British
and Irish Legal Information Institute
Freely Available British and Irish Public Legal Information
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> THE COAL AUTHORITY, RECLAIMING MOTION - THE COAL AUTHORITY AGAINST PEGASUS FIRE PROTECTION COMPANY LIMITED [2019] ScotCS CSIH_12 (06 March 2019)
URL: http://www.bailii.org/scot/cases/ScotCS/2019/2019_CSIH_12.html
Cite as: [2019] ScotCS CSIH_12
[New search] [Contents list] [Printable PDF version] [Help]
Page 1 ⇓
FIRST DIVISION, INNER HOUSE, COURT OF SESSION
Lord President
Lord Menzies
Lord Drummond Young
[2019] CSIH 12
CA87/17
OPINION OF LORD CARLOWAY, the LORD PRESIDENT
in the Reclaiming Motion
in the cause
THE COAL AUTHORITY
Pursuers and Reclaimers
against
PEGASUS FIRE PROTECTION COMPANY LIMITED
Defenders and Respondents
Pursuers and Reclaimers: Lindsay QC; DLA Piper Scotland LLP
Defenders and Respondents: MacColl QC; Davidson Chalmers LLP
6 March 2019
Introduction
[1] Where lawful mining has taken place, the space or void occupied by the mine, and
the area where the coal remains, continues in the ownership of the person in whom the
mineral rights are vested (Graham v Hamilton (1871) 9 M (HL) 98, see Lord Deas (1869) 7 M
976 at 984). The owner has a right to the exclusive use of the area of the mine and can
prevent encroachments upon it. Encroachments causing damage will be actionable
(Rankine: Landownership (4th ed) 136). As a generality, the owner owes a duty of support to
Page 2 ⇓
2
the land above and adjacent (White v Wm Dixon (1883) 10 R (HL) 45, Lord Watson at 50;
[2] The liability at common law of the owner of a disused coal mine to pay damages to a
surface owner as a result of subsidence can be a subject of some complexity. This is
especially so when the subsidence has occurred after, and possibly been contributed to by,
the construction of new buildings (see eg Rennie: Minerals and the Law para 4.1 et seq citing,
inter alia, Caledonian Railway Co v Sprot (1856) 2 Macq 449). Concerns by housebuilders and
new home owners about that complexity prompted the passing of legislation which
introduced a scheme providing for the repair of, or compensation for, such damage. In its
current consolidated form, this is the Coal Mining Subsidence Act 1991. The Act imposes
(s 2) a duty on the British Coal Corporation, and now the pursuers (Coal Industry Act 1994,
s 43), to take “remedial action” in respect of subsidence damage caused by their disused
mines, or (eg s 8) to make payments in lieu of carrying out such action. Specific provision is
made for dwelling-houses (eg s 22). The pursuers are a statutory consultee in planning
applications in relation to areas of (former or proposed) coal working (Town and Country
Planning (Development Management Procedure) (Scotland) Regulations 2013, reg 25, Sch 5,
para 7).
[3] Coal-mining operations require a licence from the pursuers (1994 Act, Pt II). In
addition, the pursuers operate an extra-statutory scheme of permits for any other activities
which disturb their disused coal mines. These activities include initial site investigations
and any subsequent treatment of mine workings. Thus, a permit is required to encroach
upon the pursuers’ disused mines. A standard condition of the grant of a permit is that the
person to whom the permit will be issued will indemnify the pursuers against any liability
for claims resulting from their acts and failures or those of their contractors. The defenders
Page 3 ⇓
3
are developers who intended to, and ultimately did, build houses at what is now Allen
Court at Townsend Place, Kirkcaldy; an area above disused mine workings. Prior to doing
so, they prudently decided to carry out certain exploratory works to determine the extent of
any voids below the surface. In order to do this lawfully, they obtained a permit from the
pursuers to drill three boreholes into the mine area, having agreed to the pursuers’ standard
conditions, including the indemnity. They later obtained a retrospective permit for a further
16 exploratory boreholes. The defenders’ sub-contractors, who had carried out the
exploratory work, then executed ground treatment works without any pre-existing permit.
In due course, part of the developed land subsided, thus exposing the pursuers to multiple
claims under the 1991 Act.
[4] The pursuers seek a declarator that the defenders are bound to indemnify them in
respect of the cost of carrying out remedial action in respect of the subsidence damage for
which they are liable. Although it is not material to the current debate, the pursuers
maintain that these costs were incurred as a result of the defenders’ failure to identify a
mine-related risk. By interlocutor dated 12 April 2018, the commercial judge dismissed the
action. The pursuers reclaim (appeal) that decision. The question which arises is whether
the pursuers’ averments are sufficient to establish that the defenders contracted with the
pursuers in a manner which incorporated the standard indemnity undertaking.
The pursuers’ averments and related documents
[5] On 1 December 2010, LK Consult, who were environmental consultants appointed
by the defenders, completed an “application for permission to enter or disturb [the
pursuers’] mining interests” by drilling three boreholes in order to investigate shallow mine
workings at Townsend Place, Kirkcaldy. The works were scheduled to last for two weeks.
Page 4 ⇓
4
The application stated that there were no proposals for the treatment of the site “yet”. The
application form, which was signed by the consultants on the defenders’ behalf, contained
the following statement:
“11 A signed copy of the ‘Terms and Conditions’ for Entering or Disturbing [the
pursuers’] Mining Interests must be included with the application. Is it included?”
The part of the form relating to that question was left blank. The form was, however,
received by the pursuers on 7 December, along with a copy of the pursuers’ printed “Terms
and Conditions”, which had been duly signed by the consultants on behalf of the defenders
on the same date.
[6] The Terms and Conditions read as follows:
“Before permission can be given to enter or disturb [the pursuers’] mining interests,
each applicant must agree with the following terms and conditions in support of
their application and return a signed copy to [the pursuers] along with the original
application and supporting documentation.
...
7. Should it be found necessary to significantly change the method of treatment,
design or specification of the works from that contained in the application ... the
prior permission of [the pursuers] must be obtained before proceeding.
...
12. The Applicant shall, for a period of 12 years from the date of completion of
the works, indemnify [the pursuers] against liability for claims, losses or damages,
including those made under the Coal Mining Subsidence Act 1991 and claims by the
Applicant, whether arising as a result of any failure by the Applicant or the
Applicant’s contractors, to comply with the requirements of this permission, or as a
result of any act, failure, inadequacy, omission, negligence or default by the
Applicant or the Applicant’s contractors in designing or carrying out the work.
...
I agree to the terms and conditions set out by [the pursuers] in relation to:
Site Location Townsend Place, Kirkcaldy.”
By a printed permit dated 9 December 2010, the pursuers granted permission, for a period of
12 months, to the defenders to carry out “Investigation of Shallow Mine Workings,
3 boreholes”. The permit was numbered 5728.
Page 5 ⇓
5
[7] In a letter dated 8 April 2011, the Acies Group, who were civil and structural
engineers also acting for the defenders, accepted a quotation from Groundshire to carry out,
as the defenders’ sub-contractors, “nine or more” additional boreholes “to confirm the
underlying strata and mine workings”. Groundshire were specialists in exploratory drilling
and the treatment of mine workings and shafts. On the same day, another letter was sent by
Acies, this time to LK Consult, asking them to obtain a “CA licence” and to perform other
services in relation to “additional on site exploratory works”. In a report dated 31 May 2011,
Groundshire described exploratory works involving 16 boreholes, which had been carried
out for the defenders between 27 May and 9 June (sic) 2011 and which revealed evidence of
mine workings in two coal seams beneath the site. In a report dated 7 October 2011,
Groundshire described “grid drilling and pressure grouting of the shallow mineworkings”,
which had been carried out for the defenders as “treatment” of the ground conditions from 5
to 27 September 2011. This had involved drilling 110 grout holes and two further test holes
totalling 2,048m in depth with 284 tonnes of grout and gravel being injected on site.
