Coranta Corporation Limited v Morse Business Applications Limited

 

 

 

Glasgow 11 July 2007. The Sheriff Principal, having resumed consideration of the cause refuses the appeal and adheres to the Sheriff's interlocutor complained of dated 5 October 2006; certifies the cause as suitable for the employment of junior counsel for the purposes of the appeal' quoad ultra reserves all question of expenses.

 

(signed) EFB

 

 

1. This is an appeal against an interlocutor pronounced by Sheriff Deutsch on 5^th October 2006 granting decree of dismissal. The action arises out of a Business Transfer Agreement entered into by the parties, who were at the time known as Portfolio Systems Limited and Laroc Limited, in March 2000. The substance of the Agreement was that the business of the pursuers was to be sold to the defenders for a consideration of £1.1million, payable by an immediate payment of £100,000; the balance being in two instalments of £500,000, the first on 4 December 2000, and the second, which was payable subject to a condition precedent, on 2 September 2001. The first two payments were duly made. The final payment was not, and in consequence the pursuers in this action seek decree for payment of £500,000.

 

2. The Agreement between the parties involved the sale of the "Assets" of the "Business" as defined in the Agreement. It is a matter of agreement that the employees who were transferred to the defenders by virtue of the Business Transfer Agreement were valuable assets of the pursuers' business and the consideration arrived at reflected that value. Doubtless in further reflection of that, Clause 3.1.3.2 of the Business Transfer Agreement provided that :

"The second instalment shall only be payable by the purchaser if (i) (two named employees) are employed in the Business and/or by the Purchaser or the Purchaser's Group at the 2^nd instalment date; and (ii) the number of Employees in the Business and/or employed by the Purchaser or the Purchaser's Group at the 2^nd instalment date is greater than or equal to 72% (seventy two per cent) of the number of Employees listed in schedule 9".

PROVIDED THAT, notwithstanding the provisions of clause 3.1.3.2, the conditions shall not fail to be satisfied in 3.1.3.2(i) or 3.1.3.2(ii) solely by reason of the Purchaser:

(i)                  terminating the employment of any Employee with reasonable cause at any time falling three months after the Completion Date;

(ii)                terminating the employment of an Employee without reasonable cause; or

(iii)               making any Employee redundant".

 

3.                  The term "Business" as defined in the Agreement, covered "the business of providing support and consultancy services...in so far as such services...(b) are to be provided pursuant to the Contracts". At the time of the sale a number of the pursuers' employees were carrying out project work for Sun Microsystems Limited ("Sun") pursuant to the "Contracts". These employees were in consequence employed "in the Business" within the meaning of the Agreement. On 17 March 2000 Sun entered into a contract with a separate company, Electronic Datasystems Limited ("EDS"). In terms of that contract, EDS were obliged to manage the project work being carried out by the defenders for Sun until such time as the contract between the defenders and Sun was terminated. On 7 April 2000 EDS entered into a sub-contract with the defenders in terms of which it was agreed that from 24 July 2000 the defenders would continue to provide the same project work to Sun, but on behalf of EDS. On 28 February 2001 the contractual arrangements involving the defenders, EDS and Sun were terminated, and on 1 March 2001 a number of employees who had been engaged purely in the provision of services to Sun left the employment of the defenders and took up employment with EDS. In that new employment they continued, up to and including 2 September 2001, to perform the same job, being the provision of services to Sun. Their departure from the employment of the defenders meant that the second part of condition 3.1.3.2(ii) could not on any view be met since the number of listed employees in the defenders' employment fell below the necessary 72%. No issue arises in respect of condition 3.1.3.2(i) as the named employees were in the defenders' employment on the material date.

 

4.                  The pursuers' primary contention was that because the employees in question were still engaged in the provision of the same services to Sun, they fell to be regarded as "in the Business" within the meaning of the Agreement and that in consequence the first part of condition 3.1.3.2(ii) was fulfilled. This contention was the subject of a preliminary debate before Sheriff Taylor (prior to his appointment as Sheriff Principal). He rejected this contention and the case was continued for further procedure. Sheriff Taylor's decision is not now the subject of challenge.

 

5. The matters with which the present appeal is concerned relate to alternative arguments advanced on behalf of the pursuers which were debated before Sheriff Deutsch, resulting in his interlocutor of 6^th October 2006. In broad terms these arguments are (1) that by virtue of certain conduct on the part of the defenders the suspensive condition in relation to payment was deemed to have been fulfilled (the "deemed purification" argument); and (2) that the defenders were in any event in breach of an implied term of the contract, giving rise to a claim for damages, the proper measure of which was the full amount of the second instalment (the "implied term" argument). Before turning to the learned sheriff's disposal of these arguments it is appropriate to set them out in greater detail.

 

6. The "deemed purification" averments are contained in Article 4 of Condescendence. These contain the following essential factual averments which are not disputed to any material extent. Each of the contracts of employment of the employees engaged in the Sun project work contained a covenant preventing that employee from seeking, in competition with the defenders, to procure orders from, or do business with, customers of the defenders with whom that employee had dealt previously on behalf of the defenders. Moreover, in terms of the agreement between the defenders and EDS dated 7 April 2000, EDS were under an obligation not to make any offer of employment to any of the defenders' employees either during the term of that agreement or for a period of six months following the termination of it. When EDS intimated to the defenders that their agreement would be terminated on 28^th February 2001 it is averred that the defenders were apprehensive that EDS would "seek to seek to solicit employees from the Defenders". It is said that the defenders were also "apprehensive that EDS would seek to induce the Project Engineers to breach the terms of their employment contracts" with the Defenders. In the light of these apprehensions the defenders raised proceedings in the Court of Session "to protect its interests". The averments go on to narrate that EDS provided an undertaking to the defenders which was recorded in the Court of Session process, and that "on 17 January 2001 the Defender voluntarily waived its rights in terms of the undertaking, the agreement between the Defender and EDS dated 7 April 2000 and the covenant contained in the contracts of employment of the Project Employees...and permitted EDS to approach its employees and to make offers of employment to them". It is narrated that the defenders received £150,000 from EDS in return for waiving these rights.

 

7. The averments which follow were the subject of close scrutiny in the course of submissions and are worthy of narration in full. These state: "But for the Defender's conduct in waiving its rights as hereinbefore condescended upon, EDS would not have been legally able to make offers of employment to the Defender's employees. But for the Defender's conduct in waiving its rights as hereinbefore condescended upon the Defender's employees would not have been legally able to accept the offer of employment made by EDS. As a result of the termination of the contracts of employment of those employees, fewer than 72% of the Employees...were employed by the Defender as at 1 March 2001. This was the direct consequence of the Defender's conduct in waiving its rights as hereinbefore condescended upon. Accordingly, by waiving its rights...the Defender impeded the purification of clause 3.1.3.2. The condition in clause 3.1.3.2 is therefore deemed to have been purified by the Defender".

 

8.                  The averments in support of the "implied term" argument, which is stated as an alternative, are contained in article 6 of condescendence. These run simply along the lines that it was an implied term of the parties' Agreement that the defenders would not "of its own motion" bring about the termination of the contracts of employment of such a number of its employees that the fulfilment of clause 3.1.3.2 would become impossible. It is said that such a term was implied in the Agreement as a matter of law, or in any event it was necessary to give the Agreement "business efficacy". It is averred that "The direct consequence of the Defender's voluntary conduct in waiving its rights was the termination of a sufficient number of the contracts of employment of the employees that fulfilment of clause 3.1.3.2 became impossible".

