Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2010] CSOH 12
CA52/08	FURTHER OPINION OF LORD GLENNIE in the cause B.S.A. INTERNATIONAL S.A. Pursuers; against (FIRST) HUGH McLELLAND IRVINE; (SECOND) JOHN ALASTAIR IRVINE; and (THIRD) DOUGLAS FORBES IRVINE Defenders: ­­­­­­­­­­­­­­­­­________________

Pursuers: Lake QC; Burness LLP

Defenders: Dean of Faculty, Mure QC; MacRoberts

28 January 2010

Introduction

[1] By a Share Purchase Agreement ("the SPA") dated 29 September 2004, the defenders and other parties sold to the pursuer ("the Purchaser") their shareholdings in A McLelland & Son Ltd ("the company") for a consideration of just over £96 million. The purchase and sale completed on 29 September 2004.

[2] The pursuer now claims damages for negligent misrepresentation and/or breach of warranty, in each case based upon warranties set out in Part 3 of the Schedule to the SPA. The warranties were given to the Purchaser by the Warrantors, who are the defenders to this action. The only warranty now relied upon is that contained in clause 13 of Part 3 of the Schedule, which provides as follows:

"13 COMPETITION

No Group Company has received any process, notice or communication, formal or informal, by or on behalf of the Office of Fair Trading or the European Commission or any other authority of any country ... having jurisdiction in anti-competitive matters in relation to any aspect of the business of that Group Company or any agreement of arrangement to which that Group Company is, or is alleged to be, a party, and so far as the Warrantors are aware, there are no subsisting circumstances that may give rise to any such process, notice or communication being received by any Group Company."

I shall refer to this as "the clause 13 warranty".

[3] On 5 May 2005, about seven months after the purchase and sale completed, the company was served with a notice by the Office of Fair Trading ("the OFT") under section 26 of the Competition Act 1998 ("the Act") requiring it to produce certain documents and information for the purposes of an investigation under the Act. After setting out the "Background to the Investigation", the notice continued as follows:

"Under section 25 of the Act, the Office of Fair Trading ("the OFT) may conduct an investigation if there are reasonable grounds for suspecting that there is or has been at some time in the past an agreement, concerted practice or decision by an association of undertakings which may affect or have affected trade within the United Kingdom and/or between Member States and which has or had as its object or effect the prevention, restriction or distortion of competition within the United Kingdom and/or the Community in contravention of Chapter 1 and/or Article 81(1)."

There was then a further sub-heading "Subject matter and purpose of the investigation", under which the following was set out:

"The OFT has reasonable grounds for suspecting that there is or has been at some time in the past an agreement, concerted practice or decision by an association of undertakings which may affect or have affected trade between Member States and within the United Kingdom and which has or had as its object or effect the prevention, restriction or distortion of competition within the Community and the United Kingdom in that A McLelland & Son Ltd ("McLelland") agreed and/or concerted with other undertakings on prices in the supply of cheese and butter ("the Products") sold in UK supermarkets at the wholesale and/or retail level. This has been referred to in the press as "the retail price initiative", an initiative designed to increase the revenue of farmers.

The purpose of this investigation is to obtain specified documents and specified information that relate to any matter relevant to the investigation in order to assist the OFT's examination of the agreement and/or concerted practice described above. Both the documentation and information should be submitted to me ... by 5 pm, 27 May 2005."

There then followed a detailed requests for information.

[4] On 13 May 2005 Salans, solicitors for the pursuer, informed MacRoberts, solicitors for the defenders, that the pursuer had received that notification from the OFT; and sought the cooperation of the defenders in producing the documents and other information requested by the OFT in sufficient time to allow that information to be collated and passed on to the OFT by 27 May 2005.

[5] A few days later, in a letter dated 17 May 2005, Salans gave notice to MacRoberts of what they described as "a contingent claim" under the warranty provisions of the SPA. I should quote that letter in full:

"Pursuant to the Share Purchase Agreement between your clients ... and our client ... dated 29th of September 2004 relating to the acquisition of the issued share capital of A McLelland & Son Limited ("the Agreement"), we hereby give notice on behalf of our client, BSA International, to your clients [the defenders] that our client has a contingent claim against them pursuant to the Agreement for breach of one or more of warranties 13, 3.2, 8.1, 8.2, 9.6, 9.8, 23.1 and 23.17 arising as a result of an investigation by the Office of Fair Trading, a copy of the notice of such investigation being attached to [our earlier letter].

Full details of any such claim will only become apparent if it ceases to be contingent following the conclusion of the investigation and accordingly our client will not be in a position to give further details of any such claim until that time."

[6] On the 20 September 2007, the OFT served on the company a Statement of Objections ("SO"). The SO notified the company that the OFT proposed to make a decision that, in 2002 and 2003, it and others had, in breach of the prohibition in Chapter 1 of the Act, entered into a concerted practice and/or practices which had as its/their object the prevention, restriction or distortion of competition in respect of the retail price of certain products produced in the UK; and that they had done this by engaging in the repeated exchange and/or disclosure of commercially sensitive retail pricing intentions. In support of its proposed findings, the OFT relied upon the company's participation in meetings and correspondence during that period, of which details are given in Articles 6 and 7 of Condescendence.

