Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION

[2015] CSOH 119

 

CA112/13

OPINION OF LORD WOOLMAN

In the cause

PIP 3 LIMITED

Pursuer;

against

GLASGOW CITY COUNCIL

Defender:

Pursuer:  Martin QC, Garrity;  Turcan Connell

Defender:  Dunlop QC, MacGregor;  Glasgow City Council (Corporate Services)

1 September 2015

Introduction
[1]        Glasgow City Council (“the Council”) owns a brownfield site in the East End of Glasgow (“the Property”).  It lies in an area designated for the 2014 Commonwealth Games.  Located nearby are the Athletes Village, the Sir Chris Hoy Velodrome and the Emirates Arena, formerly known as the National Indoor Sports Arena.  

 

Background
[2]        Several years prior to the Games, PIP3 Limited (“PIP3”) became interested in acquiring the Property.  It wished to construct a hotel and car park on the site, which extends to about 4.6 acres.  PIP3 entered into negotiations with the Council to acquire the Property.  As is standard in transactions of this type, the discussion focused on an Option Agreement linked to the grant of planning permission. 

[3]        PIP3 regarded the environmental condition of the Property as a key factor in its plans.  The state of the soil had a significant bearing on the feasibility and profitability of the development.  In particular it affected the availability of finance.  PIP3 required external funding of about £25 million to carry out the project.  Lenders generally require assurances about the condition of a site, supported by collateral warranties. 

[4]        Between 2006 and 2011, PIP3 instructed various investigations to be carried out.  They disclosed that the Property was relatively free from hazardous waste. 

[5]        In 2011 PIP3 received a survey report from the Council.  On comparing it with a 2006 report, PIP3 noticed that there was a substantial quantity of extra earth on the Property.  It contacted the Council, which confirmed that between June 2009 and January 2010, at least 33,840 tonnes of spoil had been deposited there.  As I understand matters, the spoil derived from the construction of the other Commonwealth Games facilities in the vicinity.   

[6]        In late 2011 PIP3 and the Council signed an option agreement (“the Agreement”).  It is dated 18 and 24 November and 9 December 2011 and was registered in the books of Council and Session on 19 January 2012.  It was subsequently varied on three occasions:  twice in 2012 and once in 2013.

[7]        The essential terms of the Agreement are as follows: 

(i)       In return for payment of £1, the Council granted PIP3 an exclusive option to purchase the Property.   

(ii)      PIP3 had to exercise the option within three months of the grant of detailed planning permission.

(iii)    The Effective Date was the date of final signature – 9 December 2011.

(iv)     As soon as reasonably practicable after the Effective Date, the Council had to instruct a Remediation Consultant to prepare a Site Waste Management Plan (“SWMP”) and a Materials Management Plan (“MMP”).

(v)      Not later than one month after the Effective Date, PIP3 required to provide the Council with ground level drawings.

(vi)     The Settlement Date was 15 working days after PIP3 exercised the option.  On that date PIP3 had to pay the Initial Purchase Price (“IPP”) of £1.425 million. 

(vii)     In the event of non-payment, the Council had the right to rescind. 

(viii)    Not later than the Settlement Date, the Council had to instruct the Initial Site Preparation Works.  They included the removal of inert, non‑inert, and hazardous waste under the supervision of the remediation consultant in accordance with the SWMP and MMP.  

(ix)     After the Settlement Date PIP3 had to carry out the groundworks as soon as reasonably practicable. 

(x)      Following completion of the groundworks, the Council would procure that the contractor(s) and the remediation consultant would deliver collateral warranties to PIP 3. 

(xi)     Both parties were subject to obligations of good faith. 

[8]        Following the conclusion of the Agreement, the Council instructed contractors to remove the spoil and also to “skim” the underlying soil to a depth of 600mm.  The works took place between January and March 2012.  The contractors removed a total of 56,812 tonnes of material from the Property, of which 18,859 tonnes were hazardous waste.  

