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Scottish Court of Session Decisions |
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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> EGE Endustrive Ticaret v. Albion Automotive Ltd [2004] ScotCS 168 (07 July 2004) URL: http://www.bailii.org/scot/cases/ScotCS/2004/168.html Cite as: [2004] ScotCS 168 |
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OUTER HOUSE, COURT OF SESSION |
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CA121/02
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OPINION OF LORD CLARKE in the cause EGE ENDUSTRI VE TICARET Pursuers; against ALBION AUTOMOTIVE LIMITED Defenders:
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Pursuer: Johnston, Advocate; Maclay Murray & Spens
Defenders: Howie, Q.C., MacRoberts
7 July 2004
Introduction
[1] In this commercial action the pursuers, who are a Turkish company, sue the defenders, who are a Scottish company, for £291,002.64 together with interest, which sums, they claim are due to them by the defenders, in respect of goods and services they provided to the defenders in terms of an agreement between the parties, described as the D2000 Project, entered into in 2000. The business of the pursuers is said to involve the manufacture of front steer and rear drive axles, trailer axles, axle housings and front axle components. The business of the defenders is said to be the manufacture of motor vehicles and engine parts. The defenders aver that the contractual arrangements between the parties to which the proceedings relate were governed by Turkish law.[2] A substantial part of the defence to the pursuers' claim is based on a right, which the defenders claim to have, to set off against any sums due by them to the pursuers, under the contractual arrangements between them, a sum they claim is due to them under a separate contract between the parties, referred to as the VAMCO Collaboration Agreement. The defenders aver that under Turkish law rights of retention and compensation may arise, absent contrary stipulation in the contracts concerned, across different contracts and as between liquid and illiquid claims. The defenders aver that the pursuers have failed to pay to them certain sums under the VAMCO Collaboration Agreement, which they say they are entitled, under Turkish law, to set off against the claims made by the pursuers in the present action.
[3] Both parties are at one, in their pleadings, that the Collaboration Agreement itself was governed by Swiss law. The pursuers contend that under that law enforceability of payments, which the defenders aver they are due to be paid by the pursuers, under the Collaboration Agreement was subject to a condition precedent which has not been fulfilled. The defenders deny that, on a proper construction of the Collaboration agreement, according to Swiss law, the condition precedent, contended for by the pursuers, arises. It was agreed by the parties that it would be appropriate for a preliminary proof to be held on the question of Swiss law which arises and I granted a joint motion in that respect and allowed a preliminary proof.
The Dispute between the parties to be determined by Swiss law
[4] At the preliminary proof I heard evidence from a witness for the pursuers and a witness for the defenders. The witness for the pursuers was Dr Christian Roos, a lawyer with the firm of Pestalozzi, Lachenal, Patry, Attorneys at Law, Zurich. His curriculum vitae is set out as No.6/160 of process. His advice on the construction of the Collaboration Agreement, according to Swiss law, is set out, in written form, in 6/140 of process.[5] The witness for the defenders was Dr Urs Isenegger, a partner in the law firm of Bill, Isenegger & Ackerman, Zurich. His curriculum vitae, and his advice in written form on the question raised at the preliminary proof, are set out in No.7/1 of process.
[6] The circumstances with which the preliminary proof was concerned arise in this way. On or about 11 December 1996, the pursuers and a company known as Vehicle Axle Manufacturing Company Tehran, referred to as "VAMCO", entered into a licensing agreement for the manufacture and supply, assembly, technical assistance and sale of front and rear axles for commercial vehicles. On or about 17 May 1997, the pursuers and the defenders entered into an agreement which was designed to "facilitate" the performance of the pursuers' agreement with VAMCO ("the VAMCO Agreement"). The defenders contend, in Answer 6, that by Clause 7.1 of the Collaboration Agreement a technology disclosure fee in respect of the licence granted to VAMCO by the pursuers under the VAMCO Agreement fell to be paid to the defenders by the pursuers "on delivery of documents" comprised in the "Intellectual Property, the Know How and the Process" to VAMCO. The expression "Intellectual Property, the Know How and the Process" are defined in the agreement. The defenders aver that the relevant documents were in fact delivered to VAMCO. They contend that by virtue of Clause 7 the pursuers are, therefore, liable to pay to the defenders a fee of U.S. $360,000. They go on to aver "That sum was converted to Sterling at a rate of 1.446 US Dollars to the Pound sterling and invoiced to the Pursuer. Part of one of the two invoices by which payment of the said fee was invoiced was paid (INV.A.11111), leaving £35,961.00 outstanding on that invoice. The second invoice attributable to said fee (INV.A.11400) has not been paid at all. It is in the sum of £138,317". The defenders then aver that a further sum is due to them by the pursuers in relation to the cost of axle durability tests. They say that that invoice relates to the pursuers' share of the cost of undertaking tests pursuant to the Collaboration Agreement and that some £18,476.00 of the invoice remains unpaid. The total sum, therefore, said by the defenders to be due by the pursuers to them, under the Collaboration Agreement is £192,750.00.
