Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION

[2016] CSOH 162

CA17/16

OPINION OF LORD TYRE

In the cause

ADLAQ LIMITED

Pursuer

against

SCOTTISHPOWER ENERGY RETAIL LIMITED

Defender

Pursuer:  Jones (sol adv);  BTO Solicitors LLP

Defender:  Sandison QC, Watt;  Shepherd & Wedderburn LLP

16 November 2016

Introduction
[1]        In February 2014, the parties entered into a Data Services Agreement in terms of which the defender engaged the pursuer, then called Aquira Data Limited, to provide it with data records, or “leads”.  These leads were intended for use by the defender in marketing its services to potential customers with a view to persuading them to switch to the defender as their energy supplier.  The contract was for a period of two years from 1 January 2014.  On 17 September 2015, however, the defender terminated the contract on the ground that the pursuer was in material breach of its terms.  The pursuer denies having been in breach of contract, and now sues for sums said to be due in respect of the remainder of the contract period.  The defender counterclaims for sums said to have been overpaid prior to termination.  The action came before me for debate, with the pursuer contending that certain averments by the defender in the defences and counterclaim should be excluded from probation.

The Data Services Agreement
[2]        The context of the parties’ agreement was explained in an introduction which narrated that:

“A       ScottishPower is a leading provider of energy services to retail and business customers in Great Britain;

B          Supplier is willing to provide ScottishPower with data records of individuals to enable ScottishPower to contact such individuals in order to sell energy products and services to them;

C         ScottishPower now wishes to engage Supplier (and Supplier has agreed to accept such engagement) to provide data records in accordance with the terms and conditions of this Agreement and the relevant Orders.”

[3]        In terms of clause 3.1 of the agreement, the pursuer was obliged to provide services to the defender in accordance with the terms and conditions of the agreement and each individual order agreed by the parties from time to time.  Clause 3.2 stated that the agreement was a framework agreement providing the structure and standard provisions for the parties to develop and agree orders for services to be provided from time to time.  The defender was entitled to submit orders up to a stated maximum value, and bound itself to submit orders of a minimum value each month amounting in aggregate to a percentage of the stated maximum.  Clause 3.3-3.5 set out the procedure to be followed when the defender requested a service: the pursuer was bound to comply with a service quotation within five business days and, in the event that the defender wished to accept the quotation, it would provide the pursuer with an order for that service.

[4]        The service primarily envisaged by the agreement was the provision by the pursuer to the defender of databases containing the data of potential customers.  “Database” was defined in clause 1.1 as meaning “each database provided by Supplier to ScottishPower as part of a Service pursuant to an Order and in terms of this Agreement and which contains the Datasets”.  “Dataset” was defined in turn as each General Dataset and Specific Dataset data report provided to ScottishPower by Supplier under an Order.  The distinction between General and Specific Datasets was an important one.  “General Dataset” meant “a type of dataset for which general third party consent has been provided, as indicated for each type of data in Schedule 1”.  “Specific Dataset”  meant a type of dataset for which specific third party consent has been provided for ScottishPower to contact that third party, as indicated for each type of data in Schedule 1”.

[5]        Schedule 1 to the agreement was entitled “Data Brief”.  It stated as follows:

“Online lead generation data shall be provided by the Supplier.  The volumes set out in the below table are indicative for the duration of the contract (24 months) but shall not form any binding commitment for ScottishPower to provide Order for such volume of services.”

This text was followed by a table with headings which included “Data Type/Name”, “Specific/General Dataset” and “Cost per Lead”.  The latter figure varied according, presumably, to the defender’s perception of the likelihood of a lead of that type resulting in new business.  Among the items in the column headed “Data Type/Name” were two types of lead entitled respectively “Online Partner” and “Premium Online”.  Both were categorised as Specific Datasets, with the latter having a higher Cost per Lead than the former.

[6]        Clause 16 of the agreement was headed “Entire Agreement”.  Clause 16.1 provided as follows:

“This Agreement (including all Orders) and the documents referred to in it constitute the entire understanding between the parties in relation to the subject matter hereof and other than in relation to fraudulent or negligent misrepresentation supersedes all other agreements and representations made by any party whether oral or written relating to this subject matter of this Agreement.”

Clause 19 stated that the agreement was to be governed and construed in all respects in accordance with the laws of England and Wales.

The averments challenged
[7]        The defences contain a brief description of the agreement, including reference to Schedule 1 and, in particular, to the distinction between a General Dataset and a Specific Dataset.  Having noted that the various types of lead referred to in Schedule 1 differed from one another as a function of the nature and timing of the consumer’s consent and the source of the lead, the defender’s averments continue:

“Both parties to the Contract were aware when their agreement was entered into of the characteristics of the data to which the respective lead names used in Schedule 1 thereto referred.  In particular, they were aware that the types of data referred to in Schedule 1 as “Online Partner” and “Premium Online” were to have the following characteristics: Both categories were to consist of data that had been sent in real time, and where the consumer had positively stated (i) that he or she was over 25 and responsible for paying the household electricity bill (ii) the identity of their then current supplier (iii) how they paid for their energy; and (iv) that they would like ScottishPower to call them to discuss how they could save money on their electricity bill.”

