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STEWART WELLS HILL AND ROBERT THOMSON HILL AGAINST STEWART MILNE LIMITED; GLADEDALE (NORTHERN) LIMITED (FORMERLY BETT LIMITED)


Submitted: 13 May 2016

 

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

[2016] CSIH 35

XA76/15

 

Lady Smith

Lord Brodie

Lady Clark of Calton

 

OPINION OF LADY SMITH

in the cause

STEWART WELLS HILL and ROBERT THOMSON HILL

Pursuers and Respondents;

against

STEWART MILNE GROUP LIMITED

First Defender and Appellant;

GLADEDALE (NORTHERN) LIMITED (formerly BETT LIMITED)

Second Defender and Appellant:

 

Pursuers and Respondents:  Bartos; Balfour + Manson LLP, Solicitors, Edinburgh

Defenders and Appellants:  McIlvride QC;  Morton Fraser LLP, Solicitors, Edinburgh

13 May 2016

[1]        I have read and considered the opinion of Lord Brodie.  I agree with its terms in their entirety and have nothing to add.


EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

[2016] CSIH 35

XA76/15

 

Lady Smith

Lord Brodie

Lady Clark of Calton

 

OPINION OF LORD BRODIE

in the cause

by

STEWART WELLS HILL and ROBERT THOMSON HILL

Pursuers and Respondents;

against

STEWART MILNE GROUP LIMITED

First Defenders and Appellants;

 

GLADEDALE (NORTHERN) LIMITED (formerly BETT LIMITED)

Second Defenders and Appellants:

 

Pursuers and Respondents:  Bartos;  Balfour + Manson LLP, Solicitors, Edinburgh

Defenders and Appellants:  McIlvride QC;  Morton Fraser LLP, Solicitors, Edinburgh

13 May 2016

Introduction
[2]        This is an appeal at the instance of the defenders from an interlocutor of the sheriff at Hamilton dated 10 July 2015.  The interlocutor was pronounced after proof.  It ordered payment by the first and second defenders jointly and severally to the pursuers of the sum of £345,000.  The appeal is also directed at the sheriff’s interlocutor of 18 November 2014 in terms of which she allowed the pursuers to amend by increasing the sum sued for from £265,000 to £345,000.  The motion to amend had been made on behalf of the pursuers during a hearing of submissions following the closing of the proof.  The motion had been opposed on behalf of the defenders.

[3]        The claim for payment which the sheriff upheld in full arose from an obligation constituted by an agreement among the parties executed on 30 and 31 January and 1 February 2007 and registered in the Books of Council and Session on 28 February 2007. 

[4]        The agreement contemplated the development by the first defender (referred to therein as “SMG”) and the second defender (“Bett”) of subjects of which they were to become proprietors at Morningside, Wishaw (the “MTS site”) for residential purposes and the development by the pursuers (“the Hill Family”) of adjacent subjects of which they were proprietors (the “Hill Family site”), also for residential purposes and, in particular, the building there of no more than 40 two‑storey residential units.  The agreement is set out in fuller terms below but in brief it provided:  (1) that SMG and Bett would install sewage and surface/storm water drainage systems on the MTS site;  (2) that the pursuers would be entitled to connect the Hill Family site to these systems at no cost to them;  and (3) that SMG and Bett would use all reasonable endeavours to ensure that the systems would be completed and commissioned by 28 March 2008 (“the Longstop Date”) but in the event that they were not, the pursuers would be entitled to receive payment from SMG and Bett of a penalty of £5000 per month until the systems were completed and commissioned.

[5]        The defenders accepted that the sewage and surface/storm water systems were not completed by the Longstop Date of 28 March 2008 and accordingly made payments to the pursuers at the rate of £5000 per month up to and including December 2008.  On 13 February 2009 solicitors acting for the defenders wrote to the solicitors acting for the pursuers advising that the defenders would no longer make payments because the sewage system was installed and connected to the public system and had the requisite capacity and the surface/storm water system was for all practical purposes complete and operational with the requisite capacity.  Since then the defenders have maintained that position.  The pursuers did not accept that the systems had been “completed and commissioned” in terms of the agreement and in 2009 they raised this action craving payment at the rate of £5000 per month from the end of December 2008.

[6]        Subsequent procedure included a debate before the sheriff as to whether the clause imposing the obligation to make payment of £5000 per month until the systems were completed and commissioned (clause 2.1 otherwise the “Longstop clause”) constituted an unenforceable penalty.  The sheriff’s interlocutor allowing proof was recalled on appeal to the sheriff principal but restored after further appeal to this court, as appears from the opinion published as [2011] CSIH 50.  Proof was heard by the sheriff on 23 April 2014 and at subsequent diets.  It was concluded on 21 August 2014.  On 18 November 2014, on the opposed motion of the pursuers, the sheriff allowed the sum sued for to be amended at the bar from £265,000 to £345,000.  On 22 January 2015, having heard parties’ submissions, the sheriff made avizandum.  On 10 July 2015 she pronounced the interlocutor which is now appealed directly to this court.

 

The agreement
[7]       The agreement provided, inter alia, as follows (whereas in the original text the fourteen paragraphs of clause 2 are not denominated in any way I have designated them from 2.1 to 2.14 in order to allow the paragraphs of the clause to be identified): 

“’MTS Site’ means ALL and WHOLE that plot or area of ground at Morningside, Wishaw registered in the Land Register of Scotland under Title Number LAN 176295.

 

‘Hill Family Site’ means ALL and WHOLE the subjects registered in the Land Register of Scotland under Title Numbers LAN 182908 LAN 39029 LAN 179727 and LAN 179720.

 

‘MTS’ means MTS Residential (Scotland) Limited incorporated under the Companies Acts and having their Registered Office at 122 Dundyvan Road, Coatbridge.

 

‘Installation date’ means the date upon which the sewerage system and surface/storm water system have both been full commissioned and notice of same has been given in writing by Bett and/or SMG to the Hill Family.

 

 

2.1         Considering that MTS are the owners of the MTS Site and have concluded missives with Bett and SMG for the sale of the said site and that Bett and SMG are to develop their respective parts of the MTS Development Site for residential purposes.

 

2.2         Further Considering that the Hill Family are the heritable proprietors of the Hill Family Site and intend to develop the Hill Family Site for residential purposes.

 

2.3         Further Considering that to facilitate the development of the MTS Site, Bett and SMG are to install a sewage system which will connect the MTS site, with the public sewage system in Newmains by way of a pipe, the line of which is shown coloured red on the plan number 1 annexed and executed as relative hereto.

 

2.4         Further considering that it has been agreed that to facilitate the development of the Hill Family Site, the Hill Family will be entitled to connect to the said sewage system at no cost to them.

 

2.5         Bett and SMG confirm that the said sewerage system will comply in all respects with the requirements of North Lanarkshire Council as planning authority, Scottish Water and any other interested Statutory authority, that the said sewerage system will have the capacity as at the date of installation of the said systems to serve the development being not more than forty, two storey residential units to be erected by the Hill Family on the Hill Family site and in the event that any alteration, upgrading or improvement of the said sewerage system as proposed is required in order to provide said capacity as at the date of installation of the systems, all costs incurred in that regard will be the sole responsibility of Bett and SMG and the Hill Family shall have no responsibility whatsoever for any such costs incurred.

 

2.6         Further Considering that to facilitate the development of the MTS Site, Bett and SMG will be installing a surface/storm water drainage system in their respective parts to the MTS Site.

 

2.7         Further Considering that to facilitate the development of the Hill Family Site, the Hill Family will be entitled to connect to the said surface/storm water system at no cost to them.