[9]        Just over a year after the conclusion of the Agreement, PIP3 exercised the option.  The notice is dated 18 December 2012.  The original Settlement Date was early January 2013, but the Council extended it more than once and it became 11 April 2013.  

[10]      On 12 February 2013, PIP3 asked the Council to provide it with copies of the SWMP and MMP.  On 20 February, the Council replied to the effect that it was obtaining those documents, but that it was “under no legal obligation” to deliver them at settlement.  

[11]      PIP3 did not pay the IPP on the Settlement Date.  It maintains that it was not obliged to do so, standing the Council’s failure to provide copies of the SWMP and the MMP.  On 5 June 2013, the Council delivered copies of those documents to PIP3.  As PIP3 still did not pay the IPP, the Council rescinded the Agreement on 4 July 2013.  

 

Factual issues
[12]      There are three key conflicts of fact about the hazardous waste material.  First, PIP3 contends that during the period of about two years that it was present at the Property, contaminants leached into the soil.  That materially and adversely affected its environmental condition.  The Council disputes that assertion.  It maintains that the removal works returned the Property to the same condition as prior to the deposit. 

[13]      Second, PIP3 avers that it only learned about the hazardous material in February 2013 by speaking to contractors involved in carrying out works at the Commonwealth Games site.  The Council offers to prove an earlier knowledge date.  It states that PIP3 was aware that the deposit contained the hazardous material from July 2011. 

[14]      Third, there is the question of what PIP3 would have done if it had known about the presence of the hazardous waste material.  As discussed below, it has conflicting averments on this point. 

 

Grounds of action
[15]      PIP3’s principal ground of action is breach of contract.  It claims damages of £15,372,790 on the basis that the Council failed to provide (a) the SWMP and MMP, and (b) the collateral warranties.  The sum sought by way of damages represents PIP3’s estimate of the profit it would have made if the development had gone ahead.  

[16]      In the alternative PIP3 alleges that by failing to disclose the deposit of the hazardous waste, the Council (i) breached its obligations of good faith, and (ii) negligently misrepresented the position.  Under this head, PIP3 seeks to recover the abortive costs that it incurred in connection with the project, including professional fees.  It estimates that they total £1,254,779. 

 

The scope of the debate
[17]      The matter came before me for debate at the instance of the Council.  It accepts that the alternative ground of action is relevant and should be remitted to a proof before answer.  [18]   Mr Dunlop submits, however, that the breach of contract case is irrelevant.  He argues that the Council was entitled to rescind in the circumstances that occurred.  He also argues that on the basis of PIP3’s pleadings, it would not have carried out the development.  As it is a “no transaction” case, PIP3 is not entitled to seek damages based on the projected profit of the completed development.  

[19]      Mr Dunlop further contends that the summons is fundamentally lacking in specification.  He founds on the fact that PIP3 has not responded to averments made by the Council about emails that it claims demonstrate earlier knowledge on the part of PIP3. 

[20]      On behalf of PIP3, Mr Martin seeks a proof before answer.  He argues that the issues can only properly be determined after evidence has been heard.  In particular, the proper construction of the Agreement depends on looking at the whole circumstances.  

 

The contractual scheme
[21]      The Agreement consists of 26 clauses, together with a Schedule divided into eight parts.  Part 1 of the Schedule is termed “the Missives”.  It governs the exercise of the option.  Condition 1.1 states that on the Settlement Date PIP3 had to pay the IPP “by instantaneous bank transfer of cleared funds to such UK bank account as may be nominated by the Council”.  

[22]      If PIP3 failed to make payment, then after 20 working days, the Council was “entitled to rescind the Missives and the Option Agreement”:  condition 1.3.  I have italicised the last four words to denote the fact that they were added by variation.  

[23]      Mr Martin argues that PIP3 did not require to make payment on the Settlement Date, because the Council was in material breach of contract.  He founds on clause 4.1 within the main body of the Agreement.  It provides that: 

“In so far as not already done, as soon as reasonably practicable after the Effective Date and in any event no later than the Settlement Date, the Council shall instruct the Remediation Consultant to undertake the Materials Classification Exercise and to prepare the Site Waste Management Plan and the Materials Management Plan.  The Council will provide PIP3 with a copy of both the Site Waste Management Plan and the Materials Management Plan as soon as reasonably practicable upon receipt thereof.”  