[7] By letter of 27 September 2007, Salans (for the pursuer) gave notice to MacRoberts (for the defenders) intimating that the contingent warranty claims identified in their letter of 17 May 2005 had ceased to be contingent. So far as material, that letter is in the following terms:

"By our letter of 17 May 2005 (copy attached) we advised you that our client, BSA International, had a contingent claim against your clients pursuant to the Agreement for breach of one or more of Warranties 13, 3.2, 8.1, 8.2, 9.6, 9.8, 23.1 and 23.17 arising as a result of an investigation by the Office of Fair Trading.

You and your clients will now be aware from the OFT Press Release dated 20 September 2007 and the associated widespread media coverage on that date that a Statement of Objections ("the Statement") was issued by the OFT on 20 September 2007 in respect of its provisional findings concerning the Company. It is alleged inter alia that over a two year period (2002 and 2003) the Company and Others engaged in fixing the retail prices for milk, butter and cheese, in breach of the Competition Act 1998, by sharing highly commercially sensitive information, including details of the level of price increases.

The Statement gives notice of the proposed infringement decision under the Competition Act 1988 (sic) to the parties involved. The parties now have an opportunity to make written and oral representations in response to the case set out by the OFT. Such representations will be considered by the OFT before any final decision is made.

The Statement is a substantial document and our client is still in the process of reviewing this. However, it is now clear that proceedings have been brought by the OFT against our client and so the contingent warranty claims identified in our letter of 17 May 2005 had ceased to be contingent. Accordingly, Clause 2.3 of Part 4B of the Schedule provides that legal proceedings for anyone who claims must be commenced and served within nine months of such claims ceasing to be contingent.

We therefore calculate that this clause obliges our client to issue such proceedings against your clients on or before 19 June 2008 i.e. within nine months of the date of service of the Statement of Objections."

It is not necessary to set out any more detail from that letter.

[8] Service of the SO on the company led to discussions between the company and the OFT in which the company admitted involvement in breaches of the Act. A penalty has been or will be imposed on the company. The amount of the penalty has been fixed after representations by the company. In this action the pursuer claims damages, the measure of such damages being, in effect, the amount of the penalty plus legal expenses incurred by the company in responding to the OFT's claim. Quantification of the claim differs slightly depending upon whether it is put as a claim for breach of warranty of negligent misrepresentation.

Relevant provisions of the Competition Act 1998

[9] The relevant provisions of the Competition Act 1998, as amended (so far as material) by the Competition Act 1998 and Other Enactments (Amendment) Regulations 2004 (SI 2004/1261), are to be found in Chapter III, Investigation and Enforcement. Section 25 lays down the powers of the OFT to carry out investigations. It provides:

"25 Power of OFT to investigate

(1) In any of the following cases, the OFT may conduct an investigation.

(2) The first case is where there are reasonable grounds for suspecting that there is an agreement which -

(a) may affect trade within the United Kingdom; and

(b) has as its object or effect the prevention, restriction or distortion of competition within the United Kingdom.

..."

The other cases do not matter for present purposes. Section 26 sets out the powers of the OFT when conducting an investigation. It provides:

"26 Powers when conducting investigations

(1) For the purposes of an investigation, the Director may require any person to produce to him a specified document, or to provide him with specified information, which he considers relates to any matter relevant to the investigation.

(2) The power conferred by subsection (1) is to be exercised by a notice in writing.

(3) A notice under subsection (2) must indicate -

(a) the subject matter and purpose of the investigation; and

(b) the nature of the offences created by sections 42 to 44.

(4) In subsection (1) "specified" means -

(a) specified, or described, in the notice; or

(b) falling within a category which is specified, or described, in the notice.

(5) The Director may also specify in the notice -

(a) the time and place at which any document is to be produced or any information is to be provided;

(b) the manner and form in which it is to be produced or provided.

(6) The power under this section to require a person to produce a document includes power -

(a) if the document is produced -

(i) to take copies of it or extracts from it;

(ii) to require him, or any person who is a present or past officer of his, or is or was at any time employed by him, to provide an explanation of the document;

(b) if the document is not produced, to require him to state, to the best of his knowledge and belief, where it is."

The notice served on 5 May 2005 was served under the powers contained in section 26. There then follow various provisions about entering premises with and without a warrant, privileged communications and other matters with which I am not here concerned.

[10] Sections 31ff. of the Act deal with decisions made by the OFT following its investigation. They provide as follows:

"31 Decisions following an investigation

(1) If as a result of an investigation the OFT proposes to make a decision, the OFT must -

(a) give written notice to the person (or persons) likely to be affected by the proposed decision; and

(b) give that person (or those persons) an opportunity to make representations.

(2) For the purposes of this section and sections 31A and 31B "decision" means a decision of the OFT -

(a) that the Chapter I prohibition has been infringed;

(b) that the Chapter II prohibition has been infringed

(c) that the prohibition in Article 81(1) has been infringed; or

(d) that the prohibition in Article 82 has been infringed.

31A Commitments

(1) Subsection (2) applies in a case where the OFT has begun an investigation under section 25 but has not made a decision (within the meaning given by section 31(2)).

(2) For the purposes of addressing the competition concerns it has identified, the OFT may accept from such person (or persons) concerned as it considers appropriate commitments to take such action (or refrain from taking such action) as it considers appropriate.

...

31B Effect of commitments under section 31A

(1) Subsection (2) applies if the OFT has accepted commitments under section 31A (and has not released them).