Attached to the report was a “Method Statement Coal Authority Permit”, dated 15 June
2011, which set out what was to be, and by the date of the report had been, done.
[8] In an email to Groundshire, dated 20 December 2011, the pursuers’ licensing &
permissions manager attached a permit with an “effective date” of 11 April 2011. The email
referred to the permit as the “relevant extension Certificate for the additional SI” (site
investigation). It called it a “permit extension”. This granted permission for the
“Investigation of shallow mine workings by 16 additional boreholes”; again to be carried out
within a 12 month prospective period. There was no separate application relating to this
permit produced in process. It was agreed that no further Terms and Conditions were
signed as relative to this application, although it was accepted by the defenders that the
Page 6 ⇓
6
Terms and Conditions applied to the additional exploratory works. The permit was
numbered 5728.1.
[9] On 16 January 2012, in response to the email of 20 December 2011, a director of
Groundshire said that they had sent two reports “for the exploratory drilling and the
treatment works” (supra) to the pursuers on CD by post. She continued:
“Could you send me an email confirming that the extension covers the treatment
works as well.”
In a reply, which was timed an hour or so later, the pursuers’ licensing & permissions
manager emailed stating “Thanks for that. When I receive the disks we’ll review and issue a
permit to cover the treatment, this may be referred to as 5728.2”.
[10] On 25 May 2012, the pursuers’ licensing & permissions manager, referring to permit
no. 5728, emailed Groundshire, as follows:
“Thank you for providing us both with the SI report and the treatment completion
report for the stabilisation works at Townsend Place. I can confirm that we are
satisfied with the information provided such that the Permit (our ref. 5728) can now
be closed out. The information you provided will be passed to our surveyors so that
the database can reflect the treatment undertaken. The permit file has now been
updated to reflect the closure and receipt of all particulars from yourselves.”
Again, no separate application process had been required. No formal permit was issued.
[11] The pursuers aver that the email of 25 May 2012 constituted the grant of an extension
to the earlier permits to cover the treatment works. It had been obtained for the defenders
by their sub-contractors, namely Groundshire, who were acting as their agents as specialists
in the treatment of mine workings. It was established custom and practice for Groundshire
to act on behalf of developers in connection with the obtaining of permits from the pursuers.
It was not unusual for the pursuers to grant permits retrospectively; after work had been
completed. The pursuers included, by amendment, a series of averments about the
Page 7 ⇓
7
authority of Groundshire to act as works contractors and agents for the defenders. These
culminate in a statement that, if they did not have express authority, they had “implied
authority” based on custom and practice.
[12] The pursuers averred an “esto” position based on a contention that, if the permit had
not been extended to encompass the treatment works, those works would constitute a
further breach of clause 12 as they would amount to a failure to comply with the “Terms and
Conditions”.
[13] The pursuers plead:
“2 The Defender having failed and omitted to identify a mine related risk to
structures and having consequently caused damage through subsidence at the Site,
which has occasioned statutory liability on the part of the Pursuer, the Pursuer is
entitled to decree of declarator ...
3
The Defender being liable to indemnify the Pursuer in terms of Condition 12
of the Pursuer’s Terms and Conditions, the Pursuer is entitled to decree of declarator
...
4
Esto the April 2011 Permission was not retrospectively extended to cover the
treatment works (which is denied), the defender having failed to comply with the
requirements of the April 2011 Permission and being liable to indemnify the Pursuer
in terms of Condition 12 of the Pursuer’s Terms and Conditions, the Pursuer is
entitled to decree of declarator ...”.
[14] Quantum valeat, the defenders deny that the email of 25 May 2012 can be construed
as a retrospective extension of the earlier permit. They contend that Groundshire were not
the defenders’ agents for the purpose of “the negotiation or variation of any contractual
indemnity”.
Commercial Judge’s Opinion ([2018] CSOH 36)
[15] The commercial judge held that the email of 25 May 2012 did not constitute an
agreement by the pursuers to extend the April 2011 permission retrospectively to cover the
treatment works. He reasoned that it did not refer to permit no. 5728.1, but to no. 5728. The
Page 8 ⇓
8
April 2011 permission was not an extension of the December 2010 permission. The email of
25 May did not, on the ordinary and natural meaning of the words used, extend any existing
permit. The email of 16 January 2012 tended to show that any extension would have been
by way of another permit, ie no. 5278.2. A permit for the treatment works would have had
to have been issued before the indemnity could apply. Parole evidence from the author of
the email of 25 May would not advance the pursuers’ case. His intention was not a relevant
consideration. The defenders’ knowledge of the Terms and Conditions related only to the
granting of permits 5728 and 5728.1. These were not connected to a further extension
granted in respect of the treatment works. They were not all part of one process. Each
permission was separate.
[16] The pattern of extensions, which were applied for and granted, did not show a
relationship of agency between the defenders and Groundshire in respect of the granting or
extending of an indemnity. The emails were to or from Groundshire. No correspondence
with the defenders had been founded upon. It could not be argued that Groundshire were
acting as agents for the defenders in respect of a contractual obligation to indemnify. The
employment of a contractor, of itself, did not authorise them to act as agents for the
employer in relation to a third party. The commercial judge accordingly found the
pursuers’ principal case to be irrelevant.
[17] The commercial judge also found that the pursuers’ alternative case, that the
treatment works were in any event an unauthorised failure to comply with the terms of the
April 2011 permission, was irrelevant. That permission was to drill 16 boreholes. It was not
to carry out treatment works. The averment, that there had thereby been a failure to comply
with the terms of the April 2011 permission, was a non sequitur. The carrying out of
treatment works did not amount to a failure to comply with the April 2011 permission. The
Page 9 ⇓
9
pursuers’ complaint was one of trespass in respect of the pursuers’ mining interests. They
were seeking to recover damages arising from trespass, not from the engagement of a
contractual indemnity.
[18] The commercial judge sustained the defenders’ (first) plea-in-law to the relevancy of
the pursuers’ case and dismissed the action. In doing so, he also sustained their (fourth)
plea relative to an obligation to indemnify.
Submissions
Pursuers
[19] The pursuers maintained that a proof before answer on all of the averments should
have been allowed. They submitted, first, that the commercial judge had erred in holding
that the email of 25 May 2012 had not retrospectively extended the April 2011 permit so as
to cover the treatment works. The pursuers’ averments were sufficient to go to proof on that
issue having regard to: (1) the ordinary and natural meaning of the words used; and (2) the
factual context or matrix in which it was sent. The judge had erred in stating that the case
was not assisted by reference to context. Context was all important. It could not be said that
the pursuers would necessarily fail (Jamieson v Jamieson 1952 SC (HL) 44 at 50, 63).
[20] Secondly, the pursuers had now amended to make it plain that Groundshire were
acting as the defenders’ agents at the relevant time. It was no longer necessary to decide
whether the commercial judge had been correct in determining that there were insufficient
averments of agency.
[21] Thirdly, it was accepted that the pursuers’ submission, that the proof might cover the
intention of the writer of the email, had been erroneous. The writer’s intention was
irrelevant. However, he could say that the email of 25 May 2012 had not been a mere
Page 10 ⇓
10
acknowledgement of documents, but a response to that of 16 January, which had requested
an extension. He could also say that the email had been in lieu of a formal permit.
