Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2010] CSOH 73
CA58/09	OPINION OF LORD GLENNIE in the cause CALEDONIAN ENVIRONMENTAL SERVICES PLC Pursuers; against (FIRST) DEGRÉMONT SOCIÉTÉ ANONYME and (SECOND) AMEC CAPITAL PROJECTS LIMITED Defenders: ­­­­­­­­­­­­­­­­­________________

Pursuers: McNeill Q.C., Borland; Shepherd & Wedderburn

Defenders: Howie Q.C., Smith; MacRoberts

18 June 2010

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Introduction

[1] In this action, the pursuers ("CES") sue the defenders (respectively "AMEC" and "Degrémont") for damages for alleged breaches of contract and/or duty in respect of work undertaken as part of the upgrading of arrangements for the treatment and disposal of sewage in Fife.

[2] The contract in question is a Design and Construction Contract (the "D&C Contract") entered into on 25 October 2000 between CES (referred to therein as "the Service Company") and AMEC and Degrémont (together "the Contractor"), who were acting together as the Design and Construction Consortium ("DCC") and were to be jointly and severally liable for the performance of all of their obligations as Contractor.

[3] The parties are in dispute as to the scope of the works required to be carried out by the DCC under the D&C Contract. In the Summons, the pursuers seek declarator as to the extent of the defenders' obligations thereunder and, in the alternative, if their construction does not prevail, rectification. They also claim damages. The issues of construction and rectification were appointed to a preliminary proof before answer at which evidence was led for both parties. The case was also appointed to debate on the defenders' plea to the relevancy of the pursuers' common law claim, but parties agreed to leave this matter over until the questions of construction and rectification were decided.

General background and related agreements

[4] Before looking in detail at the obligations of the DCC under the D&C Contract, I shall set out in general terms the circumstances in which it came to be entered into and the other relevant contracts relating to the project of which the D&C Contract forms part.

[5] In 1998, the then East of Scotland Water Authority ("ESW") was the sewerage authority for the purposes of the Sewerage (Scotland) Act 1968 in relation to the eastern sewerage area described in Schedule 8 to the Local Government Etc. (Scotland) Act 1994. That sewerage area included the Buckhaven, Methil and Levenmouth area of Fife ("the Levenmouth Catchment"). ESW wished to improve the treatment of urban waste water arising in the Levenmouth Catchment so as to secure compliance with the Urban Waste Water Treatment (Scotland) Regulations 1994, which were designed to implement the requirements of Council Directive 91/271/EEC Concerning Treatment of Urban Waste Water ("the 1991 Directive").

[6] The existing arrangement for collection and disposal of the waste water from the Levenmouth Catchment, which had been in place since the 1950s, was via the Leven Valley Trunk Sewer ("LVTS"). The waste water from the Levenmouth Catchment was collected in the LVTS and discharged into a Macerator House in Lower Methil, where it was macerated (or broken down) before being returned to the LVTS via an outlet chamber (sometimes referred to as the "Cascade Chamber"). From there, the LVTS carried the macerated waste water and discharged it, otherwise untreated, into the Firth of Forth at a short sea outfall located approximately 200 metres offshore from Levenmouth. Along the length of the LVTS, both upstream and downstream of the Macerator House, were a number of manholes (and other chambers such as the Cascade Chamber) and pipe connections, the former being designed to provide some access to the sewer, and the latter being the means by which a network of drains and sewers within the catchment area discharged into the LVTS for onward carriage either to the Macerator House, if the connection was upstream of it, or directly to the short sea outfall, if the connection was downstream of it.

[7] The LVTS was a gravity system. The waste water within it flowed naturally downhill to the short sea outfall under "open flow" conditions (i.e. the sewer pipes were not full and were not normally subject to internal pressure). The only exception to this was a short section towards the end of the outfall which was occasionally subjected to some pressure build up depending on tidal conditions; when this occurred there might be a back up in the upstream sewer, depending on the flow in the sewer at the time and the height of the tide (there would need to be a sufficient "head" in the sewer to force the flow down the pipe). It was the opinion of Mr Dixon of CES, and I do not think that this was contradicted by any other witness, that an "auxiliary outfall pipe" found in manhole 4 ("MH4")was designed to act as an overflow in such conditions, minimising the effect of any back up in the LVTS upstream of it.

[8] Following the 1991 Directive and the 1994 Regulations, the practice of macerating waste water and discharging it untreated into the sea was no longer acceptable. Instead, waste water had to be treated (in ways which I need not describe) prior to discharge into the sea.

[9] In 1998, ESW, in accordance with the Private Finance Initiative, invited tenders for a contract to upgrade and improve the treatment of urban waste water from the Levenmouth Catchment and to make arrangements for the treatment and disposal of the sludges arising from that waste water. The pursuers and the defenders together agreed to develop and submit to ESW proposals for such a contract. Their proposals were accepted in principle subject to further negotiation.

[10] On 4 November 1999 three contracts were entered into. These were:

(i) the Project Development Agreement ("PDA") between the pursuers and ESW which inter alia regulated the conduct of the negotiations between the parties;

(ii) the Enabling Works Contract ("EWC"), again between the pursuers and ESW, for the execution and completion of certain enabling works; and

(iii) the Enabling Works Construction Contract ("EWCC"), between the pursuers and the defenders, for the design, execution and completion of the enabling works.

It was explained to me that it was necessary to proceed with some work (the Enabling Works) in order to make progress before the main contracts could be fully agreed. The work which was required to effect the necessary changes to the sewage disposal system was considerable in its scope. The completion of that work was up against a tight timetable imposed by the 1991 Directive. The discharge of untreated sewage into the sea was required to end by 31 December 2000. All parties were aware that the whole works could not be completed by then. However, it was necessary for enabling works to start as soon as possible in order to ensure that by the end of December 2000 it could be demonstrated that the requirements of the EC Directive would be met. To this end the DCC started the design of the contract works in mid-1999, when a letter of intent was signed, and they continued with their work after the EWCC was entered into. As was made clear in the D&C Contract, there was no hard and fast division between items of work which could be called Enabling Works and items which formed part of the main Works under that contract.

[11] Work proceeded under the EWC and EWCC whilst, at the same time, negotiations continued between the parties leading to the conclusion, on 25 October 2000, of the following two contracts:

(iv) the Services Contract, between the pursuers and ESW, in terms of which the pursuers undertook to design and construct new and upgraded facilities for the treatment of urban waste water in the Levenmouth Catchment and for the treatment and disposal of the sludges arising therefrom, and thereafter to finance, maintain and operate those facilities for a period of 40 years; and

(v) D&C Contract, with which this case is concerned, between the pursuers and the defenders, in terms of which the defenders were to design and construct the new and upgraded waste water treatment facilities.

The D&C Contract provided that all works already carried out by the defenders under the EWCC were subsumed within, and deemed to have been carried out under, the D&C Contract. This included some work instructed under Change Orders given under the EWCC but carried out as part of the Works under the D&C Contract.

[12] The work which formed the subject matter of the various agreements included (a) the construction of a new biological waste water treatment works at Lower Methil ("the Levenmouth WwTW"), designed by the defenders, which was, in effect, to take the place of the Macerator House, so that the waste water would be fully treated instead of merely being broken down, and (b) modification of the outfall sewer from the Levenmouth WwTW to the sea. Under the new arrangements, instead of the LVTS discharging into the Macerator House as it had previously done, it discharged into the Levenmouth WwTW, where the waste water was treated before being discharged back into the downstream section of the LVTS. The Macerator House was eliminated from the system; while the Cascade Chamber was simply incorporated as a chamber in the system for taking the treated waste water from the Levenmouth WwTW into the downstream section of the LVTS.

[13] This dispute is primarily concerned with the modifications to the outfall sewer from the Levenmouth WwTW to the sea. In discussions prior to tendering, the pursuers and the defenders considered whether the treated waste water should be taken from the Levenmouth WwTW to the new sea outfall by a completely new sewer replacing the existing LVTS. However, a decision was reached between them that only a relatively short section of new sewer would be laid. It was agreed that, over the greater part of the distance from the Levenmouth WwTW to the sea outfall, the existing outfall sewer would be retained ("the retained section of the LVTS"); and that a new sewer would be laid only from the point where it was necessary to connect the retained section of the LVTS to a new longer sea outfall, which would discharge into the Firth of Forth about 1,000 metres from the shore. This decision was taken for two reasons: first, because it would reduce the time taken to design and construct the new sewer; and, secondly, because it would enable the pursuers and defenders to save costs and, therefore, to be able to put in a more competitive tender so as to obtain the contract with ESW.