 

[24]      Mr Martin construes that clause to mean that the Council had to deliver the SWMP and MMP to PIP3 before the Settlement Date.  Only if the SWMP and MMP were in existence before the Settlement Date could the necessary works mentioned in clause 4.2 be carried out timeously.  Clause 4.2 states: 

“No later than 1 month after the Effective Date, PIP3 shall provide the Council with the Ground Level Drawings.  As soon as reasonably practicable after receipt of the Ground Level Drawings, and in any event no later than the Settlement Date, the Council shall appoint the Initial Site Preparation Works Contractor to carry out and complete the Initial Site Preparation Works in accordance with the Initial Site Preparation Works Contract and in accordance also with the Site Waste Management Plan and under the supervision of the Remediation Consultant.  In the period from the Initial Site Preparation Works Completion Date until the Settlement Date, the Council may, in its absolute discretion, carry out and complete the Additional Site Preparation Works in accordance with the Additional Site Preparation Works Contract and in accordance also with the Site Waste Management Plan and under the supervision of the Remediation Consultant.” 

 

[25]      Mr Martin also submits that if I held the words to be ambiguous, PIP3’s construction accords with business common sense.  It should not be obliged to pay the IPP without knowing the scope of its obligations.  It would be unreasonable for there to be no definite time limit for delivering the SWMP and MMP.  

[26]      There are formidable hurdles to PIP3’s submission.  One relates to the proper construction of clause 4.1.  The other concerns condition 1.7 of the Missives.  I shall consider them in turn. 

[27]      In my view clause 4.1 imposes a duty of instruction, not one of delivery.  To impose an obligation on the Council to deliver the SWMP and MMP on or before the Settlement Date would be to insert words into the provision.  I decline to do so.  The words used by the parties are straightforward and easily understood.  PIP3’s construction involves the rewriting of the contract. 

[28]      I also observe that it would be surprising if the Council did have to deliver the SWMP and MMP on or before the Settlement Date.  The Agreement specifies that there should be three working weeks between the exercise of the option and settlement.  It might be difficult for the Council to obtain the two documents in question in such a short period.  That is illustrated by the circumstances here, where PIP3 exercised the option shortly before Christmas. 

[29]      For these reasons, I reject the construction of clause 4 advanced by Mr Martin. 

[30]      I next consider condition 1.7 of the Missives.  It provides that the Council is not entitled to rescind:  

“for any period of time during which the delay in payment by PIP3 is due to any failure or breach by or on behalf of the Council to implement its obligations or duties under the Missives on time.” 

 

[31]      The wording selected by the parties is significant.  Unlike condition 1.3, they did not extend its reach to include a breach of the option Agreement.  Accordingly, the enquiry is a narrow one.  Has the Council defaulted in its obligations under the Missives? If the answer is yes, then it cannot rescind.  If, however, the answer is no, then it can.  

[32]      Mr Dunlop points out that the Council refers to condition 1.7 in answer 4.13.  Despite having rewritten its pleadings three times since the action started, PIP3 does not mention it.  Mr Dunlop submits that as a result there was a fundamental lacuna in the summons.  The breach of contract claim is irrelevant, because PIP3 does not offer to prove that the delay in payment was caused by a failure by the Council under the Missives.  

[33]      Mr Martin argues that when part 1 of the Schedule came into operation, the main body of the Agreement did not cease to have effect.  The parties therefore continued to be bound by its terms, including clause 4.1.  

[34]      I begin with the terms of the Agreement.  In Macari v Celtic Football and Athletic Co Ltd 1999 SC 628 at page 640I Lord Rodger stated that sometimes “the express terms of the contract will regulate the matter.”  He emphasised that each obligation by one party is not necessarily the counterpart of every obligation by the other. 