[22] Fourthly, the commercial judge had erred in holding that, by carrying out works
which were not included in a permit, the defenders had breached condition 12, as this
amounted to a failure to comply with the permission. Condition 7 provided that, if it was
necessary to change the method, design or specification for the works from that contained in
the application, prior permission was needed. Condition 12 required the defenders to
indemnify the pursuers for their failure to restrict the works to those specified in the
permits. If a permission was obtained to do something, it was implicit in that permission
that the person could not do anything else. The judge’s decision had the undesirable
consequence that a person encroaching upon the pursuers’ ground would be in a better
position if he had no permission than if he had a limited permission. If that were correct,
there would be no incentive to seek permission. The judge’s decision had the potential to
undermine the permit scheme.
[23] Finally, the commercial judge had erred in stating that the pursuers’ esto case was
truly one based on “trespass”. Trespass had not formed part of the pursuers’ pleadings.
The case was based on the inadequacy of the treatment works. These works had not
extended into the mine workings. If the works had not been carried out in those workings,
there could be no trespass.
Defenders
[24] The defenders submitted that the commercial judge had been correct to dismiss the
action. First, the pursuers had predicated their case on a contention that certain documents,
notably the email of 25 May 2012, gave rise to an obligation to indemnify. The
Page 11 ⇓
11
correspondence could not be construed in this way; applying the ordinary meaning of the
words used. The judge had correctly held that the email of 25 May did not retrospectively
extend the 2011 permit to cover the treatment works. It did not vary or extend the
indemnity. The pursuers had not pled anything by way of background which might cause
the email to be read other that in accordance with its ordinary meaning. The email only
noted that: reports had been provided; the pursuers were satisfied with them; and the
permit 5728 could be closed. Otherwise, it only asked a question about the scope of the
existing permits, even if it could be inferred from that that it was asking for a retrospective
permit. It made no mention of the indemnity or that a permit was being extended. The
indemnity, which had been granted by the defenders to the pursuers, covered only the
works in the two permits. The email from the pursuers dated 16 January 2012 made it plain
that any extension of the prior permits would be by way of a further permit. No further
permit had been forwarded.
[25] Secondly, the pursuers had still not pled a relevant case of agency on the part of
Groundshire in relation to the indemnity. They had averred that Groundshire were the
defenders’ “works contractor and agent” who had authority to obtain an extension. They
did not aver that they were agents with a power to negotiate a variation of an indemnity
which had been previously granted.
[26] Thirdly, as had now been conceded, the subjective intention of the writer of the
emails was irrelevant (Investors Compensation Scheme v West Bromwich Building Society
paras [10 – 14]).
Page 12 ⇓
12
[27] Fourthly, the pursuers’ alternative case was also irrelevant. The proposition that, by
carrying out works beyond those permitted by the 2011 permit, there had been a failure to
comply with the terms of the permit was, as the commercial judge held, a non sequitur. The
pursuers did not offer to prove that the defenders had not carried out the works specified in
the 2011 permit. Fifthly, the judge’s reference to trespass was a brief observation (an “obiter
throwaway”), which did not form part of the basis for his decision. The pursuers had
originally pled a case based on delict, but that had been deleted by amendment.
Decision
[28] Despite the manner in which the case has been pled by the pursuers, the true
question is not strictly whether the email of 25 May 2012 retrospectively extended the permit
dated April 2011. It is whether, when set in its proper context, Groundshire’s email of
16 January 2012 constituted an application on behalf of the defenders for permission to
interfere with the pursuers’ mine workings, by carrying out the (albeit already completed)
treatment works. Secondly, if it did, the question then is whether it was implied, again from
the surrounding circumstances, notably the defenders’ knowledge of the need to accept the
Terms and Conditions before a permit would be granted, that the application carried with it
an implication that the defenders’ Terms and Conditions would continue to apply to the
works on site. Thirdly, if both questions are answered in the affirmative, the final question
is whether the pursuers’ emails of 16 January and 25 May 2012 constituted an acceptance of
that application, thus incorporating the implied Terms and Condition into what would
thereby become an extension of an existing contract. The pursuers have not asked the court
to find that all three questions ought to be answered in their favour; only that the documents
Page 13 ⇓
13
should be construed in their context and the matter decided following a proof before
answer.
[29] The issue is not so much a question of the proper construction of the words of what,
in other cases, is agreed as amounting to a contract, but initially whether the words and
deeds of the parties constituted a bargain at all, relative to the treatment works. It is only if
there is a concurrence between the email of the defenders (or their agents) dated 16 January
2012 and the email of the pursuers dated 25 May 2015 that such a bargain could be said to
exist. The pursuers cannot unilaterally extend a pre-existing arrangement. In this area the
694-695) continue to resonate, viz.:
“...[C]ommercial contracts cannot be arranged by what people think in their inmost
minds. Commercial contracts are made according to what people say ... [I]f [parties]
use words which are capable of ordinary interpretation, they must expect the
persons who hear them to take them up in their ordinary significance”.
[30] It is nevertheless important to look, as in the construction of a contract, at the
language in its context in order to see what the reasonable person would have understood
from it when set against the known factual background (Midlothian Council v Bracewell
Insurance Services [2017] AC 1173 (Lord Hodge at paras 10 to 13), in relation to writings, the
court must consider the formality and quality of the drafting. Each suggested interpretation
should be checked against its commercial consequences. “Textualism and contextualism are
not conflicting paradigms ...”:
“Some agreements may be successfully interpreted principally by textual analysis,
for example because of their sophistication and complexity and because they have
been negotiated and prepared with the assistance of skilled professionals. The
correct interpretation of other contracts may be achieved by a greater emphasis on
Page 14 ⇓
14
the factual matrix, for example because of their informality, brevity or the absence of
skilled professional assistance.”
For aught yet seen, the emails in this case fall into the latter category.
[31] It cannot be said that, if all their averments are proved, the pursuers are nevertheless
bound to fail. On the contrary, if they do establish the facts as averred on record, there is a
reasonable prospect that a construction in their favour will prevail. It may be that, once all
the relevant circumstances are analysed, the email of 25 May 2012 may be construed, as the
defenders contend, as not meaning that an extension to the permit had been granted.
However, that is not the immediately obvious construction of its import. On its face, it is a
response to what appears to have been a request on behalf of the defenders (or their agents)
to sanction works that they had already carried out in preparation for the building of
housing; even if the request from Groundshire in the email of 16 January 2012 was
optimistically, or even jocularly, prompting a reply which would say that the existing permit
already covered the treatment works. After all, if the defenders did not have permission to
insert the grout into the ground, which was presumably thought necessary prior to any new
building, they would be at risk, should the pursuers take action against them for
encroaching on their property, ie mining interests. At the time, they needed the pursuers’
permission to proceed with the development.
[32] Groundshire’s email of 16 January is a request to confirm that the existing permit
already included the treatment works. That would mean that they accepted that the Terms
and Conditions already applied to these works. The email request carried with it an
implication that, if the permit did not include the treatment works, it should be extended to
do so (ie on the same Terms and Conditions). Groundshire were not asking the pursuers to
commence a new application process, but to treat their request, as they had already done for
Page 15 ⇓
15
the additional exploratory work, as an extension to the existing permit no. 5728. That permit
had been to carry out works not only at the same site but also involving interference with
the substrata; even if they were much more minor and rather different in nature. It may not
be without importance that it was accepted that the Terms and Conditions did apply to the
earlier permit extension no. 5728.1; albeit than no separate application had been required
and no additional “Terms and Conditions” was signed.
[33] Looking at what the reasonable person, having the relevant background knowledge
of the parties, would have understood from the language selected in Groundshire’s email, it
was, at least on one view and without having had the benefit of a proof, an application to
permit the works to be carried out on the Terms and Conditions which already applied to
the original permit (as extended). The signing of the docquet on the Terms and Conditions
at the time of the original application meant that the defenders’ background knowledge
(and, of course that of the pursuers) included the fact that no permit would be granted by
the pursuers unless the applicant had agreed to the Terms and Conditions in advance. If
that is so, both parties would have been proceeding on the assumption that they would
continue to apply.