[14] In the event, therefore, the downstream outfall sewer which was to run from the new Levenmouth WwTW to the new longer sea outfall was to take the following course. Upon leaving the Levenmouth WwTW, the treated waste water would be fed into the retained section of the LVTS. At a certain point the retained section of the LVTS would be intercepted by and connected to a new outfall sewer, designed and constructed by the defenders, which would lead into the new longer sea outfall, whence the treated waste water would be taken 1,000 metres out to sea and dispersed by a new diffuser.

[15] One feature of the new arrangements is of importance for present purposes. I have already noted that the existing arrangements operated as a gravity system. The new Levenmouth WwTW and the modified system downstream of it was designed to operate under pressure. This was because the Levenmouth WwTW required a significant amount of hydraulic energy (a) to push the waste through the various treatment processes, and also (b) because the configuration of the outfall pipe connecting to the long sea outfall meant that waste had to be discharged under pressure. The pressure in the new system was created by waste water being pumped into a header tank upstream of the Levenmouth WwTW and released downstream as and when required. Under most conditions the pressure in the system downstream of the Levenmouth WwTW, required to deal with (b), would be marginal, but in exceptional conditions (coinciding with the Highest Astronomical Tide) it would be necessary to achieve a pressure within the system of up to about 15.52 m head (equivalent to about 1.5 bar).

The issue

[16] In 2004, some time after work under the D&C Contract had been carried out by the DCC and the new modified outfall sewer commissioned, it was reported that there was some leakage of effluent from the retained section of the LVTS downstream of the new Levenmouth WwTW. The pursuers allege that leaks have occurred inter alia at one of the manholes (MH2) in, and at certain pipe connections to, the retained section of the LVTS. The issue in terms of the D&C Contract is, put short, whether the DCC had any obligation thereunder to take steps to seal manholes and pipe connections in and to the retained section of the LVTS against the possibility of leaks occurring when the retained section of the LVTS was operated as part of the modified arrangements, having regard, in particular, to the fact that the system, as modified, would operate under pressure for at least part of the time.

The D&C Contract

[17] The D&C Contract is a lengthy document split into three sections: a short Agreement ("the Agreement"), running to eleven clauses; Conditions of Contract ("the Conditions"), containing 43 conditions over about 130 pages; and a Schedule ("the Schedule"), divided into 46 Parts. From the evidence, it appears to have been a carefully considered bespoke contract, not based on any standard form. As I have noted earlier, the Agreement provided that any work which had been carried out under the EWCC was deemed to have been carried out and performed under the D&C Contract: see Recital V and clause 7.1. Further, clauses 2 and 3 of the Agreement contained between them an "entire agreement" regime, providing that the D&C Contract constituted a full statement of the contractual rights and liabilities of the parties in relation to the Works and, further, that no negotiations or agreements signed by them prior to the date of the D&C Contract in relation to the Works should be of any contractual effect. In terms of clauses 9 and 10, Jim Harrow was appointed Project Manager on behalf of CES and Ray Godfree was appointed Contract Manager on behalf of the DCC.

[18] I shall refer in more detail to the Conditions, but I should note generally that in Condition 2 ("Interpretation") there are a number of provisions of general application. In particular, the ejusdem generis rule and a number of related rules are specifically excluded. Further, there is the common provision (in Condition 2.1.1) that headings and sub-headings are for ease of reference only and are not to be taken into consideration in the interpretation or construction of the DCC. When I refer to headings and sub-headings in this Opinion, I do so only for ease of reference and not as an aid to construction.

[19] The principal obligation of the DCC under the D&C Contract is set out in Condition 3.1 of the Conditions ("Contractor's Responsibilities") in the following terms:

"3.1 The Contractor shall design, construct, complete and, if and insofar as required hereunder, commission and test the Works in accordance with the provisions of the Contract in consideration of the payment by the Service Company of the Contract Price, as amended in accordance with this Contract."

The obligation on the DCC (the Contractor) under this provision is clear. The obligation is focused on the Works. The DCC must design, construct and complete the Works and, if and insofar as required under the D&C Contract, commission and test the Works - and must do so in accordance with the provisions of the D&C Contract.

[20] Works is a defined term. The meanings of all the relevant defined terms are given in Schedule Part 1. The definition of Works is as follows:

"'Works' means the design, construction, completion, testing and commission of the following works:

(i) works to upgrade, refurbish, convert, modify and improve the Existing Facilities to be Upgraded to provide the New Facilities (Upgraded)

(ii) works to design, construct, complete, commission and test the New facilities (Constructed)

(iii) the Enabling Works;

(iv) any other works necessary to meet and comply with the Service Company Requirements, and the Design and Construction Proposals; and

(v) any other works that can reasonably be implied from the Design and Construction Proposals.

together with the buildings, facilities, works, machinery, computer hardware and software testing, apparatus, materials, articles and things of all kinds designed, constructed, upgraded, refurbished, improved, tested, commissioned and completed as required in accordance with the Design and Construction Proposals, the Service Company Requirements and any Changes instructed under this Contract."

Parties were agreed that sub-paragraphs (ii) and (iii) of the definition of Works are not material to the present discussion, though I should note, for the avoidance of doubt, that it was also agreed that the Enabling Works referred to in the sub-paragraph (iii) specifically excluded any works on the retained section of the LVTS. As to the remaining sub-paragraphs, three expressions require more detailed consideration. These are: Existing Facilities to be Upgraded (in sub-paragraph (i)); Service Company Requirements (sub-paragraph (iv)); and Design and Construction Proposals (sub-paragraphs (iv) and (v)). All are defined terms.

[21] The meaning of Existing Facilities to be Upgraded involves a consideration also of Existing Facilities. The two expressions are defined as follows:

"'Existing Facilities' means those facilities specified in Table 33.1 of Part 33 as changed, improved, upgraded or added to from time (sic), including the Existing Facilities to be Upgraded from time to time but excluding the New Facilities..."

"'Existing Facilities to be Upgraded' means the parts of the Existing Facilities as identified in Table 33.1 of Schedule Part 33 but, in relation to each such part, only until the upgrading, refurbishment, modification, improvement or conversion thereof in accordance with the Design and Construction Proposals has been completed".

[22] Both of the above definitions refer to Schedule Part 33. This is headed "Existing Assets and Access". Paragraph 1 thereof provides that the Contractor shall be afforded "such access to the existing ESW assets as is required to allow execution of the Works in accordance with the Contract". Paragraph 2, which is headed "Existing Assets Excluded from the Obligations of the Contractor" provides as follows:

"2.1 The following existing assets ("the Existing Assets") which have not been subject to physical examination prior to the Commencement Date are, notwithstanding Table 33.1 below, excluded from the responsibility of the Contractor:

...

2.1.8 Leven Outfall Sewer and Incoming Trunk Sewer...

..."

It was not disputed that the expression Leven Outfall Sewer is a reference to the existing LVTS from the Macerator House to the sea outfall. Apart from the definition within paragraph 2.1 itself, there is no definition of assets or existing assets. It is not in dispute, however, that that term must include the sewage pipes and other equipment used in the carriage of the sewage from the Macerator House to the sea outfall. Paragraph 2 continues in the following terms:

"2.2 In addition, the Contractor shall not be responsible for any latent defects in any Existing Facilities or other existing structures which adversely affect the Contractor's performance of its obligations under the Agreement

2.3 Subject to the provisions of paragraphs 1 and 2 above, the Contractor acknowledges having examined all Existing Facilities (other than Existing Assets) and has satisfied itself as to the suitability of the Existing Facilities for the Works."

