EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
Lord Osborne Lord Emslie Lord Wheatley	[2011] CSIH 10 XA136/09 OPINION OF THE COURT delivered by LORD OSBORNE in Stated Case for the Opinion of the Court of Session under Section 3 of the Administration of Justice (Scotland) Act 1972 in the arbitration between WILLIAM RENNIE & CO LTD Claimants; and BP EXPLORATION OPERATING CO LTD Respondents: _______

Claimants: Ralph A. Smith, Q.C., D. Davidson, Advocate; Tods Murray LLP

Respondents: Mr Stuart Gale, Q.C.; Paull & Williamsons LLP

16 February 2011

The background circumstances

[1] This is a Stated Case on points of law brought under section 3 of the Administration of Justice (Scotland) Act 1972. The arbitration out of which it arises concerns a claim made under and in terms of Clause 25 of a Schedule of Conditions, "the Schedule", incorporated in the Grant of Servitude, "the Grant", by Robert Couper Zuill in favour of BP Oil Development Limited, registered in the Register of the County of Fife on 26 January 1976.

[2] Robert Couper Zuill was a farmer who lived at, and owned Tapitlaw Farm, Oakley, Fife. BP Oil Development Limited were owners of two terminal installations, one on an area of ground at Kinneil Kerse and North Haining in West Lothian, and the other on an area of ground at Netherbroadmuir, Aberdeen, and of the 36 inch diameter pipeline running between these two installations. The Grant of Servitude related to that pipeline. The terminal installations were the dominant tenement and the farm and lands of Tapitlaw were the servient tenement. The claimants acquired the farm and lands of Tapitlaw from the executors of the late Robert Couper Zuill in January 1981. The respondents are the successors to BP Oil Development Limited.

[3] The arbitration concerns a claim made under the Grant in respect of the pipeline mentioned. The dispute between the parties relates particularly to the interpretation and application of Clause 25 of the Schedule, incorporated in the Grant. So far as material to this case, Clause 25 is in the following terms:

"25. DEVELOPMENT OF LAND

(a) If at any time the Owner wishes to develop land affected by the pipeline, or to accept an offer from some person who wishes to develop such land, the owner shall if the said proposed development of the land is prevented in whole or in part by reason only of the existence of the pipeline, give written notice to the Company of the said proposed development including details of the application for and refusal of or conditional grant of planning permission in principle by the Planning Authority. Within six calendar months of the receipt of such written notice, the Company shall give their decision in writing to the Owner that they intend to divert the pipeline, or that they intend to pay compensation for all losses arising from their decision not to divert the pipeline, including, without prejudice to the foregoing generality, losses of Development Value.

...

(d) If the Company shall decide to pay compensation as aforesaid, the amount of such compensation shall be by agreement with the Owner, and failing such agreement shall be determined by Arbitration as provided for in Clause 43 hereof. The Company shall also be liable to pay interest at one per centum per annum over Base Rate for the time being on the said compensation agreed or determined as aforesaid from the date of the expiry of the said notice of six calendar months until date of settlement. Where pursuant to this paragraph the Company has paid to the Owner compensation in respect of a partial frustration of a proposed development and where within a reasonable time thereafter the Owner has failed to complete such part of such development as was not frustrated, the Owner shall repay to the Company such proportion of the compensation as may be related to that part of the development which is not completed, provided that if the Owner, having received compensation from the Company under this paragraph, sells the land for development and the proposed development is not completed within a reasonable time the Company shall not claim repayment of the compensation or any part of it from the Owner.

(e) If the Company shall fail to intimate their decision within six calendar months in terms of paragraph 25(a) hereof, the Owner shall be entitled to interpret such failure as a decision by the Company to pay compensation as aforesaid and the Company shall become liable to pay compensation with interest as aforesaid as if they had intimated their decision to do so.

(f) Notwithstanding the provisions of Clause 25 the Company shall not be liable to pay compensation if the Company can prove that planning permission has been or would have been refused for the proposed development on ground unrelated to the existence of the pipeline nor shall the Company be liable to pay compensation as aforesaid more than once in respect of any particular piece of land, unless the previous payment of compensation has been repaid to the Company as aforesaid."

[4] Under Clause 43 of the Schedule provision was made for arbitration between the Company and the Owner in the event of any dispute arising between them as to the amount of compensation available, or as to any other matter whatever arising between the parties. The "Owner" in terms of the said Grant was Robert Couper Zuill. The "Company" was BP Oil Development Limited.

[5] The arbiter heard a proof, excluding quantum, on various dates between March and August 2007. After proof, he issued his draft determination, a copy of which is appended to the Stated Case. Thereafter, the respondents lodged with the arbiter a Minute under Rule of Court 41.5(1) and the claimants lodged a Minute under Rule of Court 41.6(2). In this way questions were posed by both the claimants and respondents, with a view to the stating of a Case by the arbiter. The arbiter held two procedural hearings at which the terms of the various questions contained in these two Minutes were discussed. In the course of the second of these meetings, the parties agreed on the formulation of five questions which the arbiter has now incorporated in the Stated Case.

[6] The factual background to the dispute between the parties is set forth in findings-in-fact made by the arbiter. It is as follows. In the late 1980s, the claimants were house builders and developers. Their principal director was the late Mr William Rennie. By that time, the claimants, under the guiding hand of Mr Rennie, were already successful house builders in Fife. Mr Rennie had built up a close professional relationship with a Mr Kenneth Oliver, who acted as his architect and who provided planning services for him. A list of the housing developments which had been successfully completed by the claimants has been set out in paragraph 3 of a precognition of Mr Oliver, which has been appended to the Stated Case. Housing developments were designed by Mr Oliver, the planning applications were submitted by him and the planning permissions were obtained by him. Approximately 1,500 residential units were constructed by the claimants over the years in this way. To the knowledge of Mr Oliver, planning permission had never been refused for any of these housing developments. Mr Rennie was a shrewd and successful businessman. The reasons for his success have been elaborated in paragraph 5 of Mr Oliver's precognition. In essence, he was respected by the planners, he was respected by the agricultural community, and thus was able to make the necessary land deals. Further, he had wider interests, and was generally respected in the community. Equally importantly, he produced the right product for his market, he kept his overheads to a minimum, and he was happy to provide "community benefits" in the areas where he built houses.

[7] In the late 1980s, the claimants turned their attention to the connected villages of Oakley and Comrie. By that time, the claimants had also the benefit of the services of a Mr Thomas McGregor in relation to civil and structural engineering advice and design services. The development, known as "Porterfield", proceeded in phases. In the late 1980s and early 1990s, phases 1 to 6 were successfully completed. In January 1991, the draft Dunfermline district local plan, "the draft local plan", was published. It proposed further housing at Oakley - Comrie. A schedule to the draft local plan detailed the sites shown on the accompanying plans. The plan for "Blair Hall, Oakley and Comrie" showed inter alia housing sites H9 and H10. H9 was described in the schedule as "Porterfield Phase 6, Comrie" and H10 as "Tapitlaw, West Comrie". Site H9 was described as having "full planning consent", and as an "extension to existing Porterfield development", while site H10 was described as a "local plan proposal", development of which would be "subject to a detailed brief and improvement of pedestrian links to existing facilities".

[8] Site H10 subsequently became Porterfield Phases 7 and 8. Because of limited drainage capacity, site H10 was taken forward as two separate phases. In September 1992 the claimants applied for planning permission for Porterfield Phase 7. The position was shown in the Fife Housing Review 1993, which recorded the housing land position as at 31 March 1993. In Comrie, "Porterfield Phase 7" was shown as effective for 18 housing units and "Tapitlaw" as a site with a capacity for 120 housing units, but constrained by general drainage problems.

[9] Planning permission was granted for Phase 7 on 3 June 1994. That permission was for the erection of eighteen houses and a community centre, car park and access road, and was subject to a Minute of Agreement under Section 50 of the Town and Country Planning (Scotland) Act 1972, "the 1972 Act", which had been executed on 26 May and 1 June 1994. That agreement contained various obligations, including the provision of the proposed community centre and a proposed community woodland. In terms of the agreement, the community centre was to be completed within eighteen months of the commencement of construction of the first dwelling house. The land bound by the obligations in the agreement was the site of Phases 7 and 8.