[34] Although by no means decisive, it is at least interesting that the pursuers appear to
have construed the Groundshire email in precisely the way described; ie as in effect an
application for an extension to an existing permit, the terms of which would continue to
apply to the works as extended. Their almost immediate reply was to say that, once the
reports were to hand, a permit would be issued to cover the treatment, to be referred to as
no. 5728.2; that is to say an extension to the existing permit and its previous extension
no. 5728.1. Again, where this was to be done, the reasonable person would understand that
the Terms and Conditions, which were already applicable, would apply to the new works
Page 16 ⇓
16
unless something to the contrary were stipulated. There was no protest about this method
of proceeding (ie by way of an additional permit in the same process or file). In due course,
the pursuer did confirm that the “permit file (singular) has been updated”; ie that it now
included the treatment works. In that setting, the reasonable person reading this may well
understand it to mean that the Terms and Conditions, which were already on file, would
remain on the updated file; ie the indemnity would, if necessary, bite. It is of no moment
that Permit no. 5728.2 was not formally issued. Quite apart from the fact that it could be
issued even now, it is entirely understandable that the parties would see the end of the
treatment works as closing the file. Permission had been agreed in terms of the email of
25 May 2012. The file (ie the permission) had been updated to encompass the treatment
works. That included the Terms and Conditions. Nothing more was required. Whether
this is the correct analysis remains undecided, but it is one which is undoubtedly open on
the pursuers’ averments.
[35] The pursuers have now made clear averments that Groundshire were acting as
agents for the defenders at the time when they (Groundshire) requested that the permit be
seen as covering the treatment works. These averments are sufficient to merit a proof before
answer. It is not disputed that, at the material time, Groundshire were the sub-contractors
who had been asked by the Acies Group, who were the defenders’ civil and structural
engineers, to carry out the treatment works. If the defenders had not themselves obtained a
permit, and had not asked LK Consult to obtain it, they must have assumed that someone
would have to do it. The pursuers aver that Groundshire had actual or implied authority
from the defenders. The defenders presumably knew that Groundshire would require a
permit to encroach on the pursuers’ mining interests. The pursuers aver that it was
established custom and practice for Groundshire to obtain permits for the work as being the
Page 17 ⇓
17
specialists in mine workings; meaning presumably that, in any event, they had ostensible
authority. They are entitled to a proof to establish this case.
[36] The pursuers have accepted that the subjective intention of the writers of the emails
is irrelevant and little further requires to be said in that regard. That is not to say that the
evidence of the composers would be entirely irrelevant in the establishment of context. The
legal or other skills of the writers may be important, as might their level of previous
experience in, respectively, applying for and issuing retrospective permits.
[37] The pursuers’ esto case is irrelevant. Condition 7 relates to the situation where there
has been a change in the method, design or specification of the works from that contained in
the application and relative permit. There was no such change. Carrying out additional
work (ie work not covered by the permit) is not a change in the method, design or
specification of the works. The works described in the permit were exploratory bore holes
and there was no change in the way in which that work was executed. Equally, carrying out
additional works does not amount to a failure to comply with an existing permission in
terms of condition 12. Groundshire carried out the works in the permits in accordance with
the terms of these permits. The averments relative to the esto case should be excluded from
probation.
[38] It is not necessary to deal at any length with the commercial judge’s reference to
trespass. It was, as the defenders put it, an “obiter throwaway”. “Trespass” as a legal
concept tends to be a reference to persons, animals or possibly things temporarily going
onto another person’s land without lawful authority. Where what is involved is, as here, a
permanent intrusion of a thing, the more appropriate term is “encroachment” (see generally
Reid: “Possession” in Stair Memorial Encyclopaedia Vol 18, paras 175 and 180). Whichever
term is correct, the case has not been pled on either basis.
Page 18 ⇓
18
[39] The court should: allow the reclaiming motion; recall the commercial judge’s
interlocutor of 12 April 2018; exclude from probation the averments in the fourth article of
condescendence from “Esto ...” to the end of the article; repel the pursuers’ fourth plea-in-
law; and quoad ultra allow a proof before answer on the averments of the pursuers and
defenders. The position between the defenders and the third parties remains “on hold” (see
Minute of Proceedings 2 February 2018).
Page 19 ⇓
19
FIRST DIVISION, INNER HOUSE, COURT OF SESSION
Lord President
Lord Menzies
Lord Drummond Young
[2019] CSIH 12
CA87/17
OPINION OF LORD MENZIES
in the Reclaiming Motion
in the cause
THE COAL AUTHORITY
Pursuers and Reclaimers
against
PEGASUS FIRE PROTECTION COMPANY LIMITED
Defenders and Respondents
Pursuers and Reclaimers: Lindsay QC; DLA Piper Scotland LLP
Defenders and Respondents: MacColl QC; Davidson Chalmers LLP
6 March 2019
[40] I am in complete agreement with the reasoning of your Lordship in the chair, and
(apart from the brief observation below) there is nothing I can usefully add. I agree that the
Reclaiming Motion should be allowed and that the pursuers should be allowed a proof
before answer, except for the pursuers’ and reclaimers’ esto case in their fourth article of
condescendence, which should be excluded from probation, and their fourth plea-in-law,
which should be repelled.
Page 20 ⇓
20
[41] I would only observe that on the basis of the pursuers’ pleadings at the time of the
debate before the commercial judge, and the arguments which the pursuers advanced at that
time, I think it is likely that I would have disposed of the case in broadly the same way as
the commercial judge did. The pursuers’ pleadings at that time were far from satisfactory,
and such averments as there were as to agency were in my view irrelevant and lacking in
specification. Since the commercial judge’s interlocutor of 12 April 2018 the pursuers have
amended to cure this deficiency, and I consider that they now meet the test in Jamieson v
Jamieson 1952 SC (HL) 44. The argument advanced on behalf of the pursuers at debate
before the commercial judge that the writer of the emails could give evidence of his
subjective intention was misconceived (see paragraphs [21], [26] & [36} above), and the
commercial judge was correct to reject it (at paragraph [76] of his opinion). I also agree that
the commercial judge cannot be criticized for his passing reference to trespass in
paragraph [84] of his opinion – this was clearly a throwaway remark, and did not form part
of his reasoning.
Page 21 ⇓
21
FIRST DIVISION, INNER HOUSE, COURT OF SESSION
Lord President
Lord Menzies
Lord Drummond Young
[2019] CSIH 12
CA87/17
OPINION OF LORD DRUMMOND YOUNG
in the Reclaiming Motion
in the cause
THE COAL AUTHORITY
Pursuers and Reclaimers
against
PEGASUS FIRE PROTECTION COMPANY LIMITED
Defenders and Respondents
Pursuers and Reclaimers: Lindsay QC; DLA Piper Scotland LLP
Defenders and Respondents: MacColl QC; Davidson Chalmers LLP
6 March 2019
[42] The ultimate issue in this case is whether the defender has undertaken a contractual
indemnity in favour of the pursuer in respect of any liability for claims, losses or damages at
a site at Townsend Place, Kirkcaldy (“the Site”). The pursuer contends that the defender
undertook such an indemnity, and concludes for a declarator to that effect; the defender
contends that it did not undertake any such indemnity. The defender has in addition
brought a number of third parties into the action on the basis that, if the defender is liable to
the pursuer to make payment under the claimed indemnity, it is entitled to damages for the
Page 22 ⇓
22
negligence of one or more of the third parties. These include, as the first third party, LK
Consult Ltd, a company that was appointed by the defender to act as its specialist mining
engineer in relation to a development at the Site, and Groundshire Ltd, a company that was
appointed by the defender as a specialist contractor at the Site.
