Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION

[2015] CSOH 104

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;  Shepherd & Wedderburn LLP

Defenders:  Sandison QC, Simpson QC;  Anderson Strathern LLP

5 August 2015

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 commencement date of the contract was 1 September 2005.  The contract was terminated by the defenders with effect from 31 July 2007.  In this action the pursuers sought (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 said to be due by the defenders to the pursuers in accordance with the contract.  The defenders resisted the conclusions for declarator and rectification, and for their part had a counterclaim for a sum said to have been overpaid to the pursuers while the contract subsisted. 

[2]        The action came before me in 2013 for a preliminary proof on four issues concerning construction of the contract and the pursuers’ conclusion for rectification.  My opinion on those matters was issued on 17 January 2014, with the citation [2014] CSOH 5.  A further proof was fixed to deal with certain matters not addressed at the preliminary proof.  A diet of proof set down for 17 July 2014 required to be discharged due to the illness of the pursuers’ principal witness.  As a consequence of timetabling difficulties, the rearranged diet of proof unfortunately did not take place until 1 June 2015.

[3]        At this proof the five remaining issues between the parties were addressed.  These were:

(i)         Whether the pursuers were entitled to payment of the cost of an additional project post for the two months of September and October 2005;

(ii)        Whether the pursuers’ entitlement to an additional payment for VQ (ie vocational qualification) management took effect from 1 September 2005 or from 1 September 2006;

(iii)       Whether the pursuers are entitled to be paid a full year’s fee for work carried out between 1 September 2006 and 31 July 2007, when the contract was terminated, or a lesser sum such as 11/12 of a full year’s fee;

(iv)      Whether the pursuers are entitled to be paid a full year’s fixed fee for apprentices’ accommodation for the year commencing on 1 September 2006; and

(v)       Whether the defenders are entitled to payment of a sum of £93,151 which the pursuers have received by way of public funding and by receipt of which, according to the defenders, the pursuers have been unjustly enriched.

Additional project post
[4]        When the pursuers began training apprentices in September 2005, they discovered that some second, third and fourth year apprentices had not been trained to the standard required, and had not therefore achieved milestones towards qualification.  In January 2006, the defenders’ predecessors Innovene acknowledged that there were gaps in the apprentices’ training and that they would require to meet the cost of a solution to the problem.  Part of that solution was the funding of an additional project post.  By letter dated 19 January 2006, Innovene’s procurement services team leader, Isabelle Boujet, stated that Innovene agreed to the allowance of an additional project post from 1 November 2005 until 1 July 2006 (subsequently extended to January 2007).  The pursuers’ managing director, Mr Mehdi Laftavi, was unhappy that payment for the additional project post would not be backdated to 1 September 2005 when the contract commenced.  On 6 February 2006 he wrote to Innovene to point out that the additional work had been undertaken since 1 September 2005 in accordance with the pursuers’ instruction, in advance of the signing of the contract, to provide services that were required to run the training contract.

[5]        The issue remained unresolved during the months following, when other disputes between the parties received higher priority.  As described in my previous opinion, the defenders brought in Mr Ed Reeder, a contract services manager, to assist in concluding the contract.  Several meetings took place.  One of these was on 8 June 2006.  After that meeting, Mr Laftavi wrote to Mr Reeder setting out a number of points upon which he asserted that clarification was needed.  Mr Laftavi stated inter alia:

“6. There are two one-off charges which Innovene agreed to pay subject to agreeing the amount:

…

6.2 On signing the contract Innovene will pay the 2 months back pay of one post Project fee which was agreed.”

On 9 June 2006, Mr Reeder replied to Mr Laftavi’s various points, stating inter alia:

“On signing the contract, Innovene will pay the two months salary of the additional project post.”

The contract was subsequently signed without any further express reference to this matter.

[6]        The sum at issue is £6,816.00.