(2) In such a case, the OFT shall not -

(a) continue the investigation,

(b) make a decision (within the meaning of section 31(2)), or

(c) give a direction under section 35,

in relation to the agreement or conduct which was the subject of the investigation (but this subsection is subject to subsections (3) and (4)).

...

31E Enforcement of commitments

(1) If a person from whom the OFT has accepted commitments fails without reasonable excuse to adhere to the commitments (and has not been released from them), the OFT may apply to the court for an order -

(a) requiring the defaulter to make good his default within a time specified in the order; or

(b) if the commitments relate to anything to be done in the management of administration of an undertaking, requiring the undertaking or any of its officers to do it.

(2) An order of the court under subsection (1) may provide for all the costs of, or incidental to, the application for the order to be borne by -

(a) the person in default; or

(b) any officer of an undertaking who is responsible for the default.

(3) In the application of sub-section (2) to Scotland, the reference to 'costs' is to be read as a reference to 'expenses'."

It was not in dispute between the parties that document described above as the "Statement of Objections" is the written notice referred to in section 31(1)(a) of the Act.

Debate

[11] The case came before the court for a debate at the instance of the defenders. The Dean of Faculty on their behalf advanced two particular lines of argument. First he argued that the claim for breach of warranty was barred by lapse of time in terms of the contractual time-bar provisions in the contract. If this submission was correct, the court should sustain the defenders' third plea-in-law and grant decree of absolvitor. If that submission was unsuccessful, however, the claim should be dismissed in terms of the defenders' first plea-in-law on the ground that it was irrelevant and/or lacking in specification. The points are wholly distinct and I shall deal with them separately.

Time-bar

(i) The relevant contractual terms

[12] The SPA is expressly governed by Scots law (cl.22). Clause 21.7 is an "entire agreement" clause. Of more direct relevance is clause 9, which provides that the Warrantors jointly and severally warrant and represent to the Purchaser in the terms set out in Part 3 of the Schedule. Part 3 of the Schedule is 21 pages long. It covers a wide range of matters, including share capital and constitution, subsidiary and associated companies, contracts and liabilities, accounts, insurances, employees, litigation and pending claims, licences, intellectual property and many others. As I have said, only the clause 13 warranty, which deals with competition, is relied on in this action. The terms of the clause 13 warranty are set out in para.[2] above.

[13] Part 4A of the Schedule contains provisions concerned with Limitation of Liability. Part 4B is entitled "Limitation of Liability - the Warranties and the Specific Payment Covenants". In clause 1 of Part 4B, the purchaser acknowledges and agrees that any claim by it for breach of any of the Warranties are subject to the provisions of that Part of the Schedule. I should quote from clause 1 for the definition given thereby to the word "Claim":

"1. The Purchaser acknowledges and agrees that any claim by it for breach of any of the Warranties ... ("a Claim") shall be subject to the following provisions of this part of the Schedule ..."

Clause 2 of Part 4B provides, so far as relevant, as follows:

"2 The Purchaser shall not be entitled to make a Claim:-

...

2.3 unless the Purchaser has given written notice of the circumstances giving rise to the Claim in question to the Warrantors as soon as reasonably practicable after it becomes aware of those circumstances and, in any event, prior to the expiry of the period of six years following the Completion Date in relation to any claim under the Warranties contained in paragraph 21 of Part 3 of the Schedule to this Agreement ... or prior to the expiry of 2 years from the earlier of 30 April 2005 and the Handover Date in relation to any claim under any other of the Warranties (it being agreed that the liability of the Warrantors in respect of any Claim shall absolutely determine if proceedings in respect of it have not been commenced and served within 9 months of service of such written notice or (where the Claim is based upon what at the time of service of such written notice was a contingent liability) within 9 months of such Claim ceasing to be contingent or, if later, within nine months of the last action taken by the Company and/or any of the Subsidiaries and/or the Purchaser pursuant to paragraph 4 of this part of the Schedule), provided that none of the limitations contained in this paragraph 2.3 shall apply to any Claim arising out of fraud, wilful misconduct or wilful concealment on the part of any of the Vendors or any of their agents or Associates (other than an Associate which is a Group Company) in relation to the matter giving rise to the Claim ..."

The proviso at the end of the quoted passage (beginning with the words "provided that ...", which I have underlined for clarity) is not relevant to the present issue. The word "Claim" throughout takes its meaning from clause 1 of Part 4B set out above - i.e. it is a claim by the Purchaser for breach of any of the Warranties in Part 3 of the Schedule.

(ii) The sums claimed in the action

[14] The pursuer's claim is put in two ways: for breach of warranty; and for negligent misrepresentation. The quantification of each is slightly, though materially, different.

[15] The claim for negligent misrepresentation is quantified by reference to the amount of the fine and costs (of £553,963.17 inclusive of VAT) incurred "in responding to those proceedings", i.e. proceedings by the OFT. It is apparent, however, that the costs sought to be recovered are not limited to those incurred in dealing with the SO after it was served. The SO was served in September 2007. From production 7/20 and section 3 of the Report of Elizabeth Gutteridge lodged by the pursuer in support of its claim (at 6/2), it can be seen that a significant (though smaller) part of the sums claimed as costs (within the figure of £553,963.17) was incurred before service of the SO, presumably in response the OFT's letter of 5 May 2005 (see para.[3] above).

