Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION

[2015] CSOH 143

 

CA129/14

OPINION OF LORD WOOLMAN

In the cause

GLASGOW CITY COUNCIL

Pursuer;

against

MONSIGNOR PETER SMITH & OTHERS
(SPRINGBOIG ST JOHN'S SCHOOL)

 

Defenders:

Pursuer:  Dean of Faculty (W J Wolffe QC), Duthie;  Glasgow City Council (Corporate Services)

Defenders:  Clancy QC;  McSparran McCormick

23 October 2015

Introduction

[1]        Springboig St John's School opened in 1962 and closed in 2010.  It was a residential school for teenage boys in the East End of Glasgow run by a board of managers.  The managers were appointed by the Archdiocese of Glasgow.  

[2]        When the school closed, there were concerns about the adequacy of the pension provision for the former members of staff.  They are paid out of the Strathclyde Pension Fund, which is administered by Glasgow City Council (“the Council”).  An actuarial valuation disclosed a deficit of about £4.7 million.  

[3]        In order to make good the deficit the Council sought a cessation payment from those responsible for the school.  It entered into discussions with McSparran McCormick, solicitors, to attempt to resolve the issue.  That firm represents a number of Roman Catholic interests, including the Archdiocese of Glasgow and the board of managers of the school.  It also represents the trustees who hold title to the land on which the school stood.  They acquired the title from the Council in 1962 (“the 1962 trustees”).

[4]        The negotiations were unsuccessful and so in December 2013 the Council raised the present action for payment.  The defenders were initially the 1962 trustees, the board of managers, and Monsignor Peter Smith, who is the last remaining member of the board.  Subsequently, the Council convened six former members of the board as additional defenders.  It did not, however, direct the proceedings against the Archdiocese itself.  

[5]        At the outset of the action, the Council applied for interim interdict and inhibition on the dependence.  Following an opposed motion roll hearing, Lord Malcolm granted the orders sought:  [2014] CSOH 76.

[6]        Since then, there have been relatively few procedural steps.  In June 2014 the court granted leave to transfer the action to the commercial roll.  At the same time, the Council reduced the sum sought to £4.1 million.  On 10 September the court sisted the case for three months for settlement discussions.  

[7]        The discussions had in fact begun some months earlier at a meeting at the offices of the Strathclyde Pension Fund.  It was attended by:  (a) Richard McIndoe, the chief executive of the fund;  (b) Charles Haggerty and Mr Richard Fisher, both solicitors with the Council;  (c) Frank McCormick and Mhairi McAllister of McSparran McCormick; and (d) three representatives of the Archdiocese, including Monsignor Smith.

[8]        The meeting did not result in an agreement.  The parties were far apart on the capital sum to be paid to the Council.  There also lay in the background a question about other schools with a pension deficit.  Monsignor Smith was on other boards of managers in a similar position. 

[9]        Subsequently, Mr Haggerty and Ms McAllister conducted the settlement negotiations.  They met several times at the Tinderbox café in Ingram Street, Glasgow and they also exchanged emails and had a number of telephone conversations.  This informal route appears to have been taken – at least in part – because the parties were keen to keep the discussions confidential.  The dispute was seen as being a sensitive one, given that the Council was seeking a large payment from the church in respect of an educational establishment. 

[10]      At a meeting in the cafe in June, the two solicitors found that there remained a wide disparity in their respective positions.  A meeting on 4 September was more fruitful.  They discussed settlement along the following lines.  In return for payment of £1 million, the Council would consent to (a) recall of the interim interdict;  (b) discharge of the inhibition;  and (c) decree of absolvitor.  In addition, the Council would convey a triangular strip of land to the 1962 trustees.  

[11]      I should say more about the triangular strip of land.  It lay between two areas of land to which the 1962 trustees already had title.  If they were able to assemble all three titles together, the site would have greater development potential and an increased value.  Until the September meeting, Mr Haggerty had been unaware that the Council owned the triangular strip, or that the 1962 trustees wished to acquire it.  Ms McAllister mentioned paying the Council a price of £10,000 for the strip.  