[43] The reclaiming motion follows a debate in the Commercial Court, and is concerned
with whether the pursuer’s averments relating to the alleged contractual indemnity disclose
a relevant case. The Commercial Judge held that they did not, and he accordingly dismissed
the action. The pursuer has reclaimed against that decision on a number of grounds, which I
discuss subsequently. Before I do so, however, I will set out the facts of the parties’
relationship as averred by the pursuer and discuss the context in which the dispute arises.
The background to the parties’ dispute
[44] In any question relating to the existence or terms or interpretation of a contract, the
context is invariably important. Contracts are concluded not for their own sake but to
achieve particular objectives in a legal and commercial context, and determining what those
objectives are, and hence the scope of the parties’ agreement, must inevitably be determined
in the light of that context. This point is perhaps self-evident; in almost any field, from
history to current affairs to economics to science, the effective presentation of a narrative or
argument will invariably require that it should be placed in its proper factual and
intellectual context. In a case such as the present, relating to whether a particular
contractual obligation has been undertaken, that context can be said to exist at two distinct
levels. The first is the general context: what the respective parties are engaged in, and the
commercial and economic nature of those activities. The second level relates to the
commercial dealings of the parties themselves in connection with the transaction under
Page 23 ⇓
23
consideration. This takes account of the particular activities and undertakings that the
parties appear to have intended, considered objectively, and the whole of the
correspondence or other dealings between the parties. In relation to correspondence and
other dealings, it is obvious that the actions of the parties’ agents must be taken into account,
especially if those agents are persons such as specialist consultants or contractors who can
be expected to have a detailed knowledge of the commercial and technical background.
The general context
[45] The general context is that the defender is the company responsible for the
promotion of a housing development on the Site, an area in Townsend Place, Kirkcaldy, that
was formerly the site of a printing works. The Site lies above old shallow mine workings.
The pursuer was established by the Coal Industry Act 1994 in order to take over property
and obligations that formerly belonged to the British Coal Corporation and to assume
certain functions and responsibilities that were formerly those of the British Coal
Corporation. Among the latter were important responsibilities found in the Coal Mining
Subsidence Act 1991 to provide remedial works and compensation in respect of damage
occasioned by subsidence caused by mining operations. Those responsibilities were
transferred to the pursuer by section 43 of the 1994 Act.
[46] Section 1 of the 1991 Act defines subsidence damage as any damage to land, or to
buildings, structures or works on land, caused by the withdrawal of support from land in
connection with lawful coal-mining operations. Section 2 of the Act, supplemented by
further provisions, obliges the pursuer to take remedial action in respect of subsidence
damage to any property; the remedial action may involve the execution of remedial works,
the making of compensatory payments in respect of the cost of remedial works executed by
Page 24 ⇓
24
some other person, or the making of a payment in respect of the depreciation in value of the
property that has been damaged by mining subsidence. This scheme has a long and
complex history, which can be found in commentaries on the 1991 Act, such as that in
Current Law Statutes Annotated. The 1991 Act itself was enacted following the detailed
report of the Waddilove Committee (in 1984), and is intended to provide a fair and
comprehensive system of redress for subsidence damage; before the enactment of the 1991
Act there had been long-standing dissatisfaction with the availability of redress for such
damage. The present system is obviously of great importance in areas of the country that
have historically been centres of coal mining. Among those is the Fife coalfield.
[47] In view of the relatively stringent nature of its statutory responsibilities for
subsidence damage under the 1991 Act, it is perhaps not surprising that, when development
is proposed in an area that has been the subject of past coal mining operations, the pursuer
is concerned to ensure that proper steps are taken to protect against such damage. In respect
of past mining operations, the 1994 Act makes the pursuer the proprietor of the workings,
including any remaining coal deposits and the voids that result from the working of those
deposits. In the present case, for example, it was known that shallow deposits in the area of
Kirkcaldy around the Site had been worked by the “pillar and stall” method, in which when
coal was removed pillars of coal were left standing to support the overlying strata. The
voids around the pillars, where coal had been removed, were the pursuer’s property. For
these reasons permission was required to carry out both investigation and treatment works
in respect of the mine workings. Investigation works would generally take the form of
bores, with a number of boreholes being used across the site. Treatment would take the
form of grouting: pouring concrete into the voids to prevent the overlying strata from
subsiding.
Page 25 ⇓
25
The particular context: the parties’ dealings
[48] Against the foregoing general background, the parties’ particular dealings and
correspondence appear from the pleadings and relative productions. As I have already
noted, the defender promoted a housing development on the Site, at Townsend Place,
Kirkcaldy, in an area that was known to be affected by old mine workings at a shallow level.
The defender had engaged a specialist mining engineer, LK Consult Ltd, part of the LK
Group, and it was decided that exploratory boreholes were required to investigate the
ground conditions at the Site. Consequently, on 7 December 2010 LK, acting on behalf of the
defender, applied to the pursuer for permission to enter or disturb the pursuer’s mining
interests through the investigation of the shallow mine workings at the Site. The application
was made on the pursuer’s standard form, “Application for permission to enter or disturb
Coal Authority mining interests”. The application was for the sinking of three boreholes at
the Site on locations indicated on a plan. It was specifically noted that there were no
proposals for treatment at that stage.
[49] Appended to the application were the pursuer’s standard Terms and Conditions for
Entering or Disturbing Coal Authority Mining Interests. These began with the following
provision:
“Before permission can be given to enter or disturb Coal Authority mining interests,
each applicant must agree with the following terms and conditions in support of
their application and return a signed copy to the Coal Authority along with the
original application and supporting documentation”.
Two specific terms are relevant to the present dispute. These are as follows:
“7) Should it be found necessary to significantly change the method of treatment,
design or specification of the works from that contained in the application to the
Authority, the prior permission of the Authority must be obtained before proceeding
(such permission not to be unreasonably withheld).
Page 26 ⇓
26
…
12) The Applicant shall, for a period of 12 years from the date of completion of
the works, indemnify the Authority against liability for claims, losses or damages,
including those made under the Coal Mining Subsidence Act 1991 and claims by the
Applicant, whether arising as a result of any failure by the Applicant or the
Applicant’s contractors, to comply with the requirements of this permission, or as a
result of any act, failure, inadequacy, omission, negligence or default by the
Applicant or the Applicant’s contractors in designing or carrying out the work”.
The critical question for present purposes is whether the second of these provisions,
condition 12, has been incorporated into subsequent dealings between the pursuer and the
defender relating to treatment works at the Site.
[50] The pursuer, on 9 December 2010, granted permission to the defender in the
following terms:
“This certificate hereby grants the above named Applicant permission to carry out
Investigation of Shallow Mine Workings, 3 Boreholes within the Authority’s mining
interests at the identified site location for the period of 12 months from the effective
date shown below.…".
The relevant permit was given the reference number 5728. Following the drilling of those
three boreholes the defender decided that further investigatory work was required, in the
form of 16 additional boreholes at the Site. The pursuer’s averments on this subject are as
follows:
“On 11 April 2011…, the pursuer agreed with the defender’s engineering contractor,
LK Consult Limited, to retrospectively extend the December 2010 Permission. The
April 2011 permission granted the defender retrospective permission to carry out
works described as “Investigation of [Shallow] Mine Workings by 16 additional boreholes”
within the pursuer’s mining interests at the Site for a period of 12 months from
11 April 2011”.
The relative permission, which forms a production, is given the permit reference
number 5728.1.