[10] As envisaged in the draft local plan, after consultation with the claimants, the council prepared a development brief for the site comprising both Phase 7 and Phase 8. That brief was dated 31 January 1994. According to the evidence it was approved by the district council. It referred to Phase 7 only, on the basis that there would be phasing of the development. The first stage of the Phase 7 development was to comprise the eighteen dwelling houses and the community centre which subsequently became known as Porterfield Phase 7. Paragraph 4.2 of the development brief provided:

"The first stage of the development shall be completed before any further development takes place on the site. Thereafter, the future phases of the development shall be carried out at the developer's timescale in accordance with timing of the drainage improvements in Comrie. (See Drainage Constraint Section below)."

[11] The Fife Housing Review 1994 showed the position as at 1 April 1994. By that time, Tapitlaw, Porterfield Phase 8, had become effective, that is to say that the drainage constraint had been resolved. Thereafter the claimants submitted an application for "full planning permission" for the erection of 126 dwelling houses at "Phase VIII Porterfield, Comrie" on 2 June 1994. That application provoked eight individual letters of objection and one from the Community Council and consultation responses. These objections and responses, which are contained in the council's planning file did not raise any matters of serious concern to the district council's planning officers, Mr Hutton and Mr MacCallum. The council's concerns were summarised in a letter dated 26 July 1994 from Mr MacCallum to Mr Oliver. There were discussions between Mr MacCallum and representatives of the claimants at which "fine tuning of the application was discussed". Both council officers considered that the application was moving towards being taken to committee in October or November 1994, with a report recommending that planning permission should be granted.

[12] At a meeting on 11 October 1994 attended by both Mr Hutton and Mr MacCallum, it was realised by those officers that, through an oversight, the application had not been intimated to the Health and Safety Executive, "the HSE". That was done on 12 October 1994. By a letter dated 19 October 1994, received by the council on 21 October 1994, the HSE recommended refusal of the application on the grounds of safety arising from the presence of the pipeline. That response came as a considerable surprise both to the planning officers and the claimants. Prior to 11 October 1994, neither those planning officers, nor the claimants had been aware that the presence of the pipeline might be a bar to the proposed development. A meeting was held on 9 November 1994, attended by Mr Rennie, Mr Oliver, Mr McGregor, Mr Hutton, Mr MacCallum and two representatives of the HSE to discuss the problem. Thereafter possible solutions were considered. One involved earthworks which might make it possible to build on the Phase 8 site to some extent, despite the presence of the pipeline. The other solution involved making a planning application on a different site owned by the claimants, lying to the north of the A907. At that stage Mr John Smith joined the claimants' team as a planning expert to help them with what had become the likelihood of refusal of their application. Ultimately, both possible solutions failed.

[13] In July 1994, Mr Tom Burke was appointed by Mr McGregor on behalf of the claimants to investigate ground conditions on the site, and, in particular, concerns raised by British Coal as to the presence of a shaft under or close to the site. He carried out a preliminary desktop study, in the course of which he had available to him a previous similar study carried out by a firm DLM. As a result of this work, Mr Burke, on 6 September 1994, recommended to Mr McGregor that bore holes should be taken and Mr McGregor duly appointed Groundshire Limited to carry out the necessary exploratory drilling work. The results of that exercise were reported in early October 1994. In January 1995 a shaft of approximately 1.2m in diameter was discovered on the site. That was the first time that the precise location and nature of any shaft on the site was known to the claimants or to the planning officers of the council. The application for planning permission for the alternative site to the Tapitlaw site, to the north of the A907, was made on 24 April 1995 and was duly reported to the Committee in March 1996. It was refused on 8 March 1996 for five reasons.

[14] The application for Phase 8 Porterfield was finally reported to the committee on 9 October 1996 and was refused. There was only one reason given for that refusal, in the following terms:

"In the interests of public safety. Although the likelihood of a major accident at the Forties to Grangemouth BOP Crude Oil 36 inch diameter pipeline is low, the risk of harm to people at the neighbourhood would be sufficiently high that planning permission should be refused on the grounds of safety."

Prior to reporting the application for Phase 8 consent to the committee on 8 October 1996, the planning officers of the council did not require the claimants to address the issues raised in the letter of 26 July 1994, or the consequences of the shaft discovered in January 1995, because they considered that it would have been unreasonable to have done so when the application was going to be reported with a recommendation for refusal based on the presence of the pipeline.

[15] On 4 December 1996, following the foregoing events, the claimants gave notice to the respondents in terms of Clause 25(a) of the Schedule. That notice was inter alia in the following terms:

"... 4. That the company [the claimants] carries on business as inter alia a developer and house builder;

5. That the company has been carrying out a phased development at Porterfield Road, Comrie, Fife, and that Phase VIII of said development lies close to the line of the pipeline laid by you in terms of said Grant of Servitude;

6. That on 2 June 1994 the company applied to Dunfermline District Council for planning permission in outline for said Phase VIII of the development;

...

10. That said proposed development of the land has been prevented in whole by reason only of the existence of said pipeline."

[16] In fact, there was no application for planning permission in outline. The application had been for full planning permission.

[17] On 30 May 1997, the respondents' solicitors wrote to the claimants' solicitors in inter alia the following terms:

"On behalf of our clients we hereby give you FORMAL NOTICE in terms of the Grant of Servitude and without prejudice to that generality the terms of Clause 25 of the Schedule of Conditions, attached thereto that: (a) our clients do not intend to divert the pipeline; and (b) in terms of Clause 25(f) of the said Schedule of Conditions, our clients are of the opinion that planning permission would have been refused for the proposed development on grounds unrelated to the existence of the pipeline and therefore they are not liable to pay compensation to your clients. Without prejudice to their whole rights and pleas, our clients have, in reaching this view, taken account inter alia of the following matters:

(i) the site bears little relationship to the existing defined settlement edge and increases the risk of coalescence between Comrie and Blairhall, contrary to Established National Planning Policy (NPPG 3) Approved Strategic Policy (the Fife Structure Plan 1994) and the General Development Policies of the Dunfermline District Local Plan Draft Written Statement 1991;

(ii) the scale of the development proposed is entirely out of keeping with the scale of the existing small settlement and represents an inappropriate expansion of the settlement, contrary to national, strategic and local planning objectives;

(iii) the proposed development would involve the formation of a new access directly on to the main A907, contrary to the policies of the relevant Roads Authorities;

(iv) there is no requirement for further housing in Comrie, having regard to a significant decrease in the demand for housing in the West Fife Area and the development of more appropriate sites in the West Fife Villages Area and the proposal is therefore contrary to the Fife Structural Plan 1994."

[18] When Mr Rennie applied for full planning permission for Phase 8, it did not occur to him that that application was likely to be refused, far less for a reason related to the presence of the pipeline. His decision to proceed by way of an application for full planning permission rather than for outline planning permission was not influenced by the terms of Clause 25.

[19] The Grant narrates that the consideration for the servitude which was being granted was in two parts; first the sum of £1,008, and secondly: "IN FURTHER CONSIDERATION of the obligations and conditions hereinafter written". The Grant then went on to provide at page third:

"Which servitude right is granted subject to the general conditions specified and contained in the Schedule of Conditions annexed and signed as relative hereto which Schedule of Conditions shall be held to form part of these presents and shall be recorded herewith in the appropriate Register of Sasines and the several conditions contained therein shall apply as if repeated herein;".

There then followed a caveat in these terms:

"But under the express declaration that if these presents are or could be stated or construed to be at variance with any of the conditions contained in the said Schedule of Conditions, the terms of the said Schedule of Conditions shall prevail and take effect;"

The Grant concluded by providing, at page fifth:

"Which right of servitude hereby granted under the conditions aforesaid is hereby declared to be a real burden upon and affecting said Farm and Lands of Tapitlaw and as such shall be validly referred to in all future Dispositions and Deeds of Transmission relating thereto under pain of nullity ...".