[7] The pursuers' reply to the claim that this sum is due by them to the defenders is concisely averred in the following terms in Article 6 of Condescendence:
"Explained and averred that in terms of Clause 1.4, 8.2 and 13.3 of the Collaboration Agreement, no sums are due to the Defender by the Pursuer thereunder save to the extent that the Pursuer has received payment from VAMCO under the VAMCO Agreement. The Pursuer has paid to the Defender all sums due under the Collaboration Agreement, having regard to the sums paid to the pursuer by VAMCO".
These averments are then supported by a further reference to Clauses 1.4, 8.2 and 13.3 of the Collaboration Agreement. In that respect the pursuers aver specifically that under Clause 1.4, the Collaboration Agreement is stated to be a "back to back agreement to facilitate the VAMCO Agreement". Clauses 8.2 and 13.3 also expressly recognise the "back to back arrangements between VAMCO and the parties". As will be seen the witnesses at the proof before me, in their evidence, concentrated, to a very significant extent, on what the expression "back to back arrangements" could be held to mean under Swiss law.
[8] The pursuers aver that the provisions of Clauses 1.4, 8.2 and 13.3 with their use of the expression "back to back arrangements" co-ordinate the payment terms with Clause 14.7 of the VAMCO Agreement.[9] Both sides were in agreement that, having regard to Swiss law on contractual interpretation, it was legitimate to have regard, in the case, not only to the Collaboration agreement itself, but also to a document attached to it described as the "Policy Statement" which was executed by the parties prior to the execution of the Collaboration Agreement. The Collaboration Agreement and the Policy Statement comprise No.6/2 of process. Under reference to the Policy Statement the pursuers aver, inter alia, as follows:
"In the Policy Statement the purpose of the Collaboration Agreement is stated inter alia to be 'to maximise commercial gain from existing joint facilities and resources and to take full advantage of the combined pool of current and past manufactured parts'. In the Policy Statement the parties agreed to share the costs of application, engineering and manufacture".
The Scope of the Proof
[10] The interlocutor pronounced in allowing the preliminary proof was in the following terms:-
"Allows to parties a preliminary proof before answer of their respective averments as contained in the Summons and Defences as adjusted to date, restricted to the issue of whether or not under Swiss law a debt is due and payable to the defenders under the Collaboration Agreement".
In his written advice, 6/140 of process, Dr Roos stated that in preparing that advice he relied "on the facts provided to us by Ege's solicitor and the following documents
(i) Composite Collaboration Agreement dated 11 December 1996 between Albion and Ege (the Collaboration Agreement") incl. the respective term sheet outlining the key principles and conditions ('the Term Sheet'); and
(ii) Agreement re licence for manufacturing, supply, assembly, technical assistance and sales agreement for front and rear axles for commercial vehicles between VAMCO and Ege dated 1 May 1997 ('the VAMCO Agreement')". (The reference to "the Term Sheet" is a reference to the document referred to elsewhere as the "Policy Statement").
[11] In his written advice 7/1 of process, Dr Isenegger stated in paragraph (3), that in preparing his legal advice on the matter he had the following documents before him for consideration.
The VAMCO Agreement
The Collaboration Agreement and Policy Statement, undated
A composite Collaboration Agreement between the parties dated 1 May 1997
A memorandum of understanding between the parties regarding the D2000 Project dated 14 January 2000
Heads of Agreement between the parties dated 9 November 2000.
An agreement between the parties dated 25 September 2001 referred to as the "Run out Agreement"
and the pleadings in the case.
The Relevant Contractual Provisions
[12] It is right that I set out certain of the key provisions of the various documents around which the evidence adduced in the proof revolved and which were the subject of submissions at the end of the proof. In the preamble to the document headed "Policy Statement" it is stated:
"The parties have agreed to enter into a formal collaboration, licence, technology transfer and supply agreement which will facilitate the execution of the agreement between the parties and VAMCO and provide the framework within which further opportunities can be pursued. In the meantime the following captures the key principles governing the relationship between Albion and Ege whilst the formal documentation is concluded. The parties undertake to conclude such formal arrangements prior to the acceptance of any LC backed orders from VAMCO"
(LC is a reference to letters of credit).
At page 3 of the document there are provisions regarding "cost sharing". At page 4 under the heading "Mode of Payment" it is stated:
"VAMCO LC's to Ege, Ege corresponding back to back LC's to Albion".
On the same page under the heading "Letters of Credit and Financing Costs of Supply" it is stated:
" - Customer and Country Risk covered by VAMCO Letter of Credit to Ege.
