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Cite as: 2022 SCLR 106, [2022] CSOH 19, 2022 GWD 17-253, [2022] ScotCS CSOH_19

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OUTER HOUSE, COURT OF SESSION

[2022] CSOH 19

CA48/21

OPINION OF LORD CLARK

In the cause

THE SCOTTISH MINISTERS

Pursuer

against

(FIRST) SCOT ROADS PARTNERSHIP PROJECT LTD; (SECOND) FERROVIAL

CONSTRUCTION (UK) LIMITED; AND (THIRD) LAGAN CONSTRUCTION GROUP

LIMITED (IN ADMINISTRATION)

Defenders

Pursuer: MacNeill QC, van der Westhuizen QC; Anderson Strathern LLP

Defender: McLean QC, Tyre; Burness Paull LLP

17 February 2022

Introduction

[1]

This case concerns what is known as the M8, M73, M74 motorway improvement

project (the MIP). The main issues raised in the pleadings concern the construction of a

specific contractual term and, in the alternative, whether that term should be rectified by

adding certain words. A proof before answer is required to resolve the case. However,

there are two discrete matters suitable for resolution at debate: firstly, whether averments

by the first and second defenders about actings of the parties after the contract was entered

into are relevant for the purposes of construing the contract; and, secondly, whether the first

and second defenders have made relevant averments about third parties being affected by

the proposed rectification. The case called before me for a debate on those matters. The

third defender has not entered appearance. The first and second defenders were

represented by the same counsel and joint submissions on their behalf were made.

Background

[2]

On 13 February 2014, the pursuers and the first defender entered into an agreement

in relation to the MIP. The agreement was described as a design, build, finance and operate

agreement (the DBFO agreement). Under the DBFO agreement, the first defender had to

design, build and finance the works required for the MIP, and thereafter to operate and

maintain that part of the road network for 30 years until 15 March 2047. In consideration for

performing its obligations, the first defender receives payments from public funds. The first

defender sub-contracted the construction works to a joint venture, comprised of the second

and third defenders. On 13 February 2014, the first defender and the joint venture entered

into a contract known as the New Works Agreement, in terms of which the joint venture,

described as the New Works Contractor, was to provide certain works and services to the

first defender in relation to the MIP.

[3]

As the MIP proceeded, the progress of works across the site was noted to be slower

than required to satisfy the construction programme. Various issues arose and disputes

began to block progress of the MIP. Following discussions, the parties entered into an

agreement for general settlement (the AGS). The pursuers seek, in their first conclusion,

declarator that the effect of Clause SIXTH of the AGS is that all pecuniary claims by the first

defender against the pursuers, with some limited exceptions, have been waived. This is

based upon what the pursuers say is the proper construction of the clause. If that argument

fails, in the alternative the pursuers seek rectification of Clause SIXTH to add certain words.

The first defender has lodged a counterclaim seeking declarator that only claims arising out

of circumstances pre-dating the execution of the AGS were waived by Clause SIXTH, and

that claims arising from circumstances post-dating the AGS are unaffected thereby. In short,

the dispute to be resolved after a proof before answer is about whether all pecuniary claims,

other than the specified exceptions, have been waived (the pursuers' position) or whether

only pre-AGS claims have been waived (the defenders' position).

[4]

In order to provide all of the relevant background, Clause SIXTH, the conclusions in

the summons and the disputed averments are quoted below. They each make some

reference to certain contractual terminology. Where any such terminology requires to be

explained in order to follow what is said, that is done in very brief terms. However, for the

purpose of understanding parties' submissions and my decision and reasons on the issues at

this debate, it may suffice to note the following headline points. The first challenge by the

pursuers is to the relevancy of averments by the defenders about the parties' actings after

the date of the AGS. In simple terms, the averments refer, among other things, to the

pursuers having at least for a period of time after the AGS adhered to the terms of the

