Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION
	[2014] CSOH 5
CA17/12	OPINION OF LORD TYRE in the cause THE CENTRE FOR MARITIME AND INDUSTRIAL SAFETY TECHNOLOGY LIMITED Pursuers; against INEOS MANUFACTURING SCOTLAND LIMITED Defenders: ________________

Pursuers: Clark QC, Drummond (Solicitor Advocate); Shepherd and Wedderburn LLP

Defender: Sandison QC, Simpson; Anderson Strathern

17 January 2014

Introduction
[1] On 20 July 2006, the parties entered into a contract for the supply by the pursuers of vocational and educational training to apprentices recruited by the defenders or by BP at Grangemouth and Aberdeen. The contract was subsequently terminated by the defenders with effect from 31 July 2007. In this action the pursuers seek (i) declarator that in terms of the contract the defenders were bound to make certain monthly payments to them throughout the duration of the contract; (ii) alternatively, rectification of the contract to make provision for such payments; and (iii) payment of a sum of £693,745.22 said to be due by the defenders to the pursuers in accordance with the contract. The defenders resist the conclusions for declarator and rectification, and for their part have a counterclaim for £368,016.68 said to have been overpaid to the pursuers while the contract subsisted. The present action was raised in 2011 and appointed to the commercial roll on 8 February 2012. It came before the court for a preliminary proof on:

·      four issues concerning construction of the contract;

·      the pursuers' conclusion for rectification of the contract; and

·      pleas by the defenders of personal bar and acquiescence on the part of the pursuers. These pleas were not insisted in at the close of the hearing and I need say no more about them.

The invitation to tender

[2] In early 2005, BP Oil Grangemouth Refinery Limited ("BP Grangemouth") issued an invitation to tender for the provision of a training programme for the site's "Modern Apprenticeship Scheme". At that time BP Grangemouth had a programme in place operated by another provider called TTE Scotland Limited ("TTE"), but wished to seek alternative tenders for the provision of the service for a period of five years commencing on 1 September 2005.

[3] In view of the nature of the dispute that has arisen between the parties, I set out at this stage a number of the provisions of the invitation to tender. Section 3 (Scope of Services) stated inter alia as follows:

"The trainee technicians will be employed and managed by the provider. BP Grangemouth will commit to sponsor a minimum of 20 trainee technician places for the Grangemouth site per year. The number of trainee technicians required on an annual basis will be advised 6 months in advance of programme commencement.

In addition to this BP Grangemouth will commit to sponsor a further 14 trainee technicians on behalf of BP Exploration. The program requirements for BPX Aberdeen trainee technicians will be different in part to that of the Grangemouth based trainee technicians..."

The maximum duration of the training programme was specified as four years for BP Grangemouth trainees and three years for BPX Aberdeen trainees who would spend their fourth year offshore. The required minimum educational and training outcomes included achievement of HNC in a chosen discipline and achievement of NVQ/SVQ Level 3 within three years for BPX Aberdeen trainees and within four years for BP Grangemouth trainees. The tenderer was to undertake responsibility for "managing all aspects of vocational training at BP Grangemouth through job placement, job rotation and classroom specific training". The invitation to tender then stated:

"BP Grangemouth holds an NVQ awarding accreditation and will supply competent and approved personnel to be used for assessment and verification processes associated with NVQ attainment. All aspects of the NVQ processes will be managed by BP. Should the tenderer wish to submit a proposal for management of the NVQ processes this should be detailed in the tender submission and the cost included in the cost appendix.

The tenderer will provide continuous assessment and periodic appraisal of the Trainee Technicians throughout the training programme and provide progress reporting to BP Grangemouth. This process should be detailed in the tender submission."

[4] The tenderer was also required to make provision for accommodation for the BPX Aberdeen trainees. The invitation to tender provided:

"The basis of charging for accommodation and related costs shall be 'cost plus', i.e. reimbursement of actual documented costs plus a management charge as a fixed cost or as a percentage of the actual costs.

Tenderers shall provide detailed estimates of all relevant costs on a yearly basis together with the Tenderers proposed management charge or 'mark-up'."

[5] The description of the Scope of Services concluded as follows:

"It is the responsibility of Tenderers to identify and include costs for all the elements of delivering the training programme that they consider necessary to meet all objectives included above...

Costs should be specified as a variable cost per Trainee Technician on an annual basis.

If appropriate, the most viable economic cost option should be stated which may be dependent upon the minimum/maximum number of trainees per annum. Where costs are not dependent on the numbers of Trainee Technicians, i.e. the price is fixed irrespective of number, this should be clearly identified."

[6] Annexed to the invitation to tender was a draft contract agreement. At this stage it is necessary to note only that Clause 29 (Termination) provided, in sub-clause 29.1 for termination "With Cause", and that sub-clause 29.2, entitled "Without Cause", contained only the words "not used".

The pursuers' tender
[7] The pursuers carry on business under the name C-MIST at Heriot Watt University Research Park, Edinburgh, providing a range of services including training services to the oil, gas and petrochemical industry. They are approved as a training centre by a number of UK certifying authorities including the Scottish Qualifications Authority, City & Guilds and PAA/VQ-SET. Mr Mehdi Laftavi has been managing director of the pursuers since 1988. He is also the controlling shareholder.

[8] The pursuers were known to BP Grangemouth as they had provided training services at another BP refinery, and were invited to tender for the Modern Apprenticeship Scheme. Prior to tendering the pursuers sought clarification of a number of points, including details of BP's salary costs per trainee, to which BP's Mr Frazer Tollan responded by email. Responses by BP to pre-tender inquiries by other potential tenderers were also circulated. On 24 February 2005 the pursuers submitted their tender timeously. The tender was prepared by several members of the pursuers' staff including Mr Laftavi and Mr Nick James who both gave evidence at the proof. The pursuers' pricing strategy was determined by Mr Laftavi.

[9] In their tender, the pursuers offered to "provide, or actively manage, all the education and off-the-job training and manage/monitor all the on-shore on-the-job training, competency assessment and verification processes." In order to achieve this, the pursuers indicated an intention to establish and develop a training centre in Grangemouth to accommodate instructors, workshops and teaching facilities as well as managerial/administrative support required inter alia to manage and/or monitor the practical on-the-job training and competency assessment programme. The tender included, at section 4.8, a proposal for management of "the entire NVQ process" at the proposed new training centre. The tender stated:

"...C-MIST's strategy is to reduce the time consuming effort of candidates developing written portfolios and provide them with greater opportunity for on job training and assessment. This strategy will require the support of the existing Grangemouth accredited Assessors and Verifiers who will have a key role to play in the training, development and competency assessment of the Modern Apprentices. C-MIST's Instructors will also be accredited Assessors and will add additional support to the existing Grangemouth assessment base."

The tender went on to specify that there was no individual cost for management and administration of the vocational qualification scheme; the costs of such activities were absorbed in the total cost of management of the proposed centre and co-ordination fees detailed in the training programme cost breakdown. In Appendix 4C, the pursuers set out the proposed responsibilities of a staff member with the title of "Grangemouth Apprentice Scheme Manager"; these included a duty to "...manage the NVQ Assessment programme, including recruitment, training and monitoring of Assessors, Mentors and Coaches".

[10] In the cost breakdown section of the tender for "Training", Mr Laftavi included a lump sum cost which he entitled "Training allowance for apprentices" and which was carried through to the pursuers' total sum tendered. This cost, which in the breakdown for the first year of the scheme amounted to £1,117,293, was based upon the actual salary cost figures supplied by BP Grangemouth in response to the pursuers' pre-tender inquiry. It proceeded upon an assumption that there would be 34 trainees in each of years 1, 2 and 3 of training and 26 in year 4. In his evidence to the court, Mr Laftavi explained his pricing strategy as follows. If all of these trainees attended throughout the training programme he would make no profit from this part of the tender. In his experience, however, it was almost always the case that not all trainees stayed the course. In that eventuality the salary cost would reduce and the pursuers would make a profit. As regards this explanation, it must be borne in mind that, as I have already noted, the invitation to tender made reference to the sponsoring of a minimum, not a maximum, of 34 trainees in each year, and I will have something to say about this later. In the cost breakdown for the first and second years of the scheme, Mr Laftavi added to the cost schedule a note stating (in year 1) "No allowances made for rate of inflation" and (in year 2) "We have not allowed for the rate of inflation".

[11] A critical feature of the pursuers' tender, so far as the present action is concerned, was that it included a deduction from the cost of training the apprentices in respect of "Drawdown funding from Local Enterprise Company", amounting to £306,000. At the time of submission of the tender, the UK Government, through Scottish Enterprise, contributed £9,000 per annum towards the training and certification of each apprentice on an approved Modern Apprenticeship Scheme. The BP scheme was registered with Scottish Enterprise Forth Valley ("SEFV") and qualified for receipt of funding. On the basis of a total of 136 (i.e. 4 x 34) apprentices, the pursuers calculated that the total funding available was £1,224,000 which, divided over the four-year apprenticeship period, produced an average annual funding contribution from SEFV of £306,000. They deducted this sum from their tender price in the expectation of claiming and receiving it each year from SEFV.

[12] With regard to "VQ Management", a note to the cost breakdown in the invitation to tender stated "All assessors and internal verifiers will be supplied by BP Grangemouth". The pursuers' tender included an annual sum of £15,050, comprising sums allowed for registration and certification fees and for documentation and training manuals. The cost of "management of system" was stated to be included in "Centre Management and Coordination Fees". The same sum was inserted in the cost summary for each of the five years of the scheme. The pursuers added a note stating "Costs are for registration and certification of an MA [i.e. Modern Apprentice] for the duration of the 4-year programme. Costs are based on 14 Process and 20 Engineering MA's per year."