The defender then sets out an explanation of the basis upon which the Cost per Lead was fixed for Online Partner and Premium Online leads. 

[8]        It is further averred by the defender that in order to procure leads for onward supply to the defender, the pursuer entered into sub-contracts with other lead-generation companies.  The defender specifies the identities of two sub-contractors and the dates and terms of the sub-contracts.  Both sub-contracts are averred to have been entered into in March 2014.  Each included a schedule entitled Data Brief containing inter alia definitions of the terms Online Partner and Premium Online.  Online Partner leads are said to be defined as:

“… sourced from the second-highest performing online affinity sites.  Respondents have positively answered & the leads are sent in real time.  Have positively answered: ‘Please confirm that you are over 25 years old and are responsible for paying the energy bills in your household’.  ‘Who is your current energy supplier?’  ‘How do you pay for your energy?’  ‘Would you like to receive a call from Scottish Power about how you can save money on your energy bills?’”

Premium Online leads are said to be defined as:

“… sourced from the highest performing affinity sites.  Respondents have positively answered & the leads are sent in real time.  Have positively answered: ‘Please confirm that you are over 25 years old and are responsible for paying the energy bills in your household’.  ‘Who is your current energy supplier?’  ‘How do you pay for your energy?’  ‘Would you like to receive a call from Scottish Power about how you can save money on your energy bills?’”

[9]        One of the defender’s contentions by way of response to the pursuer’s claim for payment is that leads were mis-categorised, and in particular that leads categorised by the pursuer as Online Partner or Premium Online leads did not have the requisite forms of consent.  This led to complaints by consumers and to the leads being charged for at the wrong rates.  The affected leads were said to have been supplied to the pursuer by one of its sub-contractors, namely DTP.  In respect of leads procured by DTP after the middle of February 2014 and identified with a particular source code, the consumers had not in fact answered the questions set out in the (sub-contract) definitions above of Online Partner and Premium Online.  Consent to contact was merely general.  The pursuer was accordingly in breach of contract.

Argument for the pursuer
[10]      On behalf of the pursuer, it was submitted (i) that the defender’s averments regarding what the parties to the contract “were aware” of were so lacking in specification as to be irrelevant;  (ii) that its averments regarding the terms and conditions of sub-contracts entered into by the defender after the date of the parties’ agreement were irrelevant;  and (iii) that the counterclaim, being founded on the terms of those sub-contracts, was also irrelevant and should be dismissed.  As to (i), the defender advanced only a bald assertion that parties were “aware” that the types of data in Schedule 1 were to have the characteristics referred to.  It failed to assert any material facts which it would require to prove in order to establish that parties had been so aware.  With the exception of the fourth alleged requirement, ie consent to being called (which, it was accepted, was part of the definition of a Specific Dataset), there was no reference to those characteristics in the contract.  There was, moreover, an “entire agreement” clause which precluded reference to other documents or to any awareness or “understanding” attributable to the parties.  Reference was made to section 1(3) of the Contract (Scotland) Act 1997;  in the absence of averment to the contrary, the law of England and Wales was presumed to be the same as the law of Scotland.  Although clause 16 of the agreement did not exclude evidence of the factual matrix in which the terms in the Schedule were used, with a view to establishing, for example, that the terms had “dictionary meanings” for the parties, no such circumstances were averred.  Evidence of usage as between the defender and third parties was irrelevant.

[11]      As regards points (ii) and (iii), the general rule was that facts and circumstances which post-dated the entering into of the contract, including the subsequent conduct of the parties themselves, were irrelevant to its interpretation:  see McBryde, Contract, 3^rd ed (2007), para 8-30 and authorities cited.  No circumstances were averred to justify treating the present case as an exception.  Accordingly, evidence as to the meaning of the terms Online Partner and Premium Online for the purposes of the sub-contracts entered into by the defender was irrelevant, and all such averments in the principal action and in the counterclaim should be excluded from probation.

Argument for the defender
[12]      On behalf of the defender, it was submitted that proof before answer should be allowed in respect of both the principal action and the counterclaim without exclusion of any averments.  The defender’s case was pled in the way it was in order to attempt to get round difficulties caused by the peculiar wording of clause 16.1 of the agreement.  The problem created was not one of adequacy of specification but rather of admissibility of evidence.  Clause 16.1 excluded any evidence as to the parties’ understanding, except as set out in the agreement (including orders) and the documents referred to in it.  The defender was accordingly precluded from leading evidence about the parties’ common understanding of the terms Online Partner and Premium Online.  All that it could do was to make the point that there had been consensus as to what was meant.  Evidence of surrounding circumstances would not be excluded, but evidence of understanding was excluded, and there would therefore be no practical purpose in making any averment regarding common understanding.