 

The Sheriff's Decision

 

9. Sheriff Deutsch dealt firstly with the pursuers' argument relating to the defenders' waiver of the rights acquired in terms of the contract with EDS. He concluded that the pursuers could not place any reliance on that waiver on the basis that these rights were separate to the Agreement between the parties and arose subsequent to that Agreement. His decision in this respect turned on the interpretation of passages in Gloag on Contract, 2^nd edition, and the case of Paterson v McEwan's Trustees (1881) 8R 646. Having identified the distinction between conditions potestative, casual and mixed, Gloag, at page 276, deals with the nature of the obligation not to impede fulfilment in the following terms:

"A condition may be so purely casual that neither of the parties can affect the result, and it is then obvious that no question as to impeding its accomplishment can arise. Even if, on a condition purely casual, one of the parties ultimately acquires the power to influence the result, he is under no obligation not to impede fulfilment, unless it can be proved that he acquired the power in question with a view to precluding the accomplishment of the condition. If, however, from the original scope of the obligation one of the parties has the power to affect the result it is a very general implication that if one party has taken a liability or conferred a right, subject to a suspensive condition, he must be deemed to have agreed to leave the fulfilment or non-fulfilment of the condition to the arbitrament of chance, or to the efforts of the other party, and not voluntarily to impose any obstacle. A party cannot plead that a condition has not been fulfilled or purified if that has been due to his own act".

Under the sub-heading "condition held to be purified" the learned author proceeds : "The implication in such cases may be merely that if the party does prevent or impede the fulfilment of the condition his liabilities will be interpreted on the assumption that the condition has been fulfilled - that the conditional promise has become absolute".

 

The learned sheriff rejected a contention advanced on behalf of the pursuers that Gloag's comments in relation to rights subsequently acquired were confined to conditions originally purely casual and were not applicable when clause 3.1.3.2 contained what was admittedly a mixed condition. He said: "I can see no logical reason why the principle identified by Gloag should not equally apply to the casual aspect of a mixed condition".

 

10. The passage of significance in Paterson is in the opinion of Lord President Inglis at page 654. His Lordship said:

"It is contended that the case falls to be decided by the application of the well-known rule of law, that where a condition is prevented from being fulfilled by the party who is bound in the conditional obligation it shall be held as fulfilled, and the doctrine of potestative conditions has been largely dwelt upon in the argument. I am of the opinion that that rule of law has no application to the present case. It is quite true that if a man has it in his power to perform conditions the fulfilment of which gives rise to a binding obligation against himself, then he is not entitled to refuse to do so; and still further, if he obstructs or prevents the condition from being fulfilled, the condition will be held in law as being fulfilled. But that relates only to the subject matter of the contract in which the conditional obligation is contained, and I am not aware that the rule has ever been extended thus far, that whatever other rights or properties he may have the use of which might conduce to the fulfilment of the condition, he is bound in law to make use of those independent rights and properties".

The pursuers sought to argue that the Lord President's comments on the use of acquired rights were confined to the use of them in "conducing fulfilment" and had no application to a situation of impeding purification. The sheriff said: "That appears to me to be a forced construction. As I read the passage the comments in relation to subsequently acquired rights relate equally to the situation where by the use of these the debtor incidentally obstructs or prevents the condition from being fulfilled". He noted that in Paterson the Lord Justice Clerk observed (at p656/7):

"The rule contended for is that, if the condition is prevented by the party bound, it is to be held as completed.......this rule or brocard of the civil law has no application in cases in which the act done is an incident of other transactions in the exercise of a separate and independent right".

 

11. The sheriff next considered the pursuers' attempt to found on the defenders' waiver of the restrictive provisions in the project employees' contracts of employment. For present purposes it is sufficient to adopt the pursuers' solicitor's analysis of his reasoning which is that the pursuers' averments were irrelevant in that they failed to disclose (firstly) that the defenders' conduct had a "material affect" on purification and (secondly) that "but for" their conduct, the clause would have been purified. The sheriff noted in particular the pursuers' averment that "But for the defenders' conduct in waiving its rights....EDS would not have been able legally to make offers of employment to the defenders' employees". He pointed out that they made no averments about the likelihood of employees remaining in the defenders' employment until the date of fulfilment of the suspensive condition.

 

12. As was noted in paragraph 8 above, the "implied term" which the pursuers seek to import into the contract was that the defender company "would not of its own motion bring about the termination of the contracts of employment of such a number of its employees that fulfilment of clause 3.1.3.2 would be become impossible". The pursuers founded on two English cases, Stirling v Maitland 1864 5B&S 841, and Southern Foundries Ltd v Shirlaw 1940 AC 701, the first for the general proposition that where a contract was dependent on the continuance of a particular set of circumstances, there was an "implied engagement" that a party should do nothing "of his own motion" to bring those circumstances to an end; the second as a particular example of an implied obligation to retain an individual in employment. Support was also sought from a passage at para 714 of volume 15 of the Stair Memorial Encyclopaedia under the heading "Terms Implied in Every Contract". It reads "...if the carrying out of a contract is contingent upon a certain state of affairs continuing to prevail, it can be seen that neither party should do anything to disturb that state of affairs". The sheriff, as I understand his view, doubted the validity of the proposition in Stair, and considered that, if a term as suggested by the pursuers fell to be implied, their averments fell short of demonstrating that the defenders had "brought an end" to the circumstances required for purification of the condition. In relation to the Southern Foundries case he said that it concerned "surrender of control of a set of circumstances where at the outset there was complete control. The present case is concerned with the decision of the employees to leave, a matter which at all times lay in the employees' own hands". I take the sheriff's position to be that, if a term fell to be implied as a matter of law (on which he did not express a specific view), there were no relevant averments of a breach of it. He clearly rejected the need for an implied term based on "business efficacy", holding that the suggested term was too widely stated; that business efficacy did not call for a term which would have prevented the defenders from acting in the way now complained of; and that it would be wrong to imply a term which itself required construction.

 

The pursuers' submissions

 

13. I am indebted to both agents for putting their detailed submissions before me in writing. I propose to set out the position of each side at least in outline.

 

14. Mr Blyth for the pursuers and appellants commenced his submissions by examining the sheriff's treatment of the above passages in Gloag. Mr Blyth maintained that the comments by Gloag with regard to the subsequent acquisition of an ability to influence a result were quite clearly restricted to purely casual conditions, and the sheriff was wrong to reach the view that they could apply to the casual aspect of a mixed condition. That view, he maintained, was not logical, nor did it accord with the precise language used by Gloag. It was understandable that a party should not be penalised for the use of a subsequently acquired power in circumstances where he did not originally have such a power. But where he always had some power to influence the result, and subsequently acquired another power, it was less likely that he should escape any penalty for using that additional power. The implication of the sheriff's approach was that the consequence of use of the acquired power was the same in both situations. Gloag made the position clear. He began by saying that where a suspensive condition depends on something that neither of the parties can influence, it was obvious that no question of impeding fulfilment could arise. He then dealt with the situation one step removed from that, namely, a casual condition but one where a party might subsequently acquire the power of influence the result. He was, however, still talking about purely casual conditions ("Even if, on a condition purely casual, one of the parties ultimately acquires the power to influence the result ......he is under no obligation not to impede fulfilment........."). In the third sentence of the passage under examination, (commencing with the words "If, however...") Gloag moved on to the next situation and spoke of an obligation where "..one of the parties has the power to affect the result"; in other words, a condition which was not originally purely casual.