The distinction between Existing Facilities and Existing Assets is not immediately apparent. Neither facilities nor assets are themselves defined. Their meaning is simply assumed. It is clear, however, from paragraph 2.3, that the former may include the latter. Paragraph 3 in Schedule Part 33 introduces Table 33.1 as detailing the Existing Facilities to be transferred to the pursuers. Item 6 in that list deals with the facilities located at Levenmouth WwTW. The Existing Facility identified at Item 6(c) is the "Outfall sewer from the Existing screenhouse to and including marker buoy". It is agreed that this is a reference to the existing LVTS downstream of the Macerator House all the way to the short sea outfall (prior to any work having been commenced). The right hand column of the table indicates whether or not a particular facility is to be upgraded. The entry in that column for Item 6(c) shows that the outfall sewer is an Existing Facility to be Upgraded. The meaning of this is tolerably clear. In terms of the works as a whole, the LVTS (as it existed prior to any work being carried out) was to be upgraded. Amongst other things, the upgrade involved cutting the LVTS at a particular point and joining it to a new stretch of outfall sewer leading to a new sea outfall. In terms of sub-paragraph (i) of the definition of Works, therefore, the work includes the upgrading in this manner of the original LVTS, that being part of the Existing Facility to be Upgraded, so as to provide the New Facilities (Upgraded).

[23] Service Company Requirements, referred to in sub-paragraph (iv) of the definition of Works, are set out in Schedule Part 2. It was not, I think, contended that detailed examination of the Service Company Requirements assisted the argument here. The only relevant provision within Schedule Part 2 is that at paragraph 8.5, which sets out certain requirements imposed by SEPA (the Scottish Environment Protection Agency) in relation to the New Outfall, that is to say the new sea outfall which replaced the existing short sea outfall.

[24] Design and Construction Proposals are referred to in sub-paragraphs (iv) and (v) of the definition of Works. They are set out in Schedule Part 6. Paragraph 2 of that Part of the Schedule is headed "Interim Waste Water Treatment Period". It is agreed that this is the relevant period. Paragraph 2.1, headed "Scope", provides as follows:

"2.1 The Contractor shall design and construct the following Enabling Works to achieve compliance with the Interim WwT Performance Requirements and the Construction Timetable:

...

2.1.5 The New Outfall Sewer and the new (sic) Sea Outfall

2.1.6 The Leven Rising Main

...

Items 2.1.1 to 2.1.11 inclusive and 2.1.13, as listed above, are further specified in paragraph 2.2. below ..."

Parties were agreed that nothing turned on the reference to the works as Enabling Works or on the reference to "interim" requirements. It is to be noted, however, that in paragraph 2.1 there is no mention of the existing or retained LVTS being amongst the works which the contractor is required to design and construct. Paragraph 2.2 then gives further specification, using matching numbering, of each of the items of work identified in paragraph 2.1. The relevant provision concerning the New Outfall Sewer and the New Sea Outfall is, as one would expect, at sub-paragraph 2.2.5, headed "New Outfall Sewer and Sea Outfall at Levenmouth WwTW". It provides as follows:

"2.2.5 A New Outfall Sewer will be constructed to connect the existing Levenmouth WwTW Outfall Sewer with the New Sea Outfall. The existing Levenmouth WwTW Outfall Sewer will be intercepted upstream of the crossing of the railway line to Methil Power Station. The New Outfall Sewer will then run along the western boundary of Methil Power Station before connecting to the New Sea Outfall which starts adjacent to the existing sea wall. The New Outfall Sewer and the New Sea Outfall will consist of 1600mm nominal diameter pipes. The New Outfall Sewer and New Sea Outfall shall fulfil the following requirements:

Any connections and/or chambers to the Levenmouth Outfall Sewer shall be modified so as to allow operation of the sewer up to a pressure of 15.52m head of water.

Peak Flow All flows, up to the maximum received at the Levenmouth WWTW

Length of sea outfall Approximately 1000m (to the diffusers at ...)

Dilution Required 35:1 on a 95percentile basis, as a minimum"

I should note that the Design and Construction Proposals, and for that matter the Service Company Requirements, are also referred to in Condition 3.2 of the Conditions, which sets out, in a number of sub-paragraphs, various standards and specifications in accordance with which the Works must be carried out, including a requirement in Condition 3.2.2 that the Contractor will carry out the Works in accordance with them - but it is not necessary to examine this in detail, given that the issue here concerns the scope of the Works.

Submissions

[25] For the pursuers, Mr McNeill QC based his argument firmly on the terms of paragraph 2.2.5 of the Design and Construction Proposals in Schedule Part 6. The Works, which formed the basis of the defenders' obligations under the D&C Contract, included any works necessary to meet and comply with the Design and Construction Proposals (and, for good measure, any other works that could reasonably be implied therefrom). Paragraph 2.2.5 summarised the work to be done in relation to the new Outfall Sewer and its connection to the existing Outfall Sewer. The DCC were required to construct a New Outfall Sewer, which was to intercept the existing Levenmouth WwTW Outfall Sewer and connect it to the New Sea Outfall. In terms of sub-paragraph 2.2.5, certain requirements had to be met, one of which was that:

"Any connections and/or chambers to the Levenmouth Outfall Sewer shall be modified so as to allow operation of the sewer up to a pressure of 15.52 m head of water."

It was established in evidence that connections meant connections between the Levenmouth Outfall Sewer and the minor waste water pipes feeding into it. The word "chambers" referred to manholes and other spaces built into the Outfall Sewer. Movement of waste water along the existing LVTS relied on gravity alone. The new sewer would at times be operating under a pressure of up to 15.52 head of water. It was obvious, therefore, that the whole length of the outfall sewer downstream of the new Levenmouth WwTW, comprised of both the retained section of the LVTS and the New Outfall Sewer, had to be capable of withstanding that pressure. The expression "any connections and/or chambers to the Levenmouth Outfall Sewer", and the reference to such connections and/or chambers being "modified", made it clear that the provisions in paragraph 2.2.5 were imposing a requirement on the Contractor to carry out modification works to all connections and chambers within the retained section of the LVTS. If it was referring simply to the new join or connection between the retained section of the LVTS and the new outfall sewer, why would the parties in this part of the Contract refer to "connections" and "chambers" in the plural, and talk of the connections and chambers being "modified" rather than "constructed"? In short, while he accepted that the DCC were not undertaking any responsibility for the integrity of the pipework itself in the retained section of the LVTS, sub-paragraph 2.2.5 made it clear that they were accepting a responsibility for ensuring that connections to it and chambers in it were capable of withstanding that pressure.

[26] For the defenders, Mr Howie QC put his argument in two ways. First, he pointed to the exclusion of responsibility for the retained section of the LVTS in Schedule Part 33. Paragraph 2.1 of Schedule Part 33 identified the existing Levenmouth Outfall Sewer, including the whole of the retained section of the LVTS, among the Existing Assets which (a) had not been subject to physical examination and (b) were excluded from the responsibility of the DCC notwithstanding anything said in Table 33.1. Thus, although Table 33.1 identified the existing Outfall Sewer as among the Existing Facilities to be Upgraded, paragraph 2.1 of Schedule Part 33 made it clear that it was nonetheless excluded from the DCC's responsibilities under the D&C Contract. Secondly, he examined each of the potentially relevant sub-paragraphs under the definition of Works. The Works identified in sub-paragraph (i) thereunder were works to upgrade, refurbish, convert, modify and improve the Existing Facilities to be Upgraded. That included the upgrading etc. of the existing Levenmouth Outfall Sewer, by intercepting it and joining to it the new outfall sewer and the new sea outfall. But the reference to Existing Facilities to be Upgraded took one to Schedule Part 33 which, as explained above, made it clear that although the upgrading etc. of the existing Levenmouth Outfall Sewer was included within the scope of the Works, the DCC had no responsibility for the retained section of the LVTS which had not been the subject of physical examination. This, he added, made good commercial sense. Sub-paragraphs (iv) and (v) of the definition of Works brought in references to the Service Company Requirements, which were not important in this context, and the Design and Construction Proposals. The Works included the works necessary to meet and comply with them and any other works that could reasonably be implied from them. The Design and Construction Proposals were in Schedule Part 6. Sub-paragraph 2.2.5, on which the pursuers relied so heavily, had to be read in its context. That was given by paragraph 2.1. The DCC were required to design and construct, amongst other things, the New Outfall Sewer and the New Sea Outfall: see sub-paragraph 2.1.5. Paragraph 2.2 gave further specification of that. The relevant sub-paragraph was 2.2.5. That gave the further specification of the requirements for the New Outfall Sewer and the New Sea Outfall. It had nothing to say, however, about the existing Outfall Sewer (including the retained section of the LVTS) except where it joined the new sewer. That was not surprising, since its purpose was only to give further specification about the work to the new sewer and outfall identified in sub-paragraph 2.1.5. This was consistent with the exclusion, in Schedule Part 33, of the Contractor's responsibility for the existing sewer, whereas the pursuers' construction would give rise to a conflict between the two provisions. The references to "connections" and "chambers" and to them being "modified" was best explained by reference to the fact that at the date the D&C Contract was entered into it had not yet been decided precisely where the existing LVTS was to be intercepted and how the new sewer was to be connected to the old.