[20] If the claimants' land at Tapitlaw Farm had not been burdened by the presence of the respondents' pipeline, "the no-pipeline world", planning permission for Porterfield Phase 8 would have been likely to have been granted in the early part of 1995, after the shaft on the site had been discovered in January 1995 and after any necessary amendment of the application plans to take account of the presence of the shaft and the matters raised by the council in the letter of 26 July 1994. The council, both the District Council and the subsequent unitary authority, and their officers were influenced in their treatment of the Porterfield Phase 8 application by the planning history of the site generally and its close relationship to Phase 7 in particular. If the no-pipeline world had emerged on 9 October 1996, the date of refusal of permission in respect of Phase 8 Porterfield, there would have had to have been "fine tuning" of the application in respect of Phase 8 to take account of the location of the shaft which had been located in January 1995 and the matters of design detail which had been raised in the letter of 26 July 1994. These matters of fine tuning would be likely to have been dealt with by amendment of the application together with neighbour notification and some degree of consultation, rather than either the use of conditions, or a requirement for resubmission of the application. The amended application would have been likely to have been reported to the committee with a recommendation that planning permission should be granted and planning permission in those amended terms would be likely to have been granted as soon as practicable thereafter. It is probable that that planning permission would have been in terms of the Site Layout plan 3036/DD01 Revision C (Production G.1.16) rather than Revision C (Alt) (Production G.1.17). If ground conditions had subsequently been discovered to be other than as predicted in October 1996, the matter would have been dealt with by means of a subsequent application for full planning permission for that part of the site as was affected.

[21] It will be evident from our narrative of the terms of the claimants' notice, given to the respondents in terms of Clause 25(a) of the Schedule, dated 4 December 1996, and of the respondents counter-notice in terms of that Clause, dated 30 May 1997, what was the nature of the dispute between the parties, that was referred to arbitration in terms of Clause 43 of the Schedule.

[22] In their claim before the arbiter, the claimants made two substantive claims. These were in the following terms:

"1. For declarator that in terms of a Deed of Servitude by Robert Couper Zuill in favour of BP Oil Development Limited registered on 26 January 1976, the respondents are liable to pay compensation to the claimants in terms of Clause 25 of the Schedule of Conditions therein referred to, in respect

(a) that the claimants' development herein referred to has been prevented by reason only of the existence of the oil pipeline at Tapitlaw Farm,

(b) of the refusal by Fife Council on 9 October 1996 of the claimants' application for planning permission dated 2 June 1994 for a housing development at Tapitlaw Farm, West Porterfield, Comrie and

(c) the decision by the respondents intimated on 30 May 1997 not to divert the pipeline at Tapitlaw Farm aforesaid.

2. For payment by the respondents to the claimants of the sum of one million nine hundred and seventy one pounds eight hundred and eighty nine pounds 35 (£1,971,889.35) Sterling with interest thereon at the rate of one per cent a year above bank base lending rate from 4 June 1997, or at such other rate or from such other date as the arbiter may deem appropriate, until payment."

[23] In his draft determination, the arbiter proposed to make a decision in the following terms:

"For all these reasons, I shall repel the Respondents' first and third pleas at law, sustain the Claimants' second plea in law, and pronounce Decree Arbitral in terms of Claim One as amended."

In that situation, the arbiter has stated five questions of law for the Opinion of this Court, at the request of the parties. Those questions are in the following terms:

"(i) Was I correct to hold that both sub-clause (a) and sub-clause (f) of Clause 25 of the Schedule to the Grant of Servitude are concerned with the principle of development, with planning permission or the refusal of planning permission relating to the principle of development, and to consider whether the principle of development has or has not been prevented in whole or in part by reason only of the existence of a pipeline?

(ii) Was I correct to draw a distinction against the respondents in the application of Clause 25(f) between an 'in detail' reason for refusal and an 'in principle' reason for refusal?

(iii) Was I correct (a) to reject the respondents' submission that 'proposed development' is defined by the full terms of the application for detailed planning permission made on behalf of the claimants and which was refused by the planning authority on 9 October 1996, and (b) to reject the respondents' submission that 'proposed development' could not be defined by reference to an amended planning application which differed in certain respects from the application notified under Clause 25(a)?

(iv) Was I correct to find that 'would have been refused' in Clause 25(f) is concerned with what 'would' happen in the no-pipeline world, rather than what 'should' have happened?

(v) Was I correct to hold that the Planning Authority would have been entitled, in the exercise of its discretion, to have accepted and considered an amendment to the original application so as to reflect the layout shown in either Revision C or Revision C Alt?"

Submissions for the respondents

[24] Senior counsel began by explaining the background to the matter, which we have narrated. The crucial document, which was at the heart of the dispute between the parties was the Schedule appended to the Grant of Servitude, and, in particular, Clause 25. In the face of the proposed award in favour of the claimants in the draft determination, the respondents had requested the stating of the present case and the questions raised in it were in terms which were ultimately agreed. These were questions of law for the Court. The facts found by the arbiter could not and would not be challenged. Senior counsel proceeded to examine the Schedule and, in particular, Clause 25(a) in all its respects. Sub-clause (f) provided an important defence for the owner of the dominant tenement. The problem was to reconcile the terms of sub-clauses (a) and (f). He explained that the respondents' position in these matters was set out in their written note of argument. The terms of Clause 25 had been considered in only one case of which he was aware, Labinski Limited v (First) BP Oil Development Company and others (24 January 2003; unreported). This case provided an illustration of a refusal of planning permission related to matters additional to the existence of the pipeline. He made reference to paragraphs 2 to 7 and 10 in the Opinion of the Court, which gave some guidance as to the operation of Clause 25. The words "proposed development" which appeared in Clause 25(a) and (f) should be interpreted to mean the development that was proposed in the planning application by the claimants dated 2 June 1994. Clause 25(a) referred to the refusal of "planning permission" in principle. An issue arose in relation to that. As he understood it, the claimants contended that those words required the decision maker to identify the nature of the "in principle" application, in a case where, as here, the application had been one for full planning permission in detail. That was a task which was well-nigh impossible. He submitted that it was not for the respondents to ascertain or deduce from the detailed planning application which had been made and refused what was involved "in principle". Putting the matter in another way, if applicants chose to make an application for full planning permission in detail, as had been done here, those applicants were fixed with the application as it was. If that application were refused for reasons unrelated to the existence of the pipeline, then a claim for compensation under Clause 25(a) would fail. In relation to the nature of different kinds of planning application, senior counsel referred to Scottish Planning Law and Procedure, Jeremy Rowan Robinson, paragraphs 7.08 and following.

[25] It was evident from the circumstances here that while, as was accepted, in refusing the claimants' planning application, the planning authority had referred only to the pipeline as a reason for refusal, the correspondence suggested that the planning authority had not wished to concern themselves in detail with other aspects of the application which might have resulted in refusal, in a situation in which refusal was inevitable on account of the existence of the pipeline. Senior counsel submitted that the operation of Clause 25 involved a three stage process: First, there had to be consideration of possible diversion by the respondents; if there was to be no diversion, the question of the payment of compensation would arise; if the respondents considered that they had a defence under Clause 25(f) to a demand for payment of compensation, then they had the opportunity to state that defence. In this case the respondents had indicated their reliance on Clause 25(f) in the counter-notice to which reference had been made.

[26] In paragraph (VII) of the arbiter's Note in his Stated Case, he had referred to several authorities concerned with the interpretation of commercial contracts and the operation of the contra proferentem rule. Senior counsel made clear that he had no reason to disagree with what was said there, but submitted that there was no room for the application of the contra proferentem rule in this case because there was no ambiguity to admit its operation in relation to Clause 25.

[27] Senior counsel then turned to proffer the respondents' construction of Clause 25. He said that it created an obligation on the owner of the servient tenement to serve notice upon the owner of the dominant tenement, the respondents, in the event that the former wished to develop land affected by the pipeline and if that proposed development had been prevented, in whole or in part, by reason only of the existence of the pipeline. In this case the notice served relied upon prevention in whole. Thus the respondents here were entitled to approach the task which they faced on receipt of the notice on the basis that the whole of the development proposed had been prevented for that reason. The position was that the planning authority could only determine the application before it. It could not modify it, or extract from it the principle of the development proposed. It had to consider all aspects of the application made to it, which in this case was one in detail. The words "would have been refused" appearing in Clause 25(f) must mean "would have been refused by a planning authority appraised of all the material considerations". Thus there had to be an hypothetical consideration of what would have happened to the planning application in what might be called the "no-pipeline world". Senior counsel submitted that the scope of that hypothetical consideration was not limited to matters of principle. It was not at all an easy matter to divine what principle was involved in an application where in fact the application was one made in detail. Was the principle an application for a housing development, or was it an application for housing development at a particular housing density? There was no answer to that question. A factor of some significance was the fact that the quantification of the claimants' claim, as defined in condescendence 12 of the record on the claim and answers, appeared to be based upon the elements of the detailed application made. That application was for planning permission for a specified number of houses. Reverting again to the question of what was the "principle" referred to in Clause 25(a) of the Conditions of Servitude, it was in practice impossible to identify the principle. If it was thought appropriate by the claimants to formulate their claim on the basis of the detailed application, it was appropriate that the question of whether planning permission "would have been refused for the proposed development" should be considered again on the basis of the detailed application.