[13] So far as accommodation of trainees was concerned, a note to the cost breakdown in the invitation to tender stated "Tenderers are responsible for identifying all required elements. Payment will be on the basis of reimbursement of actual documented costs plus a management charge as a percentage of actual costs or a fixed charge." Despite this note, the pursuers' tender was not broken down into the various elements listed in the cost summary, but consisted of fixed allowances of £5,520 per 1^st year trainee and £3,000 per 2^nd and 3^rd year trainee, which, when multiplied by 14 and supplemented by a travel allowance for certain apprentices accommodated some distance away from Grangemouth, amounted to £169,920. Again the same sum was inserted in the cost summary for each of the five years of the scheme.

[14] For the year 2005-2006, the cost summary in the pursuers' tender consisted of the following elements: Training £1,398,811; Accommodation £169.920; VQ management £15,050 and Recruitment £27,100, producing a total of £1,610,881.

Communications between the parties following submission of the tender
[15] For reasons which were not explored at the proof, no response to the tenders submitted was made by BP until May 2005. By then BP had created a refining and petrochemicals group including a company called Innovene Manufacturing Scotland Limited ("Innovene") which assumed responsibility for negotiating the contract for provision of the Modern Apprenticeship programme. On 3 May 2005, Mr Tollan emailed Mr Laftavi seeking a breakdown of various costs included in the pursuers' cost summary, which Mr Laftavi provided on 5 May. The pursuers also produced a letter from their bankers confirming that they had funds available to invest in the construction and fitting out of the proposed new training centre at Grangemouth. Innovene regarded the pursuers' tender as attractive, especially because of the proposal to construct the training centre. It was also economically competitive due to, among other things, the credit of £306,000 in respect of SEFV funding. On 7 June 2005, Mr Colin Morrison, Innovene's site procurement manager, wrote to the pursuers to advise them that their tender had been successful and that the finalised contract would be based on the draft which had been annexed to the invitation to tender. Mr Morrison's offer of the tender award to the pursuers did, however, impose certain conditions. These included the following requirements:

• that the pursuers enter into discussions with Innovene concerning any intended engagement of TTE employees, whether or not such engagement arose in connection with rights of such employees under TUPE regulations;
• that the pursuers be in a position to undertake a management of change with TTE as of 13 June;
• that the pursuers put a plan in place for the transfer of apprentices currently registered with PAA/VQ-SET to the standard selected by the pursuers;
• that the pursuers provide a timetable to commence dialogue with Falkirk College with regard to continuation of delivery of existing further education.

Innovene required confirmation of acceptance of the offer and the conditions therein by 9 June. On 9 June Mr Laftavi replied on behalf of the pursuers accepting the offer and agreeing to the conditions in the letter of 7 June. Mr Laftavi did, however, follow that letter up the following day with a further letter in which he stated "You will appreciate that I have not checked the implications of the additional points against our original proposal. I would, therefore, like to meet with you sometime next week to discuss and clarify these various points." It does not appear that such a meeting took place.

[16] According to Mr Laftavi's evidence, the reference in Innovene's letter to TTE personnel with rights under TUPE regulations came as a surprise as it had not been mentioned in the invitation to tender. The pursuers had assumed that there were no staff to be transferred and accordingly that no allowance needed to be made for legal or employment costs associated with ex-TTE staff.

[17] Time was now short for putting in place the pursuers' arrangements for training apprentices with effect from 1 September 2005. There was, in particular, insufficient time to execute the contract before then, and on 29 August 2005 Innovene issued to the pursuers the first of a series of letters of intent confirming their intention to place an order with the pursuers for the provision of Modern Apprenticeship skills training at Grangemouth "as discussed with our Jennifer Henderson subject to satisfactory conclusion of any outstanding matters". Similar letters were issued at regular intervals until the execution of the contract in July 2006. On this basis, the pursuers began to provide training services on 1 September 2005.

[18] Matters, unfortunately, did not proceed smoothly thereafter. Over the course of the following months, and prior to execution of the contract, Mr Laftavi made repeated representations to Innovene that the services which the pursuers were being expected to provide were very different from, and more extensive than, those set out in the Scope of Services section of the invitation to tender. The individuals principally responsible at this time for dealing with the project on behalf of Innovene were their early development manager, Jennifer Henderson (who by the time of the proof, at which she gave evidence, was Mrs Jennifer Tempany) and a procurement specialist named Kim Mason who did not give evidence at the proof. Among the issues raised by Mr Laftavi during the latter part of 2005 were the following:

• An analysis carried out by the pursuers indicated that there were significant gaps in the training - and consequent achievement of milestones towards qualification - of apprentices in their second, third or fourth year, which necessitated re-training of these individuals by the pursuers in addition to the training that they were providing to first year apprentices. This was said to have been exacerbated by the use by TTE of an obsolete version of the PAA/VQ-SET standards.
• The pursuers were advised at short notice that education and training had to be provided in the Grangemouth area, ruling out the provision of such training at the pursuers' centre on the Heriot Watt campus as envisaged during the first year of the scheme while the new centre at Grangemouth was being constructed. This required (i) the sub-contracting of PEO2 (i.e. performance engineering operations, level 2) training to Forth Valley College, Falkirk, and (ii) the temporary use of a building within Innovene's premises at Grangemouth as a classroom, resulting in additional cost to the pursuers in refurbishing the building and fitting it out with teaching and communications equipment. This was said to be made more costly by the fact that there were 36 first-year trainees when the pursuers had expected and planned for a maximum of 34.
• Due to the delay in the awarding of the contract, the pursuers had had little time to carry out the management of change from the previous suppliers, resulting in increased costs.
• The pursuers incurred additional costs in connection with satisfying the TUPE regulations with regard to TTE employees. Mr Laftavi claimed that the pursuers also required to train some of the transferred staff and incurred costs in so doing.

[19] The major area of dispute, however, concerned the funding of trainees' salaries. I have noted that the pursuers' tender included a lump sum for salary costs, calculated on the basis of what it would cost to employ and pay 34 apprentices each year. At some time before the middle of November 2005, Innovene indicated that they wished to amend the salary cost to a variable amount, based on the number of apprentice salaries actually being paid. The pursuers were willing to agree to this in principle but proposed a 10% charge on the variable wage element to cover administration costs and to enable them to make some profit from this element. This proposal was initially rejected by Innovene and payment of invoices submitted by the pursuers containing the 10% charge was refused.

[20] While all of this was going on, and pending the finalisation of the terms of a contract for execution, the pursuers were not progressing the acquisition of a site for and construction of the proposed training centre at Grangemouth. It is also worth mentioning that on 7 October 2005, Mr Morrison advised the pursuers that the Innovene group of companies had been sold by BP to the Ineos Group, with transfer of ownership expected to occur in early 2006.

[21] Meetings took place between Mr Laftavi and other members of the pursuers' staff on the one hand and Mrs Tempany and Ms Mason and other members of Innovene's staff on the other. By 10 January 2006, agreement had been reached at least on the following matters:

• Innovene acknowledged that there were gaps in the training of second, third and fourth year apprentices and that they would require to pay for a solution to this problem. They agreed to fund the creation of two additional posts in the pursuers' core organisation at an additional cost of around £84,000 per annum. In addition, they agreed to fund an additional project post for the period from 1 November 2005 to 1 July 2006, at an extra cost of about £40,000. (The period of subsistence of the latter post was subsequently extended retrospectively to 1 September 2005 and in fact endured beyond 1 July 2006 until January 2007.) The roles, duties and responsibilities of the holders of these posts were to be agreed with Mrs Tempany.
• Innovene agreed to pay the fees of Forth Valley College for provision of PEO2 training.
• The pursuers were to provide further information in support of their claim for additional costs arising out of the requirement to use the building at Grangemouth for teaching purposes.
• The pursuers withdrew their claim for additional management of change costs.
• The pursuers withdrew their claims for TUPE and additional training costs relating to former TTE employees.
• The pursuers agreed that the apprenticeship salaries would be a variable element in the contract cost structure. Innovene agreed to pay a 10% surcharge on apprenticeship salaries (though not on travel expenses, accommodation or meals).

[22] In order to reflect the changes that she considered had been agreed since the submission of the pursuers' tender, Mrs Tempany produced on 10 January 2006 a revised version of the Scope of Services for discussion. This document recognised that NC and HNC teaching was to be carried out by Forth Valley College and that Innovene accepted the cost of PEO2 being delivered by Forth Valley College in the first year of the contract only. In addition, the following paragraph was proposed for insertion:

"Innovene Grangemouth holds an NVQ awarding accreditation and will supply competent and approved personnel to be used for assessment. C-Mist should supply a qualified person to carry out the internal verification (IV) processes associated with NVQ attainment.

·    All aspects of the NVQ processes will be managed by C-Mist, this includes but is not limited to the policy and procedures used by all involved with VQs.

·    Recording systems.

·    Ensure the quality of the assessment being carried out on site by Innovene or BP personnel."

[23] A further difficulty now emerged. The pursuers were not receiving the SEFV funding that they had included in the cost summary when submitting their tender. At a meeting on 17 January 2006 and in a letter sent to Ms Mason the following day, Mr Laftavi explained the reasons for this as being that the number of apprentices in the scheme was now different from that given to the pursuers for estimating the amount of funding, the time at which it could be claimed was determined by the apprentices' performance and attainments while under the control of Ineos/BP assessors, and the timing depended on the completion by apprentices of milestones which might occur at any time but was being delayed by previously inadequate training. For all of these reasons receipt of funding was delayed, and the pursuers were concerned that they would not receive the full £306,000 per year at all. Mr Laftavi's proposed solution was that Innovene would pay the gross amount of the management fee to the pursuers, and would receive a credit from the pursuers for the SEFV funding as and when it was received from SEFV. This proposal was initially rejected by Mrs Tempany. However, she and Ms Mason subsequently received authorisation from their respective line managers to agree to it, and this was intimated to Mr Laftavi at a further meeting on 2 February 2006. On 3 February 2006, Ms Mason sent a letter to the pursuers, marked for Mr Laftavi's attention, setting out what she understood to be the "actions and outcomes" from the previous day's meeting. These included the following:

"1. Innovene have agreed to pay the monthly management fee exclusive of the SEFV funding. However, C-MIST are to provide a proposal detailing how the credits from SEFV will be managed. This proposal is required by 8 February 2006 to allow the signing of Contract to proceed."