Construction of the contract - applicable principles

[27] The principles governing the construction of the contract were not in dispute. Mr McNeill helpfully submitted a written Note of Argument (No. 33 of Process) setting out the principles on which he relied and citing the relevant authorities. He relied on the general rule set out, for example, in Chartbrook Ltd. v. Persimmon Homes Ltd. [2009] 1 WLR 267 at para.[14], to the effect that the court's approach is to ask what a reasonable person, having regard to all the background knowledge available to the parties and the language used by them, would understand the contract to mean. The Note of Argument went on to make a number of detailed points - for example, that the facts must be known to both parties, that the contract must be construed as a whole, and that a commercially sensible construction will be preferred - under reference to a number of well-known authorities. I accept the validity of that approach. Given that the principles were not contentious, I do not think it would be helpful for me to add further to the ever growing list of judicial utterances on the subject.

Relevant evidence of background facts

[28] A number of witnesses gave evidence as to the background and surrounding circumstances, and as to certain technical matters relating to the modified system. All of them gave their evidence by reference to witness statements and affidavits. It was not suggested that any of them gave their evidence dishonestly, though in certain respects their understanding and interpretation of events was challenged. The evidence in chief was all given under reference to witness statements and was, in the main, subject to only limited cross-examination focusing on the points that mattered. This enabled the proof to be concluded comfortably within the time allocated to it. I do not propose to set out their evidence in detail. The main points that either side sought to take from the evidence can be summarised under three heads.

The general nature of the work

[29] The first head relates to the general nature of the work in modifying the sewage system for the area, in particular the decision to retain part of the existing outfall sewer, the connection of the retained section of the LVTS to the new outfall sewer and the fact that, unlike the existing outfall sewer, the new arrangement leading from the Levenmouth WwTW to the new sea outfall, consisting of both the retained section of the LVTS and the new outfall sewer, required to operate under pressure. Sufficient detail of this has been set out earlier in this Opinion. It is necessary only to add this. At the time the D&C Contract was concluded, it was not clear precisely where the connection would be between the retained section of the LVTS and the new outfall sewer. In the event, the existing LVTS was intercepted at a point between MH4 and MH5, and the connection to the new outfall sewer was made there as a straight in-line connection between two pipes. This was achieved by temporarily inserting a new pipe connection between MH4 and MH5 so as to carry the live flow of sewage between these points and thereby isolate the relevant stretch of the existing LVTS while the work of connecting it to the new outfall sewer was carried out. This was not, however, the only or inevitable solution. An alternative solution which was canvassed before the contract was concluded was the connection of the new outfall sewer to the existing pipe at MH4, using that manhole as a sort of connection box. The precise mechanism was not discussed in detail in the evidence, but it is not difficult to conceive of an arrangement by which sewage would have continued to enter the manhole through the existing sewer but would have left the manhole by the new outfall sewer, the existing connection to the old sewer downstream of the manhole having been blocked and the manhole capped as necessary.

Inspection of the LVTS

[30] The second head of relevant evidence related to the inability of the parties before entering into the D&C Contract to carry out a full inspection the existing LVTS to ascertain its condition. A CCTV/sonar survey was carried out by AMTEC on behalf of the DCC early in April 2000. In the course of this survey a previously unknown connection into the sewer was discovered and, I think, a previously unknown chamber was discovered downstream of MH2. The results were described as generally good, but there a few sections of the sewer in which there was a build up of debris. The problem was that the survey was carried out when the sewer was live, as it had to be, and the CCTV was not able to see anything below the surface of the waste water and sewage running through the sewer. As a result, it was clear that the survey did not reveal all the connections into the sewer. It was assumed that there were more connections than were known about (known unknowns). The number of unidentified connections into the sewer was unknown to the parties, as was their condition.

Discussions between the parties prior to conclusion of the D&C Contract

[31] The third head of evidence relevant to the construction of the contract was evidence as to the discussions between the parties in the course of working under the EWCC and considering the scope of the Works to be covered by the D&C Contract. The important thing, as it was suggested to me, was not the detailed content of the discussions but simply the fact that the integrity of the existing LVTS, and the question of who was going to do anything about it, was uppermost in the minds of the parties at the time they entered into the contract. The relevance of this, Mr McNeill submitted, was that, if the parties were fully aware of a problem that required to be addressed, they were likely to have sought to address this in the D&C Contract. I agree that the correspondence shows that the parties were fully aware of the issue. That is all that is directly relevant to the question of construction. What each said to the other is not relevant. However, since it will be necessary at some stage in this Opinion (not least in the context of the claim for rectification) to record the positions adopted by the parties in the period leading up to the conclusion of the D&C Contract on 25 October 2000, it is convenient to deal with the matter fully at this stage.

[32] It is not in dispute that the EWCC excluded from the responsibility of the DCC anything to do with the retained section of the LVTS: see in particular Schedule 20 thereto. In a letter to Mr Harrow of CES dated 6 January 2000, in connection with the anticipated head losses in the length of the retained section of the LVTS, Mr Godfree (on behalf of the DCC) commented that "this existing asset", i.e. the existing LVTS, "being taken over from [ESW] by CES will remain the responsibility of CES". There are references at an early stage to the understanding that CES might wish to replace the retained section of the LVTS at some stage in the future.

[33] I can pick up the story going forward with a note of a meeting between the pursuers and defenders (and others) on 10 February 2000, which shows that the parties were fully aware at that time that the retained section of the LVTS would be pressurised. Concern was expressed about potential weak points within that pipe when under high pressure, such as at joints between lengths of pipe. Comments were sought on the suitability of pressurising existing pipes and manholes, and there was a comment that existing manholes would have to be blocked off and sealed. No indication was given as to whose responsibility this would be, though Mr Harrow (for CES) said in evidence that in his mind there was no doubt that responsibility for that lay with the DCC. In a letter to Mr Harrow of 14 February 2000, Mr Godfree made a similar point about manholes having to be sealed. At this stage, according to Mr Godfree, all that was intended by "sealing" the manholes was that the covers should be secured.

[34] On 9 March 2000 Mr Harrow of CES wrote to Mr Godfree of the DCC on a number of items. He pointed out that the retained section of the existing outfall sewer would be continually under pressure. He said that

"this has focussed attention on what can be done to improve our confidence that the joints will not fail and that all penetrations in the sewer have been identified and will be replaced by saddles on the sewer capable of coping with the maximum pressure from the final pumping station."

This was before the CCTV/sonar survey. The reference to penetrations appears to cover both connections and manholes. That at least, according to his evidence, was Mr Harrow's intention, and it is, I think, consistent with a fair reading of the letter. Mr Harrow ended that part of the letter by saying that the cost of the proposed CCTV/sonar survey and of exposing a typical joint for examination should be "for the account of the DCC". Mr Harrow said in evidence that "if we were using the existing outfall sewer it was up to the DCC to get it in a state where it would work".

[35] This last comment, and Mr Harrow's understanding generally, was rebutted by Mr Godfree (DCC) in his letter in response the next day (10 March 2000). He said this:

"We have previously pointed out to CES that the retained section of the outfall sewer would be required to operate under pressure. No survey or other information as to the condition of the existing sewer was available at time of tender, and the [DCC] has made no provision for any remedial works to this existing asset. Our BAFO [Best and Final Offer] proposals for the works [to EWS] expressly excluded any works associated with the retained section of the existing outfall sewer.

We can confirm that in our tender offer, we suggested budget figures to CES for complete replacement of the retained sections of the existing outfall sewer and Leven rising main should these measures be found essential/desirable at some future date. We understand that CES have made provision for such expenditure as or when necessary.

We will be pleased to co-operate with your request to expose a typical joint, and in conjunction with your proposal to carry out further survey work using AMTEC, but our understanding is that this is investigative work required by CES, and outwith the responsibility of the [DCC]."