[28] The Clause required that the land owner had to formulate an application which the planning authority would have found acceptable, but for the existence of the pipeline. The scheme of Clause 25 meant that, after receipt of the notice contemplated under Clause 25(a) the respondents had to decide, first, whether to effect a diversion of the pipeline, or, second, whether they would pay compensation in the event of the pipeline not being diverted. Although no mention was made of the implications of Clause 25(f) in sub-paragraph (a), they also had to consider whether they could prove that a planning permission "would have been refused for the proposed development under grounds unrelated to the existence of the pipeline". The words of Clause 25(f) suggested that those "grounds unrelated to the existence of the pipeline" might be any grounds based upon the terms of the planning application made. If the application had been one for planning permission in principle, there would be a claim for loss of development value. If the application for planning permission was one made in detail, the nature of the exercise that the respondents would have to undertake would be different. There might be a number of grounds upon which there could be a refusal unrelated to the pipeline; if the claim for compensation was sound, it would be based upon the evaluation of the particular development proposed in the application.

[29] It would have been open to the claimants, having become aware of the contents of the letter from the Health and Safety Executive concerning the difficulties created by the pipeline, to have withdrawn the existing detailed application and to have presented a fresh application in principle. However, they chose not to do so and the choice which they made had certain repercussions.

[30] In paragraph (XIII) of his Note attached to the Stated Case, the arbiter stated that the principal requirement of Clause 25(a) was for the land owner to give a notice of a proposal to develop land affected by the pipeline, which proposal was prevented in whole or in part, by reason only of the existence of the pipeline. The notice required to include evidence of that fact by reference to an actual application for planning permission, in the view of the arbiter, demonstrating that the principle of development had been prevented by reason only of the existence of the pipeline. In his view, for the purposes of Clause 25(a), it did not matter whether the actual application was for full or outline planning permission.

[31] Senior counsel submitted that consideration of the history of the planning application indicated that the original proposal would not have been granted, quite apart from the implications of the existence of the pipeline. In that connection he drew our attention to correspondence and plans, original and revised, submitted at different stages to the planning authority. It was evident from this documentation that, during the course of the dependence of the application, plot sizes for the proposed houses were changed, as was the proportion of different house types. The number of houses was reduced from 126 to 123. Also there was reorganisation of the internal features of the site. In that connection he placed reliance on the terms of the letter dated 26 July 1994 from the planning authority to the claimants' architects. That indicated revisions to the proposals that the planning authority desired. All that took place before the discovery of the pipeline issue. In short, there had been evidence before the arbiter that the application, as it was originally formulated, would have been refused, quite apart from the problem of the pipeline.

[32] Senior counsel then turned to consider the interpretation of Clause 25 of the Grant of Servitude in greater detail. He advanced five propositions. First, Clause 25 did not provide that the planning application contemplated had to be a detailed application to the exclusion of an application in outline; both were envisaged. Second, the different application routes had different consequences when used. If the application was in outline, the necessary next stage would be an application for approval relating to reserved matters. Third, if an application in outline were made, the level of information available to the respondents would vary considerably. Fourth, if the application were one in outline, the respondents would require to make an informed estimate of the development value in the proposal. It would be possible to value the development in different ways. Fifth, however, if an application for planning permission were made in detail, the detail might be variable, offering a number of different ways in which the proposal might be evaluated.

[33] It was relevant to the task of the arbiter to consider the implications of each application that might be made. One of the difficulties in the situation was that the density of the housing proposed might well determine whether there was or was not an objection to it on grounds unrelated to the pipeline. It was thus difficult to proceed solely on the principle of housing. Further, the quantification of any claim for loss of development value could depend on the particular proposal that might be contemplated on the site. Senior counsel submitted that following upon the emergence of the problem constituted by the pipeline, the claimants had two options: (1) to withdraw the detailed application that they had made and then to lodge an application for outline planning permission; or (2) to continue with the detailed application that they had made and face the consequences. If the former course had been taken, senior counsel said that he would not have had a point to make. However, because the claimants had followed the second course, he was entitled to raise detailed objections to the detailed application in advancing the defence under Clause 25(f). It would be anomalous for an applicant for planning permission in outline, in whom a right to compensation arose, the pipeline not being diverted, then to formulate a claim for loss of development value based upon some detailed hypothetical proposal, which had not been advanced at the first stage of the process. Putting the matter in another way, the words "planning permission" in Clause 25(f) meant not planning permission "in principle", but planning permission as actually applied for. However, it was not contended that the land owner was fixed with what he had applied for; what was significant was what had been refused. In paragraphs (II) and (III) of his Note in the Stated Case, the arbiter had considered the relationship between Clause 25(a) and (f). He had apparently come to the conclusion that there was a slight tension between these two provisions. However, the words "intend to pay" in Clause 25(a) had to be read as qualified by the words of Clause 25(f); it was necessary to read into Clause 25(a) words such as "if liable" after the words "intend to pay".

[34] Senior counsel indicated that there were several further matters to which he wished to draw attention. First, he submitted that the authorities relevant to the interpretation of contracts could properly be applied to the interpretation of the Grant of Servitude involved in the present case, since servitudes were, in their nature contractual. In paragraph XX, the arbiter appeared to have accepted that proposition. In this connection he drew our attention to Glasgow City Council v Caststop Limited 2002 S.L.T. 47, particularly paragraph [33] of the Opinion of Lord Macfadyen. The only qualification to this was that it had to be recognised that Clause 25 contained expressions which had meanings derived from planning parlance. Further, it should not readily be assumed that mistakes of any kind had been made in the drafting of the servitude conditions. If a reasonable result could be derived from an interpretation of Clause 25, that was to be preferred to an unreasonable one. The respondents' interpretation was reasonable. Senior counsel also relied on Mannai Investment Company Limited v Eagle Star Life Assurance Company Limited [1997] AC 749; Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896; Bank of Scotland v Dunedin Property Investment Company Limited 1998 SC 657 particularly the observations of Lord President Rodger at page 661; Egan v Static Control Components (Europe) Limited [2004] EWCA Civ 392; Tektrol Limited v International Insurance Company of Hanover Limited [2005] EWCA Civ 845, particularly the observations of Buxton L.J. in paragraphs 7 and 8. Senior counsel again submitted that there was no need for the application of the contra proferentem principle of interpretation, because there was no ambiguity in Clause 25.

[35] An issue had arisen in relation to the proper interpretation of Clause 25(f) and, in particular, the words "would have been refused", which was highlighted in paragraph 6(vii) in the respondents' note of argument. It was submitted that Clause 25(f) envisaged an objective assessment of the planning merits of the application. It was not legitimate to look at the idiosyncrasies of the particular planning authority involved.

[36] Finally, an issue had arisen, focused in question (v) in the Stated Case concerning the legitimacy of the arbiter's approach to what had been called the "fine tuning" of the application. This was dealt with in paragraphs XXI to XXV of the Note attached to the Stated Case. The submission was that the arbiter appeared in paragraph XXI of his Note in the Stated Case to view the changes necessary to convert the development as shown on Plan 3036/DD/01 to that shown on Revision C or C alt as being capable of being seen as "fine tuning", involving an informal amendment process. Such an approach was not in accordance with what was said in Bernard Wheatcroft Limited v Secretary of State for the Environment and another (1982) 43 P.& C.R. 223 at pages 240 to 241 and Walker v City of Aberdeen Council 1998 S.L.T. 427 at page 431. In all these circumstances Question (v) had to be answered in the negative.

[37] Following the submissions which we have just summarised, on 6 October 2010 the hearing had to be adjourned for lack of time. The date of 2 December 2010 was thereafter identified as a diet for the completion of the hearing. On 25 November 2010 a motion was enrolled on behalf of the respondents to allow a Further Note of Argument, number 9 of process, to be received and answered if necessary by the claimants and to be considered by the Court. That motion was opposed on behalf of the claimants. At the outset of the resumed hearing on 2 December 2010, senior counsel for the respondents supported his motion. He recalled that, at the previous hearing, part of the second day had involved the Court being occupied by other business. That had caused the respondents to conclude their submissions in some haste. Since the conclusion of that part of the hearing, the respondents' advisers had given further consideration to the submissions made by them earlier and had concluded that it was necessary to focus the attention of the Court on certain further points which were embodied in the Further Note of Argument. It was important to the respondents that these fresh matters should be considered by the Court. In the light of what was said by senior counsel for the respondents, despite the opposition of the claimants, we decided to take the new material into consideration.