- Ege and Country Risk covered by Ege Letter of Credit to Albion".
The Collaboration Agreement itself which is headed "Composite Collaboration Agreement" has a number of manuscript additions and amendments to the typescript. Clause 1.4 of the Collaboration Agreement provides as follows:
"ALBION has agreed to enter into this Agreement with EGE so as to facilitate EGE's performance of the Agreement referred to in Clause 1.3".
The following is then added in manuscript:
"The parties recognise that the Agreement is a back to back Agreement to facilitate the VAMCO Agreement which EGE has entered into and ALBION has witnessed as supporter company for engineering and transfer of technology".
Under the heading "Part A" - General, the following clause appears.
"3.1. EGE undertakes to ALBION to observe, perform and discharge all its obligations under the VAMCO Agreement and ALBION and EGE undertake to each other to observe, perform and discharge all their obligations under this Agreement with a view to facilitating the observation, performance and discharge by EGE of its obligations under the VAMCO Agreement".
Clause 7.1 of the Collaboration Agreement, upon which the defenders rely for claiming that there is a payment presently due to them by the pursuers of a technology disclosure fee is in the following terms:
"A technology disclosure fee in respect of the licence to VAMCO $360,000 shall be paid to ALBION on delivery of documents comprised in Intellectual Property, the Know-How and the Process to VAMCO".
Clause 8.1, under the heading "Payments", provides as follows:
"Payments of the technology disclosure fee shall be made through a confirmed irrevocable Letters of Credit (on terms acceptable to ALBION) to be established in favour of ALBION at a reputable international bank acceptable to ALBION. Such Letters of Credit shall be valid according to delivery time of the respective pro-forma invoice. EGE's advising bank is Egebank. ALBION's advising bank is Bank of Scotland".
The words "through a" and the last sentence of Clause 8.1 have been added in manuscript.
[13] Under the section of the Agreement headed "PART C" - COLLABORATION SUPPLY AGREEMENT Clause 11.1 provides:
"During the continuance of this Agreement ALBION shall sell the ALBION PARTS to EGE and EGE shall purchase such quantities of the ALBION PARTS as may be required to enable EGE to discharge and perform the obligations under the VAMCO Agreement, and that by way of Purchase Orders and/or Purchase Order Schedules from time to time in accordance with the implementation of the VAMCO Agreement. EGE undertakes to ALBION that it shall not offer to sell any ALBION parts to any third party without first obtaining ALBION's consent to the identity of such third parties".
The words "the implementation of the VAMCO Agreement" have been added in manuscript.
Clause 11.5 provides:-
"Risk in and responsibility for the ALBION PARTS to be delivered pursuant to this Clause 11 shall pass to EGE on delivery to EGE".
Clause 11.6 provides:-
"Title to ALBION PARTS shall pass to EGE on payment in full thereof provided that this shall not operate to prevent VAMCO from incorporating any ALBION PARTS into ALBION Axle Products and selling the same in the normal course of business".
The pursuers' evidence as to the construction of the contractual provisions under Swiss Law
[14] At the outset of his evidence the pursuers' witness, Dr Roos, said that he had considered the terms of the written opinion of the defenders' witness Dr Isenegger and that he agreed generally with the statement, contained therein, of the relevant principles of Swiss law in relation to the construction of commercial contracts like the present one. These principles are concisely set out in paragraphs 6.2 to 6.2.8 of 7/1 of process. As the proof proceeded, it became quite clear, that apart from some, perhaps inevitable, questions of emphasis, there was no material difference between the witnesses as to the relevant rules of construction to be applied under Swiss law. The question was ultimately how they fell to be applied and, with what effect, in the present case. Both witnesses were at one that the relevant principles were to be found, in the first place, in Article 18 of the Swiss Code of Obligations and both accepted that authoritative commentaries thereon were to be found in the following works: The Berner Commentar by Dr Kramer and the Commentary on the Code by Gauch, Schluep, Schmid and Rey. I was provided with extracts from the Code and from the aforementioned commentaries, both in German and in English translation. Article 18(1) of the Swiss Civil Code on Obligations simply states:
"As regards both the form and content of a contract, the real intent which is mutually agreed upon shall be considered, and not an incorrect statement or manner of expression used by the parties, whether due to error, or with the intention of concealing the true nature of the contract".
The principles developed in relation thereto, as summarised by the defenders' witness, in 7/1 of process, under reference to the commentaries, were as follows.
"6.2.1 Grammatical interpretation
The primary method and starting point of any contractual interpretation is a grammatical interpretation of the wording of the contract. For this purpose, it is assumed that the wording corresponds to the ordinary linguistic usage at the place of the conclusion of the contract.
6.2.2 Systematic interpretation
According to the systematic interpretation, contractual clauses must be interpreted in their systematic context.