The reference to further survey work using AMTEC is to the CCTV/sonar survey ultimately carried out by AMTEC in April 2000. Mr Harrow said in his witness statement that he regarded this as posturing by the DCC, an attempt by them to get the cost of this work added to the final price; but in cross-examination he accepted that, at least as at this time, the DCC were not obliged to do this work for no extra cost. He responded on 24 March 2000, saying that the proposal to retain part of the existing LVTS came from DCC and that CES had agreed to it in order to improve the competitiveness of the bid. He added:

"As the designer, the DCC is responsible for ensuring that the retained sections are compatible with the new design requirements. CES would expect that all feature (sic) of the retained structure which do not conform to the new design requirements will require to be altered at the expense of the DCC (e.g. the identification and removal or modification of all manholes and emergency outfalls etc.)."

He pointed out that the survey by AMTEC would establish the overall condition of the sewer, which he described as "CES's objective", and also identify all manholes and other design features to allow the design proposals to be confirmed, which was "DCC's objective". He proposed that the costs of the survey should be shared.

[36] The CCTV/sonar survey on the retained section of the LVTS was carried out by AMTEC early in April 2000. By letter of 12 April 2000, Mr Harrow of CES told Mr Godfree of the DCC that the results were "generally good" but there were a few sections with a build up of debris. He referred to the need to flush the debris through the system prior to connecting the existing sewer to the new long sea outfall so that the new system did not get blocked. It was also at about this time that Mr Godfree (DCC), in a letter of 17 April 2000, raised as an issue for discussion and possible agreement the question of a "survey and other works" to the retained section of the LVTS. Mr Godfree said in his evidence that by "other works" he was referring to the possibility of capping the manholes.

[37] At about this time there were exchanges between the DCC and W A Fairhurst ("WAF"), engineers engaged by the DCC in connection with the design of the works. On 10 April 2000, Mr Pratt of the DCC sent to Mr Doig of WAF details of the construction of an existing overflow chamber and outfall pipe in the LVTS in the vicinity of Bawbee Bridge. On 30 May 2000 Mr Pratt faxed Mr Doig to say that they had surveyed an overflow chamber in the existing sewer and a manhole about 30 metres away from that overflow chamber. In both cases, having referred to the existing construction, which included brickwork and a concrete slab resting on top as a roof, Mr Pratt said that the DCC would require a detailed design drawing of work necessary to seal the roof.

[38] A Monthly Progress Meeting took place on 8 June 2000. The following day, Mr Godfree (DCC) wrote to Mr Harrow (CES) confirming a request from CES that the DCC would cap off an incoming sewer (the "incoming 225 dia. sewer") connecting to the LVTS near the Bawbee Bridge, which had recently been found as a result, I think, of the CCTV/sonar survey. It is clear from the evidence that this was treated as additional work for which DCC would be paid an additional sum. A Change Order confirming this and certain other similar matters (including plugging a breather pipe and an overflow weir in the retained section of the LVTS) was issued by CES in August 2000. By June, however, as is apparent from the Monthly Report issued by the DCC in June 2000 in advance of the meeting, the DCC had agreed to cap the existing manholes. The live issue was whether, as they contended, this was additional work which they should be paid for.

[39] It was at this time anticipated that negotiations on the draft of the D&C Contract were in their final stages. On 14 June 2000, Mr Godfree (DCC) wrote to Mr Harrow (CES) on the subject of "provisional sums, additional items, etc.", summarising on a spreadsheet the "various items and issues impacting on the overall final price" to go into the D&C Contract. The overall impact on these items was an increase of £3.87 million over and above the sum of £40.157 million included in the BAFO. The spreadsheet was divided into sections. In the section headed "Change under EWCC" there was a reference, at point 12, to the LVTS. The four items listed under this point 12 were:

a. LVTS Survey Manholes

b. LVTS Capping Manholes

c. LVTS - Dealing with incoming 225 dia sewer

d. LVTS Surveys and Cleaning debris

Item c. refers to the incoming sewer near the Bawbee Bridge discovered as a result of the survey. In the next column, headed Change, figures were entered against each item in respect of which a Change was agreed. Items c. and d. had figures against them, showing that the DCC had been instructed (and/or had agreed) to carry out that additional work for an additional sum. Items a. and b. had no figures against them. Instead there were written the words "not pursued". There is a difference between the witnesses as to what was indicated by this. Mr Harrow said that it indicated that the DCC would do the work but not pursue any claim for additional costs because they recognised that this work was included in the work for which they were responsible, but he did not suggest that this interpretation was ever discussed with Mr Godfree. Mr Godfree, by contrast, said that the DCC did not pursue these items because they were insignificant in the context of the value of the additional items as a whole. I found his explanation to be more credible. As I have already said, it was not in dispute that the EWCC, which was the starting point at this stage for a consideration of whether works were or were not additional, did not place any obligation on the DCC in connection with the surveying or capping of manholes or for any work on the retained section of the LVTS, so it is difficult to see why Mr Godfree should have simply accepted that this work was the responsibility of the DCC, or why Mr Harrow should have thought that he would accept it. Further, as Mr Godfree said, it was one thing to agree to do that specific work of capping the four known and visible manholes, the price for which was relatively small, but quite another to accept full responsibility for the integrity under pressure of all manholes and all connections (including those which were as yet undiscovered) within the retained section of the LVTS.

[40] A revised version of the spreadsheet was sent by Mr Godfree (DCC) to Mr Harrow (CES) on 11 July 2000. There were no changes so far as concerns these items. In early September 2000 a further revised spreadsheet was sent out summarising all the variations or additional work. Items c. and d. remained on the spreadsheet as Changes, but items a. and b. were removed altogether. On 8 September 2000 Mr Godfree (DCC) wrote to Mr Harrow (CES) referring to the agreement reached between the parties on 7 September 2000 on the changes to the scope of the work and that these changes would be incorporated into the D&C Contract. The changes to the scope of the work were again summarised to like effect by Mr Godfree (DCC) on 20 September 2000 in connection with reaching agreement on the final contract price.

[41] On 27 September 2000 Mr Harrow (CES) wrote to Mr Godfree (DCC) confirming his agreement to the overall price (£44,227,349.00) though, as he put it, "your build up to the price differs from our understanding". He attached two schedules to "clarify out understanding of the issues that are included in the final price". Schedule 1 contained "CES comments on DCC Final Contract Price Schedule". Schedule 2 summarised "Issues subject to discussion between CES and DCC and considered [by CES] included in the final price". Schedule 1 referred to point d. (above) and noted that the price included the CCTV/sonar survey. Schedule 2, under the heading "5. Sewers etc.", included the following:

"5.1 Proving test on outfall sewer & long sea outfall & inspection of tideflex valves

5.2 Scour/air valve markers etc.

5.3 Detailed proposals for capping outfall sewer connections"

The reference to connections clearly included manholes. Mr Godfree (DCC) responded on 5 October 2000 (ref. L444). In respect of item "5. Sewers etc." in Schedule 2, his only comment was:

"We have written to you separately in respect of 'proving tests' on the outfall that we do not consider to be practicable."

This was a reference to a letter of 31 August 2000. The detail does not matter. What is perhaps of some importance is that Mr Godfree did not comment on the suggestion that capping the outfall sewer connections was considered by CES to be included within the contract price.

[42] This is, perhaps, the high point of the pursuers' case on the pre-contractual correspondence so far as concerns the question whether they can establish, for the purpose of their rectification argument, that the parties had reached a consensus that the DCC were accepting that responsibility. Unfortunately for that argument, matters did not stop there.

[43] Alongside these communications between CES and the DCC, the DCC were in contact with WAF and others concerning work to the manholes. At a Design Progress Review meeting on 15 September 2000, attended by representatives of, amongst others, the DCC and WAF (including Mr Doig), it was agreed that WAF would, by 29 September 2000, provide manhole sealing details and would issue a drawing dealing with the 225 dia. connection into the sewer discovered as a result of the survey. The drawing would include details of modifications to manholes to allow 1.5 bar pressurisation. The minutes of that meeting were dated 18 September 2000. This is consistent with the DCC having agreed, as early as June 2000, to cap the existing manholes. On 4 October 2000 Mr Doig (WAF) sent Mr Godfree (DCC) a drawing showing details of work to be done on MH1 and MH4, with details of MH2 and MH3 to follow. The next day he sent details of work to be done on MH2 and MH3, noting that these arrangements involved "a degree of risk since we will be pressurising the existing chambers about which we know virtually nothing". The risk was of pressurising partially brick built manholes as against the preferred (but, because the sewer was live, unachievable) solution of replacing each of the manholes with an in-line pipe connection. On 10 October 2000, Amec (for the DCC) asked Meiklem Drainage & Groundwork to provide a quote for carrying out work to these four manholes. On 12 October 2000 Mr Godfree wrote to WAF complaining that the scope of the work as shown in their drawings had increased from that previously envisaged, and that the date of release of the drawings put completion of the construction works to meet the enabling programme seriously in doubt. Further correspondence between the DCC and WAF ensued on the subject of the DCC's complaint, which met with a robust defence from WAF.