[38] That material, to some extent, had been elaborated by senior counsel in his submission on the motion. Senior counsel recalled that, in the course of the earlier submissions, it had been noted that the expression "proposed development", identified by the claimants in the notice served by them on the respondents in accordance with Clause 25(a) of the Grant of Servitude, was the same as the development for which the claimants had sought full planning permission in their application submitted to the planning authority on 2 June 1994 and refused by the planning authority on 9 October 1996. On further consideration, the respondents had formed the view that insufficient emphasis had been placed in the course of the submissions on the significance of the expressions "said proposed development" and "the proposed development" where they appeared in Clause 25(a) and (f).

[39] In terms of sub-clause 25(a), the claimants were required to give notice of the proposed development of the land affected by the pipeline which they contended had been prevented in whole or in part by reason only of the existence of the pipeline, including details of the application for and refusal of or conditional grant of planning permission in principle. It did not follow that the proposed development and the planning application had to coincide exactly. It would have been quite permissible, in terms of sub-clause 25(a) for the claimants to have produced an application for outline planning permission for a residential development on the land, and also to have defined their "proposed development" by reference to a detailed statement and layout. In such a situation, the proposed development would not have been before and considered by the planning authority. However, it would have been that proposed development which the respondents would have had to have had regard to in considering whether they intended to divert the pipeline, or alternatively whether they intended to pay compensation for all losses arising out of their decision not to divert. It was a matter entirely for the claimants how they chose to identify their proposed development.

[40] Sub-clause 25(f) made clear that it was the proposed development, as identified in sub-clause 25(a), that the respondents had to consider when determining whether they could prove that planning permission "has been or would have been refused ... on grounds unrelated to the existence of the pipeline". Thus the respondents' attention was directed to the development as defined by the claimants, and not, of necessity, to the planning application and refusal. In the example given, the proposed development would be that shown in the detailed statement and layout; the respondents would have considered whether that manifestation of the development would have been granted planning permission. They would not have considered whether the application which had been made and refused would have been refused for non-pipeline reasons.

[41] In the circumstances of this case, the claimants had elected to define their proposed development by specific reference to the development in respect of which detailed planning permission had been applied for and refused. It was that proposed development which the respondents were directed to consider by sub-clause 25(a) and (f), when determining whether they intended to divert the pipeline, or whether they intended to pay compensation for all losses arising out of their decision not to do so, and whether they could establish that planning permission would have been refused for the said development. Senior counsel submitted that this approach to Clause 25 avoided the difficulty inherent in the approach taken by the claimants and accepted by the arbiter that the respondents were required to extrapolate from a detailed planning application the "in principle" element. The claimants were required to produce an application for planning permission "in principle" and the relevant refusal. It was for the claimants to determine how they intended to "translate" that planning application into a "proposed development".

[42] Having chosen within the notice served by them under sub-clause 25(a) to define their proposed development by reference only to their planning application, it was not open to the claimants to maintain that their proposed development was some other indeterminate manifestation of the "in principle" element of the planning application. It was, of course, the proposed development which the respondents had to consider when arriving at a view as to whether planning permission would have been refused. It made sense that the respondents should have to address that issue, rather than address the issue of whether the planning application produced by the claimants would have been refused for a non-pipeline reason. There was evidence before the arbiter from the relevant planning authority officials to the effect that the planning application submitted by the claimants on 2 June 1994, which, in this case, was the same as the proposed development, would not have been granted even in a no-pipeline world. The arbiter did not record that evidence.

[43] For the foregoing reasons, it was submitted that, on a proper construction of Clause 25, the proposed development defined by the claimants was that set out in the detailed application for planning permission submitted by them to the planning authority and not an indeterminate development of which no intimation had been given by the claimants in the notice served on the respondents.

Submissions for the claimants
[44] Senior counsel for the claimants moved the Court to answer questions 1 to 4 in the affirmative. He submitted that question 5 did not arise; in any event, if it were appropriate to answer it, it should be answered in the affirmative. He said that he adopted the reasoning of the arbiter and the submissions set out in the claimants' written note of argument.

[45] His submissions would fall into four sections: first, he would deal with the relevant general principles of interpretation; second he would deal in detail with the terms of Clause 25; third, he would address the claimants' position; and fourth, he would examine the respondents' position.

[46] In developing his approach to the general principles of interpretation which were applicable, senior counsel relied on what was set out in paragraph 8 of his Note of Argument and paragraph 2 of his Supplementary Submission for the claimants to the arbiter. Clause 25 had to be interpreted with the commercial purpose of the contract in mind. It ought to be construed in the way that it would be by a reasonable commercial person. The approach of such a person was hostile to technical interpretations and undue emphasis on the niceties of language. Reliance was placed on what had been said in Mannai Investment Company Limited v Eagle Star Life Assurance Company Limited at pages 770 to 771 and Glasgow City Council v Caststop Limited at paragraph [34]. It was submitted that the law in this regard was not in controversy. However, the respondents' interpretation of Clause 25 fell foul of the approach desiderated.

[47] As regards the possible application of the contra proferentem rule of interpretation, the arbiter had indicated that if Clause 25 were ambiguous, then he would find for the claimants; there was no dispute that, if applicable, the rule would apply against the respondents. Reference was made to paragraphs VII and XX in the Stated Case. It could not be said that the grant of servitude had been freely entered into, in view of the potential use of compulsory powers by the claimants. In that connection reliance was placed on Labinski Limited v (First) BP Oil Development Company and others (24 January 2003; unreported) and Youell and others v Bland Welch & Company Limited and others [1992] 2 L.L.R. 127.

[48] Senior counsel then moved on to the second part of his submissions, concerned with the details of Clause 25 of the Schedule to the grant of servitude. Clause 25(a) conferred a right to compensation on the part of the land owner in certain events. There were three elements which required to exist before a right to compensation emerged. These were: (1) prevention of the "proposed development..." "in whole or in part by reason only of the existence of the pipeline"; (2) refusal of or conditional grant of "planning permission in principle" by the relevant planning authority; and (3) an election by the respondents not to divert the pipeline. Clause 25 contained several ancillary provisions, for example, that in sub-paragraph (e), which dealt with a failure of the respondents to intimate their decision regarding diversion within the specified period. That was equivalent to a decision not to divert. The co-existence of the elements mentioned amounted to a sterilisation of the proposed development. Clause 25(c) contained provisions for compensation for delay in the event of diversion being selected.

[49] Clause 25(a) spoke of the "said proposed development". That phrase was a reference merely to the manner in which the land owner "wishes to develop land affected by the pipeline", the phrase used in the opening sentence of the sub-clause. However, that might alter with the passage of time. It was in the nature of things and, in particular, of the planning process, that a proposal for development might be refined in the course of time through negotiation with the planning authority. An example of that would be where the discovery of mine shafts in the land in question might compel modification of the proposal. Thus, taking a practical and commercial approach to the language of Clause 25, it would be wrong to suppose that "said proposed development" was, once and for all, defined by the precise terms of the original proposal. It followed from this approach to interpretation that a decision to divert the pipeline might require to be taken in the light of limited information regarding the "said proposed development". The legitimacy of that view was confirmed by the appearance of the words "refusal of or conditional grant of planning permission in principle" in Clause 25(a). The Clause did not contemplate that the pipeline owner would have the benefit of detailed information concerning the "said proposed development".

[50] It was accepted that Clause 25(f) was worded oddly. In particular, the opening words "Notwithstanding the provisions of Clause 25 ..." appeared to be inconsistent with the fact that that sub-clause was itself a part of Clause 25. However, there was no difficulty or obscurity in the operation of Clause 25(f); the pipeline owner would be entitled to plead the defence enshrined in Clause 25(f) in any proceedings for the recovery of compensation. The respondents had argued that Clause 25(f) was focused, not only on the principle of the development, but also its detail. That was erroneous. The words in Clause 25(f) "the proposed development" referred to the "proposed development" mentioned in Clause 25(a).