[12]      In the afternoon of 4 September, Mr Haggerty sent an email to Ms McAllister:  

“Following our meeting this morning I thought it would be best if I outlined what we discussed as a basis for settlement of the dispute.

 

• The church pays to GCC £1M in full and final settlement of the sums sought in terms of the action in the Court of Session.

   

• Upon payment the action will be dismissed on a no expenses due to or by basis with the Church getting decree of absolvitor.

   

• The land sandwiched between Plots 1 & 2 at the school will be transferred to the church [by] GCC for £10,000.

 

In addition the Council would look for an overage provision to be included in any agreement to sell the land to protect the position if the church decides to flip the property for a profit. This is normal in these types of land transfers and the particulars of the overage can be agreed between parties as part of the normal negotiations.

 

As you know we will need to check our scheme of delegated functions to ascertain what we authorities we require to dispose of surplus land. This may then need committee approval but I will confirm.

 

Also, Richard is arranging for the action to be sisted for three months. Thereafter we may start to run up against timebar issues so would have to think about amending and serving to bring in the members of the board. Hopefully we can finalise this before then.

 

Without prejudice.”

 

[13]      Subsequently Ms McAllister telephoned Mr Haggerty and indicated that she was unhappy with the inclusion of an overage provision.  On 11 September he sent a further email to her, which he describes in his witness statement as being a “crucial” communication: 

“Apologies for the slight delay in responding.

 

I would accept that I first raised the issue of overage in my email to you and it was entirely appropriate that I do so. We had no concluded agreement at that point. I have been advised by those who instruct me that the requirement for overage is normal in these circumstances and non-negotiable. Therefore the options open to your clients are either: –

 

We decouple the sale of the land from the settlement of the pension fund dispute. The dispute will be settled on the terms agreed and the action dismissed. The church can then deal with our agents at City Property regarding the disposal of the land in their favour as a stand alone negotiation where a market value and overage can be agreed following the normal process; or

 

Your clients agree to purchase the land for £10,000 and agree in principal [sic] to an overage provision in favour of the Council, the details of which will be negotiated between the parties hereafter. At the same time the action will be dismissed on the basis of the terms previously discussed.

 

Your clients clearly want to assemble the title to these sites and we are prepared to assist by agreeing to an off market disposal. The condition to that is we apply our standard provisions. Overage will apply until such time as the development detail and scale is known. Normally we would value land when the development plans are defined. This is not the case here and we are arguably disposing of the land prematurely.”

 

[14]      Ms McAllister responded by email later that day:  

 

“For me to be able to take instructions on option 2 (and we have consistently stated that we wanted to deal with the land issue as part of the settlement package), I need to understand how any overage provision would work.

 

Are you able to send me the clause that City Property would consider ‘normal’ in a transaction so that I can report to my client and take instructions thereon?”

 

[15]      She sent another email to Mr Haggerty on 28 October 2014:

 

“Given that the discussions on the ‘price’ are likely not to reach an imminent agreement, I wonder if we can move on the settlement of the litigation in tandem with matters?

 

I am conscious that thus far the discussions have been between ourselves and not Counsel.

 

I wonder if we should now have our respective Senior Counsel formalise the position relative to the capital sum and agree the terms of the Joint Minute to lift the Inhibitions and dispose of the court action granting absolvitor with no sums due to or by pending developments regarding the other matter?

 

All things being equal we would want to be settling the capital sum agreed upon to your Council as administrator for the Fund on Friday 28th November 2014 with you delivering and us lodging the joint minute agreeing to absolvitor immediately thereafter.

 

Please confirm if you agree with the foregoing proposal to progress matters.

 

This email is written without prejudice.”

 

[16]      That email generated an automated response from Mr Haggerty’s email programme.  As Ms McAllister did not hear from him for several days, she telephoned him on 11 November with a view to taking matters forward.  Immediately after the call she prepared the following file note: 

“MM telephoning Charlie Haggerty (10:35 AM).