[44] It should also be noted that there was other communication between CES and the DCC running in parallel with that referred to in the preceding paragraphs. Thus, a meeting took place on 22 September 2000 between Jeff Wailes and David Kelly of CES and John Young and John Hamilton of DCC "to discuss the issues and detail which CES understand are included in the DCC Final Price". There was some brief discussion of CES's list of issues which CES considered included in the contract price (see Schedule 2, below), but the meeting principally concerned issues which are not relevant for present purposes. CES's notes of the meeting were sent to DCC on 25 September 2000 and were the subject of comment by Mr Godfree on 5 October 2000 (ref. L443). This led to a further letter from Mr Harrow (CES) on 10 October 2000 (ref. LEV/1573). As I have said, this correspondence was, to some extent, separate from the correspondence referred to in the preceding paragraph and in the next paragraph, but at the end of Mr Harrow's letter of 10 October 2000 (ref. LEV/1573) he also noted receipt of Mr Godfree's other letter of 5 October 2000 (ref. L444) and said that he would respond as appropriate. So at this point the two separate streams of correspondence came together.

[45] Mr Godfree (DCC) did not wait for Mr Harrow to respond. He wrote again on 13 October 2000, directly in response to Mr Harrow's letter of 10 October (ref. LEV/1573). He commented about the difficulties of carrying out a cleaning operation to the retained section of the LVTS and said that he could not accept responsibility for the outcome. He then added this:

"For the avoidance of doubt, and notwithstanding our agreement to carry out sealing works to the existing manholes on the sewer, we would reiterate that entire responsibility for the length of the existing outfall sewer [i.e. the retained section of the LVTS] ... is specifically excluded from the obligations of the DCC under the terms of both the EWCC and the draft documentation for the [D&C Contract]."

Mr Harrow said in his evidence that he understood from this that the DCC were accepting some responsibility, but not the entire responsibility. With respect to Mr Harrow, I do not consider this construction of the letter to be tenable. Nor did he suggest that he had sought confirmation from Mr Godfree that his understanding of the DCC's position was correct.

[46] There was no written response from CES prior to conclusion of the D&C Contract on 25 October 2000, nor, as I understood the evidence, any direct contradiction of this statement by the DCC of their position. The evidence shows that there was further correspondence between the DCC and WAF and Meiklem, leading to the DCC instructing Meiklem to carry out the works at the manholes. The work was carried out by Meiklem.

[47] The above summary in paragraphs [32] - [46] is relevant principally to the question of rectification (see below). Reverting for the moment to the question of construction, I invited parties to let me know if there were any other specific matters covered by the evidence which they thought, on reflection, were relevant to that issue. The pursuers submitted a Note in which they invited me to make the following findings of fact:

(1) In the run up to 25^th October 2000, the parties were both aware that they were working under the aegis of the EWCC whilst at the same time negotiating the D&C Contract.

(2) In the same period, the parties were expecting that the D&C Contract would, amongst other things, "subsume" the EWCC.

(3) The objective of the D&C Contract was to have a workable sewage treatment works.

(4) The overall objective of the entire project was that sewage from the treatment works would ultimately be properly discharged into the Firth of Forth.

(5) Prior to 25^th October 2000, the parties were aware of the existence of manholes which were part of, and of connections which connected to, the existing LVTS.

(6) Prior to 25^th October 2000, it was understood by the parties that the LVTS, the manholes, connections, and new outfall pipe all had to be able to withstand a pressure of 15.52 metres head of water.

(7) On 30^th May 2000, AMEC's Mr Pratt requested sealing details from WA Fairhurst's ("WAF") Mr Doig relative to a chamber and a manhole on the LVTS.

(8) By 18^th September 2000, the defenders had sought from WAF, relative to the LVTS, (i) "manhole sealing details" and (ii) "details of modifications to manholes to allow 1.5 bar pressurisation".

I have no difficulty with suggested findings (1), (2) and (4). They are uncontroversial and do no more than state what was apparent from the evidence of all the witnesses. I have some difficulty, however, about suggested finding (3). While the overall objective of the entire project was that sewage from the treatment works would ultimately be properly discharged into the Firth of Forth, i.e. that there would be a workable sewage treatment works, it seems to me to be going too far to say that this was the objective of the D&C Contract. The objective of the D&C Contract was to regulate the rights and obligations of the parties to it, namely CES and the DCC, in relation to the works to be carried out thereunder with a view to that overall objective being achieved. But the D&C Contract did not cover everything related to the achievement of a fully workable and efficient sewage treatment works. It is common ground, for example, that the DCC assumed no responsibility under the D&C Contract for ensuring the integrity of the whole of the retained section of the LVTS, whether under pressure or otherwise - the present dispute is only about the extent of their obligations in respect of the connections to and manholes in the retained section of the LVTS, not in respect of the pipe as a whole. To that extent at least, the D&C Contract could not be said to be directed at ensuring a workable treatment works, albeit it was part of a project which had that as its object. Suggested finding (5) is in itself unobjectionable, but it requires some amplification. As I have already noted, such inspection of the retained section of the LVTS as was possible did not reveal, and was known probably not to have revealed, all the connections to it. Accordingly, although the parties were aware of the existence of manholes and connections in and to the existing LVTS, they were not aware of how many connections there were and where they were all to be found. To borrow a phrase from a different context, these were "known unknowns". The parties knew that there were likely to be a number of connections of which they did not have any information as to their whereabouts, their precise nature or their condition. As to suggested finding (6), I accept that both parties knew that there might at times be pressure within the system of up to 15.52 m head of water. This is apparent from paragraph 2.2.5 of Schedule Part 6 of the D&C Contract. To that extent I accept that the parties must have understood that waste water would, on occasions, run through the whole of the new sewer system downstream of the new Levenmouth WwTW under that kind of pressure. Had they applied their minds to it, and there is no evidence that they did, they should have realised that the whole of that new sewer system, including the LVTS, the manholes, the connections, and the new outfall pipe all required to be able to withstand waste water running through it under that pressure.

[48] Proposed findings (7) and (8) focus on two specific items of communication. Those two items are broadly to the effect contended for. I have referred to them as part of the overall correspondence and other exchanges between the parties and others. They have to be viewed in that context.

[49] The defenders too invited me to make certain findings of fact. The first of these related to the layout of the Outfall Sewer as it existed before any of the work under the EWCC and the D&C Contract and the changes effected by the work under those contracts. I have already set out my findings on this. The second and third were in the nature of findings of mixed fact and law which I shall deal with in my decision. Suggested findings 4 - 8 were, broadly, in the following terms:

(4) The risk that would be involved for a contractor in undertaking responsibility for the integrity of all connections and chambers to and in the retained section of the LVTS is so high and uncertain in extent that no reasonable contractor would accept it.

(5) At all material times the retained section of the LVTS operated under live flow conditions in which the depth of waste water and the current running in the sewer precluded proper inspection by human or other means.

(6) It was at all material times likely that there would be connections to the retained section of the LVTS below the level of the flow which a contractor could not reasonably be expected to find.

(7) In the event, it transpired that there had indeed been such connections to the retained section of the LVTS which had not been found by either party at the time of entering into the D&C Contract.

(8) (a) The existence of such connections could have a deleterious effect on the ability of the sewer to allow the transmission of fluid without leakage; so that

(b) a contractor who undertook the risk identified in (4) above would be exposed to potential liability over a lengthy period in an amount which it could not predict and in circumstances where it would not even be known if necessary remedial or modification works could in fact be carried out were leakage to occur.

