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OUTER HOUSE, COURT OF SESSION [2007] CSOH 123 |
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CA25/06 |
OPINION OF LORD REED in the cause MACDONALD ESTATES PLC Pursuers; against REGENESIS (2005) DUNFERMLINE LTD Defenders: ________________ |
Pursuers: Sandison;
Brodies LLP
Defenders: Connal, Q.C., Solicitor Advocate; McGrigors
Introduction
[1] This is the latest in a
series of cases before the Commercial Court in recent times concerned with the
question where the costs incurred with a view to undertaking the development of
land (including, in particular, the costs involved in applying for planning
permission) should lie in the event that the development does not proceed. In the present case, the pursuers maintain
that they are entitled, under their contract with the defenders, to be
reimbursed for professional fees and other outlays which they incurred,
amounting altogether to more than £500,000.
The defenders on the other hand maintain that that is not the effect of
the parties' contract. Alternatively, in
the event that that is the effect of the contract, the defenders maintain, by
way of a counterclaim to the principal action, that the contract fails to
reflect the agreement between the parties and should therefore be rectified.
[2] The case has come before the court for proof before answer on the question of liability, under the principal action, and on the question of rectification, under the counterclaim. The quantification of the pursuers' claim has been left over to be dealt with, if necessary, at a later stage.
The witnesses
[3] Before turning to the
facts, it may be useful to note at the outset my assessment of the
witnesses. Evidence was given on behalf
of the pursuers by their chief executive, Mr Dan MacDonald, their managing
director, Mr Kevin Robertson, and their finance director, Mr Gordon
Lawson; by Ms Brenda Scott and
Mr Nick Scott, both partners in Brodies, who are the pursuers'
solicitors; and by Mr Ken Ross, the
chairman of the Elphinstone Group, who gave evidence of commercial practice in
the property development industry.
Mr MacDonald and Mr Robertson were involved only in the
initial stages of the dealings with which the proof was concerned. Mr MacDonald did not appear to have a
clear recollection of the events, which occurred several years ago, and
Mr Robertson's recollection also appeared to be unreliable in the light of
the contemporaneous documents.
Mr Lawson appeared to me to be an unconvincing witness: he had a tendency to avoid giving direct
answers to questions, and his evidence was at times inconsistent. The evidence of Ms Scott, Mr Scott
and Mr Ross was relatively straightforward.
[4] Evidence was given on behalf of the defenders by Mr Peter Lawson (unrelated to Gordon Lawson), a partner in Burness, who were at the material time the defenders' solicitors; by his assistant, Mr Nick Williamson; by Mr Alfred Stewart, the principal of the defenders; by Ms Michelle MacDonald, née Forrest, who was at the material time Mr Stewart's employee, but who is now married to the pursuers' Mr MacDonald; and by Mr William McVicar and Mr Roano Pierotti, chartered surveyors who gave evidence relating to practice in the property development industry. Mr Lawson and Mr Williamson were impressive witnesses. Subject to some minor points on which their recollection may have been at fault, I accept their evidence in its entirety. Mr Stewart was an elderly man whose recollection of events was often vague or at odds with the contemporaneous records, and I did not consider him an entirely reliable witness. Ms MacDonald was a reluctant witness, who gave the impression of wishing to distance herself from the events in question. Her evidence was difficult to reconcile with the contemporaneous documents and with the evidence of other witnesses, and I do not regard it as reliable. The evidence of Mr McVicar and Mr Pierotti was relatively straightforward.
The factual background
[5] In 1999 Mr Stewart was
on the verge of retiring, after a long career as the managing director of a
housebuilding company, Alfred Stewart Properties Ltd ("ASP"), which carried on
business in the
[6] Mr Stewart instructed architects and other professional advisers, and plans for the proposed development were prepared. A number of developers were approached, but they showed little interest in the project. During 2002, the architects approached the pursuers, who are a property development company specialising in the development of shopping centres and other large retail developments. They have a small number of staff, and instruct external consultants, such as architects, traffic engineers and retailing consultants, as necessary.
[7] The pursuers' chief executive, Mr MacDonald, and their managing director, Mr Robertson, met Mr Stewart and Ms Forrest on a number of occasions during May and June 2002, to discuss the site and its possible development. Mr MacDonald concluded that the site offered an attractive opportunity for his company. He and Mr Robertson agreed to outline to Mr Stewart the type of joint venture which they would regard as feasible.
[8] Following
these meetings, on
"Please note that the terms of this heads of terms document are an outline of our proposal and any contract will only be entered into by means of an exchange of Missives between Solicitors".
The proposal was that the pursuers would enter into a 50:50 joint venture with RDL to undertake the development of the site. The joint venture would be subject to three pre-conditions:
"a. Satisfactory planning permission being received for the proposed development.
b. Legal agreements being entered into with such third party landowners as is required to enable the development to proceed.
c. Pre-let agreements being entered into with anchor stores within the development."
In relation to costs, paragraph 2 of the proposal stated:
"The project costs and profits would be shared on an equal basis between R(D)L and ME [the pursuers] subject to 3b below."
Paragraph 3 stated:
"a. The R(D)L existing property holdings will be acquired by the JV [joint venture] at an agreed value.
b. ME will fund the costs of the planning and all professional fees and other associated costs in progressing the project from a date to be agreed up until detailed planning permission is obtained.
c. After detailed planning permission is obtained, ME will obtain the required funding for the development on a basis to be agreed with R(D)L."
[9] In relation to paragraph 3b, Mr MacDonald and Mr Robertson said in evidence that by "funding" the costs they had meant merely paying for the costs in the first instance: they had envisaged that, if the project proceeded, the costs would ultimately be borne by the joint venture; and they had not considered what would happen in relation to the costs if the joint venture did not proceed. Mr Stewart and Peter Lawson, on the other hand, said in evidence that they understood the pursuers' proposal as meaning that the pursuers would bear the costs involved in progressing the project from a date to be agreed until planning permission was obtained, and that the other costs of the project would be shared equally. I accept their evidence that that was how they understood the proposal.
[10] At a further meeting with Mr Robertson on 28 June, Mr Stewart and Ms Forrest indicated that they would instruct Burness, solicitors, to take the matter forward. Mr Robertson then passed the matter on to Gordon Lawson to deal with legal matters.
[11] On 11 July Peter Lawson, the partner in Burness who acted for Mr Stewart and the companies associated with him, wrote to Mr Scott, the "relationship partner" in Brodies who acted for the pursuers, enclosing draft heads of terms [No. 31/4 of process] for the proposed joint venture. The draft heads of terms envisaged a joint venture agreement ("JVA") between the pursuers and RDL, under which they would subscribe for equal numbers of shares in a joint venture company ("JVC"), which would acquire the properties owned by RDL or its parent company and undertake the development. The completion of the JVA would be subject to the satisfaction of three conditions precedent, covering the obtaining of planning permission, site assembly and pre-letting. The draft heads of terms also stated, at paragraph 12:
"ME will fund the costs of the planning and professional fees and other associated costs incurred in furthering the Development from [1 June 2002] until detailed planning permission, such as to allow the Development to proceed, is obtained [the Costs]. For the avoidance of doubt, the Costs shall include, but shall not be restricted to, the costs and expenses listed in Annex 1. All costs, expenses or charges in connection with the Development which are incurred after the grant of detailed planning permission shall be borne by the JVC".