 

MM noting that Charlie was just back from holiday but wondered if we were settling the transaction on the terms and conditions as previously stated?

 

Charlie thought he had responded and apologised for not doing so earlier. He was still instructed to settle at the £1 million and we should press on.

 

MM asked if he was okay with what she had suggested that Counsel deal with the appropriate joint minute/minute of agreement. Charlie felt that we could deal with matters direct. MM advising that her instruction was to get our Counsel involved and on that basis MM would liaise with Counsel, get some drafts together and send them across to Charlie as soon as possible to progress matters hopefully towards settlement.

 

Charlie was pleased that matters were proceeding in the right direction.

He asked relative to the land. MM advised that so long as there was a general feeling that City Property would deal with us in relation to the disposal of the land at that market value then there was no point in holding up the bigger settlement negotiations whilst arguing about valuations/overage at the present time.

 

Charlie was pleased that matters could hopefully progress on a straightforward basis always subject to the drafts being adjusted and agreed.

 

Time engaged: 4 minutes.”

 

In her oral evidence, Ms McAllister said that she was “one hundred per cent confident” that the file note is accurate. 

[17]      During a telephone conversation with Mr Haggerty in the week beginning 10 November, Ms McAllister agreed to draft a settlement agreement. She followed that up in an email dated 21 November: 

"I refer to our conversation last week and now attach draft minute of agreement and joint minute setting out the agreed terms for extra judicial settlement."

 

[18]      The Council did not execute those documents as it did not consider that they accurately reflected the settlement terms, because they sought the discharge of certain liabilities beyond the scope of the present action.

 

Minute for Declarator and Payment
[19]      The Council has lodged a minute in process seeking declarator that the parties concluded an extra-judicial settlement along the lines discussed at the meeting on 4 September, apart from the land transfer.  In other words, they agreed that the 1962 trustees would pay £1 million to the Council.  In return, it would discharge the inhibition, lift the interim interdict and consent to decree of absolvitor. 

[20]      As originally drafted and adjusted, the Council framed the minute on the basis that settlement occurred during the course of the telephone conversation on 11 November.  It then sought to revise its pleadings to add an alternative case that the parties’ contract was formed by means of the email of 11 September (the offer) and the email of 28 October (the acceptance).  On the morning of the preliminary proof I allowed the Council’s unopposed motion to amend in that manner.

 

The Legal Framework
[21]      The Dean of Faculty helpfully set out the legal framework in eight propositions that he derived from Newbury v Sun Microsystems [2013] EWHC 2180 and Bieber v Teathers Ltd [2014] EWCH 4205 (Ch).

“a.  The onus lies on the party who contends that an action has been compromised to establish that a compromise agreement has been entered into.

 

b.    The question of whether the parties have reached a compromise agreement is to be determined objectively by considering the words and actions of the parties, against the relevant context.

 

c.    As a general rule, the subjective views of the parties are irrelevant as are subjective reservations.

 

d.    If, on an objective appraisal of the parties’ words and conduct, the parties have agreed the essential terms of a compromise and intend that agreement to have legal effect, they are bound by that compromise, even if there are other important terms which they have not agreed.

 

e.    Once the parties have objectively agreed on the essential terms of a compromise, that agreement may be binding even though it is understood that a formal agreement will be entered into recording, or even adding to, the terms agreed.

 

f.     Where the parties agree the essential terms of a compromise but also agree that a formal agreement should be entered into, the question of whether the parties intended the binding effect of their agreement to be suspended until a formal agreement had been entered into depends on an objective appraisal of their words and conduct in context.

 

g.    If, on an objective understanding of the communications, the parties have entered into a compromise agreement, the failure of subsequent negotiations of a detailed agreement is irrelevant unless those discussions amount to a variation or rescission of the agreement.