[16] The claim for breach of warranty approaches the matter by comparing the value of the shares as warranted (assuming that to be the purchase price) with their actual value, i.e. on the basis that the clause 13 warranty was breached. As is to be expected, that exercise has been carried out with hindsight. In practice it involved looking at the effect on the value of the shares of (a) the fine and (b) the costs incurred in dealing with the OFT. In its original form, the claim was for the same amount as the claim for negligent misrepresentation. Given the approach adopted, that was perhaps to be expected. The explanation is given by Ms Gutteridge in her Report. The figure claimed for breach of warranty was adjusted in late 2008 (in the pursuer's first set of adjustments) and is now for a lower figure, about £97,000 less than the negligent misrepresentation claim. Though no new breakdown of the claim has been lodged in process, the amount of that reduction (£97,000) is equivalent to the amount (as identified in 7/20 of process) of the costs of dealing with the OFT up to the time the SO was served on the company. The costs included within the sum claimed for breach of warranty are now described in the adjusted Summons as "the costs incurred in responding to the SO". It can be inferred from the adjustment of the figures that the claim for breach of warranty now excludes costs incurred before service of the SO. This was confirmed by Mr Lake QC in his submissions on behalf of the pursuer.

(iii) The defenders' submissions

[17] For the defenders, the Dean of Faculty pointed to the wording of the clause 13 warranty. The warranty, read short, was that no Group Company had received any notice or communication from the OFT; and, further, that the Warrantors were not aware of any subsisting circumstances which might give rise to any such notice or communication. The clause was very widely drafted to reflect the wide provisions of the Competition Act 1998 and the attendant Competition Rules. If the OFT had any concern such as to justify it sending any notice or communication to the company, that would lead to costs being incurred by the company. Hence, the clause 13 warranty was not a warranty only against knowledge of circumstances which might render the company liable to a penalty. It went wider than that; it was a warranty that the Warrantors knew of no circumstances which might give rise to any notice or communication from the OFT, since any such notice would be likely to put the company through the process of dealing with the OFT investigation whether or not that investigation resulted in a finding of fault or the imposition of a fine. Reference was made to the sections of the Competition Act 1998 to which I have referred and to the Rules under which the OFT proceeded, contained in The Competition Act 1998 (Office of Fair Trading's Rules) Order 2004 - put short, there were many options open to the OFT in the course of its investigations falling short of the exaction of a penalty. The investigation itself, even without a finding that the company was liable to a penalty, could clearly be very burdensome.

[18] The claim in the present case was the claim notified by the pursuer on 17 May 2005, which followed the first notice by the OFT on 5 May 2005. That claim was described by the pursuer in its solicitors' letter as "contingent". The letter of 27 September 2007 from the pursuer's solicitors notified the defenders that the claim, i.e. the claim notified in the letter of 17 May 2005, had ceased to be contingent. That was the claim which was now being pursued in the present action - if it was not, it was difficult to see what else it could be. The action was commenced in 2008, more than two years from the earlier of 20 April 2005 and the Handover date. In terms of the time-bar provision in clause 2.3 of Part 4B of the Schedule to the SPA, no claim could be made unless written notice of the circumstances giving rise to it had been given at latest within that two year period. So any other claim would be time-barred. Further, once written notice of the circumstances had been given, any claim had to be commenced and served within 9 months thereafter unless the claim was based upon what at the time of service of the notice was a contingent liability. No claim was made within 9 months of the written notice of 17 May 2005. Accordingly, it was only if the claim now brought was based upon a liability which (a) arose out of the circumstances notified in the letter of 17 May 2005 and (b) was contingent at the time of service of that notice (17 May 2005), that the claim could proceed. That was not the case, since the claim was not a contingent claim at the time of that notice. The notice served by the OFT on 5 May 2005, based on circumstances existing before the purchase of the shares, made the pursuer's claim an actual and not merely a contingent claim. If the OFT had investigated for three years and then gone away without making a decision that the company was in breach, or serving an SO, the pursuer would still be alleging breach of the clause 13 warranty and claiming damages in the amount of its costs of dealing with the OFT investigation. Those costs had always been part of its claim in this action.

[19] The parties to the contract had specifically chosen Scots law. Whatever the position in England, in Scots law the meaning of the phrase "contingent liability" was clear: see In re. Sutherland, dec'd: Winter v Inland Revenue Commissioners [1963] AC 235. The subject matter of that case was, of course, very different, but at p.248 Lord Reid said this:

"... Perhaps the clearest statement of the Law of Scotland is in Erskine's Institute, 3rd ed., vol. 2, Book III, Title 1, section 6, p. 586, when he says: 'Obligations are either pure, or to a certain day, or conditional. ... Obligations in diem ... are those in which the performance is referred to a determinate day. In this kind ... a debt becomes properly due from the very date of the obligation, because it is certain that the day will exist; but its effect or execution is suspended till the day be elapsed. A conditional obligation, or an obligation granted under a condition, the existence of which is uncertain, has no obligatory force till the condition be purified; because it is in that event only that the party declares his intention to be bound, and consequently no proper debt arises against him till it actually exists; so that the condition of an uncertain event suspends not only the execution of the obligation but the obligation itself. ... Such obligation is therefore said in the Roman law to create only the hope of a debt. Yet the granter is so far obliged, that he hath no right to revoke or withdraw that hope from the creditor which he had once given him.'