 

2.8         Bett and SMG confirm that the said surface/storm water system will comply in all respects with the requirements of North Lanarkshire Council as planning authority, Scottish Water and any other interested Statutory authority that the said surface/storm system will have the capacity as at the date of installation of the systems to serve the development being no more than 40, two storey residential units to be erected by the Hill family on the Hill Family site and in the event that any alteration, upgrading or improvement of the said surface/storm water system as proposed is required in order to provide said capacity as at the date of installation of the systems, all costs incurred in that regard will be the sole responsibility of Bett and SMG and the Hill Family shall have no responsibility whatsoever for any such costs incurred.

 

2.9         Bett and SMG shall provide written notice to the Hill Family that both the sewerage and surface/storm water drainage systems have been fully completed to the satisfaction of all relevant statutory authorities within twenty one days of the date of completion as aforesaid.

 

2.10        Bett and SMG have agreed that they shall, within two calendar months and at their cost, if required by North Lanarkshire Council, or the Hill Family, amend the existing planning consent, reference S/04/02128/REM dated 21st Dcember 2005 to accommodate the enlargement of the SUDS pond and variation of existing finished floor levels, if this is required to facilitate the Hill Family’s existing planning consent reference S/04/01837/FUL approved 22nd December 2005 but only where this is necessary as has been identified within the Morningside Development Risk Assessment completed by WA Fairhurst dated September, 2004 and the Flood Risk Assessment Report completed by W A Fairhurst dated March, 2006.

 

2.11        Bett and SMG shall, at their cost, if required by North Lanarkshire Council, Scottish Water or any other interested Statutory authority, carry out the necessary works to enlarge or amend the SUDS poind.  Declaring that in the event that the SUDS pond requires to be increased or amended the Hill Family are obliged to convey the additional ground required to accommodate the increased or amended SUDS pond, provided said ground falls within title number LAN 39029, and within the area shown hatched in orange on the plan number 2 annexed and executed as relative hereto, to Bett and SMG for no consideration and for no cost.

 

2.12        Bett and SMG confirm that the location of the connection points which the Hill Family shall use to connect into the four and Storm drainage systems are shown as two manholes shown circled in red in a plan prepared by Stewart McTaggart drawing number SM764 number 3000 Rev M sheet 1 of 3 a copy of which is annexed and signed as relative hereto.

 

2.13        Bett and SMG undertake that they will use all reasonable endeavours to ensure that both the sewerage and surface/storm water systems will be completed and commissioned by 28th March 2008 (‘the Longstop Date’);  But declaring that the Longstop Date shall be extended to take account of any delays caused to the said programme as a result of force majeure.  In the event that Bett and SMG have not completed the said works by the Longstop Date, as such date may be extended as aforesaid, then the Hill Family shall be entitled to receive payment from Bett and SMG, jointly and severally, of a penalty of Five Thousand Pounds (£5,000) per calendar month until the said systems are completed and commissioned.

 

2.14        The Hill Family will be responsible for any costs incurred in connection with the Hill Family Site being connected to the sewage system and surface/storm water system.”

 

The sheriff’s findings in fact
[8]        The sheriff found, inter alia, the following facts proved:

“9.       The defenders developed adjacent parts of the MTS site.  They jointly undertook construction of the sewage and surface/storm water drainage systems for the whole site.  Construction of the systems began in 2007.  It involved the installation of combined gravity sewers for sewage and surface water drainage;  augmentation storage works to the existing public sewage network to accommodate additional flow from the MTS site;  two pumping stations, a lower and upper station, to increase velocity and transfer sewage from the MTS site to the existing gravity fed public networks;  and a Sustainable Urban Drainage pond (SUDS pond) to treat and attenuate surface water flow off from the MTS site with discharge to the Auchter Water.  The gravity sewers, augmentation works, pumping stations and SUDS pond were all integral parts of the sewage and surface/storm water systems. 

10.       The sewage and surface/storm water systems were not completed by the longstop date of 28th March 2008.  The pursuers became entitled to receive payment from the defenders of the sum of £5,000 per month from that date under the longstop clause in their Minute of Agreement.  The defenders made these payments between March and December 2008.  On 13  February 2009 the defenders’ solicitor wrote to the pursuers’ solicitors advising they would no longer meet these payments on the grounds the sewage system was installed and connected to the public system and had the requisite capacity and the surface/storm water drainage system was for all practical purposes complete and operational with the requisite capacity.  (6/1/25)

11.       By December 2008 the defenders had constructed sewage and surface/storm water systems on the MTS site which were operational and connected to the public network operated by Scottish Water.  Houses built on the site were connected to these systems. 

12.       By December 2008 the defenders had constructed and obtained local authority habitation certificates from North Lanarkshire Council for houses built on the MTS site.  They subsequently obtained habitation certificates from North Lanarkshire Council in respect of all the houses built on the MTS site. 

13.       Between April 2009 and March 2012 Scottish Water made reasonable cost contribution totalling £160,846.50 in respect of 108 houses at the MTS site. 

14.       On 12 July 2010 Scottish Water issued a completion certificate in respect of the augmentation storage works to the first defender.  The completion certificate is dated 30 November 2008.  A covering letter from Scottish Water confirms the backdating of the certificate to 30 November 2008 and the commencement of the 12 month defect liability period from that date.  (6/1/23)  The augmentation storage works are capable of vesting in Scottish Water. 

15.       On 7th September 2009 Scottish Water issued a completion certificate in respect of the gravity sewers to the second defender.  A covering letter from Scottish Water confirms commencement of the 12 month defect liability period from 7 September 2009.  (6/1/7)  The gravity sewers are capable of vesting in Scottish Water. 

16.       Scottish Water have not issued a completion certificate in respect of the pumping stations.  As at 23 July 2012 Scottish Water had inspected the pumping stations and issued a snagging list;  remedial works required to be carried out to the pumping stations.  (5/4/2)  This remained the situation at proof. 

17.       Scottish Water have not issued a completion certificate in respect of the SUDS pond.  The process for this had not commenced as at 23 July 2012.  (5/4/2)  This remained the situation at proof.  The defenders did not obtain technical approval from Scottish Water for the design and construction of the SUDS pond.  It has been constructed to 40% of its design capacity. 

18.       As at 23 July 2012 the surface/storm water drainage system at the MTS site was private and incomplete.  (5/4/2)  This remained the situation at proof. 

19.       The planning approvals for the MTS site require the defenders to provide to North Lanarkshire Council as Planning Authority written confirmation from Scottish Water that Scottish Water’s requirements in respect of site drainage to serve the development have been met.  (5/4/4)  The defenders have not provided this written confirmation to North Lanarkshire Council as Planning Authority.

20.       The defenders have not fulfilled condition 23 of the planning conditions for the MTS site which is in the following terms: 

 

’23. That before any house within the site is occupied the SUDS pond shall be completed to the satisfaction of the planning authority and the connection from the site to the public sewer shall be completed.’ (5/4/6)

 

21.       The defenders have not provided written notice to the pursuers in terms of the Minute of Agreement that sewage and surface/storm water drainage systems have been fully completed to the satisfaction of all relevant statutory authorities. 

22.       By December 2008 the sewage and surface/storm water systems installed by the defenders at the MTS site did not comply in all respects with the requirements of North Lanarkshire Council as planning authority and with the requirements of Scottish Water.  This remained the situation at the close of the evidence in this case on 17 August 2014.”

 

Grounds of appeal
[9]        Put shortly, the defenders’ grounds of appeal were:  (1) that having regard to the sheriff’s findings of primary fact, she had erred in law in holding that the defenders had not “completed and commissioned” sewage and surface/storm water systems at the MTS site by December 2008;  and (2) in any event she had erred in law in allowing, in terms of interlocutor of 18 November 2014, the pursuers to amend their pleadings by increasing the sum sued for from £265,000 to £345,000. 