 

h.    A court is entitled to look at the terms of ‘without prejudice’ correspondence in order to decide whether or not agreement has been reached between the parties. If the court decides that agreement has been reached the protection of these words flies off; if not, it remains.”

 

[22]      Mr Clancy confirmed that those propositions are an accurate summary of the legal position.

 

General
[23]      The only witnesses led at the proof were Mr Haggerty and Ms McAllister.  I find them both to be credible witnesses.  With regard to reliability, Ms McAllister had a better recollection of events, which is supported by the contemporaneous documents.  In matters of factual dispute, I prefer her evidence to that of Mr Haggerty. 

[24]      Turning to the context, I note that the settlement discussions involved compromising a claim of over £4 million.  By any measure that is a large sum of money.  Both parties knew that it would be recorded in formal writing.  There are two parts of Ms McAllister’s evidence that I accept and that bear upon this matter. 

[25]      First, she stated that she and Mr Haggerty were “far down the food chain” and did not have the authority to conclude a deal.  She explained that was the reason why, at the close of the meeting on 4 September, she declined Mr Haggerty’s invitation to shake hands on a deal. 

[26]      Second, Ms McAllister repeatedly told Mr Haggerty (i) that she needed to take instructions from her clients; and (ii) that any deal would have to be referred for approval by counsel.  She informed him that she was particularly concerned with the position of the elderly former members of the school board and the risk that they might be sequestrated. 

 

Was a contract concluded on 28 October?
[27]      In my view the email of 11 September does not constitute an offer.  Its language is not redolent of a firm proposal.  Rather, it is a recap of the position.  It is the sort of communication often encountered in the middle of negotiations.  More importantly, however, the parties could not settle the dispute “on the terms agreed”, because (as Mr Haggerty expressly concedes) no agreement was reached at the meeting on 4 September.  This point is a fundamental one.  The parties had not agreed who was to pay the £1 million.  Mr Haggerty’s email of 4 September refers to payment by “the church.”  That left the identity of the payer uncertain. 

[28]      The Dean submits that, properly construed, the email of 28 October was an acceptance.  All the essential elements of the bargain had been agreed.  Senior counsel simply had to “formalise the position”. 

[29]      Several factors persuade me to reject that approach.  First, for the reasons given above, it is inherently unlikely that Ms McAllister would have made a deal until she had obtained the approval of senior counsel and ensured that the interests of the clients had been secured.  Against that background while one might not expect the exactitude of conveyancing missives, it is striking that there is no reference to the email of 11 September, far less express words of acceptance.  In my view, the clear inference is that she made the bargain subject to contract.  Counsel were not being invited to participate in a rubber-stamping exercise.  They had an active role to play.

[30]      I also reiterate that in the absence of agreement about the identity of the payer, the bargain could not be enforced:  McBryde, The Law of Contract in Scotland third edition paragraphs 5-11 and 5-14.  So far as the use of the "without prejudice" tag on the e-mails of 4 September and 28 October is concerned, while I accept proposition (h) above, it tends to indicate that parties were reserving their respective positions.

 

Was a contract concluded on 11 November?
[31]      In my view the language of the e-mail of 28 October is likewise not redolent of that of a counter-offer.  For the reasons already given, I hold that the parties had not reached a final position.  Each reserved the right to withdraw. 

[32]      I accept Ms McAllister’s file note as an accurate record of the telephone conversation on 11 November.  It states that the parties were “to progress matters hopefully toward settlement”.  I also take into account that Mr Haggerty made no record of the conversation.  Yet in evidence, he said that when something important happens, his routine practice is to either make a file note or record the details in a follow-up email or letter.  He did neither here.  The omission is startling.  Why would he fail to record that the parties had achieved settlement of such a significant and sensitive claim?

 

Decision
[33]      For the reasons given, I conclude that the two solicitors did not reach a binding extra‑judicial settlement.  I therefore propose to sustain the first plea-in-law in the answers and dismiss the minute.  I shall fix a by-order hearing to determine further procedure.  Meantime I reserve expenses.