It is important for the purposes of the present action to note the phraseology used by Ms Mason in the first sentence of this paragraph. Until this time, the management fee had been paid by Innovene to the pursuers net of any sum recoverable by the pursuers from SEFV and retained by the pursuers. The agreement reached on 2 February 2006 changed this arrangement. As Mr Laftavi asserted in his evidence to the court, what the Innovene representatives agreed was that the management fee would henceforth be paid gross: in other words, without any deduction in respect of anticipated SEFV funding, but with Innovene becoming entitled to credit for all SEFV funding received by the pursuers from SEFV. This was what the parties understood to be reflected in Ms Mason's recording of an agreement that the management fee be paid "exclusive of the SEFV funding". The arrangement entered into was also described by the Innovene representatives as the "forward funding" of that part of the management fee which would ultimately be borne by SEFV. Although the pursuers did not provide the proposal described in Ms Mason's letter by 8 February, Innovene did increase the monthly payments to the pursuers to include a proportion of the £306,000 which the pursuers had calculated to be the sum recoverable annually from SEFV. The first payment received by the pursuers from SEFV, in the sum of £5,400, was in due course credited to Innovene.

[24] Negotiations between the pursuers and Innovene carried on during February, March and April 2006 with the contract still unsigned and the pursuers continuing to provide services on the basis of letters of intent. At a meeting on 8 February 2006, the pursuers advised that they would not be able to provide the proposed training centre by June 2006 and undertook to supply a revised plan for the provision of training facilities. In a note of the meeting sent to the pursuers the following day, Mrs Tempany identified three outstanding operational issues, including provision by the pursuers of a procedure by which Innovene would receive payment of the SEFV funding, and a need for comment on and agreement of her clarifications on the scope of services. By mid-April, little progress had been made. Both sides expressed frustration at the delay in achieving an executed contract. Innovene had by now been transferred to the Ineos group who decided to bring Mr Edmond Reeder, a contract services manager, into the negotiations to assist in concluding a contract with the pursuers. At an internal meeting on 13 April 2006 attended by, among others, Mr Reeder, Mr Morrison, Mrs Tempany and Ms Mason, certain decisions were made and recorded in a note of the meeting which included the following bullet points:

• "Contract to be changed to 3 year agreement with 2 x 1 year options to extend.

• Colin/Ed to have a meeting with C-MIST to discuss the new terms.

• SEFV funding to be financed by C-MIST to encourage them to meet milestones."

A meeting took place on 26 April 2006, attended by Mr Laftavi, Mr Reeder, Mrs Tempany and Ms Mason, at which these changes were put by the Innovene representatives to Mr Laftavi. Mr Laftavi responded with a letter dated 28 April 2006 setting out the reasons why he was not willing to agree to a change in procedure in terms of which the pursuers would deduct the SEFV funding from their cost and await repayments from SEFV. These were similar to the reasons that he had given in January 2006 when seeking to persuade Innovene to pay the management fee gross. Mr Laftavi proposed that the arrangements remain unchanged and suggested a new clause for insertion in the contract.

[25] The next meeting was held on 3 May, with the same persons plus Mr James in attendance. What was or was not said at this meeting is at the core of the dispute in the present action. According to Mr Laftavi, it was recognised by the Innovene representatives that the pursuers were being required to take on a great deal of additional work. Mr Reeder emphasised that the pursuers had to "take the bull by the horns" and to "take charge of" the VQ assessment. By this Mr Laftavi understood him to mean that the pursuers were to take over the whole management, on-the-job VQ assessment and certification of apprentices, which represented a considerable expansion of the pursuers' duties from the Scope of Services previously discussed. Mr Reeder's remarks were made in the context of an acknowledgment by Innovene that they did not have enough suitably trained assessors on site to carry out the assessment of apprentices themselves as had been envisaged at the time when tenders were invited. It was also to be seen against the background of the pursuers having already taken on extra work to address the gaps in apprentices' training and the duration of the contract having just been reduced from five to three years. Mr Laftavi stated that it was not possible to take on this additional work without extra payment, and that the pursuers would require an additional £306,000 per annum. Mr Laftavi was not sure whether, in addition, he reiterated at this meeting his demand that the management fee be paid gross, but he had in any event made his position clear on that matter in his letter of 28 April. In any event, Mr Laftavi's evidence was that Mr Reeder accepted his demands and undertook to prepare a proposal to reflect this agreement. Mr James's evidence regarding what happened at the meeting was based largely upon reference to documentation rather than upon direct recollection. He did, however, recall leaving the meeting with the impression that the scope of the pursuers' work had considerably increased. His recollection of the meeting did not include an agreement that the pursuers would be paid £306,000 per annum in addition to the forward funding of the SEFV reimbursement; rather, he recalled being told by Mr Laftavi after the meeting on 3 May that this was what had been agreed.

[26] The recollection of Mrs Tempany and of Mr Reeder accorded with that of Mr Laftavi in a number of respects. They accepted that Mr Reeder had used the expressions attributed to him by Mr Laftavi. Mr Reeder wished to focus the pursuers' attention on delivery of the services that they had offered to provide. A number of issues were discussed, including the reduction of the contract period from five to three years (with the possibility of extensions back to five years), and the fact that the pursuers would no longer be providing a purpose-built training centre. Mrs Tempany agreed that the pursuers' role in relation to assessment of apprentices and training of assessors would be greater than hitherto, although she did not think that this was as significant an increase as it was represented to be by Mr Laftavi. Mrs Tempany and Mr Reeder both recalled agreement being reached at the meeting that Innovene would (contrary to the position taken by them at the outset of the meeting) continue to forward fund the element of the management fee for which reimbursement would be claimed from SEFV. Both, however, emphatically rejected the suggestion that they had agreed at any time to pay the pursuers a further £306,000 in addition, in recognition of the extra work being taken on. Mrs Tempany regarded it as reasonable to expect the pursuers to carry out any additional duties without extra payment because in other respects they had been relieved of responsibilities by, for example, PEO2 training having been outsourced to Forth Valley College at Innovene's expense. No final agreement was reached at the meeting: Mr Reeder undertook to produce a proposal for the pursuers' approval.

[27] On 9 May 2006, Ms Mason wrote to the pursuers attaching a proposal prepared by Mr Reeder. It is necessary to quote this in full:

"Proposal for C-MIST Modern Apprenticeship Contract

The term of this agreement will be for 3 years starting 1^st September 2005 and completing 31 August 2008. Dependent on performance of the contract there will a further 2 options to extend for a year [sic].

There will be no additional costs. The management fee will be £858,936, plus apprentices salaries.

Ineos are removing the necessity for a purpose built building. However, a facility will be required as the GSDC will no longer be available. C-MIST will submit a programme for exiting the GSDC and entry to new facility by 9^th June 2006. The facility will be fit for purpose to meet the new scope of work.

C-MIST will have all named personnel in place by 1^st August 2006.

C-MIST will manage the complete delivery of the Apprenticeship Programme including VQ Management, co-ordination and reporting. A monthly performance meeting will be held between C-MIST and Ineos to discuss any problems areas with the VQ. Ineos believe that if the NC/HNC is being delivered by the college the Instructors will be able to support the VQ process.

Ineos agree to fund the SEFV funding upfront and C-MIST will credit Ineos back at agreed amounts at agreed intervals. If the milestone credits cannot be credited in full this must be flagged up at the monthly performance meeting. Reasons for variation must be given at this meeting and agreement will be made on what action needs to be taken.

C-MIST will interface with Contracts and Services Team on HSE issues and Cost Implications.

Ineos agree to pay the NC/HNC costs but we wish to withdraw the element of the Scope of Work that states that C-MIST can provide the training themselves or choose an alternative college to Forth Valley College."

The figure of £858,936 in the second paragraph was a gross figure, including the sum which the pursuers were expected to receive from SEFV and pass on to the defenders by way of credit. The references in the third paragraph to "the GSDC" are to the building at Grangemouth which had hitherto been made available to the pursuers for classroom teaching.

[28] A further meeting took place on 10 May 2006, attended by the same persons as had attended the meeting on 3 May. No material amendment was made to the proposal by Mr Reeder that I have just set out. After that, negotiations continued on other matters outstanding. One of those was a proposal by Mr Laftavi that there should be an additional fee for the provision of additional VQ management support instead of the NC/HNC which was to be provided by Forth Valley College. On the basis that the College was charging a total of £70,368.60 for the current year, Mr Laftavi proposed a fee of this amount plus a 10% management charge. On 9 June, Mr Reeder agreed to pay the additional £70,368.60 but not the management charge. Another issue which continued to be discussed was the pursuers' claim, on which agreement had not been reached in January, for additional costs arising out of the requirement to use the building at Grangemouth for teaching purposes. The pursuers indicated a willingness to reduce the amount claimed from £47,000 to £9,740 for quick settlement. Mr Reeder replied that he would meet this reduced claim if it could be vouched by paid invoices. This matter appears to have progressed no further.

The contract
[29] On 23 June 2006, the finalised draft contract was sent to the pursuers. The other party to it was stated to be the defenders and subsequent correspondence proceeded in the name of the defenders rather than Innovene. The contract was signed by Mr Laftavi on behalf of the pursuers and returned to the defenders on 20 July 2006. No copy signed by the defenders was produced at the preliminary proof but it is not in dispute that the contract was executed by both parties.

[30] The Scope of Services section of the contract differed in certain material respects from that which had been contained in the invitation to tender, reflecting the negotiations which had taken place during a period of more than a year. The required minimum educational and training outcomes were not materially altered, but Section 5.1 of the Scope of Services provided inter alia as follows:

"NC and HNC teaching will be carried out by a FE college. Should C-MIST decide to use an alternative college, C-MIST will give Innovene Manufacturing (Scotland) 6 months advance notice prior to any change taking place. This change must take place before a new academic year. C-MIST must manage the interface with the FE college and ensure the quality of the training.