That clause was intended to provide a framework for agreeing the nature of the costs to be borne by the pursuers, the date from which they would bear the costs, and their amount. The draft heads of terms were not intended to be legally binding, but to form a basis, as the document stated, for the parties to "endeavour in good faith to agree the detailed terms of the joint venture, on the basis of the principles set out in these Heads of Terms". Peter Lawson and Mr Williamson stated in evidence that the negotiation of the detailed terms of a joint venture would not normally be a particularly adversarial process, since the parties were choosing to form what was in effect a partnership. If one party's view were to change to such an extent as to affect the "deal" agreed at the outset, they would expect that party to say so and to propose an amendment of the "deal". Gordon Lawson, on the other hand, said in evidence that he would not necessarily spell out to the other party a departure from agreed heads of terms.
[12] Mr Scott saw little purpose in revising Burness's draft heads of terms, since they were not intended to be legally binding. He preferred to proceed directly to the negotiation of a contract. He told his partner Ms Scott, who specialised in company law, that they were not looking at the heads of terms produced by Burness.
[13] On 22 July Mr Scott met Gordon Lawson and Mr Robertson to discuss the matter. Later that day, Mr Scott e-mailed Peter Lawson [No. 31/5 of process]:
"I met my clients this morning, and received from them an indicative heads of terms which they provided to your clients in June [i.e. the proposal sent on 25 June].
Broadly the two accord [i.e. the proposal sent on 25 June, and the heads of terms prepared by Burness] and I think the simplest thing is for you to let me have a draft contract for consideration..."
Mr Scott then mentioned a number of specific points, some of which were concerned with the implications of taxation for the structuring of the joint venture. He continued:
"3. It is agreed that my clients will pick up the professional and other costs incurred in pursuing planning, optioning the various land interests, pre-letting the scheme and the like. If the deal aborts, that will be their risk. If, however, it becomes unconditional those costs should be JV costs. I'm not sure that was what your draft suggested but it is what my clients expect to happen.
The principal caveat to this is
that my clients will need to review the schedule of costs you have provided,
and the existing professional team appointments/fee arrangements. They are also to come back to me on the
actual date from which they will 'take over' the fees. But I trust that needn't hold up progressing
the legals" (emphasis added).
That e-mail was copied to Gordon Lawson and to Brenda Scott.
[14] In his evidence, Mr Scott said that he did not remember the meeting which had preceded the sending of the e-mail. Mr Robertson, in his evidence, said that he did not remember costs being discussed at the meeting, but he assumed that the matter dealt with in paragraph 3 of the e-mail must have been discussed. Gordon Lawson also said in evidence that he did not remember the matter being discussed at the meeting. It appears to me to be probable that the matter was discussed. In particular, Mr Scott's statement in the first sub-paragraph that the arrangement described there "is what my clients expect to happen", and his statement in the second sub-paragraph that "they are also to come back to me on the ... date", suggest that the matter had been discussed.
[15] As I have mentioned, the e-mail was copied to Gordon Lawson. He said in evidence that he remembered receiving it, and reading paragraph 3. Although he did not remember the discussion at the meeting, he was of the opinion that Mr Scott had misunderstood the pursuers' position. He did not however take any action, after receiving the e-mail, to draw the error to Mr Scott's attention. Mr Lawson said that he had not done so, because the transaction was still in the course of negotiation. I found that evidence unconvincing. The fact that the negotiations had not yet been completed was no reason not to correct an error of understanding on the part of Mr Scott, if there had been such a misunderstanding. It appears to me to be more likely that Mr Scott had acted in accordance with the instructions which he had received.
[16] On 25 July Peter Lawson e-mailed Mr Scott [No. 31/6 of process], agreeing to produce a draft joint venture agreement. In relation to paragraph 3 of Mr Scott's e-mail of 22 July, Mr Lawson responded:
"We agree that your clients will
pick up costs etc, and we look forward to your client's comments on the
schedule of costs. As stated in our
draft Heads, our clients are assuming that the actual date from which your
clients will take over the fees is
[17] In his evidence, Mr Scott said that he would not have regarded himself as free, following that exchange of e-mails, to put forward a different proposal regarding costs, in the absence of a change of circumstances: that was a matter which was settled for the course of the negotiations, subject to the issues which had been raised regarding the schedule and the date. He added, however, that if there were changes which caused a party to re-appraise aspects of the deal, that was part of the negotiation. Nothing was final until a contract was signed. Peter Lawson similarly said in evidence that, following the exchange of e-mails, he considered that there was a common understanding that the pursuers would meet the costs, and "keep" them if the joint venture did not proceed, and that all that remained was to agree the details as to the categories of costs involved and the date from which the pursuers would be responsible for them. At the same time, he did not regard any matters dealt with in the e-mails as being incapable of being revisited. Gordon Lawson, in his evidence, said that he remembered receiving and reading Peter Lawson's e-mail. He maintained that he had understood the words "pick up costs" as meaning that the pursuers would fund the costs initially and be reimbursed, not as meaning that they would bear the costs if the joint venture did not proceed. He did not regard the pursuers as having adopted any definite position as to what they were going to do about costs. In cross-examination, however, Mr Lawson accepted that Peter Lawson had stated his agreement with what Mr Scott had said, and that what Mr Scott had said in the earlier e-mail meant that the pursuers would bear the costs if the joint venture did not proceed, and not merely fund them in the first instance. Mr Lawson accepted that he had known what had been said and agreed, and that he had taken no steps to do anything about it. He maintained that that was not because Mr Scott had acted in accordance with the pursuers' instructions, but because the parties were still some way off agreeing a legal document. I found that evidence unconvincing.
[18] On 6 August Peter Lawson's assistant, Mr Williamson, e-mailed Mr Scott a draft JVA between the pursuers and ASP. Before considering the draft, it should be noted how, on the evidence, solicitors currently go about drawing up contracts relating to commercial property transactions. Mr Scott explained that the negotiation of contracts of this kind does not normally involve meetings or discussions between the parties, or even between their lawyers. Such negotiations proceed electronically. One solicitor will take as a starting point a draft contract stored electronically as a template. He will make suitable adaptations to it, then e-mail the draft to the solicitor acting for the other party. That solicitor will then return by e-mail a revised version of the document, possibly after taking instructions from his client. This process continues until both solicitors are content with the draft. It will then be signed by their clients, to conclude the contract. This explanation is consistent with the evidence of Peter Lawson and Mr Williamson. The process which Mr Scott described largely reflects what happened in the present case, subject to the qualification that one meeting took place between the parties, as explained below.
[19] Clause 2.1 of the draft JVA [No. 31/7 of process] provided for the fulfilment of three conditions: satisfactory detailed planning permission being received for the development of a shopping centre on the site; satisfactory agreements or consents from third party owners of land forming part of the site; and pre-let agreements being entered into with anchor stores. Clause 2.2 provided that the pursuers would have primary responsibility for procuring that those conditions precedent were fulfilled, but that each party would use all reasonable endeavours. If the conditions were not fulfilled by a given deadline, the agreement would automatically terminate. Clause 3.1 provided for the incorporation of the JVC. Clause 3.2 provided that, in the event that the conditions precedent were fulfilled, the pursuers and ASP would each subscribe for shares in the JVC, and
"(g) the following [agreed form] ancillary agreements shall be entered into, namely:
[(i) the Asset Transfer Agreement between ASP and the JVC relating to the transfer of the Properties for a consideration of £[valuation to be discussed], to be satisfied in cash;]
[(ii) the Banking Arrangements];
[(iii) other agreements?];
[(iv) the [Management] Services Agreement between and the JVC relating to the provision of services to the JVC as therein provided;]"
The square brackets signified that the matter in question was not determined.