[51] The pleadings do not make any express averments about the works that were
authorized by the foregoing permission, but a report bearing the date 31 May 2011 on the
Page 27 ⇓
27
exploratory drilling works was prepared by Groundshire and forms a production. This
states that the drilling works were carried out in May and June 2011. The report further
states that evidence of mine workings was found at two of the additional 16 boreholes, and
that the area around those boreholes would require treatment by drilling and grouting
(paragraph 6). The pursuer then avers, under the heading “Extension & Treatment Works”,
that on 25 May 2012 it agreed to extend retrospectively the April 2011 permission to cover
treatment works that had been carried out at the Site. The agreement in question, which is
fundamental to the pursuer’s case, is said to have been reached in the course of email
correspondence. That correspondence is as follows.
[52] On 20 December 2011 an email was sent by Leigh Sharpe, the pursuer’s Licensing &
Permissions Manager, to Ellen Dempster of Groundshire. The subject was stated as being
“Permit Extension 5728.1 – Permission Certificate”. The email was in the following terms:
“Please find attached the relevant extension Certificate for the additional SI [site
investigation] carried out by yourselves at Townsend Place, Kirkcaldy. If you could
forward the completion information as discussed on CD that would be greatly
appreciated. Please note that we require also the initial work undertaken under the
permit by Raeburn Drilling and assuming you have this could you ask the
indemnifier Pegasus Fire Protection Co Ltd for permission to release it to us”.
The extension certificate referred to in the email was the certificate 5728.1, granted with
effect from 11 April 2011, relating to the sinking of 16 additional boreholes. The “initial
work” referred to was the work carried out under the original permission dated 9 December
2010. “Raeburn” was the contractor who carried out the initial drilling. The defender is
referred to in the email as “the indemnifier”, which is an obvious indication that the pursuer
was concerned with its right of indemnity from the person ultimately responsible for the
investigation works at the Site.
Page 28 ⇓
28
[53] On 16 January 2012 Ellen Dempster of Groundshire sent a further email to Leigh
Sharpe, once again stating the subject as “Permit Extension 5728.1 – Permission Certificate”.
The email read:
“Further to our recent telephone conversation, I have sent our two completion
reports, for the exploratory drilling and the treatment works, on CD by post. Please
find attached a copy of Raeburn’s borehole logs and location plan. Could you send
me an email confirming that the extension covers the treatment works as well”.
Mr Sharpe replied on the same day, stating
“When I receive the discs we’ll review and issue a permit to cover the treatment, this
may be referred to as 5728.2”.
The next material item in the correspondence was on 25 May, when Mr Sharpe emailed
Groundshire
“Thank you for providing us both with the SI report and the treatment completion
report for the stabilization works at Townsend Place. I can confirm that we are
satisfied with the information provided such that the Permit (our ref. 5728) can now
be closed out. The information you provided will be passed to our surveyors so that
the database can reflect the treatment undertaken. The permit file has now been
updated to reflect the closure and receipt of all particulars from yourselves”.
Ellen Dempster on behalf of Groundshire acknowledged the foregoing email by a further
email dated 28 May.
Whether the defender undertook an indemnity in favour of the pursuer
The pursuer’s argument
[54] The pursuer contends ultimately that the email of 25 May 2012 had the effect that the
permission granted in April 2011 was retrospectively extended to cover the treatment works
that had been carried out by then at the Site. That retrospective extension of the April 2011
permission is said to have been obtained for the defender by its works contractor and agent,
Groundshire. The treatment works had not been authorized in advance, and it is said by the
Page 29 ⇓
29
pursuer that this only became apparent to them when they received the email from
Groundshire dated 16 January 2012. Completion reports for both the exploratory and
treatment works were sent to the pursuer by post at approximately the same time as that
email. The pursuer contends that the only purpose of submitting those reports was to
obtain retrospective authorization of the treatment works; no other purpose was served by
sending that document, given that authorization had not been obtained in advance.
Thereafter the pursuer had stated by the email dated 16 January 2012 that after reviewing
the discs a permit would be issued to cover the works. In the light of that, it is contended,
the email of 25 May 2012 could only reasonably be construed as retrospective authorization
of those works, on the same terms and conditions as previous authorizations. That would
include the indemnity contained in condition 12 of the pursuer’s Terms and Conditions for
Entering or Disturbing Coal Authority Mining Interests. A signed copy of those Terms and
Conditions had, of course, been included with the original application for permission to
enter or disturb Coal Authority mining interests at the Site made on 7 December 2010: see
paragraphs [48] and [49] above.
[55] Nevertheless, at this stage it is unnecessary to determine whether the foregoing
arguments are ultimately well-founded. The debate before the Commercial Judge had taken
place on the defender’s plea to the relevancy of the pursuer’s case, and all that was required
at this stage was for the court to be satisfied that a proof before answer should be allowed on
the pursuer’s averments.
The Commercial Judge’s decision
[56] The Commercial Judge rejected the foregoing argument and held that the pursuer’s
averments were irrelevant. He held that the email of 25 May 2012 did not on a sound
Page 30 ⇓
30
construction have the meaning advanced by the pursuer, namely that it amounted to an
agreement to extend the April 2011 permit to cover the treatment works. No reference had
been made in that email to the permission granted in April 2011. Furthermore, the reference
number in the April 2011 permission was 5728.1, whereas in the email of 25 May 2012 the
only reference was to a permission with a number 5728. Consequently these were separate
permissions. The Commercial Judge proceeded explicitly on the basis of what he described
as the “ordinary and natural meaning of the words used” in the email of 25 May, and he
held that such a construction was not affected by the context. Any extension should have
been made by means of a formal permit. In the present case different numbers had been
used: the number “5278.2” had been referred to in the second email of 16 January, but no
such number was used in the email of 25 May.
Construction of the parties’ dealings between December 2011 and May 2012
[57] In my opinion the Commercial Judge’s construction of the parties’ dealings must be
rejected. In the first place, it should be noted that the debate before the Commercial Judge
and the present reclaiming motion are concerned only with the relevancy of the pursuer’s
averments. It is not necessary to express any concluded view on the construction of the
emails that passed between the parties between January and May 2012, nor on the ultimate
legal effect of the parties’ dealings during that period. The material question is only
whether, if the pursuer succeeds in proving its averments, the court might reasonably
conclude that an agreement was concluded between the parties which included the
indemnity contained in condition 12 of the pursuer’s Terms and Conditions for Entering or
Disturbing Coal Authority Mining Interests.
Page 31 ⇓
31
[58] Secondly, for reasons that I have already discussed I am of opinion that it is essential
that the email correspondence of January and May 2012 should be placed in its full context.
Both the commercial and the legal aspects of that context are important. Equally, both the
general background to the dispute and the totality of the parties’ dealings in relation to
works at the Site are relevant for this purpose. In relation to general background, any
person who wishes to interfere with mine workings belonging to the pursuer, whether by
way of investigation or by way of treatment for any defects discovered, requires to obtain
the pursuer’s permission for doing so. That is clear from the general scheme of the Coal
Mining Subsidence Act 1991 and the responsibilities imposed on the pursuer by the Coal
Industry Act 1994. It is further clear from the fact that the voids in old mine workings are
the property of the pursuer. Consequently any interference with those voids requires the
consent of the pursuer as property owner.