There is no difficulty in my making findings in terms of item (5) and (6). These are indeed implicit in the pursuers' suggested findings and lead to the conclusion that, as at the date the D&C Contract was entered into, there were these "known unknowns". There was, as I have mentioned already, a CCTV/sonar inspection carried out in April 2000 which had revealed one previously undiscovered connection to the LVTS but from which it was apparent that there might, indeed probably would, be others, perhaps many others, which that inspection could not be expected to reveal. Although I heard no evidence directed specifically to item (7), it appears to reflect the facts assumed by both parties for the purpose of this preliminary proof. I shall assume it to be correct. I have divided item (8) into two parts. (8)(a) presents no difficulty, since it recognises that the new sewer would at times be carrying a flow under pressure, and accepts the implication (advanced also by the pursuers) that, when the sewer was under pressure, leakage might occur at such connections. Item (8)(b) is correct to the extent that, if leakages at connections or manholes did occur, a contractor who had assumed responsibility for the integrity of the connections and manholes under all conditions would be exposed to liability over a period after the works were completed in an amount which it could not predict. How long such risk of exposure to liability would continue is perhaps impossible to predict. I am not prepared, however, to find that it might, in fact, not be possible to effect remedial works. There was no evidence of any circumstances in which it might be impossible to carry out remedial work. Absent any such evidence, I would assume that it would always be possible, at a time when pressure within the sewer was low, to dig down outside the sewer and connecting pipe to make good any such leak, or to put in a temporary diversion whilst a section of the sewer was replaced. All this might be extremely expensive, but that is a different matter. The combined effect of items (5)-(8), to the extent that I have accepted them, is to show that there would indeed be a significant, even serious, risk for any contractor prepared to assume liability for the integrity of the chambers in and connections to the retained section of the LVTS. To that extent I accept item (4). Whether that risk is so high and uncertain that a reasonable contractor would not accept it is something that I consider in due course.

Discussion

[50] The D&C Contract is a detailed and carefully drawn agreement. It defines with great care the obligations imposed upon the Contractor. These are set out in Condition 3.1 and in the definition of Works in Schedule Part 1. Both parties took this as their starting point. The relevant question is: did the D&C Contract impose upon the Contractor a responsibility for ensuring that the connections to the retained section of the LVTS, and the chambers (including manholes), would not leak when the sewer was in operation? There is no difficulty about the meaning of "connections" in this context. The reference is to connections between the main sewer (the existing LVTS) and the myriad of smaller waste water and overflow pipes connecting into it. Nor is there any ambiguity about chambers and manholes. The case for the pursuers is that the D&C Contract did impose this responsibility on the Contractor. The defenders argue to the contrary.

[51] Despite the length and, in some respects, complexity of the contract, the arguments on construction were relatively straightforward. Mr McNeill QC, for the pursuers, argued that sub-paragraph 2.2.5 of Schedule Part 6 made it clear that this obligation was imposed on the Contractor. His argument was essentially a literal one, concentrating on the reference to "connections" and "chambers" and the use of the word "modified", all in the part of sub-paragraph 2.2.5 referring to the operation of the sewer operating up to a pressure of 15.52m head of water. Connections referred to connections coming in to the existing sewer. It did not mean the in-line join between the retained section of the LVTS and the new sewer. The reference was to connections and chambers, both in the plural, which must be a reference to connections to and manholes and other chambers within the retained section of the LVTS. The obligation was to "modify" existing connections and chambers, not to construct new ones. Again, that must be a reference to connections to and chambers in the retained section of the LVTS. Those connections and chambers were required to be modified so as to allow operation of the sewer, i.e. the whole sewer, under pressure.

[52] That argument, though persuasively advanced, seems to me to take that part of sub-paragraph 2.2.5 out of its proper context. The relevant context is this. The definition of Works includes a reference to the Design and Construction Proposals which are set out in Schedule Part 6. In terms of paragraphs (iv) and (v) of the definition of Works, as brought into play by Condition 3.1, the obligation of the Contractor extends to the works necessary to meet and comply with the Design and Construction Proposals and any other works that can reasonably be implied therefrom. In Schedule Part 6 itself, the scope of the Contractor's obligations under the Design and Construction Proposals during the period in question is identified in paragraph 2.1. It is not necessary to have regard to the heading "Scope" to appreciate this. The language of the introductory part of this paragraph shows that it is defining the scope of the Contractor's obligations in terms of the Design and Construction Proposals: "The Contractor shall design and construct the following Enabling Works ...". The relevant Enabling Works are those identified in sub-paragraph 2.1.5, namely the New Outfall Sewer and the New Sea Outfall. None of the sub-paragraphs under paragraph 2.1 suggest that the Contractor's obligations under the Design and Construction Proposals include any obligation in respect of the retained section of the LVTS. The purpose of paragraph 2.2 is to give more detail of the work identified in paragraph 2.1 as being work which the Contractor is obliged to do. Again, it is not necessary to have regard to the heading of paragraph 2.2 to appreciate this, since that is made clear in the last sentence of paragraph 2.1: "Items 2.1.1 to 2.1.11 inclusive ... are further specified in paragraph 2.2 below ...". The sub-paragraphs under paragraph 2.2 mirror those under paragraph 2.1. In each case, the equivalent sub-paragraph under 2.2 gives detailed specification of the work identified in the relevant sub-paragraph under 2.1. It seems to me that the parties cannot have intended in paragraph 2.2 or the sub-paragraphs thereunder to extend the basic obligations on the Contractor beyond the scope of those listed and the areas identified under paragraph 2.1. That is not what paragraph 2.2 bears to do. On the pursuers' construction, this is precisely what the parties have done by that provision.

[53] It is also important to have regard to the final sentence within sub-paragraph 2.2.5 preceding the mention of connections and chambers and operation of the sewer under pressure. That reads as follows:

"The New Outfall Sewer and New Sea Outfall shall fulfil the following requirements: ..."

On the ordinary meaning of the words used, that sentence introduces the requirements which the New Outfall Sewer and the New Sea Outfall must fulfil. I emphasise the fact that the requirements must be fulfilled by the New Outfall Sewer and the New Sea Outfall. There is no reference here to the retained section of the LVTS. This is not surprising, standing my conclusion that paragraph 2.2 was intended to give specification of the work identified under paragraph 2.1 rather than to extend the scope of that work. Read in this way, there is no real difficulty. That sentence is followed, as one would expect, by the requirements which the New Outfall Sewer and the New Sea Outfall must fulfil. The New Outfall Sewer and the New Sea Outfall must be designed and constructed to meet the specified requirements concerning Peak Flow, Length of Sea Outfall and Dilution at the point of diffusion into the sea. In addition, any "connections and/or chambers to the Levenmouth Outfall Sewer", i.e. to the retained section of the LVTS, must be designed and constructed so as to allow operation of the sewer up to a pressure of 15.52m head of water. There is, I accept, the potential for ambiguity if sub-paragraph is divorced from its context. The layout of the provision (with the reference to "connections" etc. not being indented in the same was as the references to "Peak Flow" etc.) sows the seeds of doubt. But once it is appreciated (a) that paragraph 2.2 is designed to give specification of the work identified in paragraph 2.1 and (b) that these requirements are all requirements which the New Outfall Sewer and New Sea Outfall are required to fulfil, it is difficult to see how this provision can properly be read as imposing upon the Contractor an obligation to modify (to the extent necessary to ensure their integrity under pressure) all connections to the retained section of LVTS and all chambers (including manholes) within it. What the provision does is to require the Contractor to design and construct the new part of the sewer so that operation of the sewer under that pressure is possible. It says nothing about who, if anyone, is responsible for ensuring that the existing sewer is suitably modified so as to withstand operation at such pressure.

[54] The use of the words "connections", "chambers" and "modified" in the concluding part of sub-paragraph 2.2.5 do not, to my mind, point to a different conclusion. It is to be noted, as was pointed out by Spratt in his evidence (though I am not sure that the point was properly one for him to make), that the sub-paragraph refers to connections and chambers "to" the Levenmouth Outfall Sewer, rather than "to and in" the sewer. Whether the Levenmouth Outfall Sewer is intended as a reference to the new outfall sewer or, as is perhaps more probable, to the retained section of the LVTS, the inapposite use of the single preposition and the word "any" might point to some uncertainty in the minds of those responsible for drafting this part of the contract. It might also suggest that no strong inference is to be made that the intended reference was to all connections and all chambers (including manholes) in the existing sewer. It seems to me to be more likely that in this provision the parties were indeed referring to the intended connection between the retained section of the LVTS and the new sewer. As I have already pointed out, it had not been decided at the time the contract was entered into precisely where and how the connection would be made. One option, which was adopted, was a straight in-line connection. Another would have involved a connection at MH4, which would have involved the manhole being modified and sealed, with one exit pipe being blocked off and a new pipe connected to the manhole. With that possibility still a live one, the reference to "connections", "chambers" and "modified" in sub-paragraph 2.2.5, albeit inelegant, is readily understood as referring to the connection between the old pipe and the new, however that might come to be made.