[51] Finding in fact 23 on page 9 of the Stated Case contained an explanation as to why Mr Rennie had applied for full permission for Phase 8 of the development; plainly it did not occur to him that that application was likely to be refused. Quite simply, neither the applicant for planning permission, nor the planning authority had foreseen any difficulty. The circumstances in which the pipeline came to be a concern in the matter were the subject of finding in fact 14. Finding in fact 15 dealt with the steps which had been taken to endeavour to alleviate the problem constituted by the pipeline. In findings in fact 16 to 19, the history of the handling of the application was set forth. The detailed issues concerning different aspects of the application had not been fully worked through, because it was considered by the planning authority that refusal was inevitable because of the presence of the pipeline. At the arbitration, witnesses for the respondents had said that, as at October 1996, the application should have been refused for design reasons unrelated to the existence of the pipeline. However, there had been discussions leading to revisions of the original plan, in particular versions C and C Alt. which would have enabled the planning officer to make a favourable recommendation to the authority. In these circumstances the arbiter had accepted that planning permission would have been granted, but for the pipeline. That represented a proper approach in accordance with a proper interpretation of Clause 25. But for the pipeline, there would have been amendments to the original application and, in due course, approval.

[52] Senior counsel for the respondents had contended that there was an insuperable difficulty arising from the presence of the words "in principle" in Clause 25(a) where the claimants had in fact made a full planning application. The difficulty envisaged by the respondents in that regard was illusory. It was appropriate to recognise that the expression "planning permission in principle" used in Clause 25(a), did not reflect directly the relevant provisions of the legislation, in this case section 39 of the Town & Country Planning (Scotland) Act 1972. In section 39(1) there was a definition of the concept of "outline planning permission", which was planning permission granted in accordance with the appropriate statutory provisions with the reservation for subsequent approval by the planning authority of matters, referred to as "reserved matters", not particularised in the application. The concept of "reserved matters" was itself defined in the Town & Country Planning (General Development) (Scotland) Order 1975/679. It was there provided that

"'reserved' matters in relation to an outline planning permission or an application for such permission, means any matters in respect of which details have not been given in the application and which concern the siting, design or external appearance of any building to which the planning permission or the application relates, or the means of access to such building, or the landscaping of the site in respect of which the application was made ...".

In Alexander Russell Limited v Secretary of State for Scotland 1984 S.L.T. 81, it was held that there were only two kinds of planning permission, namely, planning permission simpliciter, or outline planning permission; both kinds of planning permission had to place the question of the principle of the development in issue. Reliance was placed in particular on the observations of the Lord President (Lord Emslie) at page 87. What emerged from this background was that any application for planning permission, properly so called, had to put in issue the principle of the development. It followed from this background that it was possible, upon examination of an application for planning permission properly so called, to discern the principle of the proposed development. The reference to "planning permission in principle" in Clause 25(a) could be seen as a reference to an application for planning permission simpliciter, as in the present case, or an application for outline planning permission. In either case the principle of the development would have been put in issue and it would be possible to discern whether the proposed development had been prevented in whole or in part by reason only of the existence of the pipeline. In this connection reference was made to paragraphs 12 and 13 of the claimants' Note of Argument and to Labinski Limited v (First) BP Oil Development Company and others.

[53] The respondents' argument placed much significance on the nature of the application for planning permission and, in particular, whether it was one for full or outline planning permission. According to their argument, the provisions of Clause 25(f) defeated a claim if there had been a refusal of planning permission in respect of a matter of detail. However, they accepted that, if an outline application were refused only for a pipeline reason, compensation would be payable. The claimants submitted that Clause 25(f) related to planning permission in principle. That was the view that had to be taken to render Clause 25(f) consistent with Clause 25(a). It was obvious that, in order to quantify any claim for compensation, it would be necessary for the claimant to show how the land in question would have been developed had planning permission not been refused on account of the presence of the pipeline. That would require a quite detailed consideration of the nature of the development, but that was an entirely separate matter, which arose only in connection with the quantification of compensation. In connection with this aspect of the case, senior counsel adopted the observations of the arbiter in paragraph XV of his Note attached to the Stated Case.

[54] Senior counsel for the respondents had submitted that they would be disabled from making a precise calculation as to whether diversion of the pipeline was or was not appropriate in the absence of detail concerning the proposed development. However, the terms of clause 25 made it plain that the respondents were not entitled to detailed notice of the proposed development; all that they were entitled to receive was an application for planning permission in principle. It followed that their calculations concerning the expediency of diversion had necessarily to be made on a broad approach. That would not cause prejudice to the pipeline owners, since they could readily receive advice from an appropriate source as to the level of profit to be expected as deriving from the development of a particular area of land for housing or other purposes.

[55] The respondents' argument was to the effect that the words "the proposed development" in clause 25(f) had to be interpreted as embracing the whole detail of the application originally made, in this instance an application for full planning permission. The application which had been the subject of refusal had of course, been amended. According to the respondents, that would mean that clause 25(f) would operate to defeat the claimants' claim. That approach was unreal and ignored commercial and procedural realities. An amendment to an application did not amount to a refusal; nor did it involve the transmutation of that application into something completely different. The principle of the application would not necessarily be affected at all.

[56] Senior counsel went on to draw our attention to the plans actually used in connection with the claimants planning application. Plan DD01 was the first plan used in connection with the application. Plan DD01C was the so called C(Alt) plan. There was a difference in house types as between these two plans, although the internal road layout was similar. There were many small differences between the plans, dependent upon detailed planning requirements. The mineshaft was shown on the modified plan, which was a refinement of the original design. What had happened in this case had been referred to by the arbiter as "fine tuning", an accurate description of what had occurred. In this connection, reference was made to findings in fact 13, 27 and 28 in the Stated Case. However, there was no question of the changes concerned resulting in a completely different proposed development. In Inverclyde District Council v Secretary of State for Scotland 1982 S.C.(H.L.) 64, it was made clear that there was a fundamental difference between an amendment of a planning application which did not have the effect of altering the whole character of the application and one which did; looking at that approach, the plan DD01C was not an alteration to the whole character of the application.

[57] Senior counsel then turned to consider the terms of question (iv) in the Stated Case. In this connection it was important to notice that the words used in clause 25(f) were "would have been refused", not "should have been refused". The arbiter had rejected the contention that "would" ought to be read as "should". The reasons he gave for that view in paragraph XVIII of his Note could not be improved upon. In this connection reference was made to Sudbrook Trading Estate Limited v Eggleton and others [1983] A.C. 444 and to Tesco Stores Limited v Secretary of State for the Environment and others [1995] 1 WLR 759. A planning authority had very considerable discretion in the exercise of its functions. Two planning authorities might look at a particular application and come to different conclusions about it. So the arbiter, having taken a view regarding what "would" have happened in the present case, could not be challenged. His reasoning in paragraph XVII of his Note in the Stated Case was unimpeachable.

[58] Senior counsel moved on to consider question (v) posed by the arbiter. In this connection he relied on what was said in paragraphs 28 to 31 of the claimants' Note of Argument. His primary position was that this question did not arise because, in terms of Clause 25(f), what had to be considered were matters of principle. If that were so, issues relating to amendment did not arise. In the no-pipeline world no one would have challenged an amendment as being ultra vires. The cases of Bernard Wheatcroft Limited v Secretary of State for the Environment and another (1982) 43 P.& C.R. 233 and Walker v City of Aberdeen Council 1998 S.L.T. 427 were concerned with the limits to amendment of planning applications. There was no question of any amendment here having transgressed those limits. In the whole circumstances question (v) did not arise; in the event that it did, it should be answered in the affirmative.

The decision

[59] It is quite evident both from the Case stated by the arbiter and from the arguments which were deployed before us that there is a serious difference of view between the parties concerning the interpretation of the Schedule incorporated into the Grant of Servitude, and, in particular Clause 25 thereof. In these circumstances, in the first place, it is necessary to identify the proper approach to be taken where there is a problem of interpretation. As regards that matter, we did not perceive that there was any significant difference between the parties. The matter was the subject of consideration in Mannai Investment Company Limited v Eagle Star Life Assurance Company Limited in the House of Lords. At pages 770 to 771, the observations of Lord Steyn are of assistance:

"There are obvious differences between the processes of interpretation in regards to private contracts and public statutes. For a perceptive exploration of the differences in the context of United States law see Robert S. Summers, 'Statutes and Contracts as Founts of Formal Reasoning', in Essays for Patrick Atiyah, edited by Peter Cain and Jane Stapleton (1991), pp.71 et seq. It is better to speak of a shift towards commercial interpretation. About the fact of the change in approach to construction there is no doubt. One illustration will be sufficient. In Antaios Compania Naviera S.A. v Salen Rederierna A.B. [1985] A.C. 191, 201, Lord Diplock in a speech concurred in by his fellow Law Lords observed:

"If detailed semantic and syntactical analysis of a word in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense."