[35]      I conclude that the parties did so regulate the matter here.  They prescribed the circumstances in which the Council lost its right to rescind, which did not include a breach of clause 4.1.  Accordingly, PIP3 was not entitled to withhold the IPP on that basis.  

 

Condition 8.7
[36]      Mr Martin argues that PIP3 was entitled to withhold payment because the Council breached condition 8.7 of the Missives.  It requires the Council to deliver certain documents at the Settlement Date, including the disposition, the title deeds, property searches and collateral warranties “to be granted by the Consultant and Contractor in favour of PIP3.”  

[37]      As the parties agree that no such warranties were offered or delivered on the Settlement Date, Mr Martin submits that there is a clear and relevant case of breach of contract.  I disagree.  

[38]      The opening words of condition 8 state that the Council must deliver the documents “in exchange for compliance by PIP3 of its obligations in terms of Condition 7.”  What are those obligations? They are to pay the IPP.  Accordingly unless PIP3 had made payment, it could not ask for those documents. 

[39]      Mr Martin maintains that there should have been a simultaneous exchange.  A similar question was discussed in AMA (New Town) Ltd v Law [2013] CSIH 61.  Lady Dorrian stated (at paragraph 50) that it is always a question of construing the individual contract:  “Parties are free to agree that the money will be handed over in advance of the title;  or that the title will be transferred in advance of payment.” 

[40]      Lord Menzies stated (at paragraph 2) that in the circumstances of that case, although the obligations: 

“were co-relative, it was not a contractual requirement that they should be precisely simultaneous – the obligation on the sellers only arose once the obligation on the purchasers had been fulfilled.”

 

[41]      Having regard to the wording of the Agreement in the present case, I conclude that payment of the IPP was the hinge of the transaction.  PIP3’s rights depended on it fulfilling its obligation to pay.  Unless and until that occurred, the Council had no obligation to deliver the collateral warranties, together with the disposition and the title deeds.  It would be odd if it had to hand over such significant documents in advance of payment. 

[42]      There are other problems that confront PIP3.  Under clause 4.5 the Council was not obliged to hand over the collateral warranties.  Rather, its obligation was to procure that the remediation consultant and the contractors delivered them to PIP3.  In terms of clause 4.7: 

“Provided the Council carries out its obligations in terms of this Agreement, PIP3 accepts that it shall have no recourse against the Council in respect of the condition of the Property.” 

 

[43]      The warranties were defined to include ones “to be granted”.  It is therefore difficult for PIP3 to assert breach (a) when no date is specified by which the parties need to agree the terms of the warranties;  (b) the obligation to deliver the warranties is on the contractor, not on the Council;  and (c) the collateral warranties can only be produced “Following Completion of the Groundworks”, which PIP 3 must carry out as soon as reasonably practicable after the Settlement Date. 

 

Is PIP3 entitled to claim full profits?
[44]      PIP3 sets out its claim to recover the lost profit of the development in Condescendence 11.  The key averments as follows: 

“But for the [Council’s] breach of contract in relation to the SWMP and the collateral warranties, [PIP3] would have proceeded with the Development.  [PIP3] would have procured (or, at the very least, would have had significant prospects of procuring) the necessary funding to carry out and profit from the Development.  The Development was an attractive prospect for lenders. [PIP3] did not in fact have all the necessary funding to carry out the whole of the Development in place as at the Settlement Date (although it did have the funding in place at that time for payment of the Initial Purchase Price).” 

 

[45]      In its case based upon breach of good faith and negligent misrepresentation, PIP3 adopts a different line.  Because of their importance, I shall narrate them at length. 

[46]      Condescendence 2.7 states:  

“Had [PIP3] been made aware of the depositing of significant amounts of additional hazardous waste on the Property by the [Council], [PIP3] would have required to reassess the extent of remediation works necessary to render the Property fit for the purposes of development in terms of the Option Agreement.  [PIP3] would not have entered into the Option Agreement with defined remediation works without further investigations into the nature and condition of the Property.  [PIP3] would not have proceeded to exercise the option under the Option Agreement without further investigations into the nature and condition of the Property.”  