 

Submissions
Defenders and appellants
[10]      Mr McIlvride QC appeared on behalf of the defenders.  His primary motion was for the court to recall the interlocutor of the sheriff of 10 July 2015, repel the pleas-in-law for the pursuers, sustain the second and third pleas-in-law for the defenders and, accordingly, grant decree of absolvitor.  His alternative motion, in the event that the court was not with him in relation to his primary motion, was for the court to recall the interlocutor of the sheriff of 18 November 2014 and, in consequence of that, recall the interlocutor of 10 July 2015 to the extent of substituting £265,000 for £345,000 as the sum payable by the defenders to the respondents.  

[11]      Mr McIlvride adopted the defenders’ note of argument.  There it was submitted that the sheriff had demonstrably failed to have had regard to, or had misunderstood, the relevant evidence and that accordingly her findings in fact should be varied to the following extent: 

 

(i) insert at the beginning of finding 13 ‘The operation of the sewage and drainage systems installed by the defenders at the MTS site was considered sufficiently satisfactory to Scottish Water for Scottish Water to levy water charges on the owners of the properties occupied on the site’ and in the existing finding, after ‘contributions’, insert ‘amounting to £160,846.50 to the defenders’ and add at the end ‘It is Scottish Water’s policy to make reasonable cost reimbursements to developers only when the work required to accommodate a new connection is complete and the new infrastructure is able to generate income for Scottish Water.’

 

(ii) insert a new finding 14 as follows (renumbering the subsequent findings accordingly): 

 

‘The operation of the sewage and drainage systems installed by the defenders at the MTS site, including a SUDS pond and pumping stations, was considered sufficiently satisfactory to Scottish Water to warrant the continued connection of those systems to the public sewer since December 2008.’

 

(iii) in finding 19 (formerly 18), delete ‘and incomplete’

 

(iv) delete finding 22 (formerly 21)

 

(v) in finding 22 delete ‘and with the requirements of Scottish Water’ and add at the end ‘but North Lanarkshire Council have nevertheless issued completion certificates authorising the occupation of the houses constructed on the MTS site since 2008.’ 

 

(vi) add new findings in fact as follows: 

 

”23. Neither North Lanarkshire Council nor Scottish Water have since December 2008 sought to challenge the continued occupation of the houses constructed on the MTS and served by the sewage and drainage systems.  Nor has either contemplated doing so. 

 

24. The issue of a completion certificate by Scottish Water in respect of a sewage or drainage system triggers the commencement of a one year defects liability period on the satisfactory completion of which the developer may apply to have the system adopted by Scottish Water.  There is no obligation on a developer to apply for a completion certificate and a certificate is not a requirement of Scottish Water’s agreement that a system can be, and remain, connected to the public sewer. 

 

25. By August 2013 over 200 units had been purchased and occupied at the MTS site, all of which are served by operational sewerage and drainage systems. 

 

26. Accordingly, the systems installed by the defenders have since December 2008 fully satisfied SW and NLC’s requirements for operational sewerage and drainage systems at the MTS site, i.e. systems which satisfactory serve the houses located there and which are entitled to be connected to the public mains. 

 

27. The sewage and drainage systems constructed at the MTS site and connected to the public sewer have since December 2008 been capable of accommodating the connection of sewage and drainage systems serving up to 40 units on the site owned by the pursuers.” 

 

For Mr McIlvride the central issue in the appeal was what parties should be taken as having intended when they contracted in terms of the Longstop clause (what I have designated clause 2.13 in the text of the agreement reproduced above) that the systems should be “completed and commissioned” if the defenders were not to incur a liability to make payment.  While he had proposed alterations to the sheriff’s findings of fact in order to provide an accurate statement of the context in which the Longstop clause had to be applied, he immediately accepted that these alterations, if made, would not avail the defenders if the court was not with him on what was the proper construction of the agreement.  

[12]      It was Mr McIlvride’s submission on behalf of the defenders that “completed and commissioned” is properly to be construed as requiring the defenders to have completed the construction on the MTS site of sewage and surface/storm water drainage systems which had each become operational and which were capable of accommodating the connection of systems serving up to 40 units on the pursuers’ site.  It was accepted that it was implicit that the operation of the systems would require to be to a standard satisfactory to Scottish Water.  Such a requirement was readily understandable as making commercial sense where Scottish Water’s consent was a necessary condition of the systems being connected to the public sewer.  For the systems to be “completed” they would have to be operational in the sense of having been connected to the public sewer not simply as a matter of fact but with the consent of Scottish Water.  Similarly, it was accepted that the systems would require to be of a standard satisfactory to North Lanarkshire Council, as building control authority, so that the Council  would be in a position to grant completion certificates (previously habitation certificates) authorising the habitation of each of the houses to be served by the systems; “commissioned” comprehended being used or being capable of being used by those persons who were entitled to inhabit the houses to which the systems were connected or served.  However, as long as the systems were completed and commissioned to such a standard as met the requirements of Scottish Water for connection to the public sewer and the requirements of North Lanarkshire Council for the grant of completion certificates authorising habitation of up to 40 houses on the Hill Family site, then the requirements of clause 2.13 were met.  Clause 2.13 did not have the result that the defenders were obliged to make payments until the conditions of the systems were such that the defenders were in a position to procure the vesting of the systems in Scottish Water as provided for by section 16 of the Sewerage (Scotland) Act 1968.  Nor did the Longstop clause impose an obligation to make payments on failure on the part of the defenders to intimate to the respondents by any specified date that the systems on the MTS site had been completed and commissioned to the satisfaction of Scottish Water and North Lanarkshire Council. 

[13]      Contrary to the finding by the sheriff, it was the defenders’ submission that they had “completed and commissioned” the sewage and surface/storm water drainage systems by December 2008.  Mr McIlvride founded on the following indicators of that being so:  by that date the systems were operational on the MTS site; the systems have now served the owner occupiers living on that site for some six years;  North Lanarkshire Council has granted completion certificates authorising habitation of all the houses completed on the MTS site;  Scottish Water has allowed a continuing connection to the public sewer, levied water charges and reimbursed the defenders for construction costs;  neither Scottish Water nor North Lanarkshire Council has sought to challenge, prevent or restrict the operation of the systems;  and in December 2008 the systems were capable of accommodating a further 40 units on the Hill Family site.  The sheriff’s construction of clause 2.13 appeared to have been achieved only by reading into it words which are found in other clauses of the agreement but which parties had not included in the clause 2.13. 

[14]      Even if the construction proposed by the respondents and adopted by the sheriff were considered tenable, that proposed by the defenders was the more commercially sensible and should be preferred for that reason:  Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 and Grove Investments Ltd v Cape Building Products Ltd [2014] CSIH 43.  Further, the defenders’ construction should also be preferred because to prefer that of the pursuers would be to confer upon them an arbitrary and unpredictable windfall which they could not  reasonably have expected from the contract in that the pursuers having achieved their objective of having in place operational systems to which they had the opportunity to connect, there was no commercially rational basis for the defenders remaining under the obligation to pay £5000 per month  on the premise that they had failed to complete and commission operational systems. 

[15]      In allowing the amendment on 18 November 2014, the sheriff had exercised her discretion unreasonably.  The evidence had concluded on 21 August 2014.  Prior to then the defenders had been given no notice that the extent or approval of systems in the period after May 2013 was in issue.  In the circumstances the defenders had made no attempt to investigate the position or lead evidence in respect of any later period.  They were accordingly unfairly prejudiced.  