 

15. Mr Blyth next turned his attention to Paterson v McEwan's Trustees. In that case Paterson feud some land, lying to the south of his own land, to McEwan. A third party owned land to the east of both properties. It was proposed that Paterson should build a road on the boundary of his land and that feud to McEwan. It was agreed in the feu contract that if a further connecting road was built on the land to the east by the third party, McEwan would be obliged to maintain part of the road which Paterson proposed to build on the boundary. Thereafter, McEwan bought a strip of land from the third party which meant that if both roads were constructed they would not connect unless McEwan permitted the construction of a road across part of his newly acquired land. Some time later, Paterson bought the remainder of the third party's land, and raised proceedings against McEwan, seeking an order requiring him to build a connecting piece of road across his strip of land. A Court of Seven Judges affirmed the decision of the Lord Ordinary to dismiss the action.

 

16.              Mr Blyth emphasised that the case, properly understood, did not turn on the question of whether a condition had been deemed to have been purified. The condition was that if a road were built by the third party, the defender would have been under an obligation to maintain the pursuer's road. The case was therefore determined on the basis that there was no obligation on the part of McEwan to build a road on the strip acquired by him, not on whether or not the condition in the original agreement was fulfilled. In that situation the observations of the Court on the doctrine of deemed fulfilment were obiter. Be that as it may, the sheriff's interpretation of the Lord President's observations was unsound. His Lordship in effect referred to two separate and distinct rules. The first was where "a man has it in his power to perform conditions the fulfilment of which gives rise to a binding obligation upon himself", in which case he was not entitled to refuse to do so. Secondly, if a person were to obstruct or prevent a condition from being fulfilled, the condition would be held in law as being fulfilled. The distinction was made in Mackay v Dick & Stevenson 1881 8R (HL) 37 - contrast the remarks of Lord Blackburn at p40 with those of Lord Watson at p45. The pursuers' argument in the present case was that the events fell within the second of these rules. They should be allowed a proof on whether or not the defenders caused the departure of a number of employees from their employment.

 

17. Where the sheriff had erred was in holding that the Lord President's comments about "the rule" never having been extended to cover the use of separate and distinct rights related to both rules. The pursuer in Paterson was seeking to apply the first rule - namely, that if a man has it in his power to perform the conditional element of required to create an obligation, then he must do so. The Lord President was saying that that rule had never been extended to the effect that the debtor in the obligation must use whatever rights and powers he had outwith the agreement to bring about purification of the condition. His remarks had no application to the second rule, which was not of relevance to the case. Any suggestion to the contrary in McBryde, Law of Contract in Scotland, 2^nd ed. Para. 20-18 was too broadly stated.

 

18. As to the sheriff's reliance on the observations of the Lord Justice Clerk (at p657 in Paterson), in the passage where his Lordship spoke of the rule having no application "...in cases in which the act done is an incident of other transactions in the exercise of a separate and independent right", the key word was "incident". His Lordship was speaking there of the indirect consequence of the exercise of a separate and independent right. If the unforeseeable consequence of the exercise of a separate right was the impossibility of fulfilment of a condition, it could hardly be argued that the debtor should suffer as a result. If, however, the direct, foreseeable and obvious consequence of the exercise of such a right was the impossibility of fulfilment of a condition, then the debtor should be accountable. That was what the pursuers sought an opportunity to prove in this case. Further support for this argument was sought from certain dicta of Lord Anderson in Kedie's Trustees v Stewart & McDonald Limited 1926 SLT 736 (at p744) where reference is made to "thwarting" the fulfilment of a condition merely as an "indirect consequence".

 

19. Mr Blyth next addressed "the correct application of the correct rule". The first question to determine was whether purification of a condition had become impossible. That was beyond argument in the present case. The second, and key question, was whether that impossibility was directly referable to the conduct of the debtor. If it was, the condition should be held to be purified. In the application of the rule, it was possible for the exercise of a subsequently arising, separate, and independent right, to directly bring about the impossibility, so long as that was not a mere "incident" of the exercise of that right. Thus in Pirie v Pirie 1873 11M 941 the Lord Justice Clerk said (at p949): "It is true that .....it is not every act by the debtor making the condition impossible which will be held as fulfilment; and that if the result be only indirect, or in the assertion of a separate or independent right, it may not have that effect". The use of the word "may" emphasised that the rule was not absolute. That passage was founded on a careful analysis by the Lord Justice Clerk of the principles of civil law, and the work of commentators on it. Pothier (Obligations) Pt.II c3 [212] states: "It is a rule common to all conditions of obligations, that they may be taken to be accomplished when the debtor, who is obliged under such condition, has prevented its accomplishment". That rule was absolute in its terms, but there was an exception: "It may however be said, that it is by the act of the debtor that a condition is not accomplished, and that it ought to be considered as accomplished, when it is only indirectly, and without any intention of preventing its accomplishment, that he has placed an obstacle in the way of it". Pothier thus dealt with a matter as a rule subject to exception: see Lord Hunter at p742 in Kedie's Trustees. On that basis it was for the defenders to demonstrate that the exception should apply.

 

20. The key question was therefore whether or not there was a sufficient causal connection between the act complained of and the impossibility. Support for this proposition was sought from the passage in Gloag above quoted; from Bell, Principles, p50; from Lord Watson in Mackay v Dick & Stevenson; and McBryde, Contract, para 20-16. The sheriff appeared to have been of the view that for the condition to be deemed to have been fulfilled the defenders must have physically prevented fulfilment. He also considered that it was necessary, to enable the pursuers to succeed, for them to demonstrate that "but for the defenders' act, the condition would have been fulfilled". That approach was flawed in both respects. As indicated, the true was question was simply whether non-fulfilment was directly referable to the defenders' act, not whether they had made it physically impossible. If the defenders had put in place a barrier to fulfilment (for example by bringing about the deaths of all the relevant employees) there would be no question that impossibility was brought about by their act. But here they stopped short of putting a barrier in place; what they had done was to place an obstacle - by permitting EDS to poach the employees. That obstacle might have been overcome had the employees chosen to stay, but they did not. The question became one of the extent to which the obstacle brought about the impossibility. "Prevention of accomplishment" in the sense used by Pothier could arise by the creation of a situation which prevented fulfilment. An example of an impediment to fulfilment being sufficient was illustrated by the case of T & R Duncanson v Scottish County Investment Limited 1925 SC 1120. In that case building owners sought to avoid paying a joinery contractor on the basis that his work had not been performed within contractual time limits. It was established that the delay was caused by failure of masons and plasterers to carry out their works timeously, and that the defenders had failed to provide for time limits in their contracts. It was held that the defenders could not resist payment, when the joiners' failure to adhere to the time limit was due to the defenders' own failure. Whilst the case was determined on the basis of the an implied term (see Lord Salveson at p1117), Lord Guthrie indicated that a simpler approach to the case was that of fulfilment of conditions being obstructed by the other party (see p1119).