 

[47]      Condescendence 4.1 states: 

“At the time [PIP3] exercised the option (and indeed at all times prior to February 2013) it was unaware of the fact that a significant quantity of hazardous waste had been deposited upon the Property sometime during 2010 or 2011.  Had [PIP3] been so aware, it would not have entered into the Option Agreement.  It would not have exercised the option.” 

 

[48]      Condescendence 10.2 states: 

“But for the [Council]’s negligent misrepresentation, [PIP3] would not have entered into the Option Agreement, would not have proceeded with the development and would not have exercised the option.  

 

[49]      Condescendence 10.3 states:

“But for the [Council]’s breach of duty, [PIP3] would not have proceeded with the development under the Option Agreement and would not have exercised the option.”

 

[50]      Condescendence 11.4 states: 

“But for the negligent misrepresentation and/or breaches of those obligations of good faith … [PIP3] would not have exercised the option.”

 

[51]      Mr Martin submits that PIP3 was entitled to plead alternative and inconsistent grounds of action.  He relied on a passage to that effect in Maclaren Court of Session Practice page 311.  Lord President Cooper approved that passage in Smart v Bargh 1949 SC 57 and continued (at page 61): 

“Now, it seems to me, on the one hand, that there are many cases in which substantial justice not only permits but requires that a case may be stated alternatively on inconsistent averments of fact.  But equally it appears to me that the Court must always retain supervision and control over the extremer types of case, examples of which were figured, in which it would plainly be incompatible with substantial justice to the opposite party that a case should be allowed to proceed on such inconsistent averments and without the party making those averments being forced to choose between the alternative cases he seeks to make.  There are two factors, the presence of which, I should think, will make it easier for the Court to permit alternative cases, based on inconsistent averments, to go to proof.  The one is the case where the party making the averments can justifiably assert that he or she is excusably in ignorance of the precise facts in question.  The second is the case with the party whose averments are under scrutiny is not a pursuer but a defender;  for this reason that any attempt on the part of the Court to narrow the scope of a defender’s actings in stating his defences might – and I need say no more – give rise to awkward complications and repercussions upon the well‑established plea of ‘competent and omitted.’”  

 

[52]      Neither of the two factors mentioned by Lord Cooper is present here.  PIP3 is not a defender and its position cannot be likened to that of a pursuer who did not know which of two ships caused a collision:  London & Caledonian Marine Insurance (1867) 5M 982;  or whether a bus accident was occasioned by the fault of the driver or the conductor:  Clarke v Edinburgh and District Tramways Co Ltd 1914 SC 775.  

[53]      In my view, this is one of “the extremer types of case” over which the court should exercise supervision.  PIP3 must know whether it would have exercised the option and developed the subjects.  It must, for example, know whether it could have secured the £25 million necessary to finance the development.  

[54]      I agree with Mr Dunlop that the whole thrust of PIP3’s pleadings indicate that this is a “no transaction” case.  It is not compatible with substantial justice to allow it to proceed to proof based on one sentence in Condescendence 11 that contradicts the rest of the pleadings.  The Council is entitled to know the case it faces:  Morrison v Rendall 1986 SC 69.  The corollary is that PIP3 is not entitled to embark on an expedition based on hope Moroni v Hugman 1997 SLT 240.  Sheriff Principal Bowen adopted a similar approach in RBS v Harper Macleod 1999 SLT (Sh Ct) 99. 

[55]      In my view, the circumstances justify the conclusion that PIP3 can only claim for abortive costs:  NyKredit [1997] 1 WLR 1627.  

 

Conclusion
[56]      For the reasons I have outlined, I propose to sustain the Council’s first plea‑in‑law to the extent of holding that PIP3’s claim for breach of contract is irrelevant and falls to be dismissed.  I shall fix a by order hearing to determine further procedure.  Meantime I reserve expenses.