 

Pursuers and respondents
[16]      On behalf of the respondents, Mr Bartos did not take issue with the defenders’ proposed additions to finding-in-fact 13 or with the proposed new findings-in-fact 24, 25 or 27.  However, he did take issue with Mr McIlvride’s other proposed alterations to the sheriff’s findings-in-fact.  As far as the new finding-in-fact 14 was concerned, there was neither averment nor evidence to the effect that Scottish Water had “considered” the systems including the SUDS pond and pumping stations “sufficiently satisfactory” to warrant their continued connection to the public sewer since 2008.  As for her finding 18 the sheriff had been correct to describe the systems at the MTS site as “incomplete” as at 23 July 2012.  This reflected the evidence of Gina Temple, customer connections team leader of Scottish Water, expressed in Scottish Water’s letter to the pursuers’ solicitors and dated 23 July 2012 and summarised by the sheriff at paragraph [63] of her note: no completion certificates had been issued by Scottish Water in respect of the pumping stations and the SUDS pond, a snagging list having been issued for the pumping stations following inspection and there having been no inspection of the SUDS pond.  As it is put in the final paragraph of the Scottish Water letter:  

“Scottish Water will vest the drainage system at this development subject to it being constructed to our standards and specification, however, at this time it remains private and incomplete and cannot be vested until the pumping station and SUDS pond are complete.”

 

The evidence of John Duncan, who had been led for the defenders, was to similar effect.  As for finding 21, the defenders have not provided the pursuers with the written notice referred to (in paragraph 2.9); that had been spoken to by both Stewart Hill and Robert Hill and there had been no contrary evidence.  As for Mr McIlvride’s proposal to delete finding 22, this finding was critical.  There was no basis for deleting it.  It was supported by the evidence of Gina Temple and John Duncan, previously referred to in the context of finding 19, as well as by the email from Brian Campbell dated 10 August 2009 (admissible by virtue of the parties’ joint minute) which stated that:

“the pond is near completion and the pumping stations still require final commissioning … the system seems to be performing satisfactorily, however we will require the completion of the SUDS feature and the pump stations commissioned”.

 

Evidence had been led from Fraser Miller, a planning officer of North Lanarkshire Council.  He had no involvement with the issue of completion certificates authorising the habitation of newly built houses.  He was, however, the author of a letter dated 2 October 2012.  He confirmed that the relevant planning permission, referred to in that letter, provided, by way of condition 23, that before any house within the MTS site is occupied the SUDS pond shall be completed to the satisfaction of the planning authority and the connection from the site to the public sewer shall be completed.  The issue of a certificate authorising habitation did not mean that the council, as planning authority, was satisfied that the conditions attached to a planning permission had been complied with.  As far as proposed new finding 23 was concerned, there was simply no evidential basis for such a finding.  Neither Gina Temple nor Fraser Miller had spoken to this.  The sheriff did not err in not making such a finding.  As for proposed finding 26 was neither pled nor proved.  Mr McIlvride’s invitation to the court to make such a finding was an attempt to make a case not on record.

[17]      Mr Bartos commended the sheriff’s construction of the agreement.  She had relied on well recognised principles:  (1) a contract must be read as a whole and each provision read in the light of the other provisions:  Taylor v Secretary of State for Scotland 2000 SC (HL) 139 at 144C-D;  (2) where there are two possible constructions the court should favour the more rather than the less commercial alternative:  Rainy Sky SA v Kookmin Bank and Grove Investments Ltd v Cape Building Products Ltd at paragraph 9; and (3) the more unreasonable the result the less likely it is the parties can have intended it and the more necessary is it that such an intention is made abundantly clear:  L Schuler AG v Wickman Machine Tools Sales Ltd [1974] AC 235 at 251E.  Moreover, the sheriff had carried out the iterative process (checking each of the rival meanings against other provisions of the document and investigating its commercial consequences) required to resolve an issue of interpretation:  In re Sigma Finance Corpn [2010] 1 All ER 571, Lord Mance at paragraph 12;  Rainy Sky, Lord Clarke at paragraph 28;  Arnold v Britton [2015] AC 1619, Lord Hodge at paragraph 77.  

[18]      Mr Bartos accepted Mr McIlvride’s definition of “commissioned” as “made operational” but distinguished between Mr McIlvride’s definition of “completed” and what he, Mr Bartos, put forward as the proper interpretation.  Whereas Mr McIlvride construed “commissioned” as “being capable of being operated” (demonstrated perhaps by actually being in operation), Mr Bartos construed “commissioned” as “being compliant in all respects with the requirements of North Lanarkshire Council and Scottish Water”.  He then developed his submissions in support of his proposed construction by reference to the approach adopted by Lord Neuberger in Arnold at paragraph 15.  The natural and ordinary meaning of “completed” was “fully constructed in every respect” and that comprehended having received all requisite approvals.  There was no dispute but that the object of the obligation on the defenders was to enhance the value of the Hill Family site.  In terms of clause 2.5 the defenders confirm that:

“the said sewage systems will comply in all respects with the requirements of North Lanarkshire Council as planning authority Scottish Water and any other interested statutory authority”.

 

It can accordingly be implied that the defenders were bound to require to have the systems vested in Scottish Water.  Were the defenders’ definition correct then “completed” would have a different meaning in clause 2.9 than it would in clause 2.13 (the Longstop clause).  The overall purpose of clause 2.13 was to relieve the pursuers from having to deal with the statutory authorities in relation to the connections which they were entitled to make with the defenders’ systems;  they were to get a connection to systems which met all of the statutory authorities’ requirements.  This was critical because without that there would be difficulties in using the systems on the MTS site.  The purpose of clause 2.13 was, first, to set a time-limit and, second, to give a remedial claim for payment for the specified systems not being ready by the Longstop Date.  The importance of a contractual remedial claim was that quantifying damages would be difficult.  On the defenders’ approach breach of obligations other than that contained in clause 2.13 would give rise to damages claims.  It was unlikely that parties had so contracted as to provide a payment claim for one breach but damages claims for other breaches.  The pursuers’ construction, in contrast to the defenders’ construction, was consistent with commercial common sense and would commend itself to the reasonable man.  That had been the sheriff’s conclusion, as explained in paragraphs 55 to 61 of her note, and she had not erred.  

[19]      In order to have reached the construction argued for by the defenders, the sheriff would have required to:  divorce “completed and commissioned” in the Longstop clause from the provisions obliging the defenders to give notice that the systems “have been fully completed” (clause 2.9) and the requirements in clause 2.5 and clause 2.8 that the systems comply in all respects with the requirements of North Lanarkshire Council as planning authority and Scottish Water;  favour the unreasonable and unlikely view that the parties contemplated that the pursuers should require to pursue separate remedies in order to achieve full compliance with the requirements of the statutory authorities;  disregard the absence of practical sanction against the defenders in respect of their failure to serve written notice of completion; and ignore the commercial sense of the pursuers obtaining systems which were capable of being vested in Scottish Water thereby freeing them from the financial burden of maintenance and repair.  The pursuers’ note of arguments had indicated that they would advance an argument based on the implication of a contractual term but Mr Bartos advised that this was not insisted upon.  

[20]      As far as the sheriff’s allowance of the amendment on 18 November 2014 was concerned, this was a matter for her discretion.  Moreover, once it was admitted that payments of £5000 were due in March 2008 there was a shift of onus onto the defenders to establish that payments were no longer due, given that the state of completion of the MTS site systems was a matter peculiarly within their knowledge.  There was therefore no need for the pursuers to lead evidence on state of completion.  It could not be said that the defenders were not on notice that the respondents’ claim was a continuing one.  That much was averred.  With the passage of time there had been previous amendments to increase the sum sued for.  The prejudice which had been referred to by Mr McIlvride was notional only.  He was not in a position to say that there actually was evidence that anything had been done to advance the state of completion of the systems after December 2008.  