 

21. Although the sheriff had correctly identified the key question as being "to what extent can it be said that the defenders' actings affected the result?", he had wrongly equated "affecting the result" with "producing a material affect on something". Mr Blyth sought support from Gloag (p277) who states that A cannot plead non-fulfilment "if that has been due to his own act". The sheriff said that Gloag "does not contend that A may not plead fulfilment in circumstances where purification has maybe failed to occur because it has perhaps been influenced by some act of A's". It was accepted that if that was all that the pursuers sought to prove in the present case they could have no hope of success. What they sought was to apply the "directly referable" test - in other words to prove that impossibility was directly referable to the defenders' conduct.

 

22. The sheriff was wrong to hold that the pursuers' pleadings were irrelevant because they failed to aver that "but for" the defenders' conduct in waiving their rights against EDS condition 3.1.3.2 would have been fulfilled. All that was necessary was for the pursuers to demonstrate that impossibility was directly referable to an act of the defenders. It was sufficient for them to aver, as they had, that "As a result of the termination of the contracts of employment...fewer than 72% of the Employees... were employed by the Defender as at 1 March 2001. This was a direct consequence of the Defender's conduct in waiving its rights as hereinbefore condescended on". That was sufficient to show that impossibility was causally connected to the defenders' conduct. It met the sheriff's "but for" criticism, which tended to suggest that pursuers would have to demonstrate that if it wasn't for the defenders' conduct, the condition would have been fulfilled. That was impossible since any of the employees could have quit at any time. But it was a requirement which went further than any of the authorities suggested.

 

23. In conclusion on this aspect, it was submitted that the pusuers had sufficient averments to justify enquiry on the factual question of whether or not the impossibility was sufficiently causally linked to the defenders' conduct. If they could demonstrate that the departure of employees to EDS was the direct consequence of the defenders' conduct in allowing EDS to approach those employees, as a matter of law the condition should be held to have been purified and the pursuers would be entitled to succeed.

 

24. Mr Blyth moved on to the pursuer's alternative position, based on the proposition that it was an implied term of the agreement that the defenders would not, of their own motion, bring about termination of the contracts of employment of such a number of employees that fulfilment of clause 3.1.3.2 would become impossible (except as otherwise expressly permitted in terms of the Agreement). He accepted that it was not entirely clear whether the sheriff had concluded that the clause contended for did not fall to be incorporated, or whether there sufficient averments of a breach. Accordingly he addressed both questions, but did not seek to maintain the argument that the term should be implied as a matter of business efficacy.

 

25. The starting point was Stirling v Maitland in which Cockburn C.J. stated (at page 1047): "I look on the law to be, that if a party enters into an arrangement which can only take effect by the continuance of a certain existing state of circumstances, there is an implied engagement on his part that he shall do nothing of his own motion to put an end to that state of circumstances, under which alone the arrangement can be operative". That should apply to the present case; there was an arrangement (to pay the balance of the purchase price) which could only take effect by the continuation of the existing employment of a certain number of employees. The proposition of the Lord Chief Justice in Stirling v Maitland was described as "well established law" by Lord Atkin in Southern Foundries v Shirlaw (at p.717). The term averred by the pursuers mirrored that dictum. It was supported, in relation to Scots Law, by a passage in Stair Memorial Encyclopaedia (vol 15 para 714). Gloag at p.278 specifically recognised the possibility of incorporation of a term similar to that contended for. He states: "It may also be held that a party has impliedly contracted that he will not, by any voluntary act, defeat the rights which the other party would enjoy if he abstained from that act. An inference is then a breach of contract, with a consequent liability in damages." The use of the word "may" in that passage did not import, as the sheriff had suggested, an inference that whether or not the term would be implied depended on the circumstances, and that it would not be implied where the particular circumstances involved the use of a right subsequently acquired. All it meant was that there could be cases in which it would not be necessary to imply such a term as the case could be dealt with on the basis of deemed purification; the case of Duncanson was an example.

 

26. If the term was implied as a matter of law, the question became one of whether it had been breached - i.e. whether or not the necessary continuous state of circumstances had come to an end, and whether or not that end could be said to be referable to the defenders' conduct in acting "of its own motion". It did not matter whether the defenders were pursuing a separate and independent right, or whether another party could have interfered with the continuing state of circumstances. The pursuers' averment that "The direct consequence of the defenders' voluntary conduct in waiving its rights......was the termination of a sufficient number of the contracts of employment of the employees that fulfilment of clause 3.1.3.2 became impossible" was one on which they were entitled to proceed to proof. Both Stirling v Maitland and Southern Foundries involved acts giving rise to impossibility which were clearly separate and independent to the principal obligation. No dicta in either of those cases suggested that the term would only be breached where the continuance of the existing state of circumstances was entirely within the control of one of the parties. The focus was on the act and whether that put an end to the state of circumstances.

 

27. For the sake of completeness Mr Blyth submitted that the pursuers did not need to aver that "but for" the defenders' breach, the condition would have been fulfilled. The point was that the pursuers had lost the chance of it being fulfilled. For authority on the question of loss of chance reference was made to Allied Maples Group Limited v Simmons & Simmons 1995 1WLR 1602 and Kyle v P& J Stormonth Darling WS 1993 SC 57.

 

The Defenders' Submissions

 

28. On behalf of the defenders and respondents Mr Drummond commenced with an overview of the contractual arrangements as set out in the agreement. This was a detailed commercial agreement involving the transfer of the pursuers' most valuable assets, namely ongoing contracts and their employees. Payment of nearly 50% of the purchase price was suspensively conditional on retention by the purchaser of the majority of the vendor's employees. This condition involved an element of risk for both parties; in effect they had agreed to share that risk by means of the carefully drafted and detailed provisions of clause 3.1.3.2. The court should not innovate on that position; it would amount to rewriting the contract to the pursuers' advantage were their arguments to succeed.

 

29. Mr Drummond rehearsed the history of the contractual changes involving the parties, Sun, and EDS. He then drew attention to the terms of the restrictive covenants and notice provisions in the projects employees' contracts of employment with the pursuers. These did not prevent the employees working for any organisation which had ceased to be a customer of the pursuers. The covenants were in standard terms which were unnecessary to protect the legitimate business interests of the pursuers, particularly when employees were not technical sales staff. As to the restriction in terms of the agreement between the defenders and EDS, an obligation not to make an offer of employment did not in itself prevent EDS from approaching the defenders' employees. Having regard to the reluctance of the Courts to place a restriction on the freedom of employees to seek employment without restraint of trade it was doubtful whether this provision was enforceable. The defenders had received legal advice to that effect. That considerations gave rise to the defenders' averments in Answer 3 that they were "unable reasonably to prevent the Project employees terminating their employment with the defender and starting work with EDS. EDS made offers of employment to several of the defenders employees. On receipt of legal advice, the defender recognised that it was unable to prevent such offers being made, or accepted. Several of the defenders employees accepted EDS offer of employment and terminated their contract of employment with the defender". Sheriff Deutsch was correct in expressing the view (at page 11 of his Note) that this position was hardly surprising. Mr Drummond further stressed the point that it was not suggested by the pursuers by averments or in submission that the waivers granted by the defenders or anything else done or not done by them was deliberately designed to circumvent purification of the suspensive condition.