[7]        On behalf of the pursuers it was submitted that the parties had never agreed that the additional project post should be funded only from 1 November 2005.  In absence of any such specific agreement, the pursuers’ entitlement rested upon the parties’ more general agreement at the time when work under the contract commenced, many months before execution of the contract, that the pursuers were obliged to provide training services that as a matter of practicality necessitated the creation of an additional post.  In any event, the correspondence in June 2006 amounted to agreement that the post would be funded from 1 September 2005.

[8]        On behalf of the defenders it was contended that agreement was reached in January 2006 that payment would be made for the additional post, but only from 1 November 2005.  There was nothing in the June correspondence to indicate that it referred to the same matter.  It had not been referred to in the pleadings or in Mr Laftavi’s witness statement.  In any event there was no evidence that the package offered by Mr Reeder on 9 June 2006 was accepted by the pursuers.

[9]        I reject the pursuers’ primary argument that it was implicit in their instructions in 2005 that the additional post would be created and paid for by Innovene.  That would seem to me to amount to the pursuers being given a contractual entitlement to determine unilaterally what was required in order to implement their obligations under the as yet non‑finalised contract.  It is clear from the voluminous correspondence that that was not how the matter was approached by either party during the protracted negotiations between September 2005 and July 2006.  The additional project post was the subject of specific discussion and by January 2006 the defenders had made their position clear, in the context of wider negotiations, that this particular post would be paid for only from 1 November 2005.  There had been no previous agreement, express or implied, on the point.  However, I consider that matters changed again with the June exchange.  It is true that the significance of that exchange emerged only in the course of Mr Laftavi’s cross-examination and re-examination and had not been mentioned in the pleadings or indeed in his witness statements.  One consequence was that there was no evidence from Mr Reeder to assist with interpretation of the references to a “project post”.  Nevertheless the meaning seems to me to be sufficiently clear, in the overall context of the parties’ dispute.  The evidence discloses no other candidate for the references to an additional post, still less one where the parties were at issue regarding “2 months’ back pay”.  I am satisfied that this exchange constituted an agreement between the parties that the post would be funded from 1 September 2005, such agreement being conditional only upon signing of the contract.  On this issue, therefore, I find in favour of the pursuers and hold that the sum due by the defenders is £57,936.00. 

Additional VQ management payment
[10]      Two issues arise with regard to the pursuers’ entitlement to an additional payment for VQ management.

[11]      The first issue is whether their entitlement took effect from the outset of performance of their contractual duties on 1 September 2005 or whether it took effect only from 1 September 2006.  The background to this dispute is the same as in relation to the additional project post: the pursuers claim to have discovered at an early stage that apprentices had not completed elements of training or reached expected milestones.  The problem was acute with regard to fourth year apprentices who had to graduate in July 2006.  Information supplied by the defenders regarding the number and identities of internal verifiers turned out to be inaccurate.  No express agreement was reached on this aspect of the parties’ negotiations prior to execution of the contract.  However on 7 August 2006, shortly after the contract was signed, the defenders’ Kim Mason wrote to the pursuers advising of “Contract Amendment 01”, being

“an additional payment of £20K per year… to cover the Management of VQ Verification Process.  This payment will be effective from 1 September 2006.”

Mr Laftavi’s response, stated at a meeting on 7 September 2006, was that the £20,000 should be paid retrospectively and did not agree with a starting date of 1 September 2006.  There was no further correspondence on this matter.

[12]      On behalf of the pursuers it was submitted that whereas the parties were in agreement that an additional payment of £20,000 a year was appropriate for VQ management, there was no agreement that it would commence only from 1 September 2006, after much of the critical work had been carried out.  Again the pursuers’ entitlement was determined by what they had been obliged to do from the outset in order to facilitate the completion of the apprentices’ training and qualification.