So far as I am aware that statement has never been questioned during the two centuries since it was written, and later authorities make it clear that conditional obligation and contingent liability have no different significance. I would, therefore, find it impossible to hold that in Scots law a contingent liability is merely a species of existing liability. It is a liability which, by reason of something done by the person bound, will necessarily arise or come into being if one or more of certain events occur or do not occur. If English law is different - as to which I express no opinion - the difference is probably more in terminology than in substance."

Lords Birkett and Guest both expressed agreement with Lord Reid on this point (see pp.254 and 263 respectively). Applying that principle to the present case, it could be seen that any liability of the defenders to the pursuer after service of the OFT notice on 5 May 2005 and intimation of the claim on 17 May 2005 was actual and not contingent; because by that time there had been a communication by the OFT about an aspect of the company's business which, according to the pursuer, arose by reason of circumstances which, as the defenders knew, subsisted at the date of the SPA. The pursuer's claim was not contingent upon the OFT issuing the SO - they might never have issued one - or upon the occurrence of any other event. The fact that the pursuer's agents described the claim as "contingent" did not make it so. Nor was it contingent simply because the full measure of the loss suffered was not known (indeed it was not uncommon for a claim to be made before the full extent of the loss is known). A cause of action accrued when injuria concurred with damnum: Dunlop v McGowans 1980 SC (HL) 73 per Lord Keith at p.81. The obligation to make reparation was single and indivisible, and justified commencement of an action notwithstanding that claims for further damage might have to be added in later.

[20] I was also referred to Cathiship S.A. v Allanasons Ltd. (the "Catherine Helen") [1998] 2 Lloyd's Rep. 511, 516-8 (Centrocon arbitration clause) and RWE Nukem Ltd. v. AEA Technology Plc. (Gloster J, unreported, [2005] EWHC 78 (Comm) on the approach to clauses of this sort in cases where some damage has been suffered but there may be further claim for damages (whether at large or by way of an indemnity).

(iv) The pursuer's submissions

[21] Mr Lake QC, for the pursuer, moved the court to refuse the defenders' motion and allow a proof before answer. The court was concerned with a contractual time-bar provision. The issue was simply one of contractual interpretation. The precise question here was: what was the meaning of "contingent" liabilities or claims as that word was used in clause 2.3 of Part 4B of the Schedule. There were two requirements set out in clause 2.3. The first was that the Purchaser had to give written notice. No issue arose as to that part. The second was that the purchaser had to commence proceedings within a certain period of having given notice. The pursuer here sought to bring itself within that part of the clause which dealt with contingent claims: i.e. "where the Claim is based upon what at the time of service of such written notice was a contingent liability", proceedings must be commenced "within 9 months of such Claim ceasing to be contingent". In construing the clause, the court's function was to identify the presumed intention of the parties. The entire agreement required to be considered, having regard to the words used and the surrounding background. A commercially sensible construction should be adopted, since this was most likely to give effect to the intentions of the parties. The interpretation of the agreement as a whole was not necessarily the same thing as the interpretation of the individual words used: see Mannai Investment Co. Ltd. v Eagle Star Life Assurance Co. Ltd. [1997] AC 749, 774D-775G and Investors Compensation Scheme Ltd. v West Bromwich Building Society [1998] 1 WLR 896. There was little to be gained by looking to other agreements were words had been interpreted: see e.g. RWE Nukem Ltd. v AEA Technology Plc., which emphasised that every clause turned on its own wording.

[22] Mr Lake submitted that the defenders had mischaracterised the pursuer's claims. There were two claims advanced - for misrepresentation and for breach of warranty - and they were distinct. In particular, whatever had been the position earlier, the breach of warranty claim did not now include a claim for any expenses incurred prior to service of the SO. It was for the pursuers to determine what claims to bring. The question was: what claims were the pursuers making? It was clear from the notice of claim sent on 17 May 2005 that the pursuers were giving notice of a claim that was dependent upon the service on them by the OFT of an SO. This was consistent with the pleadings. It was by no means certain at that point that an SO would be served. An investigation had been commenced and the pursuer gave notice of all that was within its knowledge. Those circumstances might later give rise to a claim but they might not. The claim was therefore properly described as being "contingent".

[23] It was accepted that in certain contexts a "contingent claim" or a "contingent liability" had a definite meaning. But it did not follow that the parties to this contract used the expression "contingent" in that sense. It was necessary to look at the contract as a whole. If the warranties in Part 3 of the Schedule were breached, they were breached on the date that the SPA was signed. There could never, therefore, be anything contingent about liability. So also, the loss was sustained at the moment and breach. Instead of acquiring a company which had not done anything to render it susceptible to an enquiry by the OFT, the pursuer had in fact acquired something of lesser value. But questions of quantification would take longer. The loss resulting from a breach of contract was not the same thing as the quantification of that loss: see per Lord Drummond Young in McLaren Murdoch & Hamilton Ltd. v The Abercromby Motor Group Ltd. 2003 SCLR323 at para.[34] and in Euro Pools Plc v Clydeside Steel Fabrications Ltd. 2003 SLT 411 at para.[11]. The word "contingent" should be construed against that background. No claims for breach of warranty under the SPA could be said to be "contingent" in the Winter sense. In using the word "contingent", the parties were intending to deal with a situation where a claim might or might not be made depending on circumstances. That construction satisfied the requirements of business commonsense. The function of the notice provision was to ensure that notice was provided as soon as possible; but there was no business sense in forcing the purchaser to commence proceedings before it was clear that he would need to make a claim. As at 17 May 2005, it was not certain that the circumstances would arise in which a claim would be made. Accordingly, the claim intimated on 17 May 2005 was properly described as "contingent". It ceased to be contingent when the SO was served; and proceedings were commenced within time.