[20] In relation to clause 3.2(g)(iv), it appears from the evidence of the solicitors that it would be common in a situation of this kind for there to be a management services agreement (MSA) relative to the development. It is to be noted that, in terms of the original draft of the JVA, the MSA was to be entered into only in the event that the conditions precedent were fulfilled. Mr Williamson, who prepared the draft JVA, explained that clause 2.2 imposed an obligation on the pursuers to make progress only up to the point when the conditions precedent were fulfilled. After that point, since the JVC would not have employees, it would be reliant on the pursuers to take the development forward. There therefore had to be some obligation on the pursuers to make progress with the development after the conditions precedent had been fulfilled. Such an obligation could be imposed either in the JVA itself or in a separate MSA.
[21] Mr Scott, on the other hand, regarded the suggestion of a MSA as a potential means by which one party to the joint venture could take out a larger share of the profit than the other party, since it would enable the former party to receive a "top slice" from the JVC by way of a fee, before the net profit of the JVC (after payment of the fee) was divided between its shareholders. The parties themselves, as explained below, appear to have regarded the legal paperwork as all comprising a single joint venture agreement.
[22] In relation to costs, clause 12.2 of the draft JVA provided:
"ME shall be responsible for all
planning and professional fees and other associated costs incurred in
furthering the Development from [1 June 2002] until detailed planning
permission is achieved in terms of clause 2.1(a) (the Costs). For the avoidance of
doubt, the Costs shall include, but shall not be restricted to, the costs and
expenses listed in Schedule [5]. If each
of the Conditions Precedent described in clause 2 is fulfilled or waived
and Completion is effected in terms of clause 3 then the JVC shall become
responsible for such costs and shall reimburse ME accordingly [when funds
become available so to do]."
Peter Lawson explained in evidence that this provision was intended to implement the earlier understanding, reflected in the exchange of e-mails between himself and Mr Scott. It is apparent that clause 12.2 was modelled on paragraph 12 of Burness's draft heads of terms.
[23] Although the draft JVA did not envisage that the JVC would be party to the contract, it provided in clause 11 that ASP and the pursuers would each use their votes in the JVC to ensure that the JVA was performed. Finally, the draft JVA contained an "entire agreement" clause.
[24] In his e-mail of 22 July, Mr Scott had said that the pursuers were keen to get a schedule of the property interests owned by third parties. On 16 August Burness provided the information requested. Site assembly was not straightforward: for example, one of the sites to be acquired was a church, whose congregation would have to be found another place of worship. This was one of a number of factors which, over a period of time, caused the pursuers to re-appraise the degree of risk involved in the project, and (as Mr Robertson put it) affected their attitude to costs, making them determined to try to recover their costs. They did not however make their concern known to ASP or Burness.
[25] On 26 August Mr Scott e-mailed Burness a revised draft of the JVA, and suggested a meeting, attended by the clients, to agree matters and conclude the agreement. That meeting was subsequently arranged to take place on 4 September.
[26] In the revised draft JVA [No. 31/11 of process], Brodies proposed that the JVC should be formed immediately, and have the land transferred to its ownership at the outset. It was suggested that this would result in a saving of stamp duty. Clause 2.1, as revised, was in broadly similar terms to the original draft. Clause 2.2 specified the deadline for the fulfilment of the conditions precedent as three years from the date of the JVA, and was otherwise in similar terms to the original draft. Clauses 3.1 and 3.2 were in broadly similar terms to the original draft. Clause 3.2(g) provided, as before, for ancillary agreements to be entered into in the event that the conditions precedent were fulfilled, including:
"[(iv) the [Management] Services Agreement between ME and the JVC relating to the provision of services to the JVC as therein provided;] ME willing to provide admin services etc in Services agreement - can you please suggest a draft of what is required and fee proposal]".
The words from "ME willing" to the end of the clause had been added by Mr Scott. Although he maintained in evidence that these revisals had been made by his colleague Ms Scott, her evidence to the contrary is more consistent with the other evidence in the case, to the effect that issues relating to the MSA were dealt with by Mr Scott, and appears to me to be more likely to be correct.
[27] The revisals imply that the pursuers were willing, for a fee, to provide "administrative services" under the MSA. This was the first time it had been suggested that the pursuers would be paid a fee, and the first time it had been suggested that they would perform "administrative services". Given the pursuers' responsibility under clause 2.2 of the draft JVA for procuring that the conditions precedent were fulfilled (which included the obtaining of planning permission), the provision in clause 12.2 (discussed below) that the pursuers were to be responsible for the costs incurred up until the obtaining of planning permission, and the provision that the MSA was to be entered into after the conditions precedent had been fulfilled, the "administrative services" which could fall within the scope of the MSA, as envisaged at this stage, would have to be different from, and subsequent to, the work carried out by the pursuers in order to obtain planning permission and to procure the fulfilment of the other conditions precedent. Gordon Lawson's evidence, that the services which were envisaged at this stage as being provided under the MSA were the obtaining of planning consent and pre-lettings, and were therefore not aptly described as "administrative", is inconsistent not only with the use of that description in Brodies' revisals to the draft JVA (which Mr Lawson saw at the time) but also with the structure of the draft JVA as it then stood.
[28] In relation to costs, the revised draft of clause 12.2 provided:
"ME shall be responsible for all
planning and professional fees and other associated costs incurred in
furthering the Development from [date to be confirmed but to reflect the date
on which ME began instructing the relevant professionals - and historic costs
limited to architect and traffic engineers only] until detailed planning
permission is achieved in terms of clause 2.1(a) (the Costs). For the avoidance of
doubt, the Costs shall include, but shall not be restricted to, the costs and
expenses listed in Schedule [5] [PROVIDED NOT A MONETARY AMOUNT AS NOT POSSIBLE
TO SET COST RESTRICTIONS AT THIS STAGE ALTHOUGH A MECHANISM FOR CONTROL CAN BE
DISCUSSED]. If each of the Conditions
Precedent described in clause 2 is fulfilled or waived and Completion is
effected in terms of clause 3 then the JVC shall become responsible for
such costs together with any applicable VAT and shall reimburse ME accordingly
at Completion."
In relation to Brodies' revisals, Gordon Lawson accepted in evidence that the only matters raised at that time concerned the date from which the pursuers would accept responsibility for costs, and the form in which the costs were to be listed in the schedule: the same two issues as had remained to be settled following the exchange of e-mails in July.
[29] As in the original draft, clause 11 provided that ASP and the pursuers would use their votes in the JVC to ensure that the JVA was performed. Finally, the revised draft contained an "entire agreement" clause in the same terms as the original draft.