6.2.3 Pre-contractual negotiations
The conduct of the parties in pre-contractual negotiations may offer valuable guidelines and supporting indications as to the sense that the parties intended to give to the contract or any clause thereof.
6.2.4 Conduct subsequent to the closing
The parties' conduct subsequent to the closing of their agreements may also be an important indication for the parties' intent at the time of the closing.
6.2.5 Standard practice and commercial customs
The standard practice and commercial customs are important means of an empirical interpretation of contracts.
6.2.6 Purpose of the contract
The purpose of the contract in the interests of the involved parties play an eminent role as well.
6.2.7 Interpretation in accordance with the applicable laws and the common sense.
In the case of ambiguity, a contract or a contractual clause should be interpreted in conformity with the applicable laws and in such way as the contract or contractual clause makes sense.
6.28 Concomitant circumstances
All methods of interpretation as outlined above confirm the principle that contracts must be interpreted in consideration of all concomitant circumstances under which they were concluded".
"Mode of Payment
VAMCO LC's to Ege, Ege corresponding back to back LC's to Albion".
Although this exact wording did not find itself replicated in the Collaboration Agreement itself, it could be used to explain the provisions in the Collaboration Agreement regarding payment. The content of the preamble to the Policy Statement could also be used for that purpose. This, it was said, established, as it is put in Dr Roos's report at para.4.1.6, that
"Ege and Albion were both interested in collaboration for the sale and distribution of their axle products to Vamco with the goal to maximise commercial gain for existing joint facilities and resources and take full advantage of the combined pool of current and past manufactured parts. Albion and Ege agreed to share the cost of application, engineering and manufacture in relation to the products supplied by each of the parties".
From this, the witness deduced the following:
"This mode of sharing the costs leads to the assumption that each party should also receive the respective payments from the customer Vamco (i.e. the revenues) for its supply of products. Therefore, it can be argued that it was the parties' intention that each of them would also carry the risk of loss and insolvency of Vamco in relation to the revenue of their supplied (own) products. In the light of this purpose, the 'back to back' agreement clause could be interpreted as such as that Ege has only to make payments to Albion subsequent to the receipt of payments from Vamco".
In paragraph 5 of his written report, Dr Roos stated the following conclusion:
"On a proper construction of this agreement under Swiss law the back to back arrangement between Ege and Albion resulting from Clause 1.4, 8.2 and 13.3 of the Collaboration Agreement in connection with the mode of payments as set forth in the Term Sheet leads to payment obligations of Ege only to the extent that Ege has received the corresponding payments from Vamco".
That conclusion, as written, is in unqualified terms. In his evidence to the Court, however, the witness was much more qualified and tentative. In his examination in chief he said that his written conclusion was subject to the qualification that it was arrived at on the basis of limited information and it might require to be revised in the light of further and additional information.
[16] On being asked to consider the content of Dr Isenegger's written report, 7/1 of process, Dr Roos agreed with the statement of the principles of Swiss law in relation to construction of contracts as set out by Dr Isenegger in his report, subject only to the qualification that he did not include a reference to the contra stipulatorem principle of construction. At paragraph 6.6.3 of his report Dr Isenegger states as follows:
"A grammatical interpretation of the wording of Clause 1.4 does not support the Pursuers' conclusion that its payment obligations under the Collaboration Agreement are conditional on the fulfilment of VAMCO payment obligations under the VAMCO Agreement. The fact that the Collaboration Agreement was entered into to facilitate the pursuers' performance of the VAMCO Agreement does not by itself allow any conclusion that a conditionality would exist between the payment obligations under the Collaboration Agreement and those under the VAMCO Agreement".
That statement, Dr Roos, said was something with which he could agree if it was concerned with looking at the expression "back to back" in isolation. He agreed entirely with Dr Isenegger's remarks, in the first paragraph of 6.6.4, which is to the effect that "Clause 1.4 states that the Collaboration Agreement is a back to back agreement. Since the meaning of this expression is unclear, it must be determined what the parties meant by using this term and what legal consequences might be implied therewith if any". Dr Ross was also, as previously noted, at one, with Dr Isenegger's view that the Policy Statement document, although superseded by the Collaboration Agreement, could be looked at for the purpose of the interpretation of the Collaboration Agreement, since it reflected the pre-contractual intention of the parties. Issue was, however, taken by Dr Roos with the last paragraph of 6.6.4 of Dr Isenegger's opinion where he writes "Accordingly, it has to be assumed that the expression 'back to back agreement" was used by the parties only to refer to and to describe a scheme of payments by Letters of Credit". Dr Roos expressed the view that if the words "back to back" conveyed such little importance, it was difficult to see why they were necessary.