 

Decision
[21]      There was a dispute between the parties as to whether the sheriff’s findings-in-fact might legitimately be altered or supplemented but I did not understand parties to be at issue on any of the primary facts found by the sheriff, indeed the primary facts would seem to have been almost entirely uncontroversial.  Rather, the argument related to how they should be characterised.  I understand why such an argument arose.  Mr McIlvride was concerned lest his contentions on contractual construction would be fatally undermined by the way in which the sheriff had expressed her findings-in-fact.  Mr Bartos was understandably concerned to protect a judgment in which the sheriff had considered the facts to conform to his construction of the contract.  I have set out the parties’ respective positions on the findings-in-fact.  Having had the benefit of the discussion about the findings and the evidence underlying them, I consider that I understand the state of primary fact, albeit at the rather high level of generality at which parties apparently presented the case to the sheriff and certainly presented it to this court.  That understanding is not inconsistent with the way in which the sheriff has formulated her findings.  I would propose, however, making the alterations to findings-in-fact 18 and 22 proposed by Mr McIlvride and otherwise in the respects proposed by Mr McIlvride and conceded by Mr Bartos.  As far as finding 18 is concerned this means deleting “and incomplete”.  As far as finding 22 is concerned that means deleting “and with the requirements of Scottish Water”.  What are deleted are less findings of fact than conclusions framed in terms drawn from the agreement and are therefore simply reflections of the sheriff’s views on its proper construction.  The alteration to finding-in-fact 22 also includes the addition of the words:

“but North Lanarkshire Council have nevertheless issued completion certificates (otherwise habitation certificates) authorising the occupation of the houses constructed on the MTS site since 2008.”

 

I set out below the findings-in-fact as I would propose they be altered or added to (because I would not  propose making what Mr McIlvride proposed as finding 26 but have made what he proposed as 27, I have numbered what was proposed as finding 27, ”26”): 

“13. The operation of the sewage and drainage systems installed by the defenders at the MTS site was considered sufficiently satisfactory to Scottish Water for Scottish Water to levy water charges on the owners of the properties occupied on the site. Between April 2009 and March 2012 Scottish Water made reasonable cost contributions amounting to £160,846.50 to the defenders in respect of 108 houses at the MTS site. It is Scottish Water’s policy to make reasonable cost reimbursements to developers only when the work required to accommodate a new connection is complete and the new infrastructure able to generate income for Scottish Water.

18. As at July 2012 the surface/storm water drainage system at the MTS site was private. (5/4/2) This remained the situation at proof.

22. By December 2008 the sewage and surface/storm water drainage systems installed by the defenders at the MTS site did not comply in all respects with the requirements of North Lanarkshire Council as planning authority. This remained the situation at the close of evidence in this case on 17 August 2014 but North Lanarkshire Council have nevertheless issued completion certificates (otherwise habitation certificates) authorising the occupation of the houses constructed on the MTS site since 2008.

24. The issue of a completion certificate by Scottish Water in respect of a sewage or drainage system triggers the commencement of a one year defects liability period on the satisfactory completion of which the developer may apply to have the system adopted by Scottish Water. There is no obligation on a developer to apply for a completion certificate and a certificate is not a requirement of Scottish Water’s agreement that a system can be, and remain, connected to the public sewer.

25. By August 2013 over 200 units had been purchased and occupied at the MTS site, all of which are served by operational sewerage and drainage systems.

26. The sewage and drainage systems constructed at the MTS site and connected to the public sewer have since December 2008 been capable of accommodating the connection of sewage and drainage systems serving up to 40 units on the site owned by the pursuers.”

 

[22]      An important part of the context in which the agreement between the parties has to be interpreted is provided by the terms of the Sewerage (Scotland) Act 1968, as amended by the Water Industry (Scotland) Act 2002 and the administrative practice of Scottish Water, the body corporate established in terms of section 20 of the latter Act.  Also of relevance are the powers of North Lanarkshire Council as planning authority with functions derived from the Town and Country Planning (Scotland) Act 1997 and as building control authority with the functions derived from the Building (Scotland) Act 2003.  It is convenient to say a little about these matters before going any further.  

[23]      Section 1 of the 1968 Act imposes duties on Scottish Water to provide public sewers, public sustainable urban drainage (“SUD”) systems and sewage treatment works and to take public sewers to such points as will enable the owners of premises which are to be served by sewers to connect their drains or private sewers with the public sewers at reasonable cost.  The duty is qualified by section 1(3) as not requiring Scottish Water to do anything which is not practicable at a reasonable cost.  The section 1 duty, taken with the reasonable cost provisions, give rise to a situation, explained in the executive note to the Provision of Water and Sewerage Services (Reasonable Cost) (Scotland) Regulations 2006, SSI 2006/120 (now repealed but in force at the relevant time), whereby Scottish Water is required to meet the cost of strategic infrastructure required for new developments while developers are required to meet the cost of additional local infrastructure subject to a reasonable cost contribution by Scottish Water. 

[24]      Section 2 of the 1968 Act imposes the duty on Scottish Water to maintain and where appropriate renew all sewers, SUD systems, sewage treatment works and other works vested in it.  Section 8 provides that in circumstances where it has no duty to provide public sewers but it is satisfied that premises are to be constructed by any person, Scottish Water may enter into an agreement with that person respecting the provision by that person of sewers and sewage treatment works to serve those premises.  Such an agreement may specify the terms and conditions on which the work is to be carried out, including provision as to the taking over by Scottish Water of SUD systems and sewage treatment works so provided.  Correlative to the duty imposed on Scottish Water by section 1, in terms of section 12 the owner of any premises shall be entitled to connect his drains, private sewers or private SUD systems with the sewers, SUD systems or sewage treatment works of Scottish Water and the occupier of any such premises shall be entitled to drain into Scottish Water’s systems through such connections.  However, the owner’s right to connect is subject to Scottish Water’s power, in terms of section 12(3), having received notice of the owner’s proposals, to refuse permission for the connection or to grant permission subject to such conditions as it thinks fit.  Moreover, in terms of section 14, where notice has been given of the owner’s proposals, Scottish Water may direct the owner to construct his drain, sewer, SUD system or works in a manner differing from that in which he originally proposed to construct them.  Where private sewers and SUD systems are connected with Scottish Water’s sewers or sewage treatment works, in terms of section 16(1) (c) and (2) they shall vest in Scottish Water on the date of their completion.  The importance of vesting is that, having regard to sections 2, 15 and 16(3), whereas the owner or occupier of premises has a liability to maintain a private sewer and may be required by Scottish Water to remedy defects, on vesting that liability passes to Scottish Water.  This court was not addressed on the detail of the 1968 Act (neither it appears was the sheriff) but our attention was drawn to Scottish Water’s Guide for obtaining new water and waste water services, which was a production and which sets out how Scottish Water carries out its statutory functions in relation to permitting connection with its water and waste water networks.  There was no suggestion that the Guide was other than an accurate description of the administrative practice of Scottish Water at the relevant time or that that practice was other than consistent with its statutory powers.  Chapter 4 of the Guide addresses the process for applying for a new connection and outlines the design work required.  As appears from paragraph 4.6, if satisfied by the relevant design calculations, Scottish Water will issue a permit to connect, valid for two years from the date of issue, specifying any applicable requirements or conditions which must be complied with by the applicant for connection.  Section 5.1 of chapter 5 of the Guide explains that Scottish Water will carry out a site inspection of the developer’s work and on “satisfactory completion” will adopt the section of pipe between the sewer and the curtilage boundary of the developer’s property.  Chapter 6 of the Guide is headed “completion and vesting process”.  It sets out how Scottish Water manages and controls what otherwise might have been thought on the face of section 16(1) to have been an automatic vesting of connected private sewers and SUD systems consequent upon “their completion” as that expression is used in section 16(2).  Section 6.1 is specific to pumping stations which form part of the developer’s system.  They are to be inspected on behalf of Scottish Water and any snagging items identified.  Once any snagging items have been satisfactorily rectified the pumping station will be “commissioned” and an operational certificate issued as an indication that the pumping station was fully compliant with the relevant legislation and specifications.  The pumping station must then be operated and maintained on behalf of the developer until a completion certificate is issued and the defects liability period starts.  What is meant by a completion certificate is set out in section 6.2 and what is meant by the defects liability period is set out in section 6.3.  One completion certificate will be issued to cover wastewater elements (sewers, surface water drainage, SUD system and any pumping station).  It certifies that the elements have been constructed, tested and inspected to standards set out in the latest version of a technical document, Sewers for Scotland.  The defects liability period starts when a completion certificate is issued.  It extends for a minimum period of 12 months or until the last house on the development is completed, whichever is longer.  Only during the final three months of the defects liability period can the developer apply for a transfer certificate to vest the relevant infrastructure in Scottish Water.  Chapter 7 of the Guide deals with costs, charges and financial contributions.  Section 7.7 explains that Scottish Water’s financial contributions towards the cost of strategic infrastructure will only be paid when the work required to accommodate a new connection is complete and the new infrastructure is capable of generating income from consumers.  [25]         Thus, there are a number of stages in a process managed by the various permissions which may be granted or withheld by Scottish Water.  Of particular importance in the present case is the stage at which a developer has the right to connect his system to the public sewer and the later stage at which the developer can apply for the vesting of his system in Scottish Water.  Once the first of these stages has been reached the houses in a development are capable of being drained and, subject to being otherwise satisfactory, being certified and accepted as complete in terms of sections 17 and 18 of the 2003 Act.  Once the later stage is reached the developer is in a position to relieve himself of further responsibility for maintenance of his system by requiring it to vest in Scottish Water.  