[59] In the particular circumstances of the proposed development at the Site, it is clear
that the defender’s specialist mining engineers, LK Group Limited and LK Consult Limited
(which were obviously related companies), were aware of the existence of condition 12 as
one of the pursuer’s standard Terms and Conditions for Entering or Disturbing Coal
Authority Mining Interests. A specialist mining engineer would be expected to be aware of
the general terms on which the pursuer granted permission, and a representative of LK
Group in fact signed the application made on 7 December 2010 on behalf of the defender for
permission to carry out the initial investigative work at the Site. The LK companies were
acting as the defender’s agents in making the original application; that point was not in
dispute, and is in any event evident from the terms of the application itself. An agent’s
knowledge within the field in which the agent is employed will ordinarily be attributed to
its principal. Consequently in the present case, at least as a matter of relevancy, the
Page 32 ⇓
32
knowledge of the two LK companies must be attributed to the defender. The defender must
therefore be taken to be aware of the terms of condition 12, and also the fact that it forms
part of a standard set of conditions required by the pursuer when it grants authority to carry
out work on old mine workings that are under the charge of the pursuer.
[60] Furthermore, the reason for the condition is obvious. Part 2 of the Coal Mining
Subsidence Act 1991 (sections 2 et seq) imposes strict liability on the pursuer for taking
remedial action in respect of subsidence damage. The pursuer therefore runs the risk of
damage arising from the existing state of underground workings. Where, however, another
party interferes with those workings, whether in carrying out investigations or in treating
any perceived defects, further damage may result. The purpose of condition 12 is to protect
the pursuer against liability for any losses caused by such interference. Consequently the
existence of the condition can scarcely be said to be a surprise.
[61] It is against that background that the defender through its agents, LK, sought
permission to carry out investigative works on the Site. It is averred that following the
granting of the original permission for three boreholes a further permission, for
16 additional boreholes, was granted retrospectively by the pursuer on 11 April 2011. In fact
the report covering the investigative works suggests that the 16 boreholes were drilled in
May and June 2011, and the drilling log attached to the report suggests that they were
drilled in late April and early May 2011, in which case the permission would not be
retrospective. This apparent discrepancy can, however, be explained by the actual terms of
the permission for the 16 boreholes (permit reference number 5728.1). This states not that
the permission was granted on 11 April 2011 but that that is the effective date of the
permission. In fact this permission appears to have been granted on or about 20 December
2011; an email of that date from the pursuer’s Leigh Sharpe to Ellen Dempster of
Page 33 ⇓
33
Groundshire states that the relevant extension certificate was enclosed (see paragraph [52]
above). The attachment is described as “Permission Extension – 5728.1.pdf. What is
important for present purposes is twofold. First, the permission relating to the 16 boreholes
appears to have been treated as an extension of the first permission for the three boreholes.
That is apparent not merely from the terms of the email itself, but also from the number
used, 5728.1. Notwithstanding the Commercial Judge’s comments to the effect that the use
of different numbers suggested that different permissions were granted, the use of the code
“5728” in every case appears to me to suggest that the various permissions were treated as
related to one another. At the very least, that is a matter that might well emerge when
evidence is led. Secondly, the email of 20 December 2011 requires Groundshire to submit
what appears to be comprehensive completion information. The email also requests that
Groundshire ask the “indemnifier”, the defender, for permission to release certain
information. This appears to assume that the existence of the indemnity was treated as
significant; otherwise there would be no obvious reason for using that wording.
[62] The next development was the sending of the two completion reports, which are
referred to in Groundshire’s email of 16 January 2012 (see paragraph [53] above). According
to the terms of the email, these covered both exploratory drilling and treatment works. Both
of those reports appear to be produced. The email of 16 January then continues with the
important request “Could you send me an email confirming that the extension covers the
treatment works as well”. That is clearly a request for permission to cover the treatment
works, as referred to in the second report, in addition to the exploratory drilling. It is a
request made by Groundshire, who according to the defender’s pleadings acted as the
defender’s specialist contractor in relation to its development at the Site. The pursuer avers
that Groundshire acted as the defender’s works contractor and agent. I discuss the
Page 34 ⇓
34
relevancy of the pursuer’s averments of agency subsequently. For present purposes I
assume that Groundshire was indeed acting as an agent for the defender. On that basis the
request for confirmation that the extension covered the treatment works was made by an
agent for the defender. The pursuer clearly treated the request in that way, because on the
same date, 16 January 2012, their Mr Sharpe replied to the earlier email and indicated that
when the discs were received the pursuer would issue a permit to cover the treatment. It
was stated that the permit might be referred to as 5728.2. In fact no express permit with
such a number was ever issued. Nevertheless, the use of the number and its similarity to the
earlier numbers clearly indicates that the permit was intended to be an extension of the
earlier permits.
[63] When a permission is extended, it would be usual – perhaps even normal – for the
same conditions to apply as applied to the original grant of permission. There might be
exceptions, but the general rule appears to me to support the pursuer’s case on record, to the
effect that the conditions attached to the original grant of permission, including
condition 12, applied equally to a retrospective extension to cover the treatment works. That
extension is said to have been effected by the pursuer’s email to Ellen Dempster of
Groundshire of 25 May 2012, which was acknowledged by email dated 28 May (see
paragraph [53]) above). The email of 25 May is perhaps somewhat cryptic in its terms. It
acknowledges receipt of both the site investigation report and the treatment completion
report for the stabilization works. The writer then confirms that the information provided
was satisfactory, and that the permit 5728 “can now be closed out”. It is stated that the
information would be passed to the pursuer’s surveyors so that their database might reflect
the treatment undertaken, and that the permit file had been updated to reflect the closure.
That wording appears at first sight to indicate that the pursuer was satisfied with the
Page 35 ⇓
35
information provided about the whole of the works, both investigation and treatment, and
would close its file.
[64] The critical issue is of course whether the foregoing emails, in particular that of
25 May 2012, read in the context of the earlier email correspondence were sufficient to
import the pursuer’s Terms and Conditions including condition 12 into the permission for
the treatment works. In my opinion the pursuer’s averments are sufficient as a matter of
relevancy to permit such an inference. No doubt the emails of 16 January and 25 May do
not make any express reference to the Terms and Conditions or to any indemnity.
Nevertheless, it was clear from both the general background and the pursuer’s earlier
dealings with an agent for the defender, LK Consult Ltd, that the Terms and Conditions
were a normal condition for granting permission. If that is so, those earlier dealings would
support the inference that the Terms and Conditions should apply to the extension to cover
the treatment works.
[65] It can of course be said that no express permit was granted for the treatment works,
which was contrary to previous practice. The pursuer concedes that the use of an email
rather than a formal permit is highly unsatisfactory, but contends that as a matter of
relevancy the email exchange was sufficient to draw the inference that condition 12 was
incorporated; it could not be said, applying the well-known test in Jamieson v Jamieson, 1952
SC (HL) 44, at the pursuer’s case must necessarily fail. I agree with that submission,
although in doing so I attach importance to the context provided by the parties’ general
dealings and the totality of the email exchanges. Finally, I do not consider the fact that
permission is said to have been granted retrospectively to be fatal to the pursuer’s case. The
second permission, that granted with the effective date 11 April 2011, does appear to have
Page 36 ⇓
36
been granted retrospectively, and it is not uncommon to find retrospective authorization as
a matter of commercial practice.
[66] One further consideration appears relevant. The defender required the pursuer’s
permission if its agents, whether either LK company, Groundshire or Raeburn, were to be
entitled to interfere with the underground mine workings at the Site in any way. In the
context of the parties’ earlier dealings, it may be reasonable to conclude that the defender
and its agents expected to receive the pursuer’s permission for what they did by way of
investigation and treatment. If permission is granted, however, the normal counterpart
would be the set of Terms and Conditions that the pursuer had imposed previously (and
imposed normally); that is obvious as a matter of commercial common sense. That factor
may well support the inference that the pursuer seeks to draw.
[67] For the foregoing reasons I would hold that the Commercial Judge was wrong to
treat the pursuer’s averments relating to the application of condition 12 to the treatment
works as irrelevant.