[30] On receiving the revised draft JVA, Peter Lawson noted the revisals to clause 3.2(g)(iv). They were consistent with what he had in mind: the services provided under an MSA would typically involve liaising with professional advisers and tenants and reporting to the JVC on the progress of the project, and were therefore aptly described as administrative. There was however at that stage no very clear idea of what services the pursuers would provide under the MSA: in general terms, they would deliver the development. The revisals to clause 12.2 were equally as expected: he understood that there was no issue as to where the risk would lie in relation to the costs referred to in the clause, in the event that the conditions precedent were not fulfilled. Since the pursuers were to be responsible for costs up to that stage, any fees payable under the MSA would arise only subsequently: the pursuers were not being paid a fee for the work involved in securing the fulfilment of the conditions precedent.
[31] Reporting to ASP on the revisals, Mr Williamson said, in connection with the revisals to clause 3.2(g)(iv), that a manager would typically be paid a fee equal to a percentage of the passing rent of the shopping centre. In his evidence, Mr Williamson (who had, at the time in question, only two years' experience as a solicitor) candidly acknowledged that that had not been a sensible thing to say: a fee of that kind was appropriate for the managing agents of a shopping centre, and it was not envisaged that the pursuers would perform a role of that kind. I accept that evidence. Like Peter Lawson, Mr Williamson understood the revised draft of clause 12.2 as implying, as previously understood, that the costs referred to would not be reimbursed to the pursuers if the conditions precedent were not fulfilled.
[32] After taking instructions from Ms Forrest, Mr Williamson e-mailed Mr Scott on 29 August [No. 31/12 of process] with comments on the revised draft JVA. He indicated that Burness agreed with the view that it would be tax efficient to transfer the property to the JVC sooner rather than later. In relation to clause 3.2(g)(iv), he wrote:
"In relation to the provision of management services, there has not previously been any discussion regarding any fee being payable to Macdonald Estates. Our clients do not envisage any such fee being payable."
That reflected Ms Forrest's
instructions that fees did not form part of the deal, and that the pursuers
would be getting sufficient return from their 50 per cent share in the
JVC. In relation to clause 12.2,
Mr Williamson wrote that the clause would be discussed at the meeting on
4 September. Burness understood
that the pursuers had previously agreed that the date from which the pursuers
would be responsible for costs would be
[33] The agenda for the meeting on 4 September [No. 31/13 of process] included the following:
"4. Method of dealing with third parties (including Fife Council); representation/attendance at meetings.
...
6. Terms of management services agreement between JVCo and ME.
...
9. Liability for costs: date from which liable; what type; when reimbursed?
10. Thomsons' World of Furniture. Third party sites."
The agenda reflected the fact that the terms of the MSA (item 6) were not regarded as being related to the issue of liability for costs (item 9).
[34] In relation to item 4, it appears that Mr Stewart did not have a good working relationship with the Council's planning officials. They were concerned about the delay in developing the site, and were contemplating the possible use of powers of compulsory purchase. The Council also had concerns about the safety of some of the buildings on the site, and was contemplating the possible use of powers to order demolition. In order to deal with the Council, it was important that an experienced retail developer should be seen to be involved in the project. It was agreed at the meeting that the pursuers' Mr MacDonald would take forward the discussions with the Council, after agreeing with ASP's Ms Forrest what position he was to adopt. It was agreed that the list of services to be provided by the pursuers under the MSA should be prepared and provided to the Council, to demonstrate that ASP had a development partner on board. In that regard, a document was produced by Mr Scott at the meeting, described as a schedule of services, duties and obligations. It was put forward as a draft list of services which would be attached to the MSA, but which could also be shown to the Council (rather than the JVA, which was going to take some time to be agreed, and would in part be commercially confidential). It was envisaged that a finalised schedule would be provided to the Council in time for a Council meeting to be held on 11 September.
[35] In relation to item 6, there appears to have been only a brief discussion at the meeting. None of the witnesses could remember the discussion, apart from Gordon Lawson, who maintained that his notes of the meeting (which were not produced) showed that the discussion had revolved around the fee the pursuers would receive for providing the services.
[36] In relation to item 9,
[37] In relation to item 10, a large site owned by Thomsons, close to the site which was proposed to be developed by the JVC, had come on to the market. The pursuers considered that it would be useful to have control of it, possibly for development as a multi-storey car park associated with the proposed shopping centre. There was also discussion of the appropriate size of the shopping centre scheme, given the number of third party sites which had to be assembled.
[38] The draft schedule of services [No. 31/15 of process] which Mr Scott produced at the meeting had been prepared by Gordon Lawson, by revising a document which the pursuers had used in connection with another development. It set out the services to be provided by "the Consultant". They related, first, to the appointment by "the Employer" of professional advisers:
"1. PROFESSIONAL ADVISER'S APPOINTMENTS
1.1 Advise the Employer on the need for and make recommendations for the appointment of other Professional Advisers by the Employer.
1.2 Assist the Employer and the Project Manager in relation to Professional Advisers Appointments (including duty of care warranties).
1.3 In conjunction with the Project Manager monitor the performance of the Professional Advisers and the Main Contractor in the performance of their duties and the discharge of their responsibilities".
It will be noted from paragraphs 1.2 and 1.3 that the draft envisaged that, in addition to the consultant, there would also be a project manager. The subsequent provisions of the schedule generally required the consultant to co-ordinate and monitor the work of the other professional advisers and to report to the employer. Such services related, first, to the design brief:
"2. BRIEF, DESIGN AND QUALITY CONTROL
2.1 Co-ordinate with the Professional Advisers the preparation of the design brief. Amplify the design brief as necessary during design development. Incorporate any changes and obtain the Employer's authorisation.
2.2 Monitor the progress of design work."
Mr Ross, giving evidence on the basis of his experience of property development, observed that the preparation of a design brief might involve professional advisers from a variety of disciplines: typically, architects, structural engineers and quantity surveyors, but also possibly traffic consultants, retail consultants and other professionals. The draft schedule also provided for similar services relating to project meetings and reporting procedures, to the programming of the project, to the preparation of budgets, to financial management and to cash flow. In connection with planning, the draft schedule provided:
"8. LOCAL AUTHORITY AND PLANNING APPROVALS
8.1 In conjunction with Planning Consultant (if any) co-ordinate and support negotiations with planning authorities.
8.2 Check with the Planning Consultant (if any) the form and content of planning applications. Progress the planning process and arrange that a check of all approval/refusal documents is carried out by the project team. Check that Professional Advisers implement and deal with any conditions attached to a planning consent."
Mr Ross observed that the planning process would be likely to involve the entire design team, and that changes to the design of the development might be required as a result of discussions with the planning authority.
[39] Some of the services to be provided under paragraph 8 would plainly antedate the grant of planning permission. They were therefore not appropriate for inclusion in the MSA if, as had been envisaged (and as appeared from the current draft of the JVA), the MSA was to be entered into after the conditions precedent (including the obtaining of planning permission) had been fulfilled.
[40] The draft schedule further provided for services to be provided by the consultant in connection with the tendering process for the building contract and the preparation of contract documents, the management of the contract, the maintenance of the building pending occupation, tenancies and fitting out, and letting. In relation to tenancies and fitting out, in particular, the draft schedule provided:
"12.1 In conjunction with the Professional Advisers procure the preparation of drawings, specifications or other documentation required for marketing or contracts.
12.2 In conjunction with the Professional Advisers provide any tenant with information to enable him to prepare fitting out proposals and arrange for any Employer's approvals to be obtained."
Mr Ross commented that architects and services engineers would be likely to be involved in the matters described in those provisions.
[41] On 6 September Mr Williamson e-mailed a revised (third) draft of the JVA to Ms Scott. On the same date, the defenders were incorporated, under the name Lothian Fifty (912) Ltd. They were formed by Burness, and controlled by them, as an off-the-shelf company available for the use of their clients. Peter Lawson explained that Burness prepared "shelf" companies in batches, so as to have a stock available. He would not have identified any particular company as the JVC. A company would be taken off the shelf on the day it was required.
[42] On 9 September Mr Williamson faxed a revised draft of the schedule[No. 31/18 of process] to Mr Scott. The revisals were relatively minor: they altered the references to a project manager, to make it clear that that role would be undertaken by the pursuers, and added provisions relating to site assembly:
"9.1 Obtain information on ownership and any lessees of the Site, existing buildings, boundaries and any known easements, underground services, rights of way, right of support and other relevant matters.
9.2 Assist the Employer and its solicitors in negotiating the acquisition of any parts of the Site not under the Employer's control and ancillary property rights.
9.3 Negotiate for the acquisition of any additional land required to execute the Development and for the grant or release of any relevant servitudes, rights or restrictions."
Certain, at least, of these provisions would again be relevant only if some of the services were to be performed prior to the satisfaction of the conditions precedent (since site assembly was one of those conditions). In relation to paragraph 9.1, Mr Ross commented that the pursuers would need external assistance in order to obtain the necessary information.
[43] On 11 September Mr Williamson and Mr Scott
finalised the terms of the schedule, and of the accompanying letter to be
produced to the Council. The schedule
and the letter were then transmitted to the Council. The letter [No. 31/20 of process] described
the schedule as "the list of services which it has been agreed in principle
will be provided by Macdonald Estates PLC to the joint venture in connection
with the redevelopment of
[44] On 12 September Ms Scott e-mailed Gordon Lawson and Mr Scott [No. 31/25 of process], confirming that for tax reasons it would be desirable that the ASP properties should be transferred to the JVC at the outset, and that the JVC should remain part of the ASP group of companies until planning permission was obtained, with no more than 25 per cent of the shares in the JVC being taken by the pursuers at the outset: in the event, it was later agreed that the JVC should be wholly owned by ASP until the conditions precedent were fulfilled, at which point the pursuers would take a 50 per cent shareholding (as had been envisaged from the outset). She added:
"6. Will need to think of what happens if we do not complete. If you transfer shares back at par (£25) you don't get any reimbursement for costs and you get no benefit of any economic growth in the new property. Something to consider further".
Ms Scott said in evidence that the second sentence reflected the terms of the draft JVA, under which the pursuers would not be reimbursed their costs unless the conditions precedent were fulfilled. She had highlighted the risk in order for Mr Scott and Gordon Lawson to deal with it.
[45] In his evidence, Mr Scott said that it was around this time that the pursuers became concerned about what they were going to get out of this deal. They had by then failed to secure the Thomsons' site. It had been secured instead by Tesco, prejudicing the prospects of the pursuers' attracting a retail superstore operator to the proposed development. The pursuers were also becoming nervous about the prospects of assembling the site. It was suggested in evidence by Mr Scott and the witnesses from the pursuers that there had been a change in that regard, in that Mr Stewart had insisted on taking over responsibility for site assembly; but I found that evidence unconvincing in the light of the contrary evidence of other witnesses, including Mr Stewart himself, and the suggestion is not supported by the contemporary documents. What undoubtedly changed, however, was the pursuers' assessment of the prospects of the site being assembled. There were also doubts about the degree of support which could be expected from the Council. The pursuers became concerned that the project might never come to fruition.
[46] In these circumstances, Mr Scott's instructions from Gordon Lawson were to "cover the downside" and deal with the situation where the pursuers could not get the scheme to be a viable project. Specifically, he was to cover the downside in relation to the costs of obtaining planning permission. In responding to these instructions, there was little that Mr Scott could do about the JVA: it had to be conditional on site assembly. Mr Scott concluded that the way to deal with the costs was therefore through the MSA. For that purpose, the MSA would have to be in force before the JVA became unconditional. He said in evidence that, in drafting the MSA, he was trying to shift the costs on to ASP (or, strictly speaking, its wholly-owned subsidiary, the JVC). Gordon Lawson confirmed in evidence that he had instructed Mr Scott to look for a way of recovering the pursuers' costs. He knew that, in terms of the draft JVA, the pursuers were not to be reimbursed their costs in the event that the project did not proceed (indeed, they would effectively recover only half of their costs even if the project did proceed, since the JVC reimbursing their costs would in that event be 50 per cent owned by the pursuers themselves). He acknowledged that nothing was done to bring the pursuers' change of position to the attention of ASP or their advisers.
[47] On 5 November Peter Lawson e-mailed Mr Scott and Ms Scott a further revised draft of the JVA [No. 31/27 of process]. In relation to costs, Mr Lawson asked Brodies to confirm the precise costs which were to be included in Schedule 5, i.e. the costs which, in terms of clause 12.2, were to be the responsibility of the pursuers, subject to reimbursement by the JVC in the event that the conditions precedent were fulfilled. After taking instructions from Gordon Lawson, Ms Scott responded on 7 November [No. 31/28 of process] that the pursuers could not confirm precise costs, but could provide a note of the relevant categories, on the basis that Schedule 5 would cover costs falling within those categories provided they were properly incurred in connection with the development. A schedule in that form was later provided by Mr Scott.
[48] In relation to this matter, Gordon Lawson accepted in evidence that there was still no indication given to Burness or ASP that the pursuers had changed their position in relation to the costs. He had told Mr Scott that the pursuers were looking to recover their costs in the event of the joint venture's not proceeding, and Mr Scott had said that he had something in the MSA to cover that. Mr Lawson accepted that, at the same time, Brodies were continuing, on his instructions, to negotiate the detail of the provisions in the JVA governing costs, under which the pursuers did not, in that event, recover their costs. Mr Lawson's explanation of his behaviour was that the JVA and the MSA were two separate agreements. Peter Lawson, on the other hand, said in evidence that he was under the impression that matters were going well. There was no indication of any hitches, and no discussion of any material changes: only matters of detail were being discussed.
[49] On 13 November Mr Scott e-mailed Peter Lawson [No. 31/29 of process]:
"Attached boilerplate - let me know if you have any comments. Its sent subject to any my guys have. Cant immediately recall what %age the fee was - will need to check. Also I believe you have the final form of services - can you add to Schedule 1. Ta."
The boilerplate was the draft of the MSA, into which the schedule of services agreed in September was to be incorporated. Mr Scott had prepared the draft by altering a document obtained from a colleague who dealt with construction law.
[50] The draft MSA was in the
form of a letter addressed by the JVC (given the name, in the letter, of
Macdonald Estates (
"to confirm the terms of your appointment to provide certain services in connection with the proposed redevelopment of Dunfermline Town Centre on the following terms and conditions."
The draft MSA then provided inter alia as follows:
"2. Services
2.1 You shall provide to ME(D)L the services listed in Part 1 of the Schedule. You shall also perform such other reasonable services in relation to the Project as ME(D)L may from time to time instruct...
2.2 The services listed in Part 1 of the Schedule, and all Additional Services instructed under this Appointment, are referred to as 'the Services'.
....
3. Duty of Care
You warrant and undertake to ME(D)L that in the performance of the Services:-
3.1 You have exercised and will continue to exercise all such professional skill, care and diligence as may reasonably be expected from suitably and properly qualified project manager in providing services similar to the Services for exercises of a similar size, scope, nature and complexity as the Project
....
4. Fee
4.1 In consideration of the performance by you of the Services, ME(D)L shall pay to you a fee equal to [ ]% of the total cost of carrying out and completing the Project ...
4.2 The Fee shall be paid quarterly in arrears in equal payments throughout the projected period of the Project ...
....
4.5 In supplement of the foregoing ME(D)L shall free and relieve you on demand of all outlays reasonably required to be made by it as an incident of the performance of its obligations hereunder and the provision of the Services.
....
6. Provisions about this Appointment
6.1 Notwithstanding the date of this letter, it shall be deemed to have taken effect when you commenced the performance of any services within the scope of the definition of 'the Services'.
6.2 This Appointment supersedes any previous arrangements between the parties in respect of the Services (whether oral or written) and represents the entire agreement between the parties in relation to the Services."
The expression "project" was
defined by clause 1 as meaning "the development of a new mixed use town
centre scheme in
[51] In this draft, clause 4.5 was intended by Mr Scott to enable the pursuers to recover the costs incurred by them in attempting to secure planning permission, site assembly and pre-letting, in the event that the project did not proceed, on the basis that such costs were "outlays" falling within that provision. Mr Scott's thinking was that the schedule of services, to be appended to the boilerplate, obliged the pursuers to provide services for which they had no professional competence (for example, in connection with obtaining planning consent, it was necessary to obtain architectural drawings, surveys, traffic impact assessments and retail impact assessments, amongst other matters; and in connection with site assembly, it was necessary to obtain legal advice regarding ownership, leases, servitudes and boundaries, amongst other matters). Since they would have to engage suitably qualified experts in order to provide the services contracted for, the costs which the pursuers had already incurred in instructing such experts (in particular, solicitors, architects, traffic engineers, planning consultants and chartered surveyors) would be recoverable under the boilerplate as outlays required to be made by the pursuers in order to perform the services listed in the schedule. Clause 4.5 was thus intended by him to cover not only incidental costs, but the fees of approximately £500,000 which the pursuers had already incurred or anticipated incurring. Clause 6.1, giving the MSA retroactive effect, was drafted with the same objective in mind. Clause 6.2 was intended to ensure that clause 4.5 would not be affected by the treatment of costs in the JVA. In relation to clause 4.2, Mr Scott said in evidence that the pursuers' fee was to be paid while the project was ongoing as a construction project. Mr Scott drew clause 4.5 to the attention of Gordon Lawson, as meeting his concerns. Mr Lawson was content that it met the pursuers' requirements. He explained in evidence that, since the schedule required the pursuers to provide services (such as legal services) which were beyond their competence, it followed that they were entitled to engage professionals to provide the services in question (e.g. engaging Brodies to provide the legal services), and to recover the cost of doing so as an outlay. They were also in his opinion entitled, in addition, to recover the fee agreed in the MSA as their remuneration for providing the services in question: in his view, the fee was a priority profit return.
[52] In his evidence, Mr Scott said that, in describing this draft as a boilerplate, he was saying that he did not regard there as being a need for much negotiation of this: it covered standard matters. The evidence of the other legal witnesses was to similar effect. Ms Scott, for example, said that to describe something as boilerplate meant that it was a standard wording and non-controversial. At the same time, Mr Scott said quite candidly that what he was attempting to achieve, when he drafted the document, was to shift costs amounting to £500,000 to ASP (or their subsidiary-to-be). When it was suggested to Mr Scott that he had never indicated to Burness that there had been a change in his client's position in relation to costs, he responded:
"It's not our job to tell Burness the consequences of the documents that we're presenting ... We assume that they will pick it up if they're concerned about it by reading the document and then negotiating".
At another point in his evidence, Mr Scott said:
"It's not my job to advertise to
[Peter] Lawson if he's labouring under a misapprehension. I mean that's why you hire a big law firm in
When it was put to Mr Scott that there was nothing in any of the documents to suggest that anything was happening to "shift costs" he responded:
"It's not my responsibility, and it's not my duty to my client, to point out to the other party or his lawyers the consequences for them of their acceptance of the document".
[53] Peter Lawson did not notice anything out of the ordinary about the boilerplate. Clause 3.1 accorded with his understanding that the pursuers would act as a project manager, liaising with professional advisers, negotiating with prospective tenants, dealing with the Council and reporting to the employer. The outlays which he envisaged as being incurred by a project manager would be in respect of such matters as travel and hotels. He did not understand clause 4.5 as being concerned with the costs dealt with in the JVA: the issues arising in relation to those costs had already been discussed in detail in the context of the JVA, and the JVA made it clear how those costs were to be allocated.
[54] Peter Lawson's evidence about the role of a project manager was consistent with that of most of the other witnesses. Mr Ross, for example, said that a project manager would co-ordinate a design team appointed by the employer: he would not appoint them or be responsible for their costs. A project manager would not appoint the people listed in Schedule 5A to the JVA (as the schedule listing the costs which were to be borne by the pursuers and reimbursed in the event of completion - described as Schedule 5 in the draft JVA - came to be designated), i.e. the architect, the structural engineer, the planning consultant, the services engineer, the traffic consultant, the quantity surveyor, the environmental consultant, the topographical surveyor and the lawyers. It would at least be unusual for such appointments to be made by the project manager. I accept that evidence. Although the expression "project manager" does not have a fixed meaning, and the precise responsibilities of a project manager will depend on the particular contract, it appears from the evidence that the role of a project manager is normally to co-ordinate the work of others involved in a project, those others being in a contractual relationship (or in a chain of such relationships) with the employer rather than with the project manager himself. The services to be provided under the schedule were however more extensive than those typically undertaken by a project manager, notably in that they included matters arising prior to the construction phase of the project.
[55] On 19 November Mr Williamson e-mailed to Ms Scott a further revised draft of the JVA [No. 31/34 of process]. One of the proposed amendments was to the clause concerning costs (previously clause 12, now re-numbered as clause 13), so as to provide for the conditional reimbursement of costs incurred by ASP as described in Schedule 5B, as well as for the conditional reimbursement of costs incurred by the pursuers as described in Schedule 5A. In relation to the pursuers' draft of Schedule 5A, Mr Williamson asked for clarification of what was covered by a £50,000 provision for legal fees. Mr Williamson also noted that it had been agreed between the pursuers and ASP that, since the pursuers were to receive a fee for services provided under the MSA, ASP should also receive a fee in respect of the services provided by Ms Forrest.
[56] On 25 November Peter Lawson e-mailed to Mr Scott [No. 31/33 of process] that, subject to agreement on the fee, the draft MSA was fine. The fee was agreed the following day (at 5 per cent of the cost of the project).
[57] On 26 November Mr Scott replied to Mr Williamson's e-mail of 19 November [No. 31/34 of process]. His reply was copied to Gordon Lawson, who followed the exchanges. In response to the proposal that ASP should be reimbursed costs, Mr Scott wrote:
"We need to know what you are talking about here - if its internal costs I think that may be a problem as ME aren't charging any either - they get the service fee from when it goes unconditional but nothing before".
One implication of the latter statement was that the fee under the MSA (i.e. the "service fee") would be payable only in the event that the project proceeded (and, therefore, only in the event that the conditions precedent listed in the JVA were fulfilled): as Mr Scott said in evidence, the fee was payable during the construction phase of the project, and the project would have to be unconditional for it to be under construction. The statement that the pursuers would get "nothing" until the project "goes unconditional" was consistent with Peter Lawson's understanding that the pursuers' costs would be reimbursed only if the conditions precedent were fulfilled. In relation to the provision for legal fees in Schedule 5A to the JVA, Mr Scott wrote:
"Its to cover the costs of getting planning alone - in terms of any offsite works, negotiation of the planning consent and statutory agreements".
The implication was that the costs incurred by the pursuers in respect of legal services related to the obtaining of planning permission were covered by clause 13 of the JVA. In relation to this matter, Gordon Lawson accepted in his evidence that no indication had been given to Burness that Schedule 5A was effectively irrelevant (since, on Brodies' approach, the costs in question would be recoverable under the MSA, regardless of whether the conditions precedent were fulfilled), and that that had been on his instructions.
[58] On 28 November Mr Scott e-mailed Mr Williamson [No. 31/36 of process], requesting that a conference call be held the following morning to discuss the remaining issues. He accepted the proposal that the JVA should provide for the conditional reimbursement of ASP's costs. In relation to the proposal that there should also be a fee payable to ASP under an agreement analogous to the MSA, he wrote:
"ME do not agree a fee for Michelle's time; they aren't getting a time charge fee and the fee they are getting is for basically doing what a professionally employed project manager would do anyway - the fee would be paid to whoever did that role. But ME's own inhouse time in getting planning etc isn't being charged so in turn AS [Mr Stewart] should [not] be charging a fee for Michelle's time."
The apparent implication of the latter statement, in particular, was that the pursuers were not charging a fee for obtaining planning permission, and, therefore, that obtaining planning permission fell outwith the scope of the services for which a fee was payable under the MSA. In relation to those services, Gordon Lawson (to whom the e-mail was copied) said in evidence that Mr Scott had used the description "project manager" with his knowledge. Mr Lawson said that he had not agreed with that description, but had not corrected it. Mr Williamson and Peter Lawson, on the other hand, said that that description fitted their understanding of the MSA: that the pursuers would be liaising with and supervising the professional advisers and drawing the project to a successful conclusion.
[59] On 29 November Mr Williamson replied to Mr Scott's e-mail, and provided a schedule of ASP's costs. On the same date, Peter Lawson also e-mailed Mr Scott revised drafts of the JVA and the MSA, reflecting the matters that had been discussed. In relation to the agreement under which a fee was to be paid to ASP, Mr Lawson noted that "as with the ME management fee, this will only be paid by the JVCo on completion".
[60] On 2 December the JVA, the MSA and the ASP services agreement were executed by Mr Stewart and Mr MacDonald. The terms of the JVA and the MSA, as executed, are discussed below. In his evidence, Mr MacDonald said that his view of the paperwork was that it all formed part of one joint venture agreement. He would read the MSA as being part of the JVA. Mr Stewart's evidence, although somewhat confused, was essentially to the same effect. He said that he did not know that there was going to be a MSA before the date of signing, and believed the JVA was the only agreement. He was under the impression, he said, that the purpose of the MSA was to have an agreement which could be shown to the Council, the terms of the JVA being commercially confidential. He had envisaged that instructions would continue to be given to the various professionals by the pursuers, rather than by the defenders. On the same date, the existing share capital of the defenders (a single subscriber share, held by a Burness nominee) was transferred to ASP, who also subscribed for a further 49 shares, in accordance with the JVA.
[61] Gordon Lawson accepted in evidence that, in terms of the JVA, the pursuers were agreeing to fund the costs until a point was reached when the deal either completed or collapsed. When it was put to him that, in that case, the pursuers could not have been expecting to be reimbursed the same costs under the MSA in the period before that point was reached, he responded that they had provision to do so (in the MSA), but in the spirit of the joint venture they were not looking to draw the costs down, but were hoping that the joint venture would proceed and that they would recover their joint venture costs in due course. I note that the pursuers would effectively recover only half of their costs under the JVA if the project proceeded (since they would in that event own 50 per cent of the JVC), whereas they would recover the whole of their costs under the MSA, if their interpretation of it were correct. Their entitlement to recover their costs under the MSA (on their interpretation of it) would also be immediate and unconditional, rather than being contingent on the fulfilment of the conditions precedent. When it was put to Mr Lawson that the pursuers had agreed to fund the costs, he replied "In terms of the joint venture agreement we had, yes". He maintained that the pursuers were nonetheless entitled to be repaid the same costs under clause 4.5 of the MSA. Asked whether it was his understanding that the JVA and the MSA provided for different ways in which the same costs were to be dealt with, he confirmed that it was.
[62] On 5 December Mr Williamson summarised the main points arising from the agreements in a note intended for ASP and the defenders [No. 31/49 of process]. He noted that the JVA was conditional on the satisfaction of the conditions precedent prior to the deadline, and that in that event the JVC was to reimburse the pursuers' costs. He also noted:
"The fee payable to ME (by JVCo) in terms of the ME Management Services Agreement is 5% of total project costs, but this only becomes payable if the JV Agreement becomes unconditional and the parties proceed to Completion (i.e. if the JV Agreement does not become unconditional then ME will receive no fee, nor be reimbursed for the costs which it has incurred)".
Peter Lawson said in evidence that that was his understanding of the position throughout the discussions, and that it was on that basis that he had taken instructions. Mr Stewart confirmed that that had also been his understanding when he signed the agreements.
[63] Reference was also made during the evidence to a letter dated
"Alf [i.e Mr Stewart] has taken responsibility for all property acquisitions in the proposal, which are reimbursed when the JV Company is triggered.
This is mirrored by our responsibility to fund the costs of obtaining planning permission which are now substantial".
It was suggested to Mr MacDonald and Mr Robertson that the implication of the letter was that the pursuers were not entitled to be reimbursed their costs until the conditions precedent were fulfilled. Mr MacDonald said that he could only suggest that the letter had been written absent-mindedly. Mr Robertson himself maintained that he had meant that the pursuers had to "fund" the costs, in the sense of meeting them in the first instance, until the conditions precedent were fulfilled, and that that was consistent with the pursuers' recovering the costs under the MSA whether the project proceeded or not.
[64] On
[65] During the present proof, a number of witnesses were asked whether, as the pursuers maintain in their pleadings, it would have made no commercial sense for a developer such as the pursuers to incur substantial costs, conferring potential benefits on a landowner such as the defenders or ASP, in the hope that the JVA would reach completion; or whether, as the defenders maintain in their pleadings, it would have made no commercial sense for the landowner to agree to pay costs incurred by the developer, over which the landowner had no control, regardless of success in obtaining the necessary consents and agreements. All the witnesses agreed (although, in some cases, with a degree of reluctance) that there was no standard practice in this regard, and that the arrangements entered into varied from case to case, reflecting the particular circumstances and the negotiating strength of the parties involved. I accept that that is the position.
[66] Finally, in relation to the factual background, it will be apparent that much of the foregoing narrative has been concerned with the actual intentions of the parties, their negotiations, and the drafts of the contracts in question. Evidence about these matters was led, by agreement, under reservation of its competency and relevancy. I consider below the extent to which, and the purposes for which, it is admissible and relevant.
The JVA
[67] It is necessary to set out
at some length the relevant provisions of the JVA and the MSA. The JVA [No. 31/1 of process] is headed:
"Agreement between Alfred Stewart Properties Limited and Macdonald Estates plc.
Joint Venture Agreement relating to the operation of Lothian Fifty (912) Limited as a jointly-owned company".
It begins by narrating that the agreement is made between ASP and the pursuers, and continues:
"WHEREAS
(A) ASP has established a new company (JVC) which will acquire certain rights and assets, and otherwise be established and carry on business, in the manner set out in this Agreement.
(B) ASP and ME have agreed that upon satisfaction of the conditions precedent set out in this Agreement, ME shall subscribe for shares in JVC and that their relations as shareholders in JVC shall be governed by the terms of this Agreement.
IT IS AGREED as follows".
[68] Clause 2 of the JVA provides for the fulfilment of the three conditions precedent, in broadly similar terms to the earlier drafts:
"2.1 Completion under clause 3 shall be conditional upon each of the following conditions having first been satisfied or waived:
(a) satisfactory detailed planning permission (and to the extent necessary, demolition consents, road construction consents, stopping up orders, listed building consents and Section 75 agreements) being received for the Development;
(b) satisfactory unconditional binding agreements or consents from the owners of the Third Party Sites and any other parties having rights over or the benefit of restrictions or other interests required to be acquired or released to enable the Development to proceed; and
(c) unconditional binding pre-let agreements being entered into with at least (i) one anchor food superstore and (ii) two anchor department stores within the Development.
2.2 ME shall have primary responsibility for procuring that the Conditions Precedent set out in Clauses 2.1(a), (b) and (c) .... are fulfilled as soon as possible, but notwithstanding such obligations each party shall use all reasonable endeavours to procure that the Conditions Precedent are fulfilled as soon as possible. If the Conditions Precedent shall not have been fulfilled (or waived) by the date three (3) years from the last date of subscription hereof .... then the parties shall procure that:
(i) this Agreement (other than the provisions of Clause 11 (Confidentiality)) shall, unless otherwise agreed, thereupon automatically cease and terminate;
...
(iii) the ME Management Services Agreement is terminated with immediate effect".
[69] The expression "JVC" is defined in Schedule 1 as meaning Lothian Fifty (912) Ltd, i.e. the defenders. The expression "ME Management Services Agreement" is defined as meaning "the management services agreement in the agreed form between ME and JVC to be entered into of even date or near even date herewith". The expression "in the agreed form" is in turn defined as meaning agreed by the pursuers and ASP.
[70] Clause 3.1 narrates that the JVC has been incorporated and has an authorised share capital of £100 divided into 50 A shares and 50 B shares. It goes on to provide:
"on the date of this Agreement the following events shall take place:
(h) ASP shall subscribe unconditionally for 49 A shares in cash at par and shall accept the transfer of the 1 nil-paid subscriber share (the subscriber share having been designated an A share);
......
(j) Alfred Stewart and Michelle Forrest shall be appointed as the first A Directors pursuant to Clause 5.1, (for the avoidance of doubt to the exclusion of any prior directors);
(k) the following agreed form ancillary agreements shall be entered into, namely:
(i) the Asset Transfer Agreement between ASP and the JVC relating to the transfer of the Properties for a consideration of £4,000,000, such sum to be treated as an advance to JVC by way of a A Shareholder Loan;
(ii) the ME Management Services Agreement between ME and JVC relating to the provision of services to the JVC as therein provided".
I note that, although ASP was not to be party to the MSA itself, the JVA (entered into between the pursuers and ASP) provided for the MSA (described as an "ancillary" agreement) to be entered into, in an agreed form.
[71] Clause 3.3 makes provision for the eventuality that the conditions precedent were to be fulfilled within the deadline:
"Completion shall take place within ten (10) days after the Conditions Precedent are fulfilled or waived) when the following events shall take place, namely:
(a) ME shall subscribe unconditionally for 50 B shares in cash at par;
.....
(c) Dan Macdonald and Gordon Lawson shall be appointed as the first B Directors pursuant to Clause 5.1, Dan Macdonald to be the Chairman of the Board from the date of his appointment; and
....
(f) ME will procure that JVC is placed in sufficient funds to repay the A Shareholder Loan to the extent of £2 million whether by a loan from ME or by some other means of financing;
(g) the parties shall procure that the JVC shall reimburse ME for the ME costs incurred in terms of Clause 13.2;
...
(i) the following ancillary agreements shall be entered into, namely:
(i) novations and/or assignations (containing suitable indemnities in favour of ME or the other contracting purchaser/developer) of (i) all missives and agreements for lease and (ii) professional appointments concluded by ME in pursuance of satisfaction of the conditions mentioned in Clause 2.1."
I note that under clause 3.3(g), ASP and the pursuers agreed to procure that the JVC would reimburse the pursuers for the costs which they incurred in terms of clause 13.2, in the event that the conditions precedent were fulfilled. I also note that clause 3.3(i) envisaged that the pursuers would conclude professional appointments for the purpose of fulfilling the conditions precedent, and that those appointments would be taken over by the JVC (by way of novation or assignation) in the event that the conditions precedent were fulfilled.
[72] Under clause 12, it is agreed that ASP and the pursuers will each use their votes in the JVC and all other means at their disposal to ensure that the JVA is duly performed.
[73] In relation to costs, clause 13.2 provides:
"13.2 ME shall be responsible for all planning and professional fees and other associated costs incurred in furthering the Development from 1 June 2002 until detailed planning permission is achieved in terms of clause 2.1(a), to the extent that those matters were instructed by any of (i) the JVC with the knowledge and consent of ME, (ii) ME or (iii) ASP with the knowledge and consent of ME (the ME costs). For the avoidance of doubt, the ME costs shall include, but shall not be restricted to, the costs and expenses listed in Schedule 5A. If each of the Conditions Precedent described in clause 2 is fulfilled or waived and Completion is effected in terms of clause 3 then the JVC shall become responsible for such costs and shall reimburse ME in accordance with clause 3.3(g) except that project management costs incurred by ME may be invoiced by ME after Completion and will be repaid within 30 days of invoice date".
Schedule 5A lists categories of costs, with estimated amounts totalling £420,000 (exclusive of VAT). The categories are: architect, structural engineer, planning fees, planning consultant, services engineer, traffic consultant, quantity surveyor, environmental consultant, topographical surveys and legal costs. It is a matter of admission, in the present proceedings, that all the costs which the pursuers are seeking to recover fall within the scope of clause 13.2 and Schedule 5A.
[74] Finally, in relation to the JVA, clause 15 sets out an "entire agreement" provision:
"This Agreement and any other Agreements entered into on Completion pursuant to clause 3 set out the entire agreement and understanding between the parties with respect to the subject matter of it. It is agreed that:
(a) neither party has entered into this Agreement in reliance upon any representation, warranty or undertaking of the other party which is not expressly set out