[17] At the third paragraph of 6.6.5 of his report, Dr Isenegger writes:
"A comparison of the system of payments by letters of credit under the VAMCO Agreement and under the Collaboration Agreement does not show any congruency of these payments or any dependency on one system on the other. Most notably, the payment of the technology disclosure fee was to be effected by letters of credit under the Collaboration Agreement (Clause 8.1 of the Collaboration Agreement) but not under the VAMCO Agreement (Clause 14.7 e contrario of the VAMCO Agreement)".
Dr Roos seemed to accept that this was an entirely acceptable statement of the position, save for the fact that it did not give any or sufficient weight or content to the expression "back to back". The same point could be made in relation to what Dr Isenegger says at 6.6.6 of his report in the first paragraph, viz:
"Clause 7.1 of the Collaboration Agreement provides that the technology disclosure fee in respect to VAMCO of USD360,000 - shall be paid on delivery of documents comprised in the Intellectual Property, Know-How and Process (as defined in Clause 2 of the Collaboration Agreement) to VAMCO. The only condition precedent to the Pursuers' payment obligations under this Clause is the delivery of the aforementioned documents to VAMCO".
Dr Roos contended that one could only assert that the only condition precedent to payment was delivery of the documents, if one was satisfied that it was appropriate to give no real content to the expression "back to back". Ultimately, he said, that the difference between himself and Dr Isenegger was that he considered that the wording in the Policy Statement document headed "Mode of Payment", in the last page of that document, opened up the possibility that payment to the defenders was conditional on payment being received by Ege from VAMCO, whereas Dr Isenegger seemed to rule out that possibility. The parties appeared to consider the expression "back to back" was important but Dr Isenegger seemed to down play or ignore their potential significance.
[18] In cross examination Dr Roos's attention was drawn to the statement on the last page of the Policy Statement document which is headed "Letters of Credit and Financing Cost of Supply" and which continues:
"- Customer and Country Risk covered by VAMCO Letter of Credit to EGE.
EGE and Country Risk covered by EGE Letter of Credit to ALBION".
He was asked if he agreed that that statement might be read to mean that the risk of financial failure of VAMCO was to be borne by EGE. He agreed that the wording in question could be read to that effect, although he did say that he did not know what was meant by the expression "Country Risk". Senior counsel for the defenders then drew the witness's attention to Clause 3.6 of the Collaboration Agreement which is in the following terms:
"Except as provided in Clause 16.4 or is otherwise agreed between the parties, each of EGE and ALBION shall bear its own costs of the work carried on by it pursuant to the Agreement (and, in the case of EGE, the VAMCO Agreement)"
Clause 16.4 is to be found in a part of the Collaboration Agreement headed "Part D - TECHNICAL SUPPORT AGREEMENT" and specifically provides for cost sharing in relation to what is described as Application, Engineering and prototype manufacture, for each total Axle assembly. Dr Roos accepted that, having regard to those provisions, and the Agreement as a whole, there was no implication of the risk of VAMCO's insolvency being assumed by the defenders, in particular in relation to the payment of the disclosure fee. At this point the witness also said that his final view on matters was uncertain because he found that he did not know all the circumstances surrounding the parties' agreement and its performance. It was pointed out to Dr Roos that payment under Clause 7.1 of the Collaboration Agreement is ex facie conditional on one thing and one thing only, that is the delivery of certain documents. It was put to him also that had the parties intended that the payment to the defenders should be subject to another condition, namely payment by VAMCO to the pursuers, that could have been easily expressed in Clause 7.1. The witness agreed that that could have been expressed and, indeed, would have been expressed, in his view, had the agreement been properly drawn up by lawyers. The witness accepted that the distinction fell to be drawn between mechanics of payment and a right to payment. He also accepted that it could be argued that it was unlikely that the defenders would have agreed not to be paid unless and until the pursuers were paid by VAMCO. He would, however, have liked to have known more about the parties' post-contractual actings. For example it seemed that an invoice issued for the fee by the defenders had been partly paid. He would have liked to have known what were the circumstances in which such part-payment was made. The witness then advised the Court that his position was that the defenders' witness, Dr Isenegger, had reached his conclusion too soon, without the full facts and circumstances being available to him.
[19] Returning to the language of the Collaboration Agreement, Dr Roos said that the words "back to back agreement" where they appeared in Clause 1.4 should be seen to be coloured by the following words "to facilitate the VAMCO Agreement". Approaching matters in that way might give some support for the argument that payment to the defenders was conditional on payment by VAMCO. He accepted that it would be possible to argue equally that, having regard to the fact that in Clause 1.3, it was recognised that the pursuers had already entered into the Agreement with VAMCO, at the time of the execution of the Collaboration Agreement, it was unlikely that the defenders would be, at the stage of entering the Collaboration Agreement, accepting the risk of non-payment by VAMCO. While he accepted that the Collaboration Agreement itself did not clearly express anywhere that payment to the defenders was conditional on payment by VAMCO to Ege, he said that he could not rule out the possibility that that was, indeed, the parties' intentions on the matter, but, ultimately, he said that he could not maintain that the conclusion expressed in his written opinion, in unconditional terms, was correct without having available to him further evidence.