[13]      On behalf of the defenders it was accepted that despite the absence of any formal acceptance, the pursuers were entitled to an additional payment at the rate of £20,000 a year from 1 September 2006.  There had, however, been no agreement reached either before or after execution of the contract that any payment would be made in respect of any prior period.  In the absence of agreement, any claim by the pursuers would have had to be restitutionary in quantum lucratus; no such claim was made.

[14]      I reject the pursuers’ contention for the same reasons as set out above in relation to the additional project post.  By the time of the signing of the contract, no agreement had been reached that the pursuers would be paid anything in respect of additional VQ management (although related issues, such as NC/HNC registration fee costs, had been discussed and agreed).  The only basis of any contractual entitlement of the pursuers to payment for VQ management is the “contract amendment” dated 7 August 2006.  As it entitled the pursuers to payment only from 1 September 2006, I find in favour of the defenders on this issue.

[15]      The second issue concerns the pursuers’ entitlement to payment of a full £20,000 for the period from 1 September 2006, having regard to the fact that the contract was terminated with effect from 31 July 2007.  I deal with this issue below.

Effect of termination of the contract
[16]      In my previous opinion (at paragraph 68) I rejected a contention by the defenders that the effect of their termination of the contract one month early was to reduce the pursuers’ entitlement to payment of 11/12 of the annual sum due.  I held that the pursuers’ entitlement would depend upon the proportion of their annual work that was in fact satisfactorily performed prior to the date of termination.  I expressed the view that it seemed clear that the whole of the pursuers’ services had not been performed by 31 July 2007, with the consequence that they were not entitled to the whole of the annual sum.  At the second proof, attention therefore focused upon what, if anything, would have been done by the pursuers during August 2007.

[17]      Mr Laftavi’s evidence was that little, if anything, was done for apprentices during the month of August.  Time would normally be spent preparing for the forthcoming year.  No classroom training was provided.  As regards apprentices on site, all or most took holidays during August.  In any event there was very little for the pursuers to do on site as the apprentices were under the control of the defenders’ supervisors.  Most of the pursuers’ staff also took holidays because there was little to do.  In cross-examination he accepted that the pursuers might have some involvement if a matter arose regarding job rotation, and that a 24 hour on-call service would be provided. 

[18]      The sum at issue is £60,186.22, being one-twelfth of the annual management fee, plus a further £1,667, being one-twelfth of the additional VQ management payment of £20,000 per year.

[19]      On behalf of the pursuers, it was submitted that Mr Laftavi’s evidence should be accepted.  Whatever might be the position regarding a hypothetical August, his evidence was clear that there was very little, if any, actual work done during August 2007.  If it were considered appropriate to make allowance for work that would have been carried out during August 2007, a broad brush approach should be taken and a figure of, say, 10% of an ordinary month’s work allocated to August.

[20]      On behalf of the defenders, it was submitted that the pursuers had failed to prove that they had completed more than 11/12 of their annual duties by the date of termination.  Under reference to a spreadsheet of activities, it was submitted that most of the pursuers’ functions, including instructor costs, charges for access to facilities, management and co‑ordination fees, and tools and equipment provision would have required to be performed in August 2007 as in any other month.  Certain activities allowed in the pursuers’ costings, in particular an outward bound course, had not taken place.  On the whole, payment of 11/12 of the annual management fee was appropriate.

[21]      I am satisfied on the evidence that certain supervisory activities by the pursuers would have continued into August 2007 if the contract had not been terminated.  However, I accept Mr Laftavi’s evidence that the scale of service provision during any month of August, and in particular August 2007, would have been significantly lower than in other months, due to the absence of classroom teaching and the prevalence of holidays among apprentices receiving on-site training.  I can do no more than make a broad assessment of the extent of the run-down of activities that would have occurred during August 2007, and, having regard both to Mr Laftavi’s evidence and to the defenders’ analysis, my assessment is that the amount of services to be performed during August 2007 would have been of the order of 25% of the normal monthly provision.  I see no reason to distinguish between the annual management fee and the additional VQ management payment.  That being so, I shall allow the pursuers the whole of each of the 2006-07 management fee and the additional VQ management payment, under deduction of 25% of one-twelfth thereof.  According to my calculation, the amount due to the pursuers by way of a management charge for 2006-07 is therefore £707,188.05 , ie £722,234.60 less £15,046.55, and the amount due to the pursuers by way of the additional VQ management payment for 2006-07 is £19,583.33, ie £20,000 less £416.67.