DBFO. This is taken by the defenders to indicate that the pursuers knew that not doing so

would result in being liable to the first defender in any claim it made for a breach. That

conduct is said to support the defenders' position that waiver of claims in Clause SIXTH was

in respect only of claims arising prior to the AGS, and not continuing into the future. The

averments are also said to demonstrate the unlikelihood of the pursuers' interpretation

being correct, when one has regard to what the results of that interpretation might be as to

the actual commercial outcome for the parties. The pursuers argue that as a matter of law

actings after a contract is entered into are not relevant for the purpose of construing its

terms. The defenders argue that there is case law supporting the opposite view and t hey

also contend that the averments are relevant to the issue of rectification. The second

challenge made by the pursuers is to relevancy and specification of the defenders'

averments about third parties being affected by the proposed rectification. The defenders

say that these averments meet the requirements of the relevant statutory provision and in

any event are relevant to the rectification issue in general.

The AGS

[5]

Among other things, the AGS provided for the New Works Contractor to receive

substantial additional sums of money and for the waiver of certain claims. Clause SIXTH of

the AGS provides:

"In consideration of this Agreement and sums due thereunder being paid to the

Company [ie the first defender] and the New Works Contractor, the New Works

Contractor and the Company waive the right to all claims of any nature whatsoever

(other than those which may flow from a Scottish Ministers Change or a Qualifying

Change in Law) which the New Works Contractor and/or the Company may have at

the date of this Agreement or in the future against or in respect of the Scottish

Ministers and/or the Company relating to the New Works."

A Scottish Ministers Change or a Qualifying Change in Law are, in broad terms, changes

which affect the works and for which the first defender is entitled to payment.

Orders sought by the pursuers

[6]

The following orders are sought in the first and second conclusions in the summons:

"1.

For declarator that on a proper construction of stipulation or clause

(hereinafter clause) SIXTH of the Agreement for General Settlement entered into

between the Pursuers, the First Defender and Ferrovial Lagan JV on 15 September

2016 (`the AGS'), the Pursuers having paid to the First Defender the sums due under

the AGS, the First Defender has waived its right to any and all pecuniary claims of

any nature whatsoever that it may have had as at 15 September 2016 or that may

otherwise have arisen thereafter, against or in respect of the Pursuers, relating to the

New Works under the design, build, finance and operate agreement between the

Pursuers and the First Defender dated 13 February 2014 (`the DBFO Agreement'),

other than those that flow from a Scottish Ministers Change or a Qualifying Change

in Law or that arise as the result of the operation of the DBFO Agreement, Schedule 6

(Payment Mechanism);

In the alternative to Conclusion 1 above, for an order for rectification of

Clause SIXTH of the AGS, in terms of section 8 of the Law Reform (Miscellaneous

Provisions) Scotland Act 1985, by (i) the insertion of the words `pecuniary'

immediately before the words "claims of any nature" in the first paragraph thereof

and (ii) the insertion of the words "or which may arise as the result of the operation

of the DBFO Agreement Schedule 6 (Payment Mechanism)" immediately after

`Qualifying Change in Law'."

Schedule 6 of the DBFO agreement deals with certain rights to payment and it covers,

among other things, the right of the first defender to monthly payments from the pu rsuers

(including what is described as a Monthly Unitary Charge) during the further thirty year

period of the DBFO.

The pursuers' first challenge

Averments sought to be excluded

[7]

The first and second defenders (in answer 30 in each of their answers) make the

following averments regarding events that occurred after the date of the AGS, said to be

relevant to the construction of Clause SIXTH:

"The AGS was seen by the parties as a temporary remedy to allow the DBFO

Agreement to survive and operate as planned for the future in all respects. In that

regard it initially worked well, allowing rapid progress from September 2016 to

May 2017 during which period approximately 40% of the New Works were built.