...

·      Innovene will accept the cost of PEO2 training being delivered by Forth Valley College in the first year of the contract only. Any costs associated with achievement of PEO2 or equivalent outcomes in subsequent years will be met by C-MIST.

·      C-MIST will be responsible for managing vocational training at Innovene, and the BPX sites in the vicinity of Grangemouth, through job placement, job rotation and class room specific training. C-MIST will provide a VQ Manager to manage the VQ process which will include the policy and procedures used by those involved with VQs. C-MIST will maintain VQ recording systems and will monitor the quality of the assessment being carried out on site by Innovene or BP personnel. Innovene Manufacturing Scotland and BP will provide the site assessors and VQ element certifications..."

Section 5.5 of the Scope of Services dealt with apprentices' accommodation, food and incidental personal expenses. I set out this subsection at paragraph 59 below.

[31] Section 6 of the contract was the pricing section. Section 6.5 provided:

"The 'Company' agree to pay the 'Contractor' the monthly management fee exclusive of the SEFV funding. The SEFV funding will be credited to the 'Company' by the 'Contractor' at agreed milestones. The method for dealing with this credit will be detailed in Section 7.1."

Section 7.1 stated as follows:

"The UK Government, through Scottish Enterprise, currently contributes £9,000 towards the training and certification of each apprentice on an approved Modern Apprenticeship scheme. The current (2005/2006) edition of the Programme Rules for Skillseekers and Modern Apprenticeships is attached to this contract document. The existing INEOS/BP Modern Apprenticeship scheme at Grangemouth has been registered with Scottish Enterprise Forth Valley (SEFV) and accepted for the receipt of government funding. Based on a total of 136 apprentices, the total funding available is £1,224,000 which, if divided over the 4 years apprenticeship period, gives an average annual funding contribution from SEFV of £306,000. However, the distribution of funding may not be even for each year as it depends on the achievement of Milestone targets. The Milestone plans are approved and set up by SEFV.

C-MIST will complete the SEFV funding application and MA registration forms, and will also submit Milestone plans to SEFV for each MA specialism each year. The Milestones for receiving funding relate to the progress towards achievement of the relevant Level 3 VQ.

C-MIST will be responsible for making funding claims from SEFV for the Milestone attainments of each MA in accordance with SEFV rules, procedures and the approved Milestone plans. C-MIST will monitor the progress of each MA towards the attainment of Milestones and report to INEOS any incidences of slow progress. Whilst C-MIST will endeavour to influence the Milestone attainment of MAs during their work placements on INEOS and BP sites, the achievement of the planned progress will depend largely on the proactive involvement of INEOS and BP site personnel.

Milestone claims are accrued by SEFV and paid out once a month. C-MIST will pass the funds received from SEFV to INEOS by issue of appropriate credit notes."

[32] The cost summary in the contract discloses a total cost of £929,304.60 for the year 2005-2006. This sum does not include anything in respect of apprentice salaries which, as agreed, were to be charged by the pursuers to the defenders at cost + 10%. The £929,304 figure is made up as follows:

·      Training £722,234.60

·      Accommodation £169,920.00

·      VQ Registration and Certification £15,050.00

·      Recruitment (£22,100.00)

The total cost of £929,304.60 consists of the figure of £858,936.00 in Mr Reeder's proposal on 9 May plus the additional NC/HNC payment of £70,368.60 agreed by Mr Reeder on 9 June. The figure of £722,234 is made up arithmetically as follows: (i) the initial training figure of £281,518, calculated by deducting from the pursuers' tender sum of £1,398,811 the sum of £1,117,293 allowed for the cost of apprentices' salaries; (ii) the SEFV funding of £306,000; (iii) the additional posts previously agreed to at a cost of £84,348; and (iv) the additional £70,368; less a sum of £20,000 regarding personal protective equipment which the pursuers were no longer expected to supply.

[33] Recital B to the contract stated that the contract would be deemed to be the entire agreement between the parties where no representations made outside the contract would be relied on by the other party. To the same effect, sub-clause 2.3 provided, subject to sub-clause 2.2 (which conferred precedence upon the contract over the appendices thereto) that the contract represented the entire understanding between the parties in relation to its subject matter and superseded all previous agreements or representations by either party, whether oral or written.

[34] Finally in relation to the terms of the contract I note that, in contrast to the draft contract agreement that had been annexed to the invitation to tender, sub-clause 29.2 of the conditions of contract (Termination Without Cause) was no longer "not used", but conferred an entitlement on the defenders to terminate the contract at any time by giving the pursuers written notification specifying the date of termination. Sub-clause 29.2 is set out in full at paragraph 65 below. No period of notice was specified.

Events after execution of the contract
[35] On 7 August 2006, the parties agreed an amendment to the contract which was set out in a letter to the pursuers from Ms Mason on behalf of the defenders in the following terms:

"An additional payment of £20K per year will be made to cover the Management of VQ Verification Process. This payment will be effective from 1 September 2006. This amendment increases the yearly C-MIST costs to £949,304.60 plus the Apprentice Salaries."

[36] Shortly after the contract was executed, Mrs Tempany moved to other duties. From about September 2006, responsibility for the day to day management of the contract on behalf of the defenders was assumed by Mr James Monaghan whose line manager was Mr Reeder. On 3 November 2006, Mr Monaghan sent an email to Mr Laftavi and to Ms Elaine Mathieson, the pursuers' senior administrator, copied to Mr Reeder, querying the amount of the pursuers' October service valuation certificate (SVC) and stating as follows:

"I expected this SVC to reflect the value of the current contract and not the old value.

New value as per current contract.

Total Monthly

Management Fee £722,234.60 £60,186.22

Forward Funding £306,000.00 £25,500.00

Project Post £40,896.00 £3,408.00

VQ Management £20,000.00 £1,666.67

£1,098,130.60 £90,760.88

You have complained that we don't approve your SVC's quick enough and that you are always in need of money so why are you not claiming the correct monthly value as per the current contract. Your current contract gives you an additional £13,691.55 for your fee's and you have not been claiming it since September so there is £27,383 which you have not invoiced for.

I would like to see the October SVC re-issued to include the correct value for the month plus the September difference and this will allow you to invoice your fee's as per the contract. You are entitled to this money as per the contract so why are you not claiming it?"

Mr Monaghan did not give evidence at the proof. It will be seen that his calculation of the annual amount due to the pursuers includes a sum of £306,000.00 in addition to the "Management Fee" of £722, 234.60 which, as explained above, is comprised partly of the sum of £306,000.00 in respect of SEFV funding.

[37] On 22 March 2007, the defenders wrote to the pursuers confirming a decision, said to have been communicated to the pursuers at a meeting that day, to give notice to cease the provision of Modern Apprentice Training as of 31 July 2007. The contract was said to be terminated with effect from 31 July 2007, in accordance with Clause 29.2 thereof. On 27 March 2007, Mr Monaghan emailed Mr Laftavi stating that payments of the monthly management fee since September 2006 had been £8,244.16 higher than the contracted value. Mr Monaghan continued: "Also your management fee should reflect the £25,500 reduction for the forward funding element." On 5 April 2007, Mr Monaghan sent a further email to the pursuers in which it was stated that the previous monthly value had been calculated by him in error.

The issues between the parties
[38] At the close of the preliminary proof I heard submissions on behalf of the parties on the following issues:

(i) Whether, on a proper construction of the contract, the pursuers were entitled to payment of £306,000 per annum in addition to payment of the full management fee of £722,234.60;

(ii) If not, whether the contract should be rectified by insertion of such an entitlement;

(iii) Whether, on a proper construction of the contract, the amount payable annually by the defenders to the pursuers in respect of accommodation for apprentices was a fixed lump sum of £169,920 or a variable sum depending on the number of BPX apprentices undertaking the programme and the stage which each had reached;

(iv) Whether, on a proper construction of the contract, the pursuers were entitled, on termination of the contract with effect from 31 July 2007, to payment of the full 2006-2007 annual amount or merely to 11/12 of the annual amount;

(v) Whether the parties had reached agreement that the pursuers were entitled to apply inflation at a reasonable rate to the sums due in respect of the second year of the contract (2006-2007).

Legal principles
[39] The present case gives rise to argument both in relation to construction of the contract and in relation to possible rectification of the contract. Parties were agreed that the law on each of these issues was conveniently collected and summarised by Lord Hodge in Patersons of Greenoakhill Ltd v Biffa Waste Services Ltd 2013 SLT 729 at paragraphs 13-18 (construction) and 32-47 (rectification). I gratefully adopt that summary and do not find it necessary to quote it at length here. The general principle of construction was stated by Lord Hodge at paragraph 14 as follows:

"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."

As Lord Hodge observed, modern authority for this approach is extensive; I need not cite it here.

[40] There is, however, one aspect of "relevant surrounding circumstances" which requires particular attention in the present case. I have narrated at length the parties' communications between the time when the pursuers submitted their tender and the date when the contract was eventually executed. As Lord Hodge pointed out in Patersons of Greenoakhill, the evidence that the court may admit to assist in construing a contract is not the same as the evidence that is admissible for its rectification, and it is necessary in this case to determine whether, when addressing the issue of construction, evidence of any or all of the communications between the parties during this period is excluded as inadmissible by the law relating to pre-contractual negotiations.

[41] The rule that renders evidence of the parties' prior negotiations inadmissible is of long standing and was stated as follows by Lord Gifford in Inglis v Buttery & Co (1877) 5R 58 at 69-70, approved by Lord Blackburn on appeal to the House of Lords at (1878) 5R (HL) 87, 102:

"Now, I think it is quite fixed - and no more wholesome or salutary rule relative to written contracts can be devised - that where parties agree to embody, and do actually embody, their contract in a formal written deed, then in determining what the contract really was and really meant, a court must look to the formal deed and to that deed alone. This is only carrying out the will of the parties. The only meaning of adjusting a formal contract is, that the formal contract shall supersede all loose and preliminary negotiation - that there shall be no room for misunderstandings which may often arise, and which do constantly arise, in the course of long, and it may be desultory conversations, or in the course of correspondence or negotiations during which the parties are often widely at issue as to what they will insist on and what they will concede. The very purpose of a formal contract is to put an end to the disputes which would inevitably arise if the matter were left upon verbal negotiations or upon mixed communings partly consisting of letters and partly of conversations. The written contract is that which is to be appealed to by both parties, however different it may be from their previous demands or stipulations, whether contained in letters or in verbal conversation."

In Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101, the House of Lords declined an invitation to depart from this "long and consistent" line of authority by admitting evidence of previous negotiations as part of the background for the purposes of contractual interpretation. Lord Hoffman did, however, make the following observations at paragraphs 42 and 45 respectively:

"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."

"It is true that evidence may always be adduced that the parties habitually used words in an unconventional sense in order to support an argument that words in a contract should bear a similar unconventional meaning. This is the "private dictionary" principle, which is akin to the principle by which a linguistic usage in a trade or among a religious sect may be proved: compare Shore v Wilson (1842) 9 Cl & F 355. For this purpose it does not matter whether the evidence of usage by the parties was in the course of negotiations or on any other occasion. It is simply evidence of the linguistic usage which they had in common."

[42] The approach taken by Lord Hoffman in Chartbrook was applied by the Court in Luminar Lava Ignite Ltd v Mama Group plc 2010 SC 310. Delivering an opinion with which the Lord President (Hamilton) and Lord Eassie agreed, Lord Hodge, having re-stated the general exclusionary rule, continued (paragraphs 41-44):

"41 But the exclusion of evidence of the prior negotiations is not absolute. The court's task in construing a contract is to ascertain what a reasonable person, having all the background knowledge which would have been available to the parties, would have understood them to be using the words in the contract to mean ( Chartbrook Ltd v Persimmon Homes Ltd, Lord Hoffmann, para 14). As a result the court has for a long time looked at what Lord Ormidale called 'the surrounding circumstances' when construing the words of the contract ( Inglis v Buttery & Co, Lord Ormidale, p 67, 68, Lord Blackburn (HL), p 102, 103). In some cases things said and done in the process of negotiation may be part of 'the surrounding circumstances'.

42 Evidence of the factual background to the contract is relevant where the facts are known to both parties and those facts can cast light on either (i) the commercial purpose or purposes of the transaction objectively considered or (ii) the meaning of the words which the parties used in their contract. The two cases very often overlap as the ascertained commercial purpose gives meaning to particular words or phrases.

43 In the former case, the surrounding circumstances may disclose the commercial object of the intended transaction. If an interpretation of the contract frustrated that object, the court would prefer an alternative interpretation. The contract should make commercial sense. In order to understand the commercial purpose of the contract the court may need to know 'the genesis of the transaction, the background, the context, the market in which the parties are operating' (Reardon Smith Line Ltd v Yvgvar Hansen-Tangen [1976] 1 WLR 989, Lord Wilberforce, p 995H).

44 In the latter case the court is looking for the meaning of particular words or phrases. The context may give the words a formal or a popular and looser meaning. The surrounding facts 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, Lord President (Rodger), p 665G)..."

[43] In the course of his submissions, senior counsel for the defenders referred to the decision of the Supreme Court of New Zealand in Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] 2 NZLR 444 as the most recent authority on the admissibility of pre-contractual negotiations. This case concerned a dispute as to the price at which Vector had agreed to supply gas to Bay of Plenty pending resolution of litigation to determine whether Vector had validly terminated the parties' contract. One of the issues was whether correspondence referring to a cost of $6.50 per gigajoule (GJ) plus transmission costs was admissible as evidence to show that when the parties subsequently agreed on a price of $6.50 per GJ, this meant a price for gas only, not including transmission costs. Three of the five justices had regard to the correspondence in holding that the parties had agreed that the price referred to gas only, and that estoppel by convention precluded Bay of Plenty from arguing otherwise. Topping J's judgment at paragraphs 25-29 is representative of the justices' thinking:

"25 A private dictionary meaning is a meaning the words linguistically cannot reasonably bear. It is, nevertheless, open to a party to show that, despite that fact, the parties intended their words to have that special meaning for the purposes of their contract. This represents a consensual parallel with cases in which words have a special meaning by trade custom. It can also be regarded as a linguistic example of estoppel by convention. The estoppel prevents the accepted special meaning from later being disavowed...

26 If parties wish, they may contract on the basis that black means white; albeit the unlikelihood of their doing so, without expressly saying so, will no doubt be a powerful factor when it comes to questions of proof. Whether the parties have adopted a private dictionary meaning must be determined objectively in the same way as other disputes as to meaning are determined.

27 Against that background I come to the subject of the admissibility of prior negotiations. Some of the difficulties in this area may derive from the concept of "prior negotiations" being employed in a more or less expansive way. Sometimes the concept seems to be used as if it encompassed all conduct and circumstances associated with negotiations towards the formation of a contract. It is necessary, however, to distinguish between the subjective content of negotiations; that is, how the parties were thinking, their individual intentions and the stance they were taking at different stages of the negotiating process on the one hand, and, on the other, evidence derived from the negotiations which shows objectively the meaning the parties intended their words to convey. Such evidence includes the circumstances in which the contract was entered into, and any objectively apparent consensus as to meaning operating between the parties.

28 The vice in admitting subjective evidence of negotiations, is that doing so would be inconsistent with the objective basis on which interpretation issues are resolved. As already seen, evidence of a party's subjective intention is not relevant to an objective resolution of interpretation issues. Although the common law takes the view that it is only the final written contract which records the ultimate consensus of the parties, the way that consensus is expressed may be based on an agreement as to meaning reached during negotiations.

29 There is no problem with objective evidence directed to the context, factual or linguistic, in which the negotiations were taking place. That kind of evidence can properly inform an objective approach to meaning. Whereas evidence of the subjective content of negotiations is inadmissible on account of its irrelevance, evidence of facts, circumstances and conduct attending the negotiations is admissible if it is capable of shedding objective light on meaning..."

[44] The doctrine of estoppel by convention is not recognised by Scots law. I do not, however, regard the passage quoted as founded upon that doctrine. Topping J seems to me to be saying much the same as Lord Hoffman said in Chartbrook Ltd and as Lord Hodge said in Luminar Lava Ignite Ltd. The general rule excluding evidence of parties' pre-contractual negotiations does not, in my opinion, render inadmissible in the construction of the contract evidence that a word or phrase in the contract has a meaning reflecting a linguistic usage shared by and understood by both parties as carrying that meaning, whether such use and understanding is to be found in pre-contract negotiations or elsewhere.

Issue (i) - Construction: management fee
Argument for the pursuers
[45] Section 6.5 of the contract is set out at paragraph 31 above. It obliges the defenders to pay the pursuers "the monthly management fee exclusive of SEFV funding". On behalf of the pursuers it was submitted that the ordinary and natural meaning of the words in this sub-clause required taking "exclusive" to mean "not including" SEFV funding. This was said to be consistent with the fact that there was no entry for SEFV funding in the breakdown of the management fee in the cost breakdown annexed to the contract; SEFV funding no longer made up any part of the management fee. On any view the language did not support the defenders' position, which was that the management fee was inclusive of the SEFV funding. As regards the second sentence of section 6.5, requiring the pursuer to give credit for SEFV funding, it was accepted that there was no express statement of the defenders' obligation firstly to make payment of the SEFV funding, but this was implicit in the entitlement to receive credit.

Argument for the defenders
[46] On behalf of the defenders it was submitted that it was clear that the term "exclusive" in section 6.5 meant "without deduction of any credit in respect of SEFV funding". This was the phraseology used in the Innovene letter dated 3 February 2006 to record the agreement reached between the parties on the previous day, about whose meaning there was no dispute: it meant that the management fee would be paid in full without any such deduction. It was submitted that this element of the negotiation process was admissible as evidence in construing the contract, establishing as it did the genesis and object of the contractual provision and an objectively ascertainable agreement of the parties as to what that provision meant. It was further submitted that Recital B to, and sub-clause 2.3 of, the contract constituted an "entire agreement" clause so that it was inadmissible to look elsewhere for any condition of the parties' agreement which might indicate that the defenders had agreed to make payment of an additional £306,000 per annum.

Discussion
[47] In my opinion the argument on behalf of the defenders is to be preferred. There are, in my view, a number of difficulties with the pursuers' proposed construction. In the first place, contrary to the pursuers' submission, it is clear that the amount of the management fee brought out in the cost breakdown annexed to the contract does arithmetically include the SEFV funding, in respect that (in contrast to the pursuers' tender) no allowance is made for any deduction of such funding. I have already explained the way in which the management fee of £722,234.60 was calculated. In the second place, even the pursuers' construction would not result in payment of an additional £306,000 per annum over and above the management fee specified in the contract. Rather, it would result in payment by the defenders of no more than the amount that the second sentence entitles them to have credited at agreed milestones. Nowhere in the terms of the contract, in my view, does one find provision for (i) payment of a management fee inclusive of a sum of £306,000 not deducted as an allowance for SEFV funding plus (ii) payment of an additional sum, also of £306,000.

[48] I reach this view without requiring to take into account the evidence regarding the meaning of the words "exclusive of the SEFV funding" in the defenders' letter of 3 February 2006. In my view, however, this evidence is admissible as an element of the factual background relevant to the meaning of the words used by the parties in their contract. There is no doubt, as was confirmed by Mr Laftavi in his oral evidence, that the parties' common understanding of the position following the meeting on 2 February 2006, and in contrast to what had been the position before then, was that the monthly management fee would be paid without deduction of any amount obtainable by way of funding from SEFV: in other words, that the amount payable monthly by the defenders to the pursuers would include an amount which the pursuers expected to receive in due course from SEFV and pass on by way of credit to the defenders. That, in my opinion, was the parties' shared and mutually understood use of the phrase "exclusive of the SEFV funding" which found its way into the contract. I therefore hold that the sum which the pursuers were entitled to receive monthly by way of a management fee included an element that the parties expected would ultimately be funded by SEFV, which would be claimed from SEFV by the pursuers, and which when received would be credited by the pursuers to the defenders. The terms of the contract, in my opinion, made no provision for payment of a further sum of £306,000 per annum over and above this entitlement.