The Defenders' evidence regarding Swiss law
[20] The defenders' witness, Dr Isenegger, in his evidence, said that the Collaboration Agreement was not an ambiguous document. The only uncertainty which arose came from the use of the expression "back to back". While the Court in Switzerland, in construing a phrase like that would be prepared to "cast the net fairly wide" to seek to ascertain its meaning, it would do so, having due regard to the whole of the Agreement itself. In carrying out such an exercise himself, he had been unable to see why the meaning of the phrase "back to back" should require that the Agreement's provisions regarding payment of the disclosure fee should be made subject to a condition, not otherwise expressed, to the effect that payment was only due when the pursuers had received payment from VAMCO. The phrase "back to back", he said, was not a legal term of art in Swiss law. The phrase was, however, one which was used regularly in international commerce, when a transaction was being financed by letters of credit and he was of the view that that might be their sole purpose, in the present case, that is, they refer to the scheme or method of payment to be employed under the contract. Dr Isenegger elaborated on what is a carefully worded and closely argued paragraph in his written opinion, at paragraph 6.6.5. He pointed out that, in fact, a comparison of the provisions in the VAMCO Agreement, 6/1 of process, and the provisions in the Collaboration Agreement, which refer to payment by means of letters of credit produced no congruence of the scheme for payment in the two agreements or any dependency of one scheme on the other. As he points out, in particular, in the third paragraph of 6.6.5 "Most notably, the payment of the technology disclosure fee was to be effected by letters of credit under the Collaboration Agreement (Clause 8.1 of the Collaboration Agreement), but not under the VAMCO Agreement (Clause 14.7 e contrario of the VAMCO Agreement)". Moreover the witness emphasised that, apart from its appearance in Clause 1.4 of the Collaboration Agreement, the only other place where the words "back to back" appear are in Clauses 8.2 and 13.3. Those Clauses, however, only provided for an option to extend the payment period under the letter of credit to 360 days, and it was of considerable significance that the exercise of such an option was not at the discretion of the pursuers, but required the consent of the defenders. That argued against the position of the pursuers that they had the right to defer payment under the Collaboration Agreement so long as they themselves remained unpaid by VAMCO under the VAMCO Agreement. Nothing that Dr Roos had said in his evidence would lead Dr Isenegger to any other view. Clause 7.1 was unambiguous as to the condition precedent for the payment of the fee. Similarly Clause 13.1 under the heading "Payment Terms" was unambiguous. It provided as follows:
"ALBION will pay EGE in US Dollars in respect of each shipment and EGE shall pay in US Dollars the sums due in respect of valid invoices for Goods Delivered".
It did not provide that payment by VAMCO for the goods was a condition precedent to the defenders being paid. The witness could see no good reason, having regard to the documents he had been asked to consider, why the defenders would have taken on the considerable risk of being paid only if VAMCO had paid to the pursuers. It was difficult for him to see how one could arrive at a conclusion that the defenders had a right to be paid only if the pursuers were paid by VAMCO, when one had regard to the very specific, but limited, cost sharing provisions in the Collaboration Agreement. Clause 3.6 was limited in its scope and there was simply no indication otherwise of profit or risk sharing having been assumed by the parties. In conclusion, in his examination in chief, Dr Isenegger said that in reaching his conclusions he placed considerable weight on the actual wording of the Collaboration Agreement and the structure of that agreement. He said "I would more than hesitate from deviating from an interpretation of the agreement which was derived from the actual written word of the agreement itself and its structure". There was simply nothing in the material placed before him which gave a clear indication that payment to the defenders was conditional on payment having been received by the pursuers from VAMCO.