In determining the meaning of the language of a commercial contract, and unilateral contractual notices, the law therefore generally favours a commercially sensible construction. The reason for this approach is that a commercial construction is more likely to give effect to the intention of the parties. Words are therefore interpreted in the way in which a reasonable commercial person would construe them, and the standard of the reasonable commercial person is hostile to technical interpretations and undue emphasis on niceties of language. In contradistinction to this modern approach Lord Greene M.R.'s judgment in Hankey v Clavering [1942] 2 K.B. 326 is rigid and formalistic. ... Nowadays one must substitute for the rigid rule in Hankey v Clavering the standard of a commercial construction."

[60] The matter of the proper approach to interpretation of commercial documents was taken up in Glasgow City Council v Caststop Limited by Lord Macfadyen. In paragraph [34] he said this:

"In my opinion counsel for the defenders was right in detecting two separate lines of authority, one dealing with the preference for a commercially sensible construction and the other treating the commercial purpose of the contract, objectively ascertained, as part of the background matrix of fact. In my opinion, however, these are both legitimate considerations which ought, if there are available in the circumstances of the particular case, to be taken into account. The preference for a commercially sensible construction seems to me to be but an instance of the broader consideration identified by Lord Reid in L Schuler A.G. v Wickman Machine Tool Sales Limited [[1974] AC 235] at page 251, namely that a construction which yields a reasonable result is to be preferred to one which yields an unreasonable result. In the context of a commercial contract, reasonableness is to be judged from the point of view of the person experienced in the relevant aspect of commerce. If therefore the language of a commercial contract is capable of bearing either of two meanings, one of which yields a result that would appear to a reasonable man experienced in the relevant business as sensible, and the other of which yields a result that would be regarded by such person as making no commercial sense, the former construction is to be preferred (Antaios Compania Naviera S.A. v Salen Rederierna A.B., per Lord Diplock at p 201). I agree with counsel for the defenders, however, that that consideration does not justify abandonment of the attempt to understand the language used. The other consideration, namely that the commercial purpose of the contract forms part of the factual matrix, is also in my view a legitimate aid to construction, provided it is born in mind that the commercial purpose must be objectively ascertainable. If it is, it can properly be taken into account. On the other hand, the difficulties which may lie in the way of objective identification of the commercial object of the contract were clearly identified by Lord Wilberforce in Prenn v Simmonds [[1971] 1W.L.R. 1381.] at p 1385."

It is the approach outlined in these two cases that we intend to follow here in considering Clause 25 of the Schedule.

[61] Before considering those parts of clause 25 that have been the focus of controversy in argument, it is appropriate to comment on some of the terms used in Clause 25(f). That provision defines what may be available as a defence to a claim for compensation under the clause. It opens with the words: "Notwithstanding the provisions of clause 25...". Sub-clause (f) is, of course, itself part of Clause 25. Thus it is immediately obvious that the wording just quoted is inappropriate, since it is framed on the basis of a premise that sub-clause (f) is not part of Clause 25, which of course it is. Having drawn attention to that particular infelicity, in our view, it is a matter of no importance. Although the reference to Clause 25, without qualification, is inept, we consider that the meaning of sub-clause (f) is clear to the extent that it is designed to provide for a particular defence to a claim for compensation in certain circumstances. However, that is not to say that the remaining parts of sub-clause (f) are not open to interpretation. With them we deal at a later stage.

[62] In the light of the observations which we have quoted concerning the proper approach to a commercial document such as that involved here, it is right to recognise a feature of the Grant of Servitude and the associated Schedule of Conditions which appears to us to be material to their proper interpretation, that is to say the provision made for the payment of a consideration for the grant. It will be seen from the opening words of the deed that the consideration consisted in the payment of the relatively modest sum of £1008 together with the obligations and conditions thereafter referred to. Among those obligations was plainly the obligation, in terms of Clause 25, to pay compensation for "all losses arising from their decision not to divert the pipeline, including, without prejudice to the foregoing generality, losses of development value." (see Clause 25(a).) Thus the servitude was granted upon the basis of a relatively modest payment for the grant in the first instance, in association with the assumption of an obligation to pay compensation for all losses and, in particular, losses of development value consequent upon the presence of the pipeline in the subjects over which the servitude was granted, in appropriate circumstances. In interpreting the terms of Clause 25, it appears to us to be necessary to keep in mind that scheme of consideration.

[63] In the opening sentence of clause 25(a) the words "...if the said proposed development of the land is prevented in whole or in part by reason only of the existence of the pipeline..." appear. It is to be noted that the expression "said proposed development" is not itself anywhere expressly defined. Further, the search for the antecedent subject of the expression is in vain, which may be seen as another infelicity of drafting. All that is to be found is what appears in the opening words of the sentence: "If at any time the Owner wishes to develop land affected by the pipeline, or to accept an offer from some person who wishes to develop such land...". In the light of the language used in this part of clause 25, we conclude that the meaning of the words "said proposed development" can only be that development that the owner or potential purchaser wishes to achieve. However, in our view, some further clarification of this expression is to be obtained from the words in the latter part of the first sentence in Clause 25(a). Those deal with what must be done by the Owner of the land in question if he is to avail himself of the compensation available where losses have been sustained and, in particular, losses of development value, arising from the Company's decision not to divert a pipeline. What the Owner must do is to "give written notice to the Company of the said proposed development including details of the application for and refusal of or conditional grant of planning permission in principle by the Planning Authority." Within that wording, in our view, the words "planning permission in principle" are important as an indication of how the "said proposed development" may be defined.

[64] Dwelling on those particular words for a moment, it is necessary to consider what is meant by them. In the legislation in force at the time of the occurrence of the events which have given rise to this litigation, the words "planning permission in principle" did not coincide with any particular statutory form of a planning permission. In section 20 of the Town and Country Planning (Scotland) Act 1972, provision is made for the general requirement of "planning permission" for the carrying out of any development of land. Section 22 of the 1972 Act provides for the form and content of applications for planning permission, which required to be made in such a manner as might be prescribed by regulations under the Act. However, in section 39 of the Act provision is made for the possibility of the grant of "outline planning permission". In section 39(1) it is provided:

"In this section and section 38 of this Act "outline planning permission" means planning permission granted, in accordance with the provisions of [regulations under this Act or] a development order, with the reservation for subsequent approval by the planning authority or the Secretary of State of matters (referred to in this section as "reserved matters") not particularised in the application."

[65] In our view, further assistance can be got in elucidating the meaning of the terms of Clause 25(a) from what was said in Alexander Russell Limited v Secretary of State for Scotland concerning the foregoing statutory provisions. The issue in that case was whether an application of the appellant, which was not an application for outline planning permission and sought to preclude consideration of the principle of the proposed development, was an application for planning permission within the meaning of section 33(1) of the 1972 Act. At pages 87 and 88 of the report, the Lord President dealt with what was to be regarded as an application for planning permission. There he said:

"The simple contention for the Secretary of State is that the only applications to a local planning authority which qualify as applications for planning permission are those which put in issue the principle of the proposed development and, accordingly, that the application dated in September 1979, which did not do so, cannot be regarded as an application for planning permission.

In my opinion this simple contention for the Secretary of State is well founded. Scrutiny of the relevant Acts and orders shows that the expression "planning permission" is either planning permission in principle and detail, with or without conditions, or outline planning permission within the meaning of section 67(1) of the Act of 1969 under a definition which has been retained in the Act of 1972."

Thereafter his Lordship embarked upon a detailed review of the applicable statutory provisions and continued:

"Upon this review of the statutory code I am in no doubt: (a) that there are only two kinds of planning permission namely planning permission simpliciter with or without lawful conditions, and outline planning permission which is a planning permission which confines itself to permitting the proposed development in principle only; (b) that each kind of planning permission involves a decision in favour of the proposed development in principle; and (c) that applications for both kinds of "planning permission" recognised by the code must place the question of the principle of the development in issue."

It appears to us from these observations that outline planning permission within the meaning of section 39 of the 1972 Act may properly be equiparated with what may be called planning permission in principle, an expression used in common practice. Furthermore, it emerges from the dicta in the same case that an application for planning permission simpliciter, or full planning permission, necessarily puts in issue the principle of the proposed development, which inevitably must be ascertainable from examination of the application.