Accommodation
[22]      In my previous opinion I held that the pursuers were entitled to a fixed sum of £169,920 per annum for provision of apprentices’ accommodation, regardless of the number of apprentices being accommodated and hence the actual cost to the pursuers.  The defenders’ argument after the second proof was presented under reservation of their position that they may wish to reclaim this aspect of my previous decision.  The issue that now falls to be addressed is whether whatever sum is due to the pursuers for provision of accommodation should be reduced by 1/12 because of the termination of the contract one month before the year end.

[23]      According to Ms Kim Mason, who was at the material time employed as a procurement specialist by the defenders, the provision of apprentices’ accommodation was taken over by Forth Valley College after 31 July 2007.  The defenders paid the same accommodation allowance per trainee as they had paid to the pursuers.  Ms Mason recalled that on termination of the pursuers’ contract, accommodation had had to be found for the apprentices as a matter of urgency.  Mr Laftavi’s evidence, in the course of re-examination, was that he believed that rent was normally paid monthly to landlords under six‑monthly or annual contracts.  He did not recall any repayments of rent being received by the pursuers.

[24]      The pursuers’ submission was straightforward: a fixed annual sum was agreed and remained due regardless of the termination of the contract with effect from 31 July 2007.   

[25]      On behalf of the defenders it was submitted that Ms Mason’s evidence that the defenders had had to fund the apprentices’ accommodation during August 2007 should be accepted.  It had never previously been suggested that the pursuers’ arrangements with landlords were not terminable within the period of notice that the pursuers were given.  The annual charge should be restricted to 11/12 thereof for the year 2006-07.

[26]      On this issue I accept the contention on behalf of the defenders.  I was not persuaded by Mr Laftavi’s hesitant recollection that the pursuers incurred any accommodation cost with regard to August 2007, and I accept Ms Mason’s evidence that this was effectively borne by the defenders.  There was no evidence to indicate that any arrangements that the pursuers entered into with landlords could not have been brought to an end during the pursuers’ notice period.  The defenders were entitled in terms of the contract to bring it to an end by giving notice under sub‑clause 29.2.  Such termination could have occurred at any time during the course of a contract year.  It would not make commercial sense to construe the contract as nevertheless obliging the defenders to pay accommodation costs for the remainder of the contract year, however long that might be, and regardless of the fact that the defenders would be under an obligation to obtain or fund apprentices’ accommodation during that period.  I therefore find that the pursuers’ entitlement to payment for provision of accommodation during 2006-07 is restricted to 11/12 of £169,920, ie to £155,760.

Counterclaim
[27]      The defenders’ counterclaim is for redress of alleged unjustified enrichment of the pursuers.  It essentially falls into two parts.  In the first place, the defenders contended that if the four issues that I have already addressed were decided in their favour, the effect would be that the pursuers would have been overpaid by £55,967.07 (assuming my previous decision in relation to a fixed sum entitlement for provision of accommodation to remain undisturbed) or, alternatively, by £214,416.24 (if that decision were to be reversed).  The defenders seek repetition of the alleged overpayment: thus far, the matter is one merely of arithmetic. 