 

30. Turning to deal specifically with the deemed purification argument Mr Drummond accepted that the condition in the present case was "mixed" and that the principle was as set out by Gloag. The defenders' position was that the principle was of limited scope and that it did not apply to the present facts. He made a number of general points. In the first place the principle was derived from the Civil Law. Considerable caution had to be exercised when considering some of the early texts and seeking to apply the principle to a modern and detailed commercial contract. That point had been properly acknowledged by Sheriff Deutsch (Note page 12). It was supported by views in an article by Mr Alan Rodger at that time Solicitor General in an article headed "Potestative Conditions", to be found at 1991 SLT (News) 253. In commenting on an earlier article by Professor John Murray QC (1991 SLT (News) 185) Mr Rodger observed that statements in the early text should not be applied without regard to their original context. In his article Professor Murray nevertheless emphasised the need to treat English authorities in this area with caution. He said: "It is submitted that it is clear on the authorities cited that Scots Law in accordance with the Civil Law, does not rest on a search for an implied obligation on the part of the defender to purify the conditions suspensive of his obligation, or not to affect conditions in a manner resolutive of his obligation". Caution was to be applied to certain passages in Gloag at pages 277-8 where reliance was placed on English cases based on implied terms.

 

31. Thereafter Mr Drummond sought to draw from the authorities seven propositions in relation to the principle of "deemed purification". These were as follows:-

(i) The principle applies only to a positive action of prevention, not a negative act or restraint. This appeared to have been accepted by the pursuers by virtue of their fifth plea-in-law "...non purification being attributable to the act of the defender in impeding purification, the condition is deemed to have been fulfilled". This proposition was consistent with Pothier (supra) who used the term "prevented" and spoke of "the act" of the debtor, and by the Lord Justice Clerk at page 949 and Lord Neaves at page 953 in Pirie. The pursuer's averments were founded on waivers, or failure to assert rights. These could not be characterised as positive acts of prevention. The pursuers' averments did not support their own plea-in-law.

 

(ii) The principle does not involve an obligation to take positive steps to ensure fulfilment of a suspensive condition. It did not appear that the pursuers themselves contended that any such obligation exists. Mr Drummond nevertheless advanced a number of arguments as to why such an obligation did not arise. The only positive act that was implicit in the arrangement between the parties and which formed the potestative part of the mixed condition was that the defenders continued to offer employment to the project employees. They had fulfilled this and no suggestion was made by the pursuers to the contrary. If there was any positive obligation it would have to be enforceable by decree ad factum praestandum. Whilst this might arguably apply to the defenders continuing to offer employment it could not apply to the waivers which were founded upon. The effect of the pursuers' averments in seeking to apply the deemed fulfilment principle to the present circumstances would be that the defenders were obliged to enforce covenants which would amount to a requirement upon them to ensure the fulfilment of the suspensive condition. This would be an unwarranted intrusion into their commercial freedom. In Pirie the Lord Justice Clerk (at page 949) had indicated that if the debtor in an obligation acted as a "prudent man" in taking action which prevented fulfilment of the condition the principle would not apply. That was all that had happened in this case. The defenders had recognised that the project employees wished to leave to go to EDS. Recognising that the covenants were of dubious enforceability they did not seek to enforce them but sought compensation instead. In respect of this head of argument the pursuers' averments were irrelevant because their effect was to require the defenders to take steps to ensure fulfilment of the condition.

 

(iii) The principle applies to direct actions not indirect ones. Authority for this proposition was sought from most of the authorities referred to, notably Pothier para 212; Bell's Principles para 50; and various passages in Pirie (page 949) Paterson (page 654) and Kedie's Trustees (page 742 and 744). It had to be accepted that all that the pursuers could argue was that the defenders' failure to enforce the covenants or grant the waivers had indirectly resulted in the condition not being purified. It could not be argued on the facts that the waivers caused the termination of the employees' contracts and the non fulfilment of the suspensive condition. In other words the pursuers' averments relied on indirect actions by the defenders. They were in consequence irrelevant.

 

(iv) The principle applies only to rights and obligations in place at the time of the contract. New rights and obligations acquired afterwards are unaffected. This proposition, it was contended, was logical. It could not be the position that a debtor in an obligation subject to a suspensive condition was restricted from entering into any form of new undertakings which might in any way affect fulfilment of the condition. Such a position would result in commercial paralysis a matter which Sheriff Deusch had noted (Note page 11). The parties could not have intended to cover unforeseen future commercial arrangements. Again authority for this proposition was sought from various passages in the authorities referred to in the immediately foregoing paragraph. In the passage in Gloag at 276-277 referred to earlier the learned author spoke of the situation where a party "ultimately acquires the power to influence the result" in the context of a purely casual condition. He states that such party "is under no obligation not to impede fulfilment unless it can be proved that he acquired the power in question with a view to precluding the accomplishment of the condition". As a matter of logic that should equally apply to a mixed condition involving the acquisition of new or separate rights. The sentence which followed it was qualified by the opening words "from the original scope of the obligation". Reference was also made to McBryde paragraph 20-18. In the present case the pursuers averred that the principle of deemed purification applied to four waivers granted by the defenders. It was a matter of admission however that two of the waivers were of rights obtained by the defenders through a separate contract with EDS which was subsequent to the original Agreement. The defenders by contracting with EDS and acquiring new and separate rights had improved upon the position that pertained at the time of the Agreement. They could not be penalised for giving up those rights when all this did was to return matters to how they stood at the outset. In consequence the pursuers' averments in so far as relating to the EDS waivers were irrelevant.

 

(v) For the principle to apply there requires to be a causal link between the act of prevention and the condition being unfulfilled. This proposition appeared to be acknowledged in the pursuers own averments (Condescendence 4 page 8) which state that the termination of contracts of employment of those employees who transferred to EDS "was the direct consequence of the defenders' conduct in waiving its rights". Whilst that may be this was an averment which the pursuers required to make in law, it was factually incorrect because termination of the contracts was not the "direct consequence of the defenders' waivers". Authority for the proposition was to be found in the Opinion of Lord Hunter at page 742 at Kedie's Trustees ("the Court must be satisfied...that the effect which is given to the non fulfilment of a condition is the natural and direct result of the failure"). The Sheriff was correct in his understanding of the significance of the passage in Gloag at page 277 where it is stated that "a party cannot plead that a condition has not been fulfilled or purified if that has been due to his own act". It was not enough merely that an individual has acted in a way which made the task of fulfilment more difficult. It was self-evident from the pursuers' averments that the waivers did not cause termination of the project employees' contracts. The waivers alone did not cause that. There had to be offers of employment from EDS and the employees themselves had to accept in sufficient numbers for them to become fewer than the necessary 72% required to fulfil the condition. There was no certainty that they would accept offers in such numbers. On the pursuers' averments it was far from certain that the waivers would bring about the non fulfilment of conditions and in consequence the pleadings were irrelevant on this ground.

