McMullen Group Holdings Ltd v Harwood [2011] ScotCS CSOH

OUTER HOUSE, COURT OF SESSION

[2011] CSOH 132

CA151/10

OPINION OF LORD HODGE

in the cause

McMULLEN GROUP HOLDINGS LTD

Pursuer;

against

JOHN HARWOOD

Defender:

________________

Pursuer: Connal, Q.C.; McGrigors LLP

Defender: Moynihan, Q.C. Borland; MacRoberts LLP

12 August 2011

[1] The pursuer ("MGH") entered into a Share Purchase Agreement ("SPA") dated 4 April 2008 with the defender ("Mr Harwood") by which Mr Harwood sold to MGH the entire share capital of Systems Aluminium Limited ("SAL"). The purchase price entailed an initial consideration of £2,135,000 and a deferred consideration of £80,000. MGH withheld payment of the latter sum when disputes arose between the parties. In this action MGH sues Mr Harwood under the SPA for payment of (i) £2,215,000 and (ii) £45,000, relying on certain warranties and indemnities.

[2] I have heard a debate over three days on the motion of Mr Harwood in which his counsel, Mr Moynihan QC, sought to restrict the matters which needed to be determined by proof. As the debate raised different challenges to specific parts of MGH's case under different provisions of the SPA, I will have to consider each challenge in turn. In order to give shape to that exercise I start by setting out the structure of the relevant parts of the SPA. The relevant terms are set out in the Appendix to this opinion.

The Share Purchase Agreement

[3] The SPA is governed by the law of Scotland (clause 17.1). Clause 1 deals with definitions and interpretation. I set out relevant definitions and provisions from this clause and a condition precedent in favour of MGH (clause 2.4) in Part 1 of the Appendix.

[4] When agreeing the sale of the shares each party sought to protect its or his interests through specific provisions in the contract. MGH obtained three remedies which are relevant to this debate. First, it received certain indemnities (clauses 5.8 and 5.10). Secondly, it gained the benefit of certain warranties (clause 5 and Part 4 of the Schedule). Thirdly, it obtained a discrete category of remedies which counsel described as "indemnified warranties" (clause 5.8(j) and paragraphs 5.14 to 5.30 (among others) of Part 4 of the Schedule). I set out the relevant provisions of clause 5 and the relevant warranties from Part 4 of the Schedule in Parts 2 and 3 respectively of the Appendix.

[5] Mr Harwood also sought to protect his interests (a) in relation to the indemnities through what his counsel presented as a condition precedent in clause 5.9, and (b) in relation to the warranties and indemnified warranties by limitations of liability (Clause 5.7 and Part 7 of the Schedule). In relation to both warranties and indemnified warranties the notice provisions of paragraphs 6.3 and 13 of Part 7 of the Schedule apply. In relation to indemnified warranties clause 5.9 also applies. I set out the relevant parts of these provisions in Part 4 of the Appendix.

[6] Other relevant provisions are (i) clause 12.2 dealing with waiver, (ii) clause 15 dealing with notices, and (iii) the entire agreement clause (clause 16). I set out those provisions on Part 5 of the Appendix.

[7] The lengthy summons covers the three distinct categories of claim to which distinct notice and timetable conditions apply. So far as relevant to the debate they can be analysed as follows:

Category of claim

Notice/Timetable conditions

Article of Condescendence

Indemnity

cls 5.8(g) and (h)

Clause.5.9

Part of Art 3 and Art 4

Warranty

Sch Part 4:

Para 2.4

Para 2.2(a) & 5.3

Para 5.11

Para 5.12

Schedule Part 7 paras 6.3 and 13

Arts 14 and 17

Art 15

Part of Art 3 and Art 16

Art 18

Indemnified Warranties

Clause 5.8(j) and

Sch Part 4:

Para 5.17

Para 5.19

Para 5.20

Para 5.21

Para 5.24

Para 5.25

Para 5.26

Para 5.28

Para 5.30

Clause 5.9 and Schedule Part 7 paras 6.3 and 13

Arts 5 to 13

And in particular:

Art 5

Art 6

Art 7

Art 8

Art 9

Art 10

Art 11

Art 12

Art 13

The defender's challenges

(i) The exclusion of averments which denied that clause 5.9 was a condition precedent

[8] Mr Moynihan contended that MGH's averments in article 3 of condescendence that clause 5.9.3 was not a condition precedent to any liability of Mr Harwood under the indemnities at clauses 5.8(g) to 5.8(j). He submitted that where a liability was contingent upon a condition, whether that condition were suspensive, resolutive, statutory or contractual, and satisfaction of the condition was put in issue, it was for the pursuer to aver with appropriate specification either (a) compliance with that condition or (b) waiver of that condition.

[9] In support of that contention he referred by way of analogy to cases concerning the relevancy of averments relating to prescription and limitation, namely, Pelagic Freezing (Scotland) Ltd v Lovie Construction Ltd and Another [2010] CSOH 145, Lord Menzies at paragraphs 86 and 93-95; Santander UK PLC v Allied Surveyors Scotland PLC [2011] CSOH 13, Temporary Judge Wise at paragraph 34; and AS v Poor Sisters of Nazareth 2007 SC 688, the Lord President (Lord Hamilton) at paragraphs 28 and 32. This criticism applied equally to the provision of a prescribed form of notice and the time limits referred to below. In short, MGH in its pleadings had not engaged with the contractual provisions but had adopted a formulaic approach of asserting substantial compliance through the general correspondence between the parties. There were no averments of compliance with or waiver of the specific conditions. That was insufficient and irrelevant.

(ii) The exclusion of averments in Articles 5-18 of Condescendence

[10] Mr Moynihan submitted that with the exception of the claims in articles 9 and 10 of condescendence, MGH had failed to comply with the contractually prescribed notice provisions in relation to warranty claims.

[11] He submitted that the contract drew a clear distinction between the exchange of information under clause 5.9 (see Appendix Part 2) and the more formal requirements of notices in clause 15 (see Appendix Part 5). Clause 15.4 provided that notices were to be sent to Mr Harwood care of his solicitors for the attention of Mr Robert Burns and at the stated fax number. Similar arrangements were prescribed for notices to MGH and each party was empowered to notify the other in writing of a replacement address or fax number. Clause 15.1 required that notices and communications should be given in writing and the definition of writing in clause 1.3.1 excluded electronic communication. He submitted that none of the notices, on which MGH relied in relation to these articles of condescendence, complied with clause 15.4 and that undermined its claims under the warranties and the indemnified warranties.

[12] He submitted that where there was an obvious commercial purpose for a specific form of notice being prescribed, compliance with that condition required that notice be given in that form. In this case the contract provided a general exchange of information between MGH and Mr Harwood and, separately, there were time limits for notices and the commencement of proceedings in paragraphs 6.3 and 13 of Part 7 of the Schedule and strict requirements for the service of notices under clause 15.

[13] He referred to Education 4 Ayrshire Ltd v South Ayrshire Council 2010 SLT 253, Lord Glennie at paragraphs 17 and 19. That case concerned the construction of a clause in a building contract which required a contractor to give notice of a claim for an extension of time. While it was conceded by counsel in that case that the requirement to give notice was a condition precedent, Lord Glennie's reasoning supported the view that the concession was well made and further that strict compliance with the terms of the provision was expected.

[14] He turned to the general limitations in paragraph 6.3 and the time limits in paragraph 13.1 of Part 7 of the Schedule, submitting that they were deliberately provided and offered the mutual benefit of certainty to the contracting parties. As much of MGH's claim depends on those provisions I set them out below as well as in the Appendix. Paragraph 6.3 provided:

"The Purchaser shall not be entitled to make a