[24] As a fall-back position, the pursuer sought to rely upon that part of clause 2.3 of Part 4B of the Schedule which referred to a period of nine months from the last action taken by the company and/or any subsidiaries and/or the purchaser pursuant to clause 4 of that part of the Schedule. Clause 4 set out the steps which the purchaser was required to take before settling or compromising any claim made against the company. If that route was available, the proceedings would have been commenced in time. The last relevant action taken by the company was in February 2008. Nine months from then took one to November 2008. The action was commenced before that date. Mr Lake recognised, however, that this route had not formally been pled - indeed in Article 11 the pursuers aver that clause 4 of Part 4B of the Schedule is inapplicable. However, if I was against him on his primary argument, he moved that I should put the case out By Order to afford him an opportunity to plead this line of argument more fully.

[25] Finally, Mr Lake submitted that, even if I was against him on his main arguments, it was only the claim for breach of warranty that was time-barred. The misrepresentation claim was untouched. This was not accepted by the defenders. On this point, too, I was in the end invited to put the case out By Order so that parties could assess their respective positions.

(v) Discussion

[26] Clause 2.3 of Part 4B of the Schedule lays down two quite separate requirements which must be satisfied before the Purchaser is entitled to make a Claim for breach of one of the Warranties.

[27] The first requirement is that he must, within a specified time, have given written notice of the circumstances giving rise to the Claim. That written notice must be given as soon as reasonably practicable after the Purchaser becomes aware of those circumstances and, in any event, in the present case, prior to the expiry of two years from the earlier of 30 April 2005 and the Handover Date. A different period is allowed for claims under other warranties. There is no problem here with the time at which notice was given pursuant to this requirement. Notice was given in the letter of 17 May 2005, which was well within the time allowed. It is important to note, however, that what is required at this stage is not notice of a Claim. What is required is a notice of the circumstances giving rise to the Claim which may, in the future, be made. There is no requirement at that stage to identify any Claim. The structure of the clause is that it looks backwards from the Claim that is ultimately made; and, to see whether that Claim can be brought, asks whether written notice of the circumstances giving rise to it was given within the permitted time.

[28] The second requirement relates to the time within which the Claim has to be commenced and served. If it is not commenced and served within the required time, the liability of the Warrantors is absolutely determined. In contrast to the notice provision (above), which simply prevents a claim being made unless notice of the circumstances giving rise to it has been given within the required time, this is a provision for the claim to prescribe unless legal proceedings are brought within a certain period. It follows that where a Claim is not brought within that period, the defender is entitled to decree of absolvitor and not merely dismissal.

[29] In the ordinary case under clause 2.3, proceedings have to be brought within nine months of service of the written notice of circumstances referred to above. If that applied here, it is common ground, subject to a point which I shall mention in due course, that the proceedings were not brought in time and the Claim has prescribed. The argument is as to whether this is that ordinary case, or whether the case falls within the exception set out in the second set of parentheses within the clause: "(where the Claim is based upon what at the time of service of such written notice was a contingent liability ...)", in which case proceedings only had to be commenced within nine months of the claim ceasing to be contingent. If the case falls within that "contingent liability" provision, then it is common ground that the Claim was brought in time.

[30] The meaning of "contingent liability" as a term of art in Scots law is, of course, well-established, as is clear from the speech of Lord Reid in In re. Sutherland, dec'd: Winter v Inland Revenue Commissioners. It is

"... a liability which, by reason of something done by the person bound, will necessarily arise or come into being if one or more of certain events occur or do not occur."

It is necessary, however, to seek to find the meaning of that expression as used by the parties to this contract. Having expressly chosen to have the contract construed in accordance with Scots law, the parties must be taken to have had in mind the established meaning of that expression in Scots law. But that is not the whole picture. There are within the 21 pages of Part 3 of the Schedule a total of 24 different warranties. It is likely that in the case of each warranty, the question of whether or not the Warrantors were in breach of warranty will be determined at the very moment of concluding the SPA. The warranties are all in respect of the state of affairs at the time of conclusion of the SPA. So there is nothing "contingent" about the question of whether or not there is a breach of warranty or whether the Warrantors are liable. The liability is actual at the moment of concluding the SPA. Similarly, in principle at least, any loss that is suffered by reason of the facts not being as warranted is suffered at the very moment of the breach, i.e. at the time of conclusion of the SPA. This is not so in the case of every breach of contract, but it is, in my opinion, invariably true where the complaint is that the facts are not as warranted, since at the moment of concluding the contract the value of the thing in respect of which the warranty was given (the shares, or the company) will, on that hypothesis, be less than had the warranty been true. The Dean of Faculty referred to other warranties in Part 3 of the Schedule, for example warranties (in clause 3.2) that no grounds exist for rescission by another party of a contract with the company, and suggested that, if that warranty was breached, no loss would arise unless and until the other party elected to rescind; but I do not think that that is correct, since the measure of loss/damages for breach of warranty is a comparison at the time of sale of the company as warranted and the company as is (with the facts not being as warranted), and that loss arises at the time, albeit quantification (aided by hindsight) will be worked out later. I adhere, therefore, to the proposition that liability and loss will both occur at the date of conclusion of the contract. Neither is contingent in any sense of the word. What will not be clear at that time, however, is how that loss is to be quantified; and whether the quantification of that loss will justify the making of a claim for breach of warranty. That will often depend on the actions of others, such as the other party who may or may not rescind a contract, or (as in this case) the OFT who may or may not decide to investigate and who may or may not serve an SO and proceed down the route of a finding of breach and the imposition of a fine. Accordingly, in my opinion, the only "contingency" likely to attach to a liability for breach of warranty relates to the question of quantification. It seems to me that what the parties are most likely to have had in mind, having regard to the SPA as a whole, is that there would be no purpose in pushing the Purchaser to sue for breach of warranty before it was ascertained whether or not there was a substantial claim for him to make.