 

(vi) For the principle to apply the act complained of must have been deliberately designed to thwart purification of the suspensive condition. This proposition had not been fully argued for the defenders at debate but it was said to be amply vouched by authority and arose because the pursuers' submissions appeared to suggest that it was unnecessary for them to show any intention on the defenders' part to prevent purification. There was clear authority in the remarks of the Lord Justice Clerk in Pirie (at 949) "The condition has been fulfilled because the pursuer who had the sole interest in its not being fulfilled, has, by his voluntary act, and intentionally, made it as circumstances at present stand, impossible to fulfil it". Although in that case deliberate intent was admitted this did not diminish the affect of the Lord Justice Clerk's comments. The decision in Pirie was approved in Paterson (pages 656 and 658). It emerged clearly from the opinions of the majority of judges in Kedie's Trustees (see for example Lord Anderson at page 744), and was cited in full by Gloag at page 279. In consequence the proposition contended for was directly drawn from binding authorities. As there were no averments by the pursuers to the effect that the act complained of was deliberate their case was irrelevant.

 

(vii) The principle is founded on equity and only relevant if demanded by considerations of equity and fairness. That proposition, which the pursuers appeared to acknowledge, was subservient to other considerations for example that it was not for the court to innovate on or improve the parties contract, that realities of the modern commercial world should be recognised, commercial freedoms preserved, and effect given to the parties' intentions as evident from the contract. Application of the principle in the present case would lead to an inequitable result. It would result in the defenders having to pay the full purchase price in circumstances where they had lost the value of the employees who were a valuable part of the business and where the risk to the defenders of losing these valuable employees was specifically protected against in the contract. Application of the principle would improve upon the negotiated position of the pursuers and worsen the position of the defenders. The fact that the defenders had received payment in return for waiving their rights which prevented the transfer of employees to EDS was in the nature of a commercial risk which the pursuers had undertaken when the agreement was entered into. As Sheriff Taylor had pointed out in his Note (page 9) there were other commercial risks which both parties accepted. He said "For example the employees of the pursuers whose employment was transferred to the defenders might have resigned of their own free will before the second instalment fell due...the pursuers were prepared to take that risk". On the other hand the defenders were prepared to take the risk that they might have to dismiss some employees but would still require to make payment of the second instalment.

 

32. Applying the above propositions and having regard both to the general and particular nature of the pursuers' averments the Sheriff was correct to reject the argument based on deemed purification.

 

33. In relation to the "implied term" argument Mr Drummond observed that the implication of terms can be (1) by law for particular types of contract or (2) by necessity to give the contract business efficacy. He founded on a passage in the Opinion of Lord McFadyen in Scottish Power PLC v Kvaerner Constructions Regions Ltd 1998 SLT 721 (at 725D). His Lordship observed that the Court should be slow to imply a term into a contract which parties have set out in express detail. It should further be slow to accept that a term which fails the business efficacy test is to be implied on any other basis. Mr Drummond drew attention to the detailed terms of the present contract and observed that it had obviously come about as a result of detailed negotiations. Nevertheless it remained fundamentally a straightforward sale agreement. The whole situation was not one in which the Court should readily imply an additional term.

 

34. It was trite that a Court is not to rewrite the contract for the parties. The terms of Clause 3.1.3.2 showed parties had addressed their minds in negotiations as to steps the defenders might take to avoid liability for the second instalment. To imply a term of the type sought would be to improve on the pursuers' bargain.

 

35. Further, an implied term should not contradict an express term (Scottish Power (supra) at page 725I). Dismissal of an employee in terms of the first proviso to Clause 3.1.3.2 would be contrary to the implied term argued for by the pursuers. That consideration in itself excluded it.

 

36. Mr Drummond further argued that implication of the term sought contradicted the principle of law regarding potestative conditions. As Professor Murray had pointed out in his article the approach of the Court should be to apply that principle, not to search for foreign implied term. However, if the principle was held as inapplicable, in the circumstances of the present case the Court should not then seek to imply a term of the contract as a "safety net" to the pursuers. To do so would amount to circumventing a principle of law.

 

37. Even if a term were to be employed ex lege the pursuers' averments were internally irrelevant in any event. The phrase "of their own motion, bring about termination" in the suggested implied term was in itself uncertain and required to be construed. (See McBryde, Contract, paragraph 9-75 and the authorities cited therein). Further, there were no averments that the defenders of their own motion brought about termination and in consequence their averments of having breached any such condition were irrelevant. Moreover, if one inferred from the pursuers' averments that the defenders' waivers "were of their own motion" it was not those waivers which led directly to termination of the employees' contract. The necessary causal link between the alleged breach of the implied term and the circumstance which rendered purification impossible was not present. In reviewing the authorities Mr Drummond submitted that the Sheriff was well founded in doubting the validity of the proposition contained in paragraph 714 of Volume 15 of the Stair Memorial Encyclopaedia which states: "If the carrying out of the contract is contingent upon a certain state of affairs continuing to prevail, it can be seen as an implied term that neither party should do anything to disturb that state of affairs". This went further than Lord Cockburn's dicta in Stirling v Maitland which spoke of an implied engagement to do "nothing...to put an end to that state of circumstances". In any event, however, Lord Cockburn's dicta was no more than a general statement of English law. The position in Scotland was as set out in McKay v Dick & Stevenson 1881 8R (HL 37) wherein (at page 45) Lord Watson spoke of deemed purification as "a doctrine borrowed from the civil law which has long been recognised in the law of Scotland". Although Southern Foundries was not wholly satisfactory in that it was a decision in which two of the judges dissented it confirmed the English approach of resorting to an implied term having regard to the particular nature of the agreement (see Viscount Maugham at pages 712 to 713). The case was in some respects similar to Kedie's Trustees in which the civil law doctrine was applied in accordance with Scots law.

 

38. In these circumstances Mr Drummond submitted that the English authorities on the implication of terms were of little persuasive effect; the case in consequence fell to be determined on the "deemed purification" argument.

The Pursuers' Response

 

39. Mr Blyth first dealt with two general matters in relation to deemed fulfilment. He contended that it was wrong to suggest that the principle had no application to modern cases. The potential relevance of it had been acknowledged by Lord Osborne in Ahmed v Akhtar 1997 SLT 218 in the context of the sale of the business and good will of shop premises where the consent of landlords to assignation of the lease was regarded as a potestative condition. Secondly, if the principle had a narrow scope (as the pursuers sought to draw from the article by Mr Alan Rodger) they had failed to identify what that limitation was.

 

40. Mr Blyth then dealt with Mr Drummond's seven propositions as follows:

 

(i) It had been submitted that only positive acts were struck at by the principle. The defenders' contention was that waiver was a positive act. It could be distinguished from an omission; the only meaningful distinction was between acts and omissions not between positive acts and negative acts.

 

(ii) In relation to the contention that the principle does not involve an obligation to take positive steps to ensure fulfilment of a suspensive condition, it was incorrect to suggest that this was the affect of the pursuers' averments. They did not suggest that the defenders were obliged to enforce the covenants. If the defenders had taken no action the pursuers would have had no cause to complain. What their complaint was related to the defenders' waiver of their rights. As to the suggestion that the actions of a prudent commercial businessman fell outwith the scope of the principle there were no averments to support this by the defenders. The passage in the Opinion of the Lord Justice Clerk in Pirie served no more than to demonstrate that the pursuer in that case had been shown to have acted purely for the purpose of making fulfilment of the potestative condition impossible.

