have taken steps to increase the tonnage delivered. Mr Walmesley suggested that it could have brought in waste from Ayrshire, Dunbartonshire, Edinburgh and further afield, gained new waste contracts, and offered discounts to deliver the waste of others. Biffa would have made a loss by carrying out those measures but it would reduce the loss which it otherwise would have suffered. It would have been for the senior managers to decide.

[97] I am not persuaded that Biffa would have sought to increase deliveries to the site if Mr Paterson had asserted in August 2010 that it was obliged to deliver 85,000. The evidence suggests that Biffa had been advised that its interpretation of the contract was correct. In my view its likely response would have been to mount a legal challenge to PGL's interpretation rather than incur significant losses to meet or approach a target which it thought it was not obliged to achieve.

[98] I am not persuaded that Biffa relied on the representation in Mr Paterson's email of 19 August 2010 to its detriment, if indeed it was a representation of fact. Reid and Blackie, Personal Bar (2006) helpfully analyse personal bar as penalising inconsistent conduct and penalising unfairness arising from that conduct (paras 2-01 - 2-03). I do not accept that Biffa would have altered its performance of the GTA if Mr Paterson had asserted in August 2010 that the target was 85,000 tonnes per year. It is more likely that it would have relied on the legal advice that it received from S&W and have made the legal assertions on construction that it has made in this action. Absent detrimental reliance on the representation, there is no basis for personal bar in this case. I am also not persuaded that the plea of waiver has merit. Mr Paterson was not aware of the construction of clause 5.3.2 of the GTA on which PGL now founds until Mr Young advised him of it in December 2011. Both parties proceeded on the basis that the clause meant what it achieves in its rectified form. I do not see how PGL can be taken to have abandoned a right of which Mr Paterson was not aware at the time he made the representation.

Penalty clause
[99] Finally, Biffa submitted that clause 5.3.2 of the GTA should be struck down as a penalty clause if PGL's construction of it is correct.

[100] Counsel agreed that the relevant principles are set out in Lord Dunedin's speech in Dunlop Pneumatic Tyre Ltd v New Garage and Motor Co Ltd [1915] AC 79 (at 86). The question whether a stipulated sum is a penalty is a question of construction of the contract and the court looks to the circumstances when the contract was made. The court should not be astute to descry a penalty clause and thus interfere in freely negotiated commercial contracts (Philips Hong Kong Ltd v Att Gen of Hong Kong (1993) 61 Build. L. R. 41 (PC) Lord Woolf at 58; Alfred McAlpine Capital Projects Ltd v Tilebox Ltd [2005] Build. L. R. 271 (TCC) Jackson J. at para 48). The test is that a sum payable on breach

"does not constitute a genuine pre-estimate of the loss likely to be suffered ... as a result of the relevant breach of contract, but is instead unconscionable in respect that it is designed to operate in terrorem, or oppressively or punitively."

(City Inn Ltd v Shepherd Construction Ltd 2002 SLT 781, Lord Macfadyen at para 15) The burden of meeting that test rests on the person seeking to strike down the clause.

[101] The rule against penalties has been applied to analogous "take or pay" clauses in a supply contract (M&J Polymers Ltd v Imerys Minerals Ltd [2008] EWHC 344 (Comm), Burton J at para 44). But each contract must be construed according to its terms.

[102] Lord Davidson presented an example of how a failure by a very small margin to reach the 80% target under clause 5.3.1 could expose Biffa to providing, or paying the shortfall on, 85,000 tonnes per year for the remainder of the contract period. In effect Biffa would be burdened with a fixed target for the full 15 years, and that was something that it had been determined to avoid in its negotiation of the GTA.

[103] That is indeed a possible consequence of the clause. But I must look at the provision though the eyes of both of the parties when they made the contract. It was a freely negotiated compromise between competing interests. Then, it was not clear whether clause 5.3.2 would impose any burden on Biffa if it were to breach clause 5.3.1. PGL was delivering 110,000 tonnes of waste each year. Biffa hoped to exceed that figure and negotiated a discount in the GTA in the event that it did so. Had Biffa succeeded in delivering more than 85,000 tonnes each year, the clause would have given no remedy for any failure to meet the 80% target. There was, on the other hand, a risk that Biffa might not be able to deliver those quantities because of market changes. But the 80% target gave Biffa a goal which it was wholly within its power to meet if it kept in mind its contractual obligations to PGL. In return for that lenient regime it was not extravagant or unconscionable for PGL to require that Biffa revert in effect to the minimum annual tonnage if it were to fail to meet its obligations under clause 5.3.1.

[104] On PGL's construction, with which I have agreed, the clause is not a liquidated damages clause but is in substance a reversion to a fixed target regime. Nonetheless, I do not think that the predominant contractual function of the clause was to deter Biffa from breaking the contract. Rather it was to give PGL the financial certainty which it had sought in the negotiations as its primary position.

[105] I conclude that, if the provision were not rectified to reflect the intentions of the parties, Biffa has not discharged the burden of showing that it is penal when viewed with the knowledge that parties had when they entered into the GTA in 1998.

Conclusion
[106] As I am satisfied that clause 5.3.2 of the GTA should be rectified as Biffa seeks, I will sustain the defender's first plea in law in the counterclaim and grant rectification in terms of the first conclusion of that counterclaim. I will have the case put out by order for further procedure.