[31] It is for the pursuer to decide what claim to bring in for breach of warranty. It is then for him to justify that claim in terms of the time-bar provisions set out in clause 2.3 of Part 4B of the Schedule. It does not matter, in my opinion, whether he could have brought a different claim. The question of time-bar is to be judged by reference to the claim he did bring, not by reference to some other claim which he has not brought. In the present case the claim brought by the pursuer now focuses on the fact that the OFT have served on the company an SO. The claim made by the pursuer for breach for warranty, at least in its adjusted form, is limited to the consequence of service on the company of the SO. I do not think it relevant that in its original form the claim included costs incurred in dealing with the pre-SO investigation - that claim is not now pursued. The damages now claimed are measured by reference to the fine which will be imposed by the OFT and the costs of dealing with the OFT after service of the SO. In that sense it can, in my opinion, properly be said that the decision by the OFT to make a preliminary finding that the company was in contravention of Chapter 1 of the Act and to serve on the company an SO to this effect, opening the way for the imposition of a fine, satisfied a contingency in the way of the pursuer making a claim. The claim which the pursuer now makes, seeking damages for breach of warranty by reference to the service of the SO on the company and the fine imposed by the OFT, can properly be said to have been contingent at the time the notice of the circumstances giving rise to the claim was served.

[32] In those circumstances I do not need to consider the pursuer's alternative proposed argument based on clause 4 of Part 4B of the Schedule. However, I should note, in case the matter is to go further, that I would have been receptive to an application to amend to raise the point. I cannot, of course, say whether the point, had it been run, would have been successful.

Relevancy and Specification

[33] In Articles 6 and 7, the pursuers set out the various matters relied upon by the OFT in arriving at the provisional finding that the company, along with others, had infringed the probation in Chapter 1 of the Act. Those matters, lettered from (a) - (j) in Article 6 and from (a) - (d) in Article 7, identify meetings, conversations, letters and e-mails attended by and/or passing between various individuals, including individuals employed by the company. The pursuer's case, put simply, is that the knowledge of those individuals within the employ of the company is the knowledge of the defenders as Warrantors. They formulate their case in the opening words of Article 17 as follows:

"In the foregoing circumstances, the representation given by the defenders that the facts were as stated in [the clause 13 warranty] was false. Having regard to (a) their active involvement and participation in the various matters set out above and (b) the provisions of the Share Purchase Agreement in which they are deemed for these purposes to have had the knowledge of other specified persons, the defenders were aware at the date of the Share Purchase Agreement that there were subsisting circumstances that might give rise to the SO - being a process, notice or communication by or on behalf of the OFT - being received by [the company]."

The reference to the provisions of the SPA was a reference to clause 9.7 which provides as follows:

"9.7 Where any of the Warranties is qualified by the awareness, knowledge, information or belief of the Warrantors, such awareness, knowledge, information or belief means the awareness, knowledge, information or belief as at the date of this agreement of the Vendors, the Vendors Solicitors, the Auditors (MacLay, McAlister & McGibbon CA) and Mr Joseph Cairns and Mr James McGregor (two of the directors of the Company) and Mr Tim Wallace, Mr Stuart Edmiston and Mr David Kane (three of the senior managers of the Group Companies)."

The "Vendors" is a reference to the defenders themselves. Three of the sub-paragraphs under Article 6 in the Summons do not contain a reference to any of the individuals identified in clause 9.7. These are the sub-paragraphs (f), (g) and (h). Under Article 7, sub-paragraphs (a) and (b) do not contain any such reference. In Article 8, however, there is an averment that James McGregor, one of the individuals mentioned in clause 9.7, was aware of the activities of the company regarding the co-ordination of price increases. There is also an averment that the second defender was aware of the activities of the company. If these averments are proved, that would bring into play the sub-paragraphs in Articles 6 and 7 to which I have just referred.

(i) Submissions

[34] The Dean of Faculty submitted that the pursuer's case was lacking in specification. It was not simply that in certain respects, such as the averments in Article 8, there was no indication of how it was alleged that the defenders had knowledge of what the company was doing. More importantly, the pursuer simply averred that the defenders had knowledge, either directly or via clause 9.7, of various conversations and meetings and items of correspondence and their contents. They did not address the question of whether, as at the date the warranty was given, the defenders knew, or could have been expected to know, that the facts of which they had knowledge might give rise to any process, notice or communication being received from the OFT. The Dean of Faculty asked rhetorically: of the many facts founded upon by the OFT, and set out in Articles 6 and 7 of Condescendence, which ones did the Warrantors know about and would they have been sufficient to inform anyone, by any objective standard, that they might lead to a communication from the OFT?