[26]      With that by way of outlining the context, I turn then to what this appeal is about: a question of contractual interpretation and, in particular, a question as to the proper meaning to be given to the expression “the said systems are completed” where it occurs in the Longstop clause (otherwise clause 2.13).  Discussion had focussed on the fuller expression “the said systems are completed and commissioned” but Mr Bartos narrowed the issue by accepting Mr McIlvride’s definition of “commissioned” as meaning:  “made operational and therefore capable of being put to use by those entitled to inhabit the houses served by the systems”. 

[27]      In construing the agreement I shall endeavour to keep in view and to follow the general guidance provided by Lord Neuberger in paragraphs 15 to 23 of his opinion in Arnold v Britton.  Lord Neuberger begins that passage as follows: 

“15. When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to ‘what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean’, to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101,para 14.  And it does so by focussing on the meaning of the relevant words, in this case clause 3(2) of each of the 25 leases, in their documentary, factual and commercial context.  That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions.” 

 

[28]      The first four paragraphs of clause 2 are in the form of recitals explaining why the parties are entering into the agreement.  Clause 2.1 and 2.2 set out the intention of the respective parties to develop their respective sites for residential purposes.  Clause 2.3 sets out that in order to facilitate the development of the MTS site, Bett and SMG are to install a sewage system which will connect the MTS site with the public sewage system by way of a pipe.  Clause 2.4 sets out that it has been agreed that in order to facilitate the development of the Hill Family site the now pursuers and respondents will be entitled to connect to the said sewage system at no cost to them.  Clauses 2.6 and 2.7 are also in the form of recitals, mirroring clauses 2.3 and 2.4 but relating to a surface/storm water drainage system.  Thus, a purpose of the agreement is, by virtue of clauses 2.4 and 2.7, to confer an entitlement on the pursuers to connect to the defenders’ sewage and surface/storm water systems at no cost to the pursuers.  I pause to observe that because it does not appear from the sheriff’s findings-in-fact and it was not explored in the course of the appeal, I have to confess not to have understood everything that connection would involve as a matter of fact, or the precise legal mechanism, following from the statutory and administrative structure which I have outlined above, by which a connection between systems on the Hill Family site (once constructed) and systems on the MTS site would lead to the vesting of Hill Family site systems in Scottish Water, hence the description of my understanding of the facts and circumstances as being at a rather high level of generality.  However, I understood parties to be agreed that what was being contracted for in the agreement was a means of the Hill Family site connecting with the public sewer by   connecting with systems on the MTS site and that once systems were constructed on the Hill Family site, as a matter of law and practice, the progress of these systems through the process of permissions and approvals leading to vesting in Scottish Water was dependent upon the progress of the MTS site systems.  In other words, I took parties to be agreed that before any Hill Family site systems can be made operational, the MTS site systems must be operational, and before any Hill Family site systems can vest the MTS site systems must have vested.  

[29]      Clauses 2.5, which relates to the sewage system (referred to as “the said sewerage system”) and 2.8 which relates to the surface/storm water system are in very similar terms.  In both paragraphs Bett and SMG “confirm” three things:  (i) that the respective systems “will comply in all respects with the requirements of North Lanarkshire as planning authority, Scottish Water and any other interested statutory authority”;  (ii) that the systems will have the capacity “as at the date of installation” to serve a development of no more than forty residential units on the Hill Family site;  and (iii) that should any alteration of the systems be required in order to provide such capacity, all costs incurred in that regard will be the sole responsibility of Bett and SMG. 

[30]      In terms of clause 2.13 Bett and SMG undertake that they will use all reasonable endeavours to ensure the “both the sewerage and surface/storm water systems will be completed and commissioned by …”the Longstop Date’”.  Given what Bett and SMG have confirmed in clauses 2.5 and 2.8, the systems to be “completed and commissioned” must be systems which “comply in all respects with the requirements of North Lanarkshire Council as planning authority, Scottish Water and any other interested statutory authority”.  Mr McIlvride conceded as much in accepting that it was implicit that the operation of the systems would have to be of a standard satisfactory to both Scottish Water and the Council.  

[31]      As already noted, parties were agreed that “commissioned” meant “made operational and therefore capable of being put to use by those entitled to inhabit the houses served by the systems”.  On that definition I would see the requirements of clause 2.13 as having been met as at December 2008 insofar as the “commissioned” aspect of “completed and commissioned” is concerned.  As appears from the sheriff’s findings-in-fact the systems were connected by that date and were working to drain the MTS site.  On the basis of the same facts, giving the word its natural and ordinary meaning, it can also be said that the systems were “completed”.  They certainly had been physically constructed.  As can be seen from chapters 4 and 5 of the Guide, the fact that the MTS systems have been connected to the public sewer means that Scottish Water has been satisfied with the design of the systems, has issued a permit to connect, has carried out a site inspection and been satisfied as to the completion of that work.  Thus, looking to the natural and ordinary meaning of the phrase, it can be said that the systems were “completed and commissioned” by December 2008.  That conclusion is reinforced if it is to be inferred from the order of the words that commissioning is something that comes after completion, as would seem to make sense.  What I mean by that is that the word order suggests the stage indicated by “completed” is a stage necessarily prior to the stage indicated by “commissioned”.  As I took Mr Bartos to accept, the fact that the systems were operational meant that the “commissioned” stage had been reached.  Thus, if word order is meant to indicate time sequence, the fact that the systems have been “commissioned” means that they must previously have been “completed”.  

[32]      That is not the construction that commended itself to the sheriff.  As she recorded in her note, it had been submitted to her on behalf of the defenders that “completed and commissioned” meant no more than that the systems on the MTS site should be operational and that units on the Hill Family site could connect with them (and essentially this was Mr McIlvride’s submission to us).  This she saw as failing to follow the principle that the meaning of a contractual provision had to be assessed in the light of the other provisions.  In particular, it failed to have regard to clause 2.9 (the “Notice clause”).  