[55] In reaching this conclusion, I have had in mind a number of matters which emerged during the course of the proof. First, parties were agreed that there was no obligation on the Contractor under the D&C Contract to ensure that the pipework in the retained section of the LVTS, as opposed to the connections to it and chambers in it, was capable of operating under pressure. One could readily understand a contract in terms of which the Contractor accepted responsibility for ensuring the integrity of the new outfall arrangements as a whole (i.e. both the retained section of the LVTS and the new outfall sewer) under pressure. It may be questioned whether any Contractor would be willing to accept this obligation without insisting on replacing the whole length of the outfall sewer rather than retain the greater part of it, but the possibility of him doing so, albeit at a price, can readily be understood. But it is, to my mind, less easy to understand why the responsibility between the parties should be shared, with the Contractor assuming responsibility for the connections and manholes in the retained section of the LVTS but not for the overall integrity of the retained sewer pipes and the joins between the pipes along the length of it. Secondly, it was apparent that the fact that the sewer was constantly under live flow conditions meant that no comprehensive investigation could be carried out of the inside of the sewer. There was a CCTV/sonar inspection, but as I understood the evidence this could not detect where there were connections to the LVTS below the surface of the flow or where the surface of the pipe was obscured by debris within it. Indeed, neither party was under the impression that the CCTV survey had revealed all the connections into the LVTS. This is confirmed by the reference in paragraph 2.1 of Schedule Part 33 to the Leven Outfall Sewer (the LVTS) not having been subject to physical examination, which, in light of the fact that there had been a CCTV survey, must mean that it had not been subject to comprehensive or fully satisfactory physical examination. That is given as the justification for the LVTS and other existing assets being excluded from the responsibility of the Contractor. I find it difficult to envisage a Contractor willingly undertaking responsibility for that about which he had no knowledge. All that he knew was that there were likely to be a number of connections along the length of the LVTS about which he knew nothing - neither their location, nor their construction, nor their condition. It is, of course, possible that with this limited knowledge he might nonetheless decide to take a commercial gamble; but I would be reluctant to come to the conclusion that he had done so without clear words in the contract to this effect. I do not find those clear words in sub-paragraph 2.2.5 of Schedule Part 6. Third, in the lead up to the conclusion of the D&C Contract, the parties discussed how to deal with the manholes in the existing system. The details of what they discussed are not relevant; but, in any event, the discussions do not point to the Contractor having agreed to accept responsibility for all connections and chambers to and in the retained section of the LVTS. Rather they show that the DCC agreed to cap the existing manholes and did not insist on further payment for that. They also show, on a piecemeal basis, that when any other connection was discovered which needed some attention, it became the subject of a specific Change Order which attracted payment of an additional sum (or an increase in the agreed price for the D&C Contract). But this does not, in my view, point towards the conclusion that the Contractor was prepared to accept responsibility generally for the integrity of all connections to and chambers in the retained section of the LVTS. If anything, it seems to me to point the other way. Nothing in the other parts of the evidence as to background led by the parties persuades me to the opposite conclusion.

[56] Although Mr McNeill did not seek to derive any positive assistance from paragraph (i) of the definition of Works and the reference to Schedule Part 33, he had no real answer, so it seemed to me, to the point made by Mr Howie that the provisions of Schedule Part 33 expressly excluded the retained section of the LVTS from the responsibility of the Contractor. I have already set out the terms of Schedule Part 33 and summarised the defenders' argument on the effect of those terms. I agree with that argument. It seems to me that the effect of paragraph 2.1 of Schedule Part 33, when read with the remainder of that Part, is that although the Contractor undertakes to upgrade the existing LVTS by cutting into it part way along its length and joining it to a new outfall sewer and sea outfall, he is undertaking no responsibility for the part of the LVTS which is retained in this new arrangement. That is why paragraph (i) of the definition of the Works does not assist the pursuers. But it goes further than this, because it expressly excludes the Contractor's responsibility for the retained section of the LVTS and therefore would contradict the provisions of sub-paragraph 2.2.5 of Schedule Part 6 if the pursuers' argument were correct. To my mind that is a powerful additional argument against the pursuers' construction of sub-paragraph 2.2.5 of Schedule Part 6.

[57] For all of these reasons I reject the construction of the D&C Contract advanced by the pursuers.

Rectification

[58] I can deal with the case on rectification more briefly. The power of the court to rectify a contract is found in section 8 of the Law Reform (Miscellaneous Provisions) Scotland Act 1985, which provides, so far as material, as follows:

"8(1) Subject to section 9 of this Act, where the court is satisfied, on an application made to it, that -

(a) a document intended to express or give effect to an agreement fails to express accurately the common intention of the parties to the agreement at the date when it was made ...

it may order the document to be rectified in any manner that it may specify in order to give effect to that intention.

(2) For the purposes of subsection (1) above, the court shall be entitled to have regard to all relevant evidence, whether written or oral."

Mr McNeill referred me to paragraph [35] of the Opinion of Lord Macfadyen in Renyana-Stahl Anstalt v MacGregor 2001 SLT 1247 which helpfully identifies five requirements which have to be satisfied before rectification is available. Whether the parties had a common intention and, if so, what that intention was, is to be ascertained objectively: Rehman v Ahmad 1993 SLT 741, 752-3, MacDonald Estates plc v Regenesis (Dunfermline) Ltd (Lord Reed, unreported, [2007] CSOH 123 at paragraphs [161]-[165]). Further, the prior agreement need not itself be an enforceable contract: MacDonald Estates at paragraph [159]. There was no dispute as to these principles.

[59] The question before the court is whether, before and at the time of entering into the D&C Contract on 25 October 2000, the pursuers on the one hand and the defenders on the other were agreed (or had the common intention) that the defenders would assume the responsibility for ensuring the integrity of all connections to and chambers in the retained section of the LVTS, and intended that the D&C Contract should express or give effect to this agreement or common intention. The relevant Conclusion in the summons is framed broadly in terms of the important words relied on by the pursuers in paragraph 2.2.5, subject to certain tweaking to make it support their case, but in substance it comes to an assumption of full responsibility for ensuring that all connections and chambers were modified so as to enable the sewer to operate under pressure. Nothing turns at this stage on the precise wording put forward by the pursuers, though had I been in their favour I would have put the matter out By Order for further consideration of this.

[60] Mr McNeill submitted that the evidence showed that there was agreement or consensus between the parties to this effect before 25 October 2000, and continuing in existence at that time. He sought to narrow it down as having come into existence some time on or after 7 September 2000.

[61] I have considered the evidence carefully. I have endeavoured to set out the relevant exchanges earlier in this Opinion. However, despite Mr McNeill's valiant efforts, I am quite unable to discern in those exchanges any agreement of the sort argued for by the pursuers. I do not propose to set out my reasoning in detail. The parties were continually at odds over how the question of capping existing manholes should be treated. The fact that Change Orders were issued as regards other work of a similar nature as and when issues arose suggests strongly, to my mind, that the defenders were not accepting that they had any general responsibility for the integrity of all connections and chambers within the retained section of the LVTS. Mr Godfree's letter on 13 October 2000 made the position clear, even if otherwise there had been any doubt about it.

[62] At one point Mr Howie made as if to argue that the possibility of rectification was excluded by the entire agreement clause, but sensibly he did not press this point, recognising as he did the circularity of the argument. However, he did venture the suggestion that the care with which the D&C Contract had obviously been drafted, coupled with the inclusion within it of an entire agreement provision, made it less likely that there was some prior agreement between the parties which the contract had failed accurately to express. As he put it, "it raised the height of the bar". Had the evidence been more evenly balanced I might have had to consider this submission, but as it is I prefer not to say anything about it.

Disposal

[63] I therefore reject the pursuers' case on the matters raised before me at this preliminary proof. The result, I think, is that I should sustain the fourth and fifth pleas-in-law for the defenders and repel the pursuers' first and second pleas. But it may be better in the first instance to put the matter out By Order, to see what is to become of the matters which were not argued.