[35] It became apparent in the course of Mr Lake's submission in response that the issue between the parties went beyond mere specification but turned substantially on an important question of relevancy. Mr Lake submitted that the pursuer only needed to establish that the Warrantors were aware of the circumstances subsisting at the time the warranty was given, not that they were also aware of the possibility that the OFT might take some action in light of those circumstances. That was the commercially sensible construction to be given to the agreement. The function of the warranty provisions was not to punish the Warrantors. Those buying the company were not really interested in what the defenders knew or did not know -- what they were interested in were the facts about what they were buying. The defenders' knowledge was only the control mechanism, but it was knowledge of the facts that mattered, not of the interpretation to be given to those facts. If the defenders were aware of the circumstances, but were not aware that those circumstances might lead the OFT to investigate the company, the commercially sensible interpretation of the clause would be to hold them liable. The question was: where did the risk lie? The risk that circumstances of which they were aware might have implications which they had not considered should lie with the Warrantors. The penalty imposed by the OFT was not large in comparison with the purchase price which the vendors were obtaining from the sale of the shares. But the fine and, more importantly, the requirement to change the whole way in which the company carried on its business, would be very material to the value of the company and its future profitability. Could it be commercially sensible, he asked rhetorically, that the risk of that should rest entirely on the Purchaser? It would rob the clause of most of its effect if the pursuer was required to show that the defenders were aware of the likely consequences of the known circumstances. The last part of the clause 13 warranty referred to the Warrantors' actual awareness. It did not contain any scope for an enquiry into what the defendants ought to have appreciated. Accordingly, if the defenders' submissions were correct, and it was necessary for the pursuer to show that the defenders were actually aware of the likely consequences, that would be an incentive for the defenders, as vendors, to remain in ignorance. This construction was supported by reference to other clauses in the SPA.

(ii) Discussion

[36] As I have already observed, although initially it was presented as an argument about specification, it became apparent that the real issue between the parties was as to the proper construction of the final part of the clause 13 warranty: "and so far as the Warrantors are aware, there are no subsisting circumstances that may give rise to any such process, notice or communication being received by any Group Company."

[37] The clause as a whole is designed to give assurance to the Purchasers that the company is not being investigated by the competition authorities, whether the OFT or the European Commission and has not been engaged in activities rendering it liable to such an investigation. To this end, the first part of the clause contains warranties that neither the company nor any Group Company has in fact received any process, notice or communication, formal or informal, by or on behalf of such authorities in relation to any aspect of its business or any agreement or arrangement to which it is, or is alleged to be, a party. That part of the warranty is not qualified by reference to the Warrantors' knowledge or awareness. That causes no surprise, since it will be a matter of ascertainable fact whether or not any Group Company has or has not received any such communication. The last part of the warranty, however, is concerned with matters which are, by their nature, more speculative. A Group Company may have engaged in activities which attract the attention of the competition authorities for any number of reasons. In some cases the competition authorities may become interested not on the basis of anything done by the company but because of allegations about it. In all such cases, the competition authorities may communicate with the company. That communication may be informal and may come to no more than that. Or it may lead to an investigation and ultimately a finding of contravention. In all such circumstances, the Warrantors should be able to say whether or not they had received any communication from the competition authorities. The absolute terms of the first part of the clause 13 warranty reflects this.

[38] Had it been intended, however, that the Warrantors should warrant that no circumstances existed which might give rise to any such process, notice or communication from the competition authorities, it would have been easy to say so. But the clause includes a reference to the Warrantors' awareness ("so far as the Warrantors are aware"). Awareness is different from mere knowledge. It suggests a measure of understanding. It seems to me to point to awareness on the part of the Warrantors of something more than the bare facts which, albeit unknown to them, might interest the competition authorities. In my opinion, in this part of the clause the Warrantors are warranting that they are not aware of any circumstances which (so far as they are aware) may give rise to communication with the competition authorities. The latter part of that phrase qualifies the former. In other words, the clause points to an investigation into their awareness not only of the circumstances but also of the potential that those circumstances might lead to contact from the competition authorities. The question can be approached in a different way by asking: what is it that the Warrantors are saying (in the warranty) that they are not aware of. It cannot be that they are not aware of any subsisting circumstances. That would be meaningless. One has to go on to ask: what type of circumstances are they saying that they are unaware of? The answer is that they are not aware of circumstances of a particular type, namely circumstances that may give rise to any process, notice or communication from the competition authorities. The answer involves an assessment on their part of whether the circumstances of which they are aware have the potential to give rise to communication from the OFT.

[39] Put that way, it seems to me that, for the pursuer to establish a breach of warranty, it needs to establish not only that the Warrantors were aware of the facts which in the event did give rise to communication from the OFT, but also that they were or ought reasonably to have been aware that those circumstances might lead to such communication. Whilst I accept Mr Lake's submission that a commercially sensible construction should be adopted if at all possible, it seems to me that this construction is in fact one which makes the most commercial sense. The construction for which the pursuer contends would make the Warrantors liable for the existence of circumstances where they could not possibly have been aware of their importance. I do not think that such a construction would appeal to commercial men entering into the SPA.

[40] On this basis I consider that there is force in the complaint by the defenders of lack of specification. Mr Lake accepted this. In those circumstances the appropriate course would be to allow Mr Lake an opportunity of addressing these complaints.

Disposal

[41] For the above reasons, I shall put the case out By Order to discuss future procedure.