Averments relating to agency
[68] In addition to the question of whether the pursuer’s averments relating to the
undertaking of contractual indemnity by the defender are relevant, a further issue arises as
to the pursuer’s averments of agency. As I have already indicated, it is essential to the
pursuer’s case that it should establish that Groundshire was acting as the defender’s agent in
obtaining an extension of the earlier permissions to cover the treatment works at the Site and
granting a correlative indemnity.
[69] The averments of agency may be summarized as follows. Groundshire is a mine
working remediation specialist. It is averred that it is an established custom and practice for
Page 37 ⇓
37
such specialists, including Groundshire, to act on behalf of developer clients such as the
defender in connection with obtaining permissions from the pursuer. The reason for this is
said to be that the obtaining of such permissions involves technical knowledge and expertise
which is possessed by such specialists but not in general by developers. In all
correspondence and telephone conversations relating to the extension of the permission in
relation to the Site, Groundshire made clear that it was acting on behalf of its client, the
defender, and that it was seeking the extension in the defender’s name and not in its own
name. Furthermore, the extension to cover the treatment works was a retrospective
extension of the April 2011 permission, which was in the name of the defender, not
Groundshire. In those circumstances, it is averred, it was reasonable for the pursuer to
accept Groundshire’s representations that it had authority to seek and thereafter obtain the
extension on behalf of its disclosed client, the defender. At no time was any suggestion
made to the contrary.
[70] In my opinion the foregoing averments disclose a relevant case to the effect that
Groundshire acted as an agent for the defender in conducting negotiations with the pursuer
between December 2011 (at latest) and May 2012. Once again context is important. The
defender is a developer, and it can be expected, and assumed for the purposes of relevancy,
that a developer will make use of appropriate professionals in conducting technical
negotiations. The investigation and treatment of mine workings is clearly a technical area.
In these circumstances it is unsurprising that the defender would permit LK to conduct the
earlier negotiations with the pursuer regarding investigation of the mine workings at the
Site; LK is described as a specialist mining engineer, and the defender accepts that it
appointed LK as its agent for certain purposes. Moreover, the initial application dated 1
December 2010 was undoubtedly prepared and signed by LK. Groundshire is described by
Page 38 ⇓
38
the pursuer as the defender’s works contractor and agent and by the defender as its
“specialist contractor” in relation to the development at the Site. It appears, therefore, that
Groundshire had special expertise. It is also apparent from the correspondence that from
December 2011, if not before that, Groundshire purported to carry out negotiations on
behalf of the defender. In the circumstances, it would not be remarkable if a works
contractor embarked on negotiations with the pursuer, especially if the expertise of the
contractor related in particular to ground conditions.
Further submissions by the parties
[71] Three further grounds of appeal were presented by the pursuer. The first of these
related to a decision by the Commercial Judge that, in considering the pursuer’s primary
argument that a contractual indemnity had been incorporated into the permission to carry
out treatment works, it was not relevant to have regard to the intention of Mr Sharpe;
Mr Sharpe had of course been the author of the email of 25 May 2012. In my opinion that is
clearly correct. It is well established that contracts are construed according to objective
standards and not according to the subjective intentions of the parties. If authority is
needed for that proposition, it is found in Muirhead & Turnbull v Dickson, 1905, 7 F 686, in
particular per LP Dunedin at 694: “But commercial contracts cannot be arranged by what
people think in their inmost minds. Commercial contracts are made according to what
people say”; and see also Gloag on Contract at 7-8.
[72] That has been established law for many years, and indeed I find it impossible to
understand how a contract could be construed on any other basis. The fundamental feature
of a contract is that there are two (or more) parties, and it is quite inconceivable that the
intention of one can be given priority over the intention of the other. For this reason all
Page 39 ⇓
39
contractual disputes must normally be determined objectively. The intention of one party or
its representative is accordingly irrelevant. Of course evidence can be led about the
contractual context. This may extend to evidence about the parties’ dealings with each
other, whether through written correspondence or in the form of verbal discussions.
Evidence of this nature may stray into the territory of what parties intended, but the judge
deciding the case must ignore any evidence of subjective intention and construe the parties’
contract, or determine whether there is a contract or contractual term, on a basis that is
totally objective.
[73] The second additional ground of appeal that calls for comment was that the
Commercial Judge had been in error in holding that the carrying out of the treatment works
on behalf of the defender did not engage the contractual indemnity contained in the
permission granted in April 2011. In particular, it was submitted that the Judge had been in
error in concluding that the provision in condition 12 that “failure to comply with the
requirements of this permission” did not mean that if works were carried out beyond what
was permitted by the April 2011 permission the indemnity provision was engaged. The
April 2011 permission had merely permitted the defender to carry out a further
investigation of mine workings at the Site by drilling 16 additional boreholes. It did not
authorize the treatment works. Condition 12, however, specifically related to claims arising
as a result of “any failure” by the defender or its contractors “to comply with the
requirements of this permission”. Going beyond what was expressly permitted was a
failure to comply with the requirements of the permission. Such a construction was
supported, it was submitted, by condition 7 of the pursuer’s Terms and Conditions, which
made it clear that the prior permission of the pursuer required to be obtained before any
works could proceed.
Page 40 ⇓
40
[74] In my opinion the foregoing argument must be rejected. The question turns on the
construction of condition 12, read obviously in the context of the Terms and Conditions as a
whole and the background circumstances already described. It is correct that condition 7
makes it clear that permission must be obtained before drilling or treatment works take
place. That is obviously to be expected given the risks presented by such works to the
stability of overlying strata, especially in the light of the pursuer’s strict liability for damage
caused by subsidence. It is also important, however, to have regard to the purpose of
condition 12 – its function in the parties’ contractual relationship. This involves looking at
the substance of the condition rather than niceties of wording or strained interpretations of
the words used. Moreover the purpose must be determined objectively. In the present case,
I am of opinion that the purpose of condition 12 is clearly to provide an indemnity against
damage caused by the works authorized by the permission granted by the pursuer, if such
damage results from a failure to comply with the requirements of the permission or other
acts, failures and the like by the applicant (the defender) or its contractors in designing or
carrying out the work. Condition 12 is not designed to provide a remedy for works that lie
wholly outwith the scope of the permission that has been granted by the pursuer. Indeed,
the words founded on by the pursuer – “any failure… to comply with the requirements of
this permission” – point clearly towards the scope of the particular permission that has been
granted. Such a permission is of course contractual in nature, and the wording used is in
my opinion directed towards the scope of the parties’ contract, and not towards any
extraneous unauthorized actings.
[75] The third additional argument for the pursuer relates to an orbiter remark by the
Commercial Judge the effect that the pursuer’s alternative case, rather than being a
contractual case under condition 12, was rather one of trespass. The pursuer contends that
Page 41 ⇓
41
trespass forms no part of its case against the defender. In my opinion that is clearly correct;
trespass, or any form of unauthorized entry to the pursuer’s property, is not the basis of the
pursuer’s case as it is presently pled. In some cases there might conceivably be a delictual
remedy for unauthorized interference with the pursuer’s property, but it is unnecessary to
consider that in the present circumstances. In any event, if the pursuer’s primary argument
is upheld at proof, any such delictual case will be immaterial.
Conclusion
[76] For the foregoing reasons I am of opinion that the Commercial Judge was in error in
holding that the email of 25 May 2012 did not retrospectively extend the permission granted
in April 2011 to cover the treatment works carried out at the Site. In my opinion that issue is
relevantly pled and should proceed to proof before answer. Consequently I consider that
the reclaiming motion should be allowed to that extent. I am also of opinion that the
pursuer’s averments relating to the agency of Groundshire are relevantly pled and should
proceed to proof. Beyond these matters, I consider that the reclaiming motion should be
refused.