[33]      I agree with the sheriff that construing any particular contractual provision requires examination of the other provisions and that, as a matter of generality, it would be wrong to read a particular provision (here clause 2.13) in isolation.  However, the result of such an examination may be to find that the various provisions inter-relate to a greater or lesser degree.  Some may be inter-dependant.  Some may be free-standing.  It will be more readily apparent that provisions are inter-dependant where their drafting is coherent and consistent.  Here, clause 2.9 requires the defenders to provide written notice to the pursuers that both sewerage and surface/storm water drainage systems “have been fully completed to the satisfaction of all relevant authorities” within 21 days of “the date of completion as aforesaid”.  It is uncontroversial that no notice has been given.  The defenders say that that does not matter as far as the construction of clause 2.13 is concerned;  clause 2.9 is of the nature of a free-standing obligation which, if breached, would give rise to a claim for damages in respect of any consequent loss but it is not necessarily tied to the clause 2.13 payment provision.  Not so, according to the sheriff (Mr Bartos in his submissions before us was to the same effect); that would be to give “completed” a different meaning in clause 2.13 than the meaning it is given in clause 2.9.  As the sheriff has it, the parties had agreed for installation of the systems that would comply in all respects with the requirements of Scottish Water, North Lanarkshire Council as planning authority and any other interested statutory authority; that was the standard reiterated in clause 2.9;  and that was the standard to be applied in what she describes as “a unitary way” throughout the contract and, in particular, in clause 2.13, in determining whether the systems had been “completed”.  

[34]      I understand the sheriff’s expectation of coherence in a professionally drafted formal contract of the sort that the agreement clearly is an example.  However, any expectation of coherence in a contract may have to give way before the actual wording used by the parties to it.  Where the wording is consistent then it may be assumed that the meaning is intended to be consistent.  It is different where the wording is not consistent.  The sheriff has seen the central thread in the agreement as an undertaking by the defenders to bring their systems at least to the point where the defenders could apply for a transfer certificate with a view to compel vesting as referred to in chapter 6 of the Guide.  I am not persuaded that the agreement supports that analysis.  The sheriff’s approach, which Mr Bartos urged this court to follow, depends on clause 2.9 being construed as referring to the relevant statutory authorities being satisfied in every possible particular as to the state of the systems on the MTS site, down to the remedying of snagging.  However, the cogency of that approach comes from the fact that the expression used in clause 2.9 is “fully completed to the satisfaction …” That is not an expression that is found elsewhere in the agreement.  It is not the expression that we are required to construe in clause 2.13.  As the sheriff observes, the “wording is slightly different” as between its various paragraphs.  Generally, when one is construing a text of any sort, if different words or combinations of words are used then it is to be presumed that different meanings are intended.  I accept that if the words used are unclear or the drafting is otherwise poor, the more ready the court can properly be to depart from their natural and ordinary meaning.  However, that does not justify the court in searching for or constructing drafting infelicities in order to justify a departure from the natural meaning: see Lord Neuberger in Arnold at paragraph 18.  The language of the provision being construed is of prime importance and its meaning is most obviously to be gleaned from that language : see  Lord Neuberger in Arnold at paragraph 17.  In other words the meaning of a provision is primarily to be understood from the natural and ordinary meaning of the actual words used.  It is not legitimate to seize on one provision as capturing the parties’ intention and then to disregard variations on that provision as irrelevant aberrations.  Turning back to clause 2.9, “fully completed to the satisfaction of all relevant statutory authorities” is a different wording from “completed” or “completed and commissioned” which are what is found in clause 2.13.  That might not matter if there were some explicit linkage between the two paragraphs making it clear that “completed” in clause 2.13 meant the same as “fully completed to the satisfaction of all relevant statutory authorities” in clause 2.9.  There is no such linkage and therefore, confining the examination just to these two paragraphs the presumption is that, when it comes to the matter of completion, because the wording of the two paragraphs is different their meaning is different, with the “fully completed to the satisfaction of all relevant statutory authorities” of clause 2.9 suggesting a more demanding standard or later stage in the process of permissions and approvals than the “completed” of clause 2.13.  Clause 2.9 ends with “the date of completion as aforesaid”.  That expression would seem to be best understood as an abbreviated reference to what had immediately preceded it, namely “fully completed to the satisfaction of all relevant statutory authorities”.  If the intention was to link 2.13 back to 2.9, the draftsman could have used that expression again to import “fully completed to the satisfaction of all relevant statutory authorities” into the Longstop clause.  The draftsman did not, however, do so.  Whilst that may not be determinative, it certainly puts in question the sheriff’s “unitary” construction of the paragraphs under consideration.  

[35]      I am therefore not persuaded that the sheriff was correct to conclude that “completed” required to be given the same meaning in clause 2.13 as in clause 2.9.  While it might be said that the fact that the defenders have not given a clause 2.9 notice can be taken to be an acceptance by them that the systems have not yet been “fully completed to the satisfaction of all relevant statutory authorities”, that is not a view that I would favour.  The agreement does not give the provision of clause 2.9 notice any particular status or effect.  Clause 2.9 does look to be free-standing, as Mr McIlvride submitted that it was.  In any event, “fully completed to the satisfaction …” is different wording from “completed” or “completed and commissioned”.  Thus, assuming the sheriff is correct in her construction of clause 2.9 that has no necessary impact on the construction of clause 2.13

[36]      Before the sheriff it had been argued on behalf of the pursuers that in order to bring liability to make payments in terms of clause 2.13 to an end it was necessary for the defenders to provide a notice under clause 2.9.  The defenders had failed to do that.  They therefore remained liable to make payments.  The sheriff seems to have accepted that argument.  I did not understand Mr Bartos to renew this submission before us.  Had he done so I would have been unable to accept it.  Beyond what it may contribute to the definition of “installation date” in clause 1.1 (a provision which presents problems of its own for anyone looking for coherent drafting, particularly if contrasted with the wording of clauses 2.5 and 2.8), it is not entirely clear what the purpose of clause 2.9 is but, as I have already indicated there is nothing in its wording, or that of clause 2.13, to tie the two provisions together in the way which seems to have been envisaged by the sheriff. 

[37]      The sheriff saw what she considered was the commercial purpose of the agreement as supporting her construction of clause 2.13 because it provided for payments to continue until the point at which the defenders were in a position to apply for a transfer certificate in the respect of the systems on the MTS site.  With all respect to the sheriff, this seems to amount to no more than an assertion on her part with nothing much by way of underpinning in the findings-in-fact (presumably because no relevant evidence was led).  I am prepared to assume that the facility of connecting systems constructed on the Hill Family site with systems on the MTS site which are at a stage where the developer of the MTS site can require his systems to vest in Scottish Water is more valuable or otherwise more beneficial to the pursuers than the facility of connecting systems constructed on the Hill Family site with systems on the MTS site which are merely at the stage of being operational.  However, that does not make a construction of the agreement which leads to the pursuers being entitled to the first facility any more “commercial” than a construction which leads to the pursuers merely being entitled to the second facility.  Moreover, it is to be borne in mind that what is in issue is the payment provision in clause 2.13.  As it appears to me, there would be nothing offensive to commercial common sense in a construction of clause 2.13 which entitled the pursuers to payments of £5000 per month up to but not beyond the date upon which they would be able, should their own development be at that stage, to connect to operating sewage and surface/storm water drainage systems and that irrespective of whether or not on a proper construction of other provisions of the agreement the pursuers are entitled to require the defenders to take the systems on the MTS site to the stage of vesting in Scottish Water.  During his submissions Mr Bartos explained that clause 2.13 had two purposes:  to set a time‑limit and to give a remedy in the event of delay in circumstances where the quantification of damages would be difficult.  That fits perfectly well with Mr McIlvride’s construction, particularly in the light of the recital in clause 2.2 that the pursuers intend to develop the Hill Family site;  as long as the defenders delay the pursuers in bringing the Hill Family site to the point where the residential units can be certified as fit for habitation and therefore sold as available for occupation, then they are bound to compensate the pursuers at the agreed rate, but once the pursuers can connect to operational systems and therefore exploit the development of the Hill Family site by selling houses which are ready for habitation there is nothing to be compensated for. 