[28]      However, there is a further element to the counterclaim.  On 30 April 2014, the defenders lodged a minute of amendment which amended the conclusion and averments in the counterclaim.  On 21 May 2014 they intimated adjustments averring that they were entitled to payment of a sum of £93,151.00 received by the pursuers from SEFV after 31 July 2007 in respect of training and VQ management carried out by them pursuant to their contract with the defenders.  The pursuers admit receipt of this sum but assert that they were entitled to receive and retain it in respect of work carried out in September and October 2007 in order to complete the documentation necessary to obtain certification for apprentices who finished their course in July 2007.  In any event, the pursuers contend that any claim formerly competent to the defenders for the sum of £93,151.00 was extinguished by prescription prior to intimation of the adjustments in May 2014.  Reference is made to an email sent by the pursuers to the defenders on 25 February 2007 setting out a table of SEFV funding payments expected to be received by them in each month from April 2007 until March 2008.  On this basis it is averred that the defenders at all times knew or ought to have known what payments the pursuers were receiving from SEFV after the date of termination of the contract.

[29]      On behalf of the pursuers it was argued:

(i)         that the counterclaim was misconceived because it failed to give credit for a total of £167,806 SEFV reimbursements received by the pursuers prior to termination of the contract which the defenders had had a contractual entitlement to reclaim but had omitted to do so;

(ii)        that in any event the counterclaim ought to have been for breach of contract, which would exclude a claim based upon unjustified enrichment;

(iii)       that there was no unjustified enrichment of the pursuers because all sums were due and payable to the pursuers and were lawfully retained by them;

(iv)      that the same applied to the £93,151, which would have been recoverable by the defenders as a matter of contractual entitlement but for their voluntary decision to terminate the contract.  Any enrichment was not therefore unjustified;

(v)       that the claim for £93,151 had prescribed.  This was a different claim from the case as originally pled, which was simply for reversal of an enrichment.  It came into existence and prescribed at a different time;

(vi)      that in any event it would be equitable not to reverse any enrichment, having regard to work carried out by the pursuers to achieve the SEFV payment for which the pursuers had received no return.

[30]      On behalf of the defenders it was submitted that both elements of the counterclaim were correctly framed as claims for reversal of unjustified enrichment.  Had the contract continued beyond July 2007, the pursuers would have remained under a contractual obligation to submit applications for SEFV funding and to credit sums received against future payments falling due to them by the defenders.  That obligation ceased on termination of the contract.  The contractual mechanism could no longer operate and no term could be implied that would contradict the express terms as to the crediting mechanism.  In the absence of a contractual remedy, the defenders were entitled to found upon the law of unjustified enrichment to reverse the benefit that would otherwise be obtained by permitting the pursuers to retain the £93,151 obtained from SEFV.  Although particularisation of the counterclaim to include the sum of £93,151 had not been expressed until more than five years after such a claim could first have been made, it had not prescribed because it was a development or restatement of a timeously-made claim based upon unjustified enrichment.  Reference was made inter alia to NV Devos Gebroeder v Sunderland Sportswear Ltd 1990 SC 291, Lord President Hope at 303.

[31]      I have not found it entirely straightforward to understand how the reimbursements by SEFV have been accounted for in the parties’ calculations, especially as the spreadsheet lodged for the purposes of the proof does not quite match the pleadings in this regard.  It seems clear, however, that both parties’ calculations proceed on a common basis that (i) a sum of £1,537,203.38 was paid by the defenders to the pursuers;  (ii) this sum is net of the sum of £204,674 recovered by the pursuers from SEFV and credited to the defenders;  and (iii) leaving aside the £93,151 now sought by the defenders, the total SEFV funding received by the pursuers that ought to have been credited to the defenders was £372,480.  If that is correct, then it follows that the first disputed element of the counterclaim as now presented does not consist to any extent of sums which the pursuers received from SEFV and failed to credit.  The pursuers in effect acknowledge that the difference of £167,806 was received by them and not credited as it ought to have been.  The sum in dispute in the first element consists rather of the total of the consequences of the first four issues addressed at the second proof.