Once Permits to Use had been issued at the end of May 2017, however, the Pursuers

reverted to a more obstructive approach to management of the MIP leading to an

extensive delay to Final Completion, during which period the Pursuers were entitled

to withhold 5% of the Monthly Unitary Charge from the First Defenders at no risk to

themselves. In relation to the Pursuers' `more obstructive approach' following

May 2017, for example, having been prepared previously to accept Company Notices

of Change (`CNCs') for suitable design changes, the Pursuers did not accept a single

Company Notice of Change that was related to design following the issue of Permits

to Use, other than (e.g.) a very minor change to allow a woodland footpath to be

diverted to avoid a badger's sett (CNC 66). They also stopped accepting CNCs for

proposals for closure of carriageways of a type which had been acceptable to them

between September 2016 and May 2017. Reference is made to a letter from the New

Works Contractor to the First Defender dated 4 December 2017 setting out some

examples of the problems caused by the Pursuers' obstructive approach to such

matters after Permits to Use had been issued. A copy of said letter is produced and

its terms held as incorporated herein brevitatis causa. Such obstructive behaviour was

in breach of Clause 76.1 of the DBFO Agreement (entitled `Scottish Ministers not to

Hinder Company') and of the Pursuers' obligations under the initial paragraphs of

the AGS to work together with the other parties thereto in a spirit of mutual trust

and co-operation to ensure that the terms of the AGS and the DBFO Agreement were

honoured and their aims achieved."

The AGS provided for Permit to Use (PTU) dates, that is, for certain phases of the works to

be achieved by 31 May 2017. The PTU date for each phase is the date on which the pursuers

acknowledge the issue by the first defender of substantial completion certificates and

confirm that the phase of the works is to be made available for public use with immediate

effect. A Company Notice for Change is, in broad terms, a ch ange in respect of the works,

proposed by the first defender.

Submissions

Pursuers

[8]

These averments were irrelevant to the question of the meaning of Clause SIXTH

which must be judged as at the date the AGS was entered into, namely 15 September 2016.

A contract cannot be construed by reference to the subsequent conduct of the parties: James

Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583, Lord Reid at

603 D-E, Lord Hodson at 606 E, Viscount Dilhorne, at 611 D-E, and Lord Wilberforce, at 614

H to 615 A; L. Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235, Lord Reid at 252

C-F, Lord Morris of Borth-y-Gest, at 260 G, Lord Wilberforce at 261 C, Lord Simon of

Glaisdale at 268 E to 269 D, Lord Kilbrandon at 272 D-G, and Lord Simon at 269 C-D. In

McBryde, The Law of Contract in Scotland, (3rd ed., 2007), at paragraphs 8-30 to 8-32, the

author barely cast doubt on the rule, although mentioning some potential exceptions. None

of these exceptions applied in the present case. The rule has been applied without question

by, among others, the Lord President in SSE Generation Ltd v Hochtief Solutions AG, 2018 SLT

579, at [258]. Moreover, this court, when considering this very contract, had determined that

actings subsequent to the AGS are not admissible as an aid to its construction: Scot Roads

Partnership Project Ltd v The Scottish Ministers [2019] CSOH 113, paragraph [38](iii). This

position had been urged on the court in that action on behalf of the first defender in the

present action (as narrated at paragraph [33]).

[9]

In any event, aside from the inadmissibility of evidence that would be required to

prove these averments, the defenders' position (that the subsequent conduct of the parties

indicates that Clause SIXTH was intended to waive future claims) was obscure. None of the

pursuers' conduct was prayed in aid to support any inconsistency between that conduct and

the pursuers' interpretation of the clause. The pursuers' actings since September 2016 have

all been wholly consistent with their position that the waiver in the clause was of claims

then existing and in the future.