[66] In these circumstances, looking at the terms of Clause 25(a), if the owner of the land affected by the pipeline wishes to develop land and if the proposed development of the land is prevented in whole or in part by reason only of the existence of the pipeline, he must give a written notice to the company of the proposed development, including details of an application for and refusal of or conditional grant of planning permission in principle. Where the relevant application for planning permission was an application for outline planning permission only, then no doubt the details of the refusal or conditional grant of that planning permission will be given. Where the application was for planning permission simpliciter, or full planning permission, as here, the notice will require to include material to show that the refusal or conditional grant of the principle of the proposed development had been prevented in whole or in part by reason only of the existence of the pipeline. We would reject the contention that in a case where the application made was one for a planning permission simpliciter, or full planning permission, there would be a material difficulty in discerning the principle of the proposed development. For these reasons we agree with the observations of the arbiter in paragraph XIV of his Note appended to his findings in fact in the Stated Case.

[67] Turning now to the provisions of Clause 25(f), we have already noted that its procedural relationship with Clause 25(a) is not entirely comfortable. Nevertheless, in our view, its substantive provisions are clear. It provides that the company will not be liable to pay compensation if it "can prove that planning permission has been or would have been refused for the proposed development on grounds unrelated to the existence of the pipeline...". The reference in that passage to "planning permission" in our view must be a reference to the "planning permission in principle" referred to in Clause 25(a). As regards the expression "the proposed development", we consider that that is to be accorded the same meaning as "the said proposed development" where that appears in Clause 25(a). Thus, in our view the defence to a claim for compensation provided for under Clause 25(f) would be available where the company could show that the principle of the proposed development, in relation to the whole or a part of the site, has been or would have been refused on grounds unrelated to the existence of the pipeline. An example of the kind of situation to which Clause 25(f) could relate would be where a piece of land through which a pipeline ran and which was the subject of an application for planning permission for housing was prone to serious flooding in wet weather conditions. In such a case the principle of the use of the land for housing could be decided to be inappropriate "on grounds unrelated to the existence of the pipeline". In these circumstances we are in agreement with what the arbiter says in paragraphs XV and XVI of his Note. We reject the submission of the respondents that, because certain details of the proposals contained in the claimant's application for full planning permission might not have been acceptable to the planning authority, resulting in the claimants having to amend their original application for full planning permission, that can be erected into a defence to a claim for compensation under Clause 25(f). Such a contention appears to us to be unwarranted having regard to the terms of Clause 25 and to fly in the face of the realities of the handling of applications for planning permission by planning authorities. Where an application for full planning permission is made, it is commonplace for the details of the application to be the subject of discussion and negotiation between the applicants and the professional officials of the planning authority before the application is put before the relevant committee for determination. We do not consider that the provisions of Clause 25 were framed without reference to that ordinary practice; in our judgment it would be wholly unreasonable, to the extent of depriving the clause of all sensible content, if any required variation or modification of design detail, however minor, would necessarily relieve the respondents of liability to pay compensation.

[68] We recognise that it is a consequence of the view which we have taken of the meaning and effect of Clause 25 that the respondents may require to reach a decision as to whether or not they intend to divert the pipeline without necessarily having before them information to show exactly what losses of development value may be the subject of a claim for compensation. Plainly, claimants may be able to quantify their claim on a particular basis concerning the proposed development which could not be foreseen, except in broad terms, at an earlier stage, and, in particular, at the stage when the company would require to make a decision concerning diversion. It seems to us that that state of affairs is simply the consequence of the language used in Clause 25(a) and, in particular, the inclusion of the words "planning permission in principle".

[69] In the course of the debate before us, there was a discussion concerning the proper interpretation of the words "would have been refused for the proposed development" where they appear in clause 25(f). This matter was dealt with by the arbiter in paragraph XVIII of his Note. We are in complete agreement with what he says in that paragraph. Like the arbiter, we see no reason to give the word "would" any meaning other than its plain and normal meaning. If the word were to be interpreted as meaning "should", the result would be the emergence of considerations as to what the actual, or even some hypothetical planning authority ought to have decided in the circumstances of the case. However, it is difficult to see any cogent reason why Clause 25(f) should be interpreted in that way. Such an interpretation is plainly contrary to the language actually used in the Clause. Further, as was observed by Lord Hoffmann in Tesco Stores Limited v Secretary of State for the Environment and others in paragraph 17 of his speech, the weight to be given to material considerations in the determination of a planning application is a matter within the discretion of the planning authority, provided that their view is based on rational considerations. Having regard to that, it seems to us entirely inappropriate that Clause 25(f) should be interpreted in such a way as to introduce into the consideration the conduct, not of the real planning authority actually involved in handling the matter, but of some hypothetical authority and, it might be, notions, based on unidentified criteria, as to how an application ought to have been decided. To do so would be to introduce unnecessarily a high level of uncertainty into such consideration.

[70] A further matter discussed before us was the issue of the possibility of the amendment of the application for full planning permission made by the claimants. This matter was discussed by the arbiter in paragraphs XVII and XXI to XXV in his Note, under the heading of "Fine Tuning". The legitimacy of the amendment of an application for planning permission was the subject of consideration in Bernard Wheatcroft Limited v Secretary of State for the Environment and another (1982) 43 P.C.R. 233 by Forbes J. At page 241 he said this:

"The true test is, I feel sure, that accepted by both counsel: is the effect of the conditional planning permission to allow development that is in substance not that which was applied for? Of course, in deciding whether or not there is a substantial difference the local planning authority or the Secretary of State will be exercising a judgment, and a judgment with which the courts will not ordinarily interfere unless it is manifestly unreasonably exercised. The main but not the only, criterion on which that judgment should be exercised is whether the development is so changed that to grant it would be to deprive those who should have been consulted on the changed development of the opportunity of such consultation, and I use these words to cover all the matters of this kind with which Part III of the Act of 1971 deals."

In Walker v City of Aberdeen Council 1998 S.L.T. 427 Lord Macfadyen at page 431 echoed that test, saying:

"In my opinion, when a planning authority accepts an amendment or revisal to an application for planning permission and determines the amended or revised application without undertaking in respect of the amended or revised application the processes of consultation, notification or advertisement that would have been required by statute if the amendment or revisal had been a fresh application, the test by which the validity of the resulting decision falls to be judged is that formulated by Forbes J in Bernard Wheatcroft Limited and followed in [Care Link v Secretary of State for the Environment [1989] 2 P.L.R. 47.] That test is whether the amended or revised application is for a development which is in substance different from that to which the original application related...Remembering that the context is the statutory system of town and country planning, it is in my view clear that while size may be a relevant consideration (particularly if the amendment increases the size of the proposed development - see Breckland District Council at page 39), the main consideration is the nature and extent of the difference in planning terms between the original and the amended proposal. If the amendment has the effect that substantial new planning issues not raised in the original application are raised, or that the proposal is open to substantial new grounds of planning objection which were not available against the original application, the amended application may, in my opinion, be said to be in substance different from the original one."

We find ourselves in agreement with those observations which, for present purposes, seem to us to confirm that the normal "fine tuning", or remedial amendment of a planning application in discussion with officials, is a process which, by definition, must leave intact its underlying substance or principle.

[71] Having considered what the arbiter has said in paragraphs XXI to XXIII of his Note, in our view, none of the issues that were ventilated before him as possibly calling for "fine tuning" of the claimants' original application would have resulted in an amendment that fell foul of the test enunciated in Bernard Wheatcroft Limited v Secretary of State for the Environment and Walker v Aberdeen City Council. The substance or principle of the claimants' application would at all times have remained the same, and on that basis we are satisfied that the respondents' attempt to equate such "fine tuning" with refusal of, or departure from, the substance or principle of the application must be rejected as unsound. But, having regard to the view which we have taken about the proper interpretation of Clause 25(a) and, in particular, the significance of the words "in principle" in that sub-clause, we are of the view that issues relating to the possible amendment of the detail of the claimants' original application do not properly arise.

[72] For all these reasons we shall answer question (i) posed by the arbiter in the affirmative; we shall answer question (ii) in the affirmative; we shall answer question (iii) in the affirmative; and question (iv) in the affirmative. As regards question (v) we consider that it does not properly arise in the circumstances of the case, having regard to the interpretation of Clause 25 which we favour. Had it been necessary to answer this question, we would have answered it in the affirmative.