Issue (ii) - Rectification
Argument for the pursuers
[49] On behalf of the pursuers it was submitted that if I was not persuaded that the contract should be construed in accordance with their submission, I should make an order in terms of section 8(1)(a) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 rectifying the contract by inserting, at the beginning of Section 7.1 (set out at paragraph 31 above) the words "INEOS will forward fund the SEFV funding by making payment of the sum of £25,500 each month to the Contractor". The effect of such addition would be to add £306,000 to the pursuers' annual contractual entitlement. In support of this submission it was contended that I should accept the pursuers' witnesses' evidence as to what had been agreed between the parties following the discussions on 3 May 2006, the proposal of 9 May 2006, and the meeting on 10 May 2006. This was the only commercially sensible explanation of how the parties dealt with the circumstances that they faced. The scope of works had expanded significantly since the invitation to tender, in terms of which they had not been required to carry out any VQ assessment or verification of apprentices' on-the-job training. By May 2006 it had been acknowledged by the defenders that the pursuers would require to assume responsibility for much of this work because the defenders did not have enough adequately trained assessors. Mrs Tempany and Mr Reeder both agreed in evidence that this represented extra work for the pursuers. Additionally, the pursuers had had to take on considerably more work because of the deficiencies in training of second, third and fourth year apprentices which they inherited from TTE; this too was recognised by the defenders at the time and acknowledged by Mrs Tempany in her evidence. The pursuers had already shouldered additional burdens, without extra payment, as a consequence of having to become accredited to use the PAA/VQ-SET standard for more senior apprentices, of dealing with the fact that TTE had used an obsolete standard and the need to adapt to a further imminent change in the standard, and of absorbing the cost of TUPE transfers. It would not have been commercially sensible for them to have taken on still further work without additional reward. The defenders' decision to bring Mr Reeder into the negotiating team indicated that they were facing a crisis as a consequence of pressure from BP to ensure that their apprentices achieved the expected milestones, rendering it more likely that the defenders would have agreed to the pursuers' demands. As regards the meetings themselves, Mrs Tempany agreed that it was very possible that Mr Laftavi had asked for additional resources at the meeting on 3 May. Mr Laftavi's evidence was corroborated to some extent by Mr James who recalled being impressed that Mr Laftavi had obtained this outcome. The reference in the 9 May proposal to "the new scope of work" was consistent with the pursuers' position that the scope had been increased. Events after 10 May supported the pursuers' account of what was agreed; in particular, Mr Monaghan's email of 3 November 2006 did not represent a misunderstanding on his part but a correct interpretation of the agreement reached, on which he had been fully briefed. As Mr Monaghan was not called as a witness, an inference favourable to the pursuers ought to be drawn on this point. References to "forward funding" in this email and in the subsequent letter terminating the contract were consistent with the pursuers' position that it was in addition to the full management fee.

Argument for the defenders
[50] On behalf of the defenders it was submitted that the pursuers had failed to prove that there was any relevant agreement that the management fee should be increased by £306,000 per annum. The evidence of Mrs Tempany and Mr Reeder to that effect should be accepted, and Mr Laftavi's evidence should be regarded as neither credible nor reliable. On many issues his version of events could be demonstrated, by reference to contemporaneous documents, to be incorrect. He gave the impression of not having read the invitation to tender properly, if at all, but rather of approaching matters on the basis of getting his foot in the door in order to negotiate a deal that suited him. It was unclear whether his position was that the increased management fee was agreed at the meeting on 3 May or discussed at that meeting and agreed subsequently. The defenders' version of events was supported by circumstantial evidence. £306,000 per annum was a large amount in the context of the contract; the defenders had declined to accept claims by the pursuers for much smaller sums. Nothing material changed between 28 April, when Mr Laftavi had presented his case to justify payment of the management fee gross of the SEFV funding, and 3 May to justify an annual increase of £306,000. The work that the pursuers were asked on 3 May to "take charge of" had always been within the scope of works to be undertaken by the tenderer; Mr Reeder was simply exhorting Mr Laftavi to accept the pursuers' responsibilities for delivering what they had taken on. The annual management fee of £858,396 proposed on 9 May was a gross figure, comprising in part of £306,000 SEFV funding to be claimed by the pursuers and credited to the defenders as and when received. The various reasons given by Mr Laftavi in his witness statement and in his oral evidence as justifying an agreement to increase the management fee by a further £306,000 per annum afforded no such justification. There was no evidence of any costing having been done by the pursuers of what was asserted to be the increased scope of work. It was accepted that the pursuers had had to undertake an element of re-training of second year apprentices but resources had been provided for that in accordance with the agreement reached in January. Because the first-year classroom training had been outsourced to Forth Valley College, effectively at the defenders' expense, resources were freed up for use in any additional VQ management. Moreover, after the May meetings the defenders had agreed to pay an extra £70,368.60 per annum for additional VQ management support and a further £20,000 per annum for management of the VQ verification process: it is difficult to believe that they would have agreed to this if they had already agreed to increase the annual management fee by £306,000. Mr Monaghan's email of 3 November 2006 proceeded on the basis of a mistake by him; until then the pursuers had made no specific claim for this extra £25,500 per month.

Discussion
[51] My decision on this issue depends to a large extent on my assessment of the credibility and reliability of the witnesses who were present at the meetings on 3 and 10 May 2006. I am in no doubt that the defenders' version of events is the true one. I found Mrs Tempany to be a wholly credible and reliable witness. Her evidence was clear, straightforward and internally consistent, and accorded with all of the contemporaneous documentation. She is no longer employed by the defenders and has no personal interest in the outcome of this case. She made concessions where appropriate, in particular by acknowledging the existence of problems regarding gaps in the training of apprentices at the time when the pursuers took over and also that the agreement reached in early May did involve the imposition of some additional duties on the pursuers with regard to on-the-job VQ assessment of apprentices, albeit she regarded the degree of such imposition as exaggerated by the pursuers. I considered her to be a witness in whose account of events I could place confidence. I also found Mr Reeder to be generally credible and reliable although there were certain aspects of his evidence which were not entirely satisfactory. It was obvious to me that Mr Reeder had been brought in by the defenders to stiffen their negotiating team with a view to bringing the protracted negotiations to a close. In relation to certain aspects, such as the issue regarding inflation which I discuss below, Mr Reeder seemed to be unnecessarily reluctant to acknowledge that his role was to pursue a hard line with the pursuers, perhaps harder than had been taken to date. He also had the disadvantage that any evidence which he gave regarding events prior to his personal involvement was second hand at best. I did not detect any indication of his evidence being coloured by having had sight of Mr Laftavi's witness statement prior to the preparation of his own (a matter on which I comment at the end of this opinion). Overall, however, I did not regard any inconsistencies between Mrs Tempany's and Mr Reeder's evidence as casting any doubt upon the main issue, namely, whether they had agreed in early May 2006 to pay an extra £306,000 per annum to the pursuers.

[52] I did not, on the other hand, find Mr Laftavi to be either credible or reliable. I do not go so far as to say that he was deliberately untruthful; I would say rather that he frequently demonstrated a reckless disregard for whether what he was saying was accurate or not. On numerous occasions, both in cross-examination and during re-examination, assertions which he made were demonstrated by reference to documents to be incorrect. Some examples are his statements that the £858,936 figure did not include an element funded by SEFV; that he had asked for the additional £306,000 per annum in his letter of 28 April; that he was given no choice by the defenders and their predecessors but to accept proposed changes to the contract; and that he was given only a short time to read and approve the contract sent to him for signature. I agree with the defenders' observation that Mr Laftavi gave the impression of being unfamiliar with the terms of the invitation to tender. The most striking example of this was his insistence that the figure of 34 apprentices per year was a maximum figure when the document clearly states a commitment to supply a minimum of 34 per year, including the BPX Aberdeen trainees. Especially damaging to the pursuers' case, in my view, was Mr Laftavi's apparent inability to state whether an agreement to pay an additional £306,000 per annum was reached during the meeting on 3 May or after it and, if the latter, at what particular time after it. Mr Laftavi's demeanour while giving his oral evidence was also troubling. He was frequently evasive in response to direct and specific questions, preferring to turn to me to repeat assertions, often at a high level of generality, that he had already expounded in his written statement or in court. For all of these reasons I do not feel able to accept his evidence as reliable except to the extent that it receives support from other witnesses or other evidence in the cause. I considered Mr James to be a credible and generally reliable witness, but on the critical issue of whether the defenders agreed to pay an extra £306,000 per annum, his evidence was based on what he was told by Mr Laftavi and accordingly adds no weight to the pursuers' case.