Defenders

[10]

The court should apply commercial common sense when determining the

interpretation of Clause SIXTH, and should avoid an unconscionable and inequitable (and

therefore unlikely) construction, or an outcome where one party is in a position to break its

contract with impunity: cf Ashtead Plant Hire Co Ltd v Granton Central Developments Ltd 2020

SC 244, paras [10] to [17]; Van Oord UK Ltd v Dragados UK Ltd 2021 SLT 1317, para [20]). To

that end, the court is entitled to consider the likely commercial outcomes of the

interpretations being advanced by the parties. In that context, what actually happened after

conclusion of the AGS may be the best evidence of, and the best illustration of, the inequity

that may result from the pursuers' construction. It was accepted by the defenders that the

general rule is that a contract should not normally be construed by reference to the

subsequent conduct of the parties. There are, however, exceptions. It had repeatedly been

held, including at appellate level, in Scotland that in a situation where there is ambiguity in

a contract the court may look at the actings of the parties post-execution of the contract as an

aid to construction: see e.g. Baird's Trs v Baird & Co (1877) 4 R 1005, Lord Justice-Clerk

Moncrieff 1016-7, 1019; Scott v Howard (1881) 8 R (HL) 59, Lord Watson at 67; Hunter v

Barron's Trs (1886) 13 R 883, Lord Craighill at 892; Boyle & Co v Morton & Sons (1903) 5F 416,

Lord Justice-Clerk Macdonald at 421, Lord Young at 422, Lord Trayner at 422,

Lord Moncrieff at 423; Welwood's Trs v Mungall 1921 SC 911, Lord President Clyde at 926;

and Scottish Residential Estates Development Co Ltd v Henderson, 1991 SLT 490, Lord Dunpark

at 492. The practical utility of doing so in appropriate cases was discussed by

Professor McBryde in his commentary on the case of Cameron (Scotland) Ltd v Melville

Dundas Ltd 2001 SCLR 691, at 696. The present case fell to be included in that category of

exception. There was obvious and accepted ambiguity: the parties to the action all agree

that the wording of Clause SIXTH does not mean what it says, but they disagree on what it

is meant to mean. In those circumstances how the parties acted subsequent to entering into

the agreement may be a useful guide as to what they mutually thought the agreement was

intended to achieve, whatever they may now say.

[11]

The defenders offer to prove that, in light of the intention of all parties to "reset" the

DBFO agreement to allow Permits to Use to be issued, parties entered into the AGS. The

defenders also offer to prove that their interpretation of Clause SIXTH of the AGS is correct.

In order to determine that, averments about the parties' conduct following execution of the

AGS were relevant. The averments also demonstrated the unlikelihood of the pursuers'

interpretation being correct, when regard is had to what the results of their interpretation

might be in relation to the actual commercial outcome for the parties, which in turn is

relevant when the court comes to consider the application of commercial common sense.

[12]

Averments of parties' actions after the conclusion of a contract may have an

additional role to play when the court comes to consider whether rectification of that

contract should be ordered, in terms of section 8 of the 1985 Act: Patersons of Greenoakhill

Limited v Biffa Waste Services Limited 2013 SLT 729, Lord Hodge at [43]. For that reason also,

the averments objected to should be allowed to remain on record.

First challenge: decision and reasons

[13]

It was argued for the defender that these averments illustrated inter alia that in the

period from the execution of the AGS in September 2016 to the issue of Permits to Use in

May 2017, the pursuers did not act in a manner which suggested that they felt th emselves to

be able to breach their contractual duties at will without any risk of a pecuniary claim being

made against them, and are therefore potentially relevant to the question of whether there

was any antecedent agreement between the parties to that effect.

[14]

In Scots law, the general rule is that actings after the date of the contract are not

relevant for the purposes of construction. That is now well-established: see eg SSE

Generation Ltd v Hochtief Solutions AG, Lord President (Carloway) at [238], and SI 2016 Ltd

and Ors v AMA (New Town) Ltd and Ors 2019 CSOH 99, Lord Doherty at [51]. This follows

the position taken in English cases by the House of Lords: James Miller & Partners v

Whitworth Estates (Manchester) Ltd; L Schuler AG v Wickham Machine Tool Sales Ltd.