 

(iii) The defenders had argued that to come within the principle the conduct complained of must be a direct rather than indirect action. That was in substance the same argument as that relating to lack of a causal link and would be dealt with in that context.

 

(iv) The contention that the defenders could not be criticised for using separate and independent rights. This rule, argued for, Mr Blyth contended, was not borne out by the authorities as had been suggested by Mr Drummond. Pirie was a case relating to a testamentary provision; it turned on the specific rule that if someone has done all that they could to bring about fulfilment of a condition of a legacy, then the condition would be taken as fulfilled. Any remarks about a condition being accomplished "in the manner intended" by the parties applied only in that context. Mr Blyth repeated his submissions about the true ratio of Paterson. It involved a purely casual obligation. The Lord President's comments about "the use of separate and independent rights" were made in the context of whether or not the defender was bound in law to make use of the independent rights. It was not a question of whether or not he should have avoided using another property to impede fulfilment. It had to be clearly borne in mind that the issue in Paterson was whether a man, who at the time of the original obligation could not have affected purification, should be obliged to make use of subsequently arising rights to bring about purification. It did not consider either the situation of a man who did have power, from the original scope of the obligation to affect purification; or a man who uses a subsequently acquired right to impede purification. Mr Blyth again emphasised that the key question was whether or not the impossibility is directly referable to the defenders' conduct. If it was then it did not matter if the act was in exercise or a separate and independent right - the condition was still deemed to be purified. As to commercial logic, Mr Blyth submitted that it was commercially illogical to suggest that a party who is able, but prohibited, from impeding fulfilment of a condition should be allowed to impede fulfilment if he uses a subsequently acquired right to do so. If he was under a general obligation not to impede fulfilment, why should it matter how that impediment is brought about? In any event not all of the rights waived arose subsequently in the present case.

 

(v) Mr Blyth did not, as I understood his submission, dispute the need for the causal link between the act of prevention and the condition being unfulfilled. What he contended was that the pursers' averments (quoted in paragraph 7 of this note) that the non-fulfilment of clause 3.1.3.2 "was the direct consequence of the defenders' conduct in waiving its rights" were sufficient to entitle the pursuers to proceed to proof. In supplement of this general proposition Mr Blyth argued that the key factual question was whether or not EDS would have approached the defenders employees had it not been for the waivers. It did not matter whether the covenants were, or were likely to be enforceable; the EDS might simply not have taken the risk that they would be, or would have considered them obstacles to making an approach to the employees. The pursuers should have the opportunity of proving that EDS would not have made the approach until the waivers were granted. It was an error of approach to ask what the effect of the waivers might have been. The correct approach was to look at the result first. The result was that the employees left the defenders' employment. The question then became "why did they leave?" If the answer to that question is "because of the defenders' waiver" then there is a direct causal link. The offers were made by EDS because of the waiver by the defenders. If it was established at proof that EDS would not have made the offer if it were not for the waivers there was not break in the chain of causation.

 

(vi) Mr Blyth took issue with the defenders' right to argue at appeal that there were no averments that the act complained of was deliberately intended to thwart purification of the suspensive condition. Sheriff Deutsch had decided this issue in favour of the pursuers and no cross-appeal had been marked. In any event there was no rule that the act complained of required to have such deliberate attention. That would be to impose far too high a test in the context of an equitable doctrine. In Pirie the act was admittedly intended so was clearly actionable. The observations in Kedie's Trustees were obiter and whilst there were various references to the effect that if the conduct is intended to be a deliberate instruction them the obligation would be deemed to be fulfilled none of these when read in context meant that it was necessary to prove deliberate intent.

 

(vii) Again Mr Blyth did not challenge the proposition that the principle was founded on equity and only relevant if demanded by considerations of fairness. He maintained that there would be an equitable result were the pursuers to be successful. The defenders had the benefit of 12 out of 18 months' worth of service from the employees. For the loss of six months service they had received compensation of £150,000 but had made savings of salary obligations and had not required to find additional work for the employees. The pursuers were not demanding more than what they could possibly have obtained had the circumstances stayed the same. On balance the equities favoured them.

 

41. Mr Blyth maintained his position in respect of the incorporation of an implied term. He examined in some detail the observations of Lord McFadyen in Scottish Power PLC v Kvaerner Constructions. He observed that Lord McFadyen accepted that there are situations where terms should be implied as a necessary result of the type of contract. His Lordship made no suggestion that the Court should be slow to imply such a term in such circumstances. If a contract was common place the absence of precedent would militate against incorporation of an implied term, but the present contract was not common place and could be distinguished from construction contracts of the type dealt with in the Scottish Power case. This was a "bespoke" contract negotiated between the parties. Moreover there were precedeny for the incorporation of the term contended for, Stirling v Maitland and the cases which followed it being examples.

 

42. Mr Blyth further maintained that the incorporation of the terms sought would not reinvent or rewrite the contract for the parties. There was room for incorporation of the term to "mop up" circumstances not foreseen at the time the contract was entered into. In relation to the argument concerning contradiction of an express term Lord McFadyen had observed (see page 725H of Scottish Power) that the existence of an express term did not necessarily exclude the possibility of an implied term touching upon it. In Schindler v Northern Raincoat Co Ltd 1WLR 1038 the plaintiff was employed as a Managing Director. He was removed as a Director in consequence of which he ceased to be Managing Director. He sued on the basis of an implied term that the defendants would do nothing of their own motion to put an end to the continuing state of circumstances (ie the Directorship) which was required for the continuation of his position as Managing Director. The defendants argued that there was no room for such an implied term on the basis of incorporation of Article 68 of Table A into the Companies Articles. That argument was rejected and the term implied notwithstanding the terms of Article 68.

 

43. Mr Blyth rejected the suggestion that implication of the terms sought contradicted the principle of law concerning potestative obligations. He said that the idea of incorporating an implied term was "simply a different way of looking at things". The rule of law and the implied term could be said to complement each other. In certain situations such as the case of Duncanson the Court could choose whether to proceed on the basis of an implied term or on the basis of the principle. The passage on which he had founded earlier from the Stair Memorial Encyclopeadia clearly supported the suggestion that the term may be implied and if it went further than was necessary he had not founded on anything beyond the dicta in Stirling v Maitland.

 

44. The term contended for was not uncertain. It was in accordance with the authorities. It appeared to meet with favour, for example in the House of Lords in Southern Foundries. As to the suggestion that in any event there were no averments that the defenders of their own motion brought about termination, it had been clearly averred that the termination of the employment contracts was a direct consequence of the defenders' conduct. That constituted a relevant averment of breach of the implied term.

 

Decision

 

Deemed Purification

45. It is not in dispute that the doctrine of "deemed purification" may be taken to be as stated in the passage referred to in Pothier, namely that "obligations may be taken to be accomplished when the debtor, who is obliged under such condition, has prevented its accomplishment". The practical application of that doctrine in my view gives rise to what may be described as two separate rules namely, (1) that a person cannot decline to perform a condition the fulfilment of which gives rise to a binding obligation upon himself and (2) that a person cannot obstruct or prevent a condition from being fulfilled. As Mr Blythe indicated the distinction between these rules is identified in the passage in the Opinion of Lord President Inglis at page 654 of Paterson.