[32]      In my opinion both elements of the counterclaim are correctly framed as claims for reversal of unjustified enrichment.  The first element consists of various sums alleged to have been found to have been overpaid in the course of an overall reckoning carried out after the parties’ contractual relationship had come to an end.  How exactly any overpayment came to have been made was not explored in evidence, no doubt because in a situation where the defenders made periodic payments to the pursuers in response to the submission of approved invoices, it would be impossible or at least very difficult to identify a particular remittance or particular remittances when the overpayment may be said to have occurred.  If the claim had been for repayment of SEFV monies received by the pursuers prior to termination of the contract, the defenders’ claim for reimbursement would have been a contractual claim, and the observations of Lord MacFadyen in Compagnie Commerciale Andre SA v Artibell Shipping Co Ltd 2001 SC 653 at paragraphs 25 and 26 would have been in point.  But the defenders’ claim for these alleged overpayments rests not upon a contractual entitlement but on a right to recover sums overpaid in error.  In my view that is properly characterised as seeking the remedy called repetition, within a more general right of reversal of unjustified enrichment (cf Shilliday v Smith 1997 SC 725).

[33]      The peculiarity of the second element of the counterclaim is that it concerns sums claimed from SEFV and received by the pursuers after the contract had been terminated and in respect of which no contractual mechanism remained in place for reimbursement of the defenders.  That being so, I accept the defenders’ submission that there has been enrichment of the pursuers in that they have obtained the benefit of a sum that would have required, in accordance with the terms of the contract, to be paid to the defenders had the contract continued.  In the absence of a contractual remedy, it seems to me that a claim based upon unjustified enrichment is appropriately made.

[34]      The fact that I have held that both elements are properly advanced as enrichment and not contractual claims constitutes a distinction between the present case and NV Devos Gebroeder v Sunderland Sportswear Ltd (above), in which it was held that two obligations had different legal bases so that the first, a contractual claim, could not save the second, a claim for recompense, from prescription.  It does not, however, follow that because both claims in the present case are for reversal of unjustified enrichment, the timeous making of the first element of the claim saves the second from prescription.  Lord President Hope observed at page 303:

“…In the end of the day one must not lose sight of the fact that a claim for implement of one obligation will not save from prescription a different obligation for implement of which no claim has been made.  As I see it, therefore, the question in this case is not how much latitude may be given to a pursuer in the statement or re-statement of his claim for implement of the obligation which he seeks to enforce, but whether the obligation or recompense which the pursuers have introduced by amendment is an obligation which is different from the obligation under the contract to pay the price.  The word ‘fundamental’ has been used, and this is legitimate insofar as it directs one’s attention to the essential basis in fact and law for the obligation which is in question.”

Lord President Hope went on to find at page 304 that in addition to having different legal bases, the factual basis for the two claims was different in significant respects.

[35]      In my opinion it may equally be said that the two elements of the counterclaim in the present case have different factual bases.  The first concerns overpayments during the subsistence of the contract, and the terminus a quo for prescription purposes must have been, at the latest, the date of termination of the contract.  The second concerns events occurring after the termination of the contract, with a terminus a quo, at the earliest, at the date when the sum of £93,151 was received by the pursuers from SEFV.  These are, in my view, significantly different obligations with separate commencement dates for the operation of prescription.  The timeous raising of an action in respect of the first element does not therefore save the second from extinction by prescription.  I note in passing that it is not suggested by the defenders that the running of prescription was postponed or interrupted, in terms of section 6(4) of the Prescription and Limitation (Scotland) Act 1973, by fraud or induced error.  This element of the defenders’ counterclaim accordingly fails.

Arithmetic result
[36]      The arithmetic result of my decisions on the various issues, set out as an adjusted version of the spreadsheet used at the proof, appears to me to be as follows:

[37]      Before pronouncing an interlocutor I shall, in accordance with counsel’s request, put the case out by order to be addressed on whether parties are in agreement with my arithmetic, and on any other outstanding issues.