[15]

While Professor McBryde has expressed his own views on the point, in his textbook

(supra at paragraph 8.30) he expressly acknowledges the general rule. He goes on to

describe the main exception as being "some cases of ambiguity (whether arising from

express terms or the lack of a term)". It is correct that the case law may provide some

support for that view (see eg L Schuler AG v Wickham Machine Tool Sales Ltd at 261 D) but the

important point, made by Lord Wilberforce in that passage, is that it is elementary law that

an ambiguity in this context is not to be equated with difficulty of construction. For such an

ambiguity, there needs to be a word or phrase that, read literally or on its face, can be

understood in more than one way; that is, has more than one possible meaning. In

contracts, such genuine ambiguities are quite rare. What tends to occur in a contractual

dispute about meaning is not precisely what the word or phrase means, but how it is to be

understood in the particular context. A good example of such an ambiguity might be

Hunter v Barron's Trs in which the use of "Whitsunday" could have been either a reference to

the date formerly used for Whitsunday (26 May) or the date that had come to be used

(15 May) with the use of that term varying across the country.

[16]

Senior counsel for the defenders relied upon a number of decisions in Scottish cases

which pre-dated the very many modern authorities that have come to lay out the approach

to contractual construction. It was submitted that in recent cases in which the court had

reiterated the principle that evidence of actings after the contract was entered into is not

relevant to construction (Scot Roads Partnership Project Limited v The Scottish Ministers

[2019] CSOH 113 and SSE Generation Ltd v Hochtief Solutions AG) the authorities now founded upon

by the defender were not put before the court. In my view, it would have made no

difference to the outcomes. Ultimately, however, senior counsel relied upon there being an

exception to the general rule when an ambiguity existed. It was submitted that

Clause SIXTH was obviously ambiguous, given that the pursuers said there was a need to

construe it as restricted to pecuniary claims. Along with the alternative proposal to rectify,

that was an admission of ambiguity. The reference to "in the future" was said to be a highly

ambiguous clause.

[17]

In my opinion, there is no ambiguity in the provisions in Clause SIXTH. The fact

that, having regard to the context, purposiveness or commercial common sense, different

interpretations might be argued does not indicate that there is an ambiguity. No words or

phrases were identified that could, applying the concept of ambiguity in its proper sense,

have more than one meaning. The expression "in the future" is not ambiguous. On the

issue of ambiguity, I respectfully agree with the view expressed by Lord Doherty in SI 2016

Ltd and Ors v AMA (New Town) Ltd and Ors (at [51]), that is, reserving my position on

whether actings after entering into the contract can be a legitimate guide to interpreting an

ambiguous term. Senior counsel for the pursuer also argued that the post -contractual

actings could be taken to illustrate what the parties had in mind as regards commercial

common sense. There is no authority for that proposition. It is commercial common sense

at the time of the contract that is to be considered, including, no doubt, foreseeable

consequences.

[18]

The pursuers' further challenge is that in any event the averred actings of the

pursuers after the AGS was entered into are not in any way inconsistent with the

construction put forward by the pursuers and hence are irrelevant in the most general sense.

That issue does not arise, in light of the decision I have reached on exclusion of such

evidence for the purposes of construction. However, had it arisen, while it is not entirely

clear how the averments would assist the defenders on construction, evidence would have

been required to reach a final view on the point.

[19]

As to the relevancy of these averments in relation to rectification, the pursuers

argued that in the way they are drafted and included in the defences, it was not the

defenders' intention to rely on them regarding rectification. For that to be so, it was

submitted, the averments ought to have been repeated elsewhere in the pleadings. There is

obviously a conventional approach when pleading on a particular issue in answers to make

reference to averments in a different answer which are also to be relied upon for that issue,

but I would have been unable to find the averments irrelevant simply on the basis of where

they appear in the answers.