 

46. It is critical to the pursuers' argument that this case falls within the second rule. It is accepted that the first rule is subject to limitations, and in any event there is no suggestion that there was anything required of the defenders by way of performance to secure fulfilment of the suspensive condition other than to continue to offer employment to the project employees.

 

47. An important and decisive issue accordingly arises as to whether when properly analysed, the present case can be said to fall within the category of "obstruction" or "prevention". It is founded on two instances of waiver, which Mr Blyth categorised as "positive acts". Be that as it may, I do not see how it can be said that it was waiver of either of the defenders' rights which "obstructed or prevented" the sequence of events involving the relevant employees leaving the defenders' employment and entering that of EDS. The waivers may have made that situation more likely, or even facilitated it, but they did not obstruct or prevent anything. The argument which has been devised - and which I accept is not without its attraction - is that waiver of the defenders' rights led directly to a situation in which fulfilment of the suspensive condition became impossible. But the creation of that situation required the action of others - EDS in making offers of employment and the employees in accepting those offers.

 

48. On that approach it does not seem to me that the act of waiver "obstructed" or "prevented" anything. The true substance in law of the pursuers' complaint is that the defenders did not enforce their rights under the covenants. If that is correct it is sufficient for determination of the first aspect of this case. The pursuers, it may be said, have not pled a relevant case of obstruction or prevention of the fulfilment of a condition such as to bring themselves within the doctrine of deemed purification. As Mr Drummond pointed out, their averments do not support their fifth plea-in-law.

 

49. On my analysis, whether or not the Lord President's observations in Paterson are obiter, they remain relevant and of high authority on how far the law requires a person to exercise rights to enable a condition of a contract to be fulfilled. It is not difficult, in my judgment, to understand the significance of the difference between rights which are known to be available when a contract is entered into and which in consequence may have had a bearing on the respective position of parties, and those which may be subsequently acquired. Gloag at page 276 speaks of the "very general implication" from "the original scope of the obligation" that "if one party has taken a liability or conferred a right subject to a suspensive condition he must be deemed to have agreed to leave the fulfilment or non-fulfilment of the condition to the arbitrament of chance"; that "chance" must involve the possibility of a party exercising any independent right available to him at the time.

 

50. It follows that the Sheriff was correct, both on the authorities and on pure reasoning, to draw a distinction between the defenders' waiver of the rights acquired in terms of the contract with EDS (which were separate to the Agreement between the parties and arose subsequent to it) and the waiver of the restrictive provisions in the project employees' contract of employment. It was further correct that on no view could the pursuers place reliance on the first of these matters. Waivers of those "subsequently acquired" rights did no more than restore the position to exactly what it had been when parties contracted.

 

51. In relation to the waiver of the restrictive covenant provision, much argument has centred around questions of causation and speculation as to enforceability. In my view these arguments are to a degree beside the point. Questions of "causation" are of doubtful relevance to an act of prevention and therein lies some confusion. If the pursuers had said that the defenders ought to have enforced the restrictions they would have brought themselves within the first "rule" indicated by Lord President Inglis. They do not do so. If they had, it might well have opened the way to difficult questions of fact and law as to whether the restrictions were likely to have been enforced. What they do is to plead "waiver" as creating an "impediment" and as I have indicated I do not consider that this constitutes a relevant formulation of a case for the application of the doctrine of deemed purification.

 

52. For these reasons I agree with the learned Sheriff's disposal of the pursuers' argument on this matter. I do not find it necessary to examine the full extent of the principle as parties did in their respective arguments although I have found that examination helpful in arriving at my conclusion. I would only add one observation on the matter of equity. There may be a distinction to be drawn between application of a principle based on equity, and a decision which has to be taken based on considerations of equity. In the case of the former, if the circumstances which call for application of the principle are present it will be held to apply "as a matter of equity". That may well have been the situation had the deemed purification argument succeeded. However, if application of the doctrine depends on a subjective examination of equitable considerations I would find it difficult, balancing the respective considerations set out in parties' submissions, to form the view that the balance necessarily favours the pursuers.

 

 

 

Implied Term

53. It is clear as Lord McFadyen indicated in Scottish Power (at page 725D) that there are circumstances in which the Scottish Courts will imply terms into a contract as a matter of necessity having regard to the nature of it. Cases where terms have been implied have not infrequently been founded on the proposition that the pursuers have been hindered or prevented from either completing a contract at all, or from fulfilling a condition (for example in relation to time of completion) which was a prerequisite of payment. The case of Duncanson is an example. Determination of such cases on the basis of the existence of an implied term will often be influenced by the manner in which the case is pled which in turn may relate to the nature of the contract. Two points fall to be noted. The first is that terms will generally only be implied where this is "necessary". The second is that where, as here, the doctrine of deemed purification is relied on, the pursuers are entitled to found on the rule that the defenders cannot obstruct or prevent a condition from being fulfilled. That being so, one must question the "necessity" of the implication of a term that the defenders' should not "of their own motion" create a situation in which fulfilment of a condition would be impossible when they are entitled to look to a rule of law which is of the same effect.

 

54. That being so, whilst Mr Blyth may have been well founded in his observation that to resort to the use of an implied term is simply another way of looking at things, it can equally be said that it adds nothing to the pursuers' principal argument. If that argument fails, and in my opinion it does, an attempt to create or import a somewhat elaborate term into the contract comes perilously close, as Mr Drummond suggested, to subverting a principle of law.

 

55. Apart from that, I have sympathy with Mr Drummond's submission that the term which the pursuers seek to import raises as many questions as it answers. Even if I am wrong in that, however, and there falls to be implied in the contract a condition that the defender company would not "of its own motion" bring about the determination of contracts of employment of such a number of its employees that the fulfilment of Clause 3.1.3.2 was impossible for the reasons largely articulated in paragraph 47 above I do not see how it can be said that any such condition was breached. I accept Mr Drummond's submission on "internal irrelevancy".

 

56. It only remains to be added that in the course of the hearing Mr Blyth tendered a Minute of Amendment which incorporated an averment, following the existing averments about the existence of an implied term, that: "in this respect there is no difference between Scots and English law. Esto the term was not implied into the agreement ex lege as a matter of Scots law (which is denied) the term was implied into the agreement ex lege as a matter of English law which is the applicable law of the contract". With some hesitation I allowed this amendment with a view to preserving the position for any future argument and partly influenced by Mr Blyth's submission that allowing the amendment would not involve further argument.

 

57. The Minute of Amendment was opposed by Mr Drummond and with the benefit of mature reflection I am satisfied that it ought not to have been allowed. Aside from the fact that this was a very late stage at which to suggest that the matter was in some way governed by English law I am satisfied that Mr Drummond was well founded in a contention that the averments are in any event irrelevant. The amendment does not specify in what way Scots and English law are said to be different, and in that situation the Court has to proceed on the basis that the relevant English law is the same as Scots law - see McGowan v Summit at Lloyds 2002 SC 638 at para 16. In that situation I am not required to consider the matter further.

 

58. In all the circumstances I am satisfied that there is no justification for interfering with the learned Sheriff's approach to this matter the appeal is accordingly refused. I was invited to reserve all question of expenses and have done so. It is clearly appropriate to certify this case as appropriate for the employment of junior counsel.

 

(signed) EFB