[21] In cross-examination, Dr Isenegger expressed the view that the expression in Clause 1.4 of the Collaboration Agreement "back to back agreement to facilitate the VAMCO Agreement" probably simply meant that the defenders were undertaking certain performance to the pursuers to enable the pursuers to perform their obligations to VAMCO under the VAMCO Agreement. When questioned about how the problem of construction of the provision which arises in the present case, would have been resolved procedurally in Switzerland, he said that it was basically up to the parties to present to the Court what evidence they wished to advance, to support their own position, but that, in certain cases, the Court, could, of its own motion, call for more evidence to assist it in reaching a conclusion. The starting point, however, in the present case, was always, in his view, that there was no condition precedent expressed either in Clause 7.1 or Clause 13 for payment to be made to the defenders as argued for by the pursuers. While under Swiss law, the inquiry would not begin and end there and while it was legitimate to look at the Policy Statement document, and the VAMCO Agreement, as well as the rest of the provisions in the Collaboration Agreement, they were not to be given more weight than the provisions in Clause 7.1 and 13 which actually dealt with the question of payment. As far as the appearance of the words "back to back" in Clause 8.2 of the Collaboration Agreement which were to the effect "in recognition of the back to back agreement" was concerned, the witness was unable to say what these were meant to convey simply by looking at their presence in that clause, but he certainly did not arrive at the conclusion that they imposed the condition precedent for payment argued for by the pursuers. Had the parties to this commercial agreement wanted payment to be conditional on payment by VAMCO to the pursuers, he would have expected that that was a matter which would have been clearly and expressly stated in the Agreement itself.[22] The purpose of the Agreement was to enable the pursuers to perform certain of their obligations under the VAMCO Agreement. It was not a joint venture. Returning again to the expression "back to back", while he accepted that they added nothing to his interpretation of the Agreement, what he could not do was to accept that they, by themselves, appearing where they did, in the Agreement, imported a condition precedent regarding payment to the defenders as argued for by the pursuers. Under Swiss law, the Court would ignore surplus or redundant words but it would only arrive at a conclusion that the words used by the parties to agreement were surplus or unnecessary or redundant, as a last resort.
The Pursuers' submissions
[23] At the very beginning of his submissions, counsel for the pursuer said that he considered that, having regard to the evidence, he required to seek leave to amend his pleadings to aver facts and circumstances which might be relevant under Swiss law to the question that required to be determined. He pointed out, for example, that at the foot of the various pages of the Collaboration Agreement 6/2 of process, the following appears: "Draft (9) 29/4/97". The history of the drafting of the Agreement, he said, might have some relevance, particularly having regard to the fact that the executed Agreement had manuscript additions and deletions. The defenders' witness's evidence had included the frank admission that there was a doubt about the meaning of the words "back to back". The defenders had raised, as a defence, the right to set off payments they said were due under the Collaboration Agreement. The Court could not be satisfied that they had established that there was no condition precedent to these debts being paid by the pursuers as argued for by the pursuers, having regard to the defenders' witness's concession. The defenders' witness's position made the words "back to back" redundant. These words were not, it was said, to be lightly disregarded because they had been added in manuscript. On the other hand the pursuers' witness's evidence did seek to give content to these words. The amendment which the pursuers would seek to make would introduce averments regarding (a) post-contractual dealings between the parties which related to the issue and payment of certain invoices, and (b) averments relating to a meeting attended by the pursuers' Managing Director and Financial Director at which the expression "back to back" was discussed with representatives of the defenders and which resulted in the handwritten additions to the Collaboration Agreement. If, however, the Court was not prepared to afford the pursuers the opportunity to amend their pleadings to cover such matters, counsel for the pursuers said he had no further submissions to make.
The Defenders' submissions
[24] In reply senior counsel for the defenders opposed the pursuers' motion to be granted the opportunity to amend their pleadings. It was for the pursuers to present to the Court by way of averment, and supporting material, what they wished to be considered at the preliminary proof. Until the pursuers' witness, in his evidence, adverted to his need to have regard to other facts and circumstances, not before the Court, before reaching a conclusion, there had been no notice given by the pursuers of any of the matters which, it appeared, they now wished to introduce into the case as having any relevance to the issue before the Court. Dr Roos's report had made no mention of such a possibility. It was simply inappropriate for the pursuers now to seek, after each side's expert witness had given their evidence, in relation to the material presented for consideration by them, and by the Court, to add material upon which neither witness had given any evidence. The Court should, in the circumstances, hold that the defenders had established their case that, under Swiss law, payment to them of sums due under the Collaboration Agreement were not conditional upon payment to the pursuers by VAMCO. The Court should repel the pursuers' third plea in law insofar as it was directed to the relevancy of the defenders' position regarding Swiss law. Senior counsel for the defenders submitted that each of the witnesses was well qualified to give evidence on Swiss law. They had both clearly sought to assist the Court to the best of their respective abilities. They came to different conclusions on the question because of the different weight that they placed on certain factors. They were, however, in substantial agreement as to the principles to be applied. Dr Roos himself accepted that the decisive factor was the wording used by the parties themselves. While both he, and Dr Isenegger, had referred to the possibility of the Court in Switzerland, of its own motion, calling for evidence beyond what was placed before it by the parties, that was not the position in our Courts in relation to disputes involving the construction of commercial agreements. While the substantive law to be applied was Swiss law, the procedural law was Scots.