[53] I consider further that the surrounding circumstances are strongly supportive of the defenders' version of events. By early May 2006, many of the matters founded upon by Mr Laftavi in justification of the additional management fee were water under the bridge. The additional cost occasioned by re-training apprentices in second year or upwards, including the need to teach to the up-to-date PAA/VQ-SET standard, had been acknowledged by the defenders who had agreed to fund two extra permanent and one temporary teaching posts. Other claims that had been made by the pursuers had either been accepted and reflected in the contract price or abandoned by them. Some of these were one-off transitional costs which could not have justified an annual increase in the management fee. In the end it seemed to me that Mr Laftavi's insistence that an additional management fee had been agreed was based upon his assertion that the scope of work to be undertaken by the pursuers was significantly increased on 3 May. I do not accept as a matter of fact that this was so. I accept that there was at that time a shortage of Ineos/BP personnel who were adequately qualified to act as assessors of the apprentices for NVQ purposes. I also accept, however, Mrs Tempany's evidence that any additional duties which required to be assumed by the pursuers as a consequence of this were not as extensive as the pursuers claimed. In part this is because I consider that Mr Laftavi sought unreasonably to restrict the scope of the work which the pursuers had offered to undertake in their tender which, as I have noted, included an offer to "manage/monitor all the on-shore on-the-job training, competency assessment and verification processes" and, even more specifically, to "manage the NVQ assessment programme, including recruitment, training and monitoring of assessors, mentors and coaches". It is also because I accept Mrs Tempany's opinion that any extra work involved in carrying out assessments, as opposed to recruiting, training, managing and monitoring assessors employed by BP or Ineos, was balanced by the reduction in work to be performed by the pursuers as a result of the outsourcing of NC/HNC teaching and PEO2 training to Forth Valley College. The expression "the new scope of work" which appears in the defenders' 9 May proposal reflects a situation in which the scope is increased in certain respects and decreased in others. In the light of these findings I can see no commercial basis for the very significant increase in the annual management fee which the pursuers say was agreed. I also accept the defenders' submission that the subsequent agreements that the pursuers would be paid additional annual sums of £70,368.60 and £20,000 are wholly inconsistent with an agreement in early May that they would be paid an extra £306,000 for much the same work.

[54] The pursuers sought to place emphasis on the insertion by the defenders of sub-clause 29.2 permitting them to terminate the contract at any time without cause. This was regarded by Mr Laftavi as an act of bad faith on the part of the defenders as he had been informed by Ms Mason that there had been no material change from the draft contract annexed to the invitation to tender. Ms Mason did not give evidence and I do not find it necessary to make any finding as to whether such an assurance was given or, if so, whether it was reasonable for Mr Laftavi to rely upon it without checking the contract against the draft or having it checked on his behalf. It clearly cannot have influenced the discussion in early May, so far as he was concerned, as he only discovered the sub-clause after the contract had come into effect. It was, however, submitted on the pursuers' behalf that the defenders would have been more likely to agree to the additional annual management fee if they knew that they could bring the contract to an end at any time. I regard this as entirely speculative and attach no weight to it in my consideration of the surrounding circumstances. Nor, in my view, would it be appropriate to attach any weight to the reduction of the contract period from five to three years with the possibility of two annual extensions. This change appears to have reflected the fact that by May 2006 the pursuers were no longer offering to construct and provide a training centre at Grangemouth. I note that despite the alteration to the contract period, the schedule attached to the pricing section of the contract continued to provide figures for five years.

[55] Finally in relation to surrounding circumstances, I do not regard Mr Monaghan's email of 3 November 2006 as providing any material support for the pursuers' contention. Even in the absence of evidence from Mr Monaghan, it seems to me that there is sufficient circumstantial evidence to enable me to make a finding that the calculation in the email proceeds upon the basis of a misapprehension. That is, of course, what Mr Monaghan later stated in his email of 5 April 2007. It is also of significance that the pursuers had made no attempt to claim £25,500 per month in this regard, or to complain about any failure by the defenders to make payment of these particular amounts to them, prior to receipt of Mr Monaghan's November email.

[56] It is appropriate to mention at this stage a submission made by the pursuers regarding the defenders' decision not to lead evidence from either Ms Mason or Mr Monaghan, both of whom had provided witness statements to be used as their evidence in chief, had they been called. Under reference to Cordiner v British Railways Board 1986 SLT 209, Richardson v Quercus Ltd 1999 SLT 596 at 604, and William Lippe Architects Ltd v Innes [2007] CSIH 84 at paragraph 24, senior counsel for the pursuers submitted that I should draw inferences favourable to the pursuers with regard to matters upon which these individuals could have given evidence: notably (vis à vis Ms Mason) the insertion without notice of sub-clause 29.2, and (vis à vis Mr Monaghan) the meaning of references to "forward funding" in correspondence including emails sent by him. For his part, senior counsel for the defenders pointed out that the remarks of the Lord Ordinary (McCluskey) in Cordiner related to a witness from whom "the defenders might reasonably be expected to lead evidence but fail to do so". It was contended that as there was no suggestion in the evidence that the defenders had inserted sub-clause 29.2 in order to facilitate the termination of the contract without good cause, there was no need to call Ms Mason. Mr Monaghan had not been involved in pre-contractual negotiations and there was no evidence that he had had any discussion with anyone who was so involved as to what was or was not included in the pursuers' management fee. If the pursuers thought he had something to add then it was for them to call him.

[57] The principle is well established that inferences favourable to a party may be drawn where the other party fails to call a witness from whom he might reasonably have been expected to lead evidence. I do not, however, consider that anything turns in the present case on the absence of either Ms Mason or Mr Monaghan. It is worth bearing in mind that the authorities cited did not concern cases in which signed witness statements, to be used as evidence in chief, were available prior to the proof and where the individual's evidence could be led by any party who considered that advantage would be gained thereby. The fact that no-one chose to call either Ms Mason or Mr Monaghan is, in my view, indicative of the peripheral nature of the evidence that could have been elicited from them. In particular, I would not have regarded any understanding of Mr Monaghan as to the meaning of "forward funding" as relevant to the construction of the parties' contract. There are accordingly, no inferences favourable to either party that I am minded to draw as a consequence of the absence of either of these potential witnesses.

[58] For the reasons given above, I hold that the pursuers have not proved that the contract failed to express accurately the common intention of the parties at the time when agreement was reached in the course of the parties' meetings on 3 and 10 May 2006. I therefore refuse to grant an order for rectification.

Issue (iii) - Accommodation
Relevant contract terms
[59] So far as material, subsection 5.5 of the Scope of Services section of the contract stated as follows:

"Innovene Manufacturing (Scotland) is not expecting to have to fund any costs associated with accommodation when the apprentices are placed at the Grangemouth site, however apprentices who will form part of the Aberdeen contingent may require accommodation. Accommodation should be offered where the trainee technician lives outwith a reasonable travelling distance from the Grangemouth site. Where accommodation for apprentices is required this should be reflected in the pricing schedule.

...

The accommodation shall be arranged, managed and paid for by the training provider and the costs quoted shall include maintenance, insurance, utilities, council tax, housekeeping, cleaning, laundry of bed linen and all other relevant charges.

It is the responsibility of C-MIST to identify and include costs for all necessary elements of accommodation and associated services and consumables throughout the duration of the training programme."

[60] Section 6 of the contract (the pricing section) included a subsection 6.1 entitled "Pricing Preambles" and a subsection 6.3 entitled "Pricing Instructions for Analysis of Lump Sum", it having been specified at section 6.0 that a lump sum was the only basis of pricing being used. Subsection 6.3.1 ("Notes on Pricing") began:

"The aggregate total of the Sums inserted in the Schedule shall be deemed to be a Lump Sum. Each sum shall be the fully inclusive sum for the respective item and shall include without limitation all the Contractor's Costs (and those of his Sub-Contractors) for the following, except where specific provision is given therefor..."

At the end of subsection 6.3.1 it was stated (in bold capitals); "The contractor's attention is drawn to the contractual requirement for the lump sum to be on a fixed price basis".

[61] I noted above (paragraph 13) that the cost breakdown in the pursuers' tender included a section dealing with apprentices' accommodation. This part of the tender was carried without amendment into the contract, despite the reduction of the contract period from five to three years. For ease of reference I set out again the notes to the cost breakdown, which had been unaltered since the issue by the defenders of the invitation to tender:

"Tenderers are responsible for identifying all required elements.

Payment will be made on the basis of reimbursement of actual documented costs plus a management charge as a percentage of actual costs or a fixed charge."

Argument for the pursuers
[62] On behalf of the pursuers, it was contended that their contractual entitlement was to be paid a fixed sum of £169,920.00 per annum, regardless of the number of apprentices in fact being accommodated. The pursuers founded their argument primarily on the terms of subsection 6.3.1, set out above, which, it was submitted, made quite clear that accommodation was a fixed price as part of a lump sum. Support for this contention was said to be provided by the terms of an email dated 8 March 2007 from Mr Mason to a C-MIST representative in which it is noted that there were currently 26 BPX apprentices in total, costing £143,520, but stating that the defenders were paying "£169K per year" without suggesting any inconsistency.

Argument for the defenders
[63] On behalf of the defenders, it was submitted that on a proper interpretation of the contract the accommodation cost was variable depending upon the number of apprentices actually being accommodated and the stage that they had reached in the programme. It was clear from the invitation to tender that costs were sought on a per capita basis and that if a tenderer was putting forward a fixed cost for any item this had to be made clear. The pursuers' tender did not make clear that the cost was a fixed cost; it explicitly included amounts per apprentice per annum. The only conceivable reason for doing so was that the cost would vary according to the number being accommodated. These figures also appeared in the contract itself. The defenders founded upon the second note to the cost breakdown, set out above, as making clear that the amount payable depended upon actual cost. The number of apprentices could have exceeded 14 per year; it was unlikely that the pursuers would have accepted a fixed cost regardless of numbers. Nor was it a credible commercial construction that the amount payable was variable only if the variation favoured the pursuers.

Discussion
[64] In relation to this issue, each party is able to refer to a contractual provision that appears to support its position. I have not found it easy to reconcile these provisions. Subsection 6.3.1 appears to be in absolute terms, imposing upon the pursuers the whole burden of cost regardless of whether this exceeds the lump sum payable by the defenders. On the other hand, the second note to the cost breakdown provides for payment to be made on the basis of actual documented costs plus a management charge, which appears to suggest that the amount payable will vary according to costs incurred. I have, however, concluded that the pursuers' construction is to be preferred. I see no basis for disregarding the clear wording of subsection 6.3.1, which requires the lump sum that includes the accommodation item to be on a fixed price basis, including all the contractor's costs "except where specific provision is given therefor". I regard it as significant that in the course of the post-tender negotiations the defenders required the pursuers to amend their price per annum in respect of apprentice salaries from a fixed sum to cost plus 10%, but sought no such amendment in relation to the price of accommodation. In my view, it is possible to reconcile subsection 6.3.1 with the second note to the cost breakdown because the latter offers as one alternative a fixed management charge, which alternative appears to me to be broad enough to permit a management charge consisting of the difference between actual costs incurred by the pursuers and the fixed sum payable to the pursuers as provided for in the contract. I do not regard this interpretation as lacking in commercial credibility: the pursuers were required by section 6.3.1 to assume the risk of costs exceeding the amount payable to them and in return would benefit if those costs fell because, for example, the number of apprentices reduced below the 14 per annum used in the calculation of the fixed cost. I do not attach any weight to the terms of Ms Mason's 2007 email which may only reflect her own understanding of the defenders' obligation in terms of the contract.