[20]

The pursuers' further point is that these averments are in any event entirely

irrelevant to the rectification point, because all of the claims to which the defenders refer are

pecuniary claims and the insertion of the words proposed in the second conclusion would

make no difference to the defenders' position. In other words, post-contractual actings

which relate to pecuniary claims cannot affect a proposed rectification to include such

claims. I accept that submission. It is very difficult to see how the averments in question can

affect the proposed rectification, which seeks to restrict the scope of the waivers in

Clause SIXTH to pecuniary claims. Moreover, there is obviously no suggestion for the

defenders that they wish the reference to claims that are waived to include non-pecuniary

claims; on the contrary, the defenders view Clause SIXTH as a waiver only of pecuniary

claims, although they say it was just pre-AGS pecuniary claims. In Patersons of Greenoakhill

Limited v Biffa Waste Services Limited, Lord Hodge (at [43]) explained that it may also be

relevant when dealing with rectification to consider the conduct of the parties after they

signed the impugned contractual document, as that may cast light on parties' intention

when they entered into the contract and the weight to be attached to such conduct will vary

depending on the nature and quality of the pre-contractual evidence. There is nothing in the

averments quoted above that casts any light on the parties' intention when they entered the

contract, so far as the proposed rectifications are concerned.

[21]

I therefore conclude that the averments are irrelevant, both in respect of construction

of the contract and the claim for rectification, and fall to be excluded from probation.

The pursuers' second challenge

Averments sought to be excluded

[22]

In answer 39, having averred that the AGS does not require to be rectified in any

way, the first and second defenders go on to make the following averments:

"Under reference to Section 9 of the Law Reform (Miscellaneous Provisions)

(Scotland) Act 1985, interests of various persons would be adversely affected to a

material extent by the Pursuers' proposed rectifications, including the First

Defender's funders. Said funders include: (i) third party shareholders of the group

holding company of the First Defender, who provide equity support to the First

Defender, including: PiP Management Limited; Meridiam Infrastructure Finance

Sarl; Amey Ventures Asset Holding Limited; and Cintra Infrastructures UK Limited;

(ii) senior debt providers, namely European Investment Bank and Allianz Global

Investors GmbH; and (iii) bondholders managed by Allianz Global Investors GmbH.

Such parties have relied on the First Defender being able to recover financially in

relation to Compensation Events for breaches of the DBFO Agreement on the part of

the Pursuers in relation to the New Works subsequent to the AGS. There is a

significant risk that, if the rectification proposed is made, then the rating of the MIP

may fall below a threshold rating, leading to possible lock-up of shareholders'

disbursements. The other parties to the AGS and the other persons so affected do

not consent to the proposed rectifications."

The primary form of Compensation Event is a breach by the pursuers of their obligations

under the DBFO agreement. In broad terms, the "threshold rating" is arrived at having

regard to debts and "lock up" means that money intended to be paid to shareholders is set

aside, for example to deal with debts, and is not distributed to them.

Sections 8 and 9 of the 1985 Act

[23]

For present purposes, the relevant provisions of sections 8 and 9 of the Law Reform

(Miscellaneous Provisions) (Scotland) Act 1985 are as follows:

"8. - Rectification of defectively expressed documents

(1)

Subject to section 9 of this Act, where the court is satisfied, on an application

made to it, that--

(a)

a document intended to express or to give effect to an agreement fails

to express accurately the common intention of the parties to the agreement at

the date when it was made;...

it may order the document to be rectified in any manner that it may specify in order

to give effect to that intention.

(2)

For the purposes of subsection (1) above, the court shall be entitled to have

regard to all relevant evidence, whether written or oral...

9. Provisions supplementary to section 8: protection of other interest.

(1)

The court shall order a document to be rectified under section 8 of this Act

only where it is satisfied

(a)

that the interests of a person to whom this section applies would not

be adversely affected to a material extent by the rectification; or

(b)

that that person consented to the proposed rectification.