[25] In their pleadings, the pursuers admitted that the sums in question remained unpaid and that the relevant documents had been delivered in terms of Clause 7 of the Collaboration Agreement. It was they who argued for a further condition precedent which was not, in terms, expressed in the Agreement. Dr Roos, himself, had not said that a "paid for paid" clause could be read out of the Agreement itself by simply having regard to the wording of the Agreement. He, as had been seen, placed considerable reliance on the Policy Statement document, but while both witnesses agreed that, the document could be looked at, they both accepted that it was replaced or superseded by the Collaboration Agreement itself. Senior counsel submitted that the cost sharing provisions in the Agreement argued against the existence of the condition precedent that the pursuers were contending for. The Court should have regard to the fact that in Clause 1.4 of the Collaboration Agreement the words "back to back" are qualified by the words "to facilitate". Their import was simply, as suggested by Dr Isenegger, that the Collaboration Agreement was placing obligations on the defenders, to enable the pursuers to carry out certain of their obligations under the VAMCO Agreement. As the defenders' witness had pointed out, Clause 1.3 of the Collaboration Agreement showed that the VAMCO Agreement was already in existence when the Collaboration Agreement was concluded. It made no economic sense for the defenders to accept the risks which the pursuers contended that they had accepted. What risk the defenders did accept were expressly dealt with in the Collaboration Agreement and while they accepted, of course, the risk that the pursuers themselves might not be in a position to pay there was nothing to indicate that they had accepted impliedly a further risk that VAMCO might not pay or be able to pay. The wording "back to back" where it appeared in Clause 8.2 and 13.2 was concerned simply with the medium of payment and not the right of payment, a distinction which Dr Roos himself accepted. The provisions of Clause 11.1 were not supportive of the pursuers' argument but themselves gave an objective indication that risks of non-payment by VAMCO remained with the pursuers. In all the circumstances the Court should hold that the pursuers had failed to prove that in Swiss law there was a condition precedent under the Collaboration Agreement to the effect that the defenders were only entitled to be paid when the pursuers were paid by VAMCO.
Decision
[26] I have, in the first place, to deal with the pursuers' motion that they should be given an opportunity to amend their pleadings to enable them to make averments of facts and circumstances which might be relevant to a proper construction of the Collaboration Agreement under Swiss law. No Minute of Amendment was tendered by counsel for the pursuers before he closed his case. He simply indicated certain matters that might be included in such a Minute of Amendment. He offered no explanation at all as to why these matters were not raised prior to the commencement of the proof or why they could not have been made at a time prior to the commencement of the proof. It was fairly clear to me that the motion was made primarily because Dr Roos's evidence, at the proof, did not live up to the firmly stated conclusions contained in his written report and because he, in his evidence, said that before he could speak to his conclusions, with complete certainty, he would wish to have more information.[27] I am not prepared to accede to the pursuers' motion. It was for them to ensure that at the time they agreed to a preliminary proof on the matter they were satisfied that there was before the Court, by way of pleading and documents, all the relevant circumstances upon which they sought to rely. They certainly should have been in a position to do so before the proof commenced. To allow them to amend to bring in new and additional factors which neither of the two expert witnesses were asked to base their views upon would almost certainly require a fresh proof, involving recall of the experts and, indeed, possibly the leading of other witnesses. Standing the complete lack of any reasonable excuse for the pursuers finding themselves having to make this application at this stage, I do not consider that it would be in the interests of justice to accede to the pursuers' motion. To do so would almost inevitably involve considerable additional expense and further delay in a case which has already not moved with the expedition it might have, there having already been an inconclusive diet of debate in the case, with substantial changes of position by both sides in their pleadings thereafter.
[28] Counsel for the pursuers virtually conceded that he could not succeed on the question posed in this preliminary proof if he was not allowed to amend. That was really inevitable since Dr Roos, whatever he might have said in his written report, was ultimately unable to say that, on the material he was asked to consider, it would be held, under Swiss law, that a condition precedent of the kind contended for, on behalf of the pursuers, would be held to arise in this particular agreement. Ultimately his position, which he very fairly and honestly expressed, was that the possibility of that being so was indicated by certain provisions in the documents he was asked to refer to, but to convert that into at least a probability would require more facts and information than were available to him.
[29] On the other hand Dr Isenegger, who impressed me by the clear and careful way he gave his evidence, and whose expertise on such matters was obvious, had no difficulty in reaching the clear conclusion, for the reasons I have set out in detail above, that, on the basis of the material before this Court, and on the assumption that that was the material which would be available to a Swiss Court, then, the Swiss Court would conclude that, no such condition precedent could be read into the agreement between the parties. That was a conclusion he arrived at, in my judgment, in a very convincing manner, both as set out in his written report, and in his parole evidence. The matter is, ultimately, a question of fact for me to decide on the balance of probabilities. I have no hesitation in holding that, on the material before the Court, the pursuers have failed to establish that, under Swiss law, a condition precedent of the kind they argued for was part of the agreement between the parties and that, indeed, the defenders clearly established that, on the balance of probabilities, no such condition precedent was part of the particular agreement.
[30] I shall have the case put out By Order for discussion as to further procedure in this case and what interlocutor should be pronounced in the light of the decision I have arrived at.