Issue (iv) - Pro-rating of annual payment following termination of contract
Relevant contract terms
[65] Sub-clause 29.2 of the contract (Termination Without Cause), to which reference has already been made in another context, provided as follows:

"Subject to the foregoing INEOS reserves the right to terminate the Contract at any time by giving Contractor written notification specifying the date of termination. On the date of such termination the Contractor shall discontinue performance of the Services and shall wholly comply with INEOS's instructions regarding such termination. INEOS shall pay Contractor in respect of Services satisfactorily performed up to the date of termination and other substantiated associated direct costs incurred by Contractor in complying with INEOS's instructions, in accordance with the terms of the Contract."

Argument for the pursuers
[66] On behalf of the pursuers, it was contended that, on a proper construction of sub-clause 29.2, the defenders were obliged to pay the pursuers for all services provided by them even though the contract was terminated one month before the year end. It was not necessary at this stage for the court to make any finding as to whether, as a matter of fact, all of the services to be provided in the contractual year to 31 August 2007 had in fact been provided by 31 July. Mr Laftavi's evidence, however, was that the pursuers' services had essentially all been provided by 31 July. The training centre was closed during August and most staff were on holiday. Only minor services were provided and very little work was carried out during that month. The fact that the management cost was split into one-twelfths for invoicing purposes provided no sound basis for the defenders' contention that by terminating the contract one month before the year end their payment obligation was reduced to 11/12 of the annual total.

Argument for the defenders
[67] On behalf of the defenders, it was submitted that there was no factual basis upon which to suppose that sub-clause 29.2 properly fell to be regarded as justifying, let alone requiring, any innovation upon the payment arrangement that the parties had agreed and operated during the currency of the contract, namely payment of the annual sum due in 12 equal monthly instalments. Mr Laftavi's own evidence did not support the proposition that all of the contractual services for the contractual year to 31 August 2007 had been performed by the end of July, or that anything that remained was de minimis. He accepted that work carried out in August would include, for example, managing and monitoring vocational training and assessment, preparing for the new academic year, recruitment and welfare. The pursuers were entitled to payment for the period to 31 July 2007 on the basis that annual amounts due under the contract are simply to be pro-rated by reference to how much of the year had expired by the date of termination.

Discussion
[68] I am satisfied that the defenders' interpretation of sub-clause 29.2 falls to be rejected. The sub-clause is clear in its terms and confers a right upon a contractor whose contract is terminated to be paid "in respect of services satisfactorily performed up to the date of termination". In my opinion, that will not necessarily amount to a proportion of the annual lump sum equivalent to the period that has elapsed prior to the date of termination. In a contract such as this one where at least part of the services to be provided consisted of teaching and training, it should not be assumed that the value of those services will necessarily be entirely regular throughout the calendar year. I do not consider that the fact that the parties entered into an arrangement whereby the annual lump sum due in terms of the contract would be paid in 12 monthly instalments is of any assistance in construing the terms of sub-clause 29.2. Although it may not be a straightforward exercise, the pursuers are entitled to be paid on the basis of a fair assessment of the value of the services satisfactorily performed during the period to 31 July 2007. Accordingly, if it were the case that the pursuers had, by 31 July, performed satisfactorily the whole of the services due to be provided by them during the year to 31 August, then in terms of sub-clause 29.2 they would be entitled to payment of the whole annual lump sum. Conversely, if it were the case that the value of services provided by the pursuers remained more or less regular throughout the year, then the sum due to them might not differ much from 11/12 of the annual lump sum.

[69] Although the evidence led at the proof was insufficient to enable me to make a finding as to the value of the services performed by the pursuers before 31 July 2007 (and neither party suggested that I should do so), it may be of assistance if I indicate that it seems clear to me that the whole of the pursuers' services for the year to 31 August had not been performed, satisfactorily or otherwise, by the date of termination. As Mr Laftavi acknowledged, there were management and monitoring duties in relation to the VQ process which continued all year round, including August. It was not the case that every apprentice and every member of the pursuers' staff was on holiday throughout August. In my opinion any assessment of the extent to which the pursuers' services had been satisfactorily performed by 31 July must take account of these continuing commitments. On the other hand I see no reason why any allowance would require to be made for time notionally spent during August on preparation for the year ahead, given that the pursuers were not in fact to be providing any further services to the defenders. I hope that, given the sum at issue, these observations will assist parties to resolve this aspect of the dispute without recourse to further formal court procedure.

Issue (v) - Inflation
Relevant contract terms
[70] The only mentions of inflation in the contract itself are to be found in notes to certain pages of the cost breakdown in the pricing schedule. These notes, which reproduce with minor differences notes added by the pursuers when submitting their tender, appear only in the cost breakdown for training (as opposed to accommodation or VQ registration and certification) and state, in each year "No allowances made for rate of inflation".

[71] Inflation was one of the issues that had been raised by Mr Laftavi in his email to Mr Reeder dated 8 June 2006 to which I referred earlier in another context. Mr Laftavi stated as one of the points which were important to the pursuers and in respect of which clarification was needed:

"It was agreed that since C-MIST could not forecast the rate of inflation and increases in expenses etc the contact [sic] cost will be reviewed on an annual basis to cater for inflation etc."

On 9 June 2006, Mr Reeder replied:

"We accept yearly discussion will take place on inflation rates etc."

Argument for the pursuers
[72] On behalf of the pursuers it was submitted that on a true construction of the contract, as supported by the pre-contractual exchanges between the parties, the principle that the sums due to the pursuers would be increased to take account of inflation was accepted by the defenders. The only matter held in reserve by Mr Reeder was the rate of increase. The contract was potentially for a five-year period: it made commercial sense to agree to increases of the contract sum to take account of inflation. The fact that no mention of inflation was made in some of the pricing schedules was simply an oversight. Mr Laftavi's evidence was that Ms Mason had told him that inflation was allowed for in the contract. The court should accordingly imply agreement to allow an inflationary increase at a reasonable rate of the sum due to the pursuers in respect of the period from 1 September 2006 to 31 July 2007.

Argument for the defenders
[73] On behalf of the defenders it was submitted that the parties had not concluded an enforceable agreement that the amounts payable by the defenders to the pursuers would be increased each year by reference to inflation. The "entire agreement" provisions of the contract precluded recourse to the emails of 8 and 9 June 2006. In any event, even if it was permissible to refer to them, these emails went no further than an agreement to negotiate. Neither an agreement to agree nor an agreement to negotiate was enforceable. Reference was made to Walford v Miles [1992] 2 AC 128 (Lord Ackner at 138) and to the following observations of Chadwick LJ in BJ Aviation Ltd v Pool Aviation Ltd [2002] P&CR 25 at paragraph 23:

"...If, on a true construction of the words which they have used, the court is driven to the conclusion that [the parties] must be taken to have intended that the matter should be left to their future agreement on the basis that either is to remain free to agree or disagree about that matter as his own perceived interest dictates there is no place for an implied term that, in absence of agreement, the matter shall be determined by some objective criteria of fairness or reasonableness."

If the parties had intended to agree a particular inflationary increase they could have done so by reference to a particular index and the elements of the contract price to which it was to apply. They did not do so. An inflationary rate derived from historical indices could not reasonably be applied to the element of SEFV funding, or to the VQ registration and certification fees, or to the management fee for the apprentices' salaries.

Discussion
[74] I accept the defenders' submissions on this issue. I agree that reference to the June emails is precluded by the "entire agreement" provisions in the contract which I set out earlier in this opinion. I also agree that even if it were permissible to have regard to the terms of the emails, Mr Reeder's acceptance went no further than an agreement to conduct annual discussions regarding any inflationary increase and did not bind the defenders to apply any particular, or indeed any, annual increase.

Disclosure of witness statement
[75] One final matter requires to be mentioned. It emerged in the course of the proof that before providing his witness statement, Mr Reeder (who had not been on the defenders' original witness list) had been given and had read through Mr Laftavi's witness statement. In Luminar Lava Ignite Ltd v Mama Group Ltd (above), Lord Hodge made clear (at paragraphs 73 and 74) the Court's view (i) that it was not appropriate for a solicitor precognoscing a witness for the purpose of preparing a witness statement or affidavit to show the witness the statements or draft statements of any other witnesses at that stage; and (ii) that where a party proffers an initial witness statement or affidavit of a witness after the exchange of statements of other witnesses, the solicitor tendering the statement should certify by letter to the court that the witness has not seen or been informed of the evidence of others or, if he has, specify the statements which the witness has seen or been told about and the circumstances in which that has occurred.

[76] The reasons for adherence to this guidance are obvious. Where a witness has been provided with a statement in breach of the guidance, the court will require to make a judgment as to the extent, if any, to which that witness's testimony has been tainted by awareness of another's evidence. At worst this might lead to the witness's evidence being excluded; more probably, it will result, as in the present case, in a submission that the witness's evidence should be approached with caution. It is in no-one's interest that the credibility and reliability of a witness should avoidably be called into question. It is regrettable that this breach of the Court's guidance occurred in the present case, and I take this opportunity to remind practitioners in commercial causes of the guidance provided in the Luminar Lava Ignite case and to reiterate that it should be followed.

Disposal
[77] As invited by counsel, I shall put the case out By Order to hear parties on the terms of the interlocutor to be pronounced in the light of my decision on the various issues addressed.