(2)

Subject to subsection (2A) and (3) below, this section applies to a person

(other than a party to the agreement or the grantor of the document) who acted or

refrained from acting in reliance on the terms of the document, with the result that

his position has been affected to a material extent."

Submissions

Pursuers

[24]

The persons whom the defenders identified are the first defenders' funders, said to

"include" certain entities, some of whom are named and others not. They say these persons

have "relied" on the ability of the first defender to recover for post-AGS Compensation

Events, but not what they have done or not done in such reliance. The defenders do not say

how the position of these persons has been affected, let alone affected to a material extent.

They do not state which element of the proposed rectification would adversely affect the

said persons. It is not stated what it was in the clause that they were relying on or when

they acted or refrained from acting. Without an articulation of each of the above elements,

the averments in relation to section 9 were irrelevant.

[25]

In any event, the rectifications sought were irrelevant to the question of the ability of

the first defender to make financial recovery for Compensation Events arising after the date

of the AGS. The defenders appeared to have confused the rectifications sought in the second

conclusion with the construction sought in the first conclusion. They were really saying that

the third parties relied on the construction of Clause SIXTH that they contend as being the

correct one (although they still do not say what they did or did not do in such reliance). The

averments are therefore irrelevant to the question of rectification. Furthermore, the

averments demonstrated the undesirability of embarking on a lengthy inquiry into these

points.

Defenders

[26]

It was not apparently contested by the pursuers that these are third parties capable of

having relevant interests in the proposed rectification. The proposed rectification seeks to

insert the word "pecuniary"' immediately before the words "claims of any nature" in

Clause SIXTH. That insertion could, if allowed, have a clear impact on the first defender's

third party shareholders, senior debt providers and bondholders as set out in the averments.

It was obviously implicit in the averments that these third parties have maintained their

investments in the first defender in reliance on the first defender being able to make

financial recovery as averred. The rectification proposed will have an inevitable impact on

the financial standing of the first defender, which in turn will have impacts upon the named

persons, and that cannot at this stage be quantified unless and until rectification takes place.

The position of the shareholders was, however, particularly highlighted, in that the

consequence of possible lock-up of shareholders' disbursements is narrated. Accordingly

sufficient had been averred in the circumstances to permit the interests of these thir d parties,

and at least the first defender's shareholders, to be considered for the purposes of section 9

of the 1985 Act and for the relevant averments to be remitted to proof before answer.

[27]

The pursuers' contention that the rectifications sought are irrelevant to the question

of the first defender's ability to make financial recovery was patently incorrect. The

insertion of the word "pecuniary" would have wide-ranging consequences for the defenders

and, as a result, the third party funders. Section 9(1) provided safeguards for the interests of

third parties: McClymont v McCubbin 1994 SC 573, Lord Murray at 581. In light of these

averments, therefore, it is incumbent upon the pursuers to lead evidence to demonstrate that

the interests of these third parties would not be adversely affected to a material extent by the

proposed rectification.

[28]

Further, even if the terms of section 9 were not engaged directly by, for example, a

third party appearing and seeking to resist rectification (as in Norwich Union Life Insurance

Society v Tanap Investments VK Ltd (No 3) 1999 SLT 204, on appeal 2000 SC 515), the decision

of the court under section 8 of the 1985 Act as to whether to order rectification is always a

discretionary one: Bank of Scotland v Brunswick Developments (1987) Ltd 1997 SC 226.

Lord President (Rodger) at 230H-231G. In exercising its wide discretion on whether to

rectify, and if so on what terms, the court will wish to have before it relevant information as

to the likely consequences of the making of the rectification proposed on third parties, such

as those listed by the defenders in the criticised averments: see section 8(2) of the 1985 Act.

Accordingly, even if the court considered that the terms of section 9 may not have been

precisely met, then the averments remained relevant under section 8.

Second challenge: decision and reasons

[29]

The reason for the second conclusion being sought was not made absolutely clear to

the court. Senior counsel for the pursuers explained that the second conclusion (and to an

extent the first) anticipated that the defenders might run an argument which reflected an

adjudicator's decision in an adjudication involving the parties. In that decision, the

adjudicator appeared to conclude that, on the pursuers' approach to construction, all of their

obligations under the DBFO relating to the New Works would become unenforceable. He

saw that as unacceptable and therefore adopted a much narrower approach to construing

Clause SIXTH. The pursuers' proposed construction in this case would not have that result.

However, should that proposed construction not be accepted, in the alternative the

rectification sought to make it clear that the defenders were not giving up all of their rights

and that it was just pecuniary claims that were being given up, with some exceptions not

given up. As I understood the pursuers' position (which is also the defenders'

understanding) Clause SIXTH, as rectified, would have the meaning argued in relation to

the first conclusion. So, in short, the pursuers appear to seek rectification in case

Clause SIXTH is construed as having very wide effects which could be seen as unacceptable

and which might allow the defenders' alternative position on construction, in the absence of

rectification, to be favoured.

[30]

But whatever is the purpose of the pursuers' conclusion for rectification, the issue for

the court is the relevance of the defenders' averments as quoted above. It is notable that the

averments are made expressly under reference to section 9 of the 1985 Act. It is stated that

they concern an allegedly material adverse effect on the named third parties. There is no

suggestion that evidence based upon these averments would have any impact upon the

question of whether Clause SIXTH fails to express accurately the common intention of the

parties to the agreement at the date when it was made. I therefore reject the subsidiary

contention for the defenders that even if irrelevant for the purposes of section 9, the

averments would be relevant in respect of section 8.

[31]

Turning then to section 9, for present purposes the starting point is whether the third

parties named in the defenders' averments acted or refrained from acting in reliance on the

terms of Clause SIXTH with the result that their position has been affected to material

extent. There require to be clear averments to that effect. No express averment is made

about any of the third parties acting or refraining from acting in reliance on those terms.

There is a general averment to the effect that those parties relied on the first defender "being

able to recover financially in relation to Compensation Events for breaches of the DBFO

Agreement on the part of the Pursuers in relation to the New Works subsequent to the

AGS". However, there is no averment that this is based upon what they understood

Clause SIXTH to mean or about what actings they carried out, or refrained from carrying

out, in reliance on Clause SIXTH. It cannot be taken, as was suggested on behalf of the

defenders, as obviously implicit that these third parties have maintained their investments

in the first defender in reliance on the first defender being able to make financial recovery in

terms of Clause SIXTH. These averments are therefore irrelevant also in respect of section 9.

[32]

Senior counsel for the pursuers made the further point that there is no explanation of

why, with the insertion of the word "pecuniary" before the word "claims" and the express

insertion to reserve payment under the payment mechanism, the interests of the third

parties would be adversely affected to a material extent by the rectification. I see force in

that contention. Rectification would result in the waiver being restricted to pecuniary

claims, so not waiving, for example, claims for declarator or interdict. The express

reservation of the payment mechanism makes clear that the first defender is not waiving its

right to payment in the normal course of the contract. Thus, the rectifications are intended

to clarify the limits of the waiver. It does appear to be the defenders' position that, if the

third parties relied on Clause SIXTH (although that is not averred) they proceeded on the

basis of the defenders' construction of Clause SIXTH, that is, that only the pre-AGS claims

were waived. That position is not affected by the proposed rectification, because whether

that is the correct construction of the clause, if rectified, will remain in issue. It was not

suggested that the words proposed to be added have any impact on whether or not it is only

pre-AGS claims that are waived. For that reason also the averments quoted above are

irrelevant.

Disposal

[33]

I shall therefore sustain the sixth and eighth pleas-in-law for the pursuers. However,

as senior counsel for each side raised certain minor points about how the pleadings would

be affected by my conclusions, I shall fix a by order hearing to deal with those points,

reserving in the meantime all questions of expenses.