[13]      As regards post-contract events, the rule that these were not admissible as an aid to interpretation was always referred to as a general rule.  There were exceptions.  It was important to bear in mind that this was a contract that had been acted upon by the parties.  In these circumstances, evidence of their actings was admissible to explain the meaning that words in the contract bore at the time of execution.  Reference was made to McBryde, op cit, para 5-32, and to authorities including Macgill v Park (1899) 5F 272, McAllister v McGallagley 1911 SC 112, and Watters v Hunter 1927 SC 310, in each of which evidence of the parties’ post-contractual actings had been admitted in order to construe ambiguous or missing provisions of a contract.  In the present case the terms of the sub-contracts entered into by the pursuer cast light upon what the defender was entitled to under its contract with the pursuer.  Such evidence was not excluded by clause 16.1: it was extrinsic and not evidence of the parties’ understanding.

Decision
[14]      In Macdonald Estates plc v Regenesis (2005) Dunfermline Ltd 2007 SLT 791, the Lord Ordinary (Lord Reed) made the point that “entire agreement” clauses may have a bearing on a variety of significant contractual issues, and that the effect of any particular clause will depend upon its terms.  Clause 16.1 is in somewhat unusual terms.  It does not fall squarely within section 1(3) of the 1997 Act in that it is not to the effect that the agreement comprises “all the express terms of the contract”.  It refers rather to the parties’ “entire understanding”.  But it has to be given effect, and I agree with the defender’s submission that its effect is to exclude evidence of any common understanding not apparent from the terms of the agreement (including orders) or any document referred to therein.  I also agree that clause 16.1 would not exclude evidence of surrounding circumstances at the time when the contract was entered into, including industry practice, relevant to the interpretation of these expressions.  The defender does not, however, offer to prove any such circumstances, and so the matter does come, in my view, to be one of specification.  In the absence of fair notice of any admissible means by which the defender intends to prove that “both parties to the contract were aware when their agreement was entered into” that data referred to as Online Partner and Premium Online had the characteristics asserted in the defences (other than consent to being called), I consider that the averments challenged are fundamentally lacking in specification and should not be admitted to probation.

[15]      Nor am I persuaded that the defender has pled circumstances in which the contract may fall to be construed in accordance with the terms of the pursuer’s sub-contracts with third parties, entered into after the agreement between the pursuer and the defender had been concluded.  As McBryde observes (para 8-30):

“… It is thought that as a general rule a contract should not be construed by reference to the subsequent conduct of the parties or a change in circumstances …  The meaning of the contract does not change according to what the parties do or changes in commercial practice or other circumstances.  The parties have an expectation at the time they contracted and, except in an unusual case, that expectation and their agreement is not altered by subsequent events.  A party is not bound by an erroneous implementation or construction of a contract …  Parties may act in breach of contract, or waive their rights or, by agreement, vary or novate their contract.  Such actings may not be a guide to the meaning of the original agreement.”

McBryde describes the exceptions to the general rule as “obscure”, noting that the main one is that in some cases of ambiguity (or lack of a term), the consistent actings of the parties since the contract may be a legitimate guide to interpretation.  The cases cited by the defender in the present case and listed above are of that kind.  They are not, in my opinion, on all fours with the situation in the present case where one contracting party seeks to derive assistance from the terms of contracts subsequently entered into by the other with third parties.  The rationale of referring to common usage, ie the consistent actings of the parties themselves, to interpret an executed contract is inapplicable to such a situation.  This is not a case in which refusal to admit evidence of post-contract events would have the undesirable consequence of an executed contract being held to be unenforceable; the question here is rather what the terms were of a valid contract which was executed but brought to a premature end.  The agreement itself contains some guidance, in that the definition of Specific Dataset which applies to both Online Partner and Premium Online leads makes clear that specific consent to contact by the defender is a requirement.  It appears to be common ground that the distinction between the two types of lead relates to the perceived quality of the source.  What the defender seeks to do is to prove that there were four additional requirements for leads of either of those types to meet.  To admit an exception to the general rule in these circumstances would not, in my view, be in accordance with authority.

Disposal
[16]      In order to give effect to my decision, I shall sustain the pursuer’s first plea-in-law in the principal action to the extent of excluding from probation the following averments in Answer 5:

• from “Both parties to the contract …” to “… save money on their electricity bill.”;
• from “Those sub-contracts expressly stated …” to “… how you can save money on your energy bills?”; and
• from “As hereinbefore averred, both the ‘Online Partner’…” to “… incorporated herein brevitatis causa”.

In the counterclaim, I shall sustain the pursuer’s second plea-in-law to the extent of excluding from probation the following averments in Statement of Facts 6:

• from “The affected records were supplied by DTP…” to “… incorporated herein brevitatis causa”.

I see no need to dismiss the counterclaim.  Having regard to the fact that the passages that I have excluded from proof contain references to the requirement (consent to being called) which was admittedly applicable to Specific Datasets, I propose to allow the defender to make any adjustments to the defences or the counterclaim that it considers necessary in order to reinstate such references.  In the meantime I shall put the case out by order to hear submissions on further procedure.