[38]      I was not persuaded by Mr Bartos’s one-remedy argument.  It simply may be the cases that breaches of different contractual provisions give rise to different remedies and, indeed, this is more likely to be so when one of the remedies in question is liquidate damages.  If such a provision is not to be held to be an unenforceable penalty (and this was a matter taken to debate in the present case) but rather a pre-estimate of likely damages then it may well have to be construed as referable to one contractual obligation but not to another. 

[39]      It accordingly appears to me that Mr McIlvride’s proposed construction of clause 2.13 not only is more consistent with the natural and ordinary meaning of the critical words than the construction proposed by Mr Bartos and adopted by the sheriff, but that it survives and indeed is strengthened by the iterative process described above (cf In re Sigma Finance Corpn [2010] 1 All ER 571 at paragraph 12;  Arnold at paragraph 77).  Therefore, on the facts found by the sheriff, as I would propose they should be altered, the systems on the MTS site had been “completed and commissioned” in terms of the Longstop clause no later than the end of December 2008.  I would therefore move your Ladyships to alter the findings in fact as indicated, allow the appeal, recall the sheriff’s interlocutors of 10 and 29 July 2015, and grant decree of absolvitor.  

[40]      Had it been necessary to do so, I would have moved your Ladyships to allow the defenders’ appeal insofar as directed at the sheriff’s interlocutor of 18 November 2014 allowing amendment of the sum sued for from £265,000 to £345,000.  The motion to amend had been made at a hearing on evidence some months after the conclusion of the proof.  The basis for seeking to amend was that the pursuers’ claim was time‑related in that it was for payment at the rate of £5000 per month.  Accordingly, assuming the pursuers’ claim to be well founded, as time went by the quantum of the claim necessarily increased.  The supporting pleadings (as at the commencement and conclusion of the proof and, indeed, at the time of the appeal) were in these terms:

“The sum of TWO HUNDRED AND SIXTY FIVE THOUSAND POUNDS (£265,000) STERLING is accordingly outstanding as at 28 May 2013. The payments continue to accrue.”  

 

[41]      Mr Bartos argued on behalf of the pursuers that amendment was a matter for the discretion of the sheriff.  Any prejudice to the defenders arising from allowance of the amendment was notional only, there being no suggestion that there was evidence available to the defenders which they might have led had the higher sum been that which was sued for at the beginning of the proof. 

[42]      I accept that the allowance of amendment was a matter for the discretion of the sheriff.  However, I would see the way in which she exercised it was sufficiently unreasonable as to permit this court to recall her decision.  The pursuers’ averments took their claim only up to 28 May 2013.  If the pursuers wished to take it forward it was necessary that they amend.  How they framed that amendment and when they presented it were matters for them.  However, whenever any motion was made, a primary consideration for the court would be what was the explanation for the lateness of the motion being made and what was the consequential prejudice to the defenders arising from the terms in which amendment was proposed.  Here, there appears to have been no explanation for lateness other than inadvertence or an assumption that it was merely a formal matter.  The defenders were entitled to say, as they did say, that they had been deprived of the opportunity of investigating what evidence might be available to them in relation to the period after 28 May 2013 and then leading that evidence.  On the face of it that was prejudice which was both substantial and unfair.  In these circumstances in allowing the amendment I consider that the sheriff can be said to have acted unreasonably. 

[43]      I would propose that the court reserves all questions of expenses.   


EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

[2016] CSIH 35

XA76/15

 

Lady Smith

Lord Brodie

Lady Clark of Calton

 

OPINION OF LADY CLARK OF CALTON

in the cause

STEWART WELLS HILL and ROBERT THOMSON HILL

Pursuers and Respondents;

against

STEWART MILNE GROUP LIMITED

First Defender and Appellant;

GLADEDALE (NORTHERN) LIMITED (formerly BETT LIMITED)

Second Defender and Appellant:

 

Pursuers and Respondents:  Bartos; Balfour + Manson LLP, Solicitors, Edinburgh

Defenders and Appellants:  McIlvride QC;  Morton Fraser LLP, Solicitors, Edinburgh (

13 May 2016

[44]      Lord Brodie has set out in detail the background to the case, the statutory framework, the submissions of the parties and the facts of the case which are not in dispute. I am grateful for that and content to proceed on that basis.  I agree with the conclusion of Lord Brodie and Lady Smith that this appeal should be allowed, that the sheriff’s interlocutors of 10 and 29 July 2015 be recalled and that decree of absolvitor should be granted.  The reasons for my agreement may be simply stated.

[45]      As I understand the position of the pursuers in the appeal, it was not disputed that by December 2008, the defenders had completed the construction on the MTS site of sewerage and surface/storm water drainage systems which had become operational, serving a large number of houses with habitation certificates and also with a capacity capable of accommodating the connection of up to 40 two storey residential units on the pursuers’ site.  This had been accomplished following various approvals from the planning authority and Scottish Water.  The pursuers submitted however that this was insufficient to fulfil the terms of the agreement, in particular clause 2.13 because more required to be done by the defenders.  In particular, counsel for the pursuers submitted that in order to complete the sewerage and surface/storm water drainage systems to the satisfaction of all relevant statutory authorities in terms of the agreement, the defenders were bound to achieve a standard of compliance to satisfy Scottish Water that the systems should be vested in Scottish Water.  Counsel for the pursuers submitted that this was an implied term of the agreement properly interpreted.

[46]      In my opinion this submission by the pursuers highlights the weakness of their position.  The parties have chosen to set out the terms of their agreement in writing.  In Arnold v Britton [2015] AC 619, Lord Neuberger states:-

“17.      First, the reliance placed in some cases on commercial common sense and surrounding circumstances (eg in Chartbrook, [2009] AC 1101, paras 16-26) should not be invoked to undervalue the importance of the language of the provision which is to be construed.  The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision.  Unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract.  And, again save perhaps in a very unusual case, the parties must have been specifically focussing on the issue covered by the provision when agreeing the wording of that provision”.

 

 

[47]      The parties set out in writing in some detail their purposes in entering into the agreement.  The pursuers intended to develop their site and in clauses 2.4 and 2.7, the purposes specified are to facilitate the pursuers’ development and entitle them to connect to the sewage and surface/storm water system at no cost to them.  The parties have agreed (in words which are not always entirely consistent in the different paragraphs) that there is to be “compliance” (sometimes referred to as “full compliance”), in all respects with the requirements of the planning authority, Scottish Water and any other interested statutory authority in relation to the systems and to the extra capacity for the pursuers’ development. 

[48]      In my opinion, the parties have clearly reached an agreement with declared purposes focussing on the practical outcome of completed and commissioned systems, which comply with the various planning and statutory requirements for such systems.  The agreement states nothing about the issue, which I consider to be entirely separate, as to whether the systems are to remain in private ownership or by the statutory vesting process be transferred into public ownership, with consequential different liabilities.  There is no statutory obligation on a developer to go through the compliance procedures to bring a system up to a standard which would qualify the system to vest in terms of section 16 of the Sewarage (Scotland) Act 1968.  A developer is not obliged under the statutory system to apply for vesting.  In such circumstances, I consider that it is impossible to read into any part of the agreement, including clause 2.13, the implied terms advanced by counsel for the pursuers.

[49]      In relation to the issue of amendment, I agree with the reasoning and conclusion in paragraphs 40-42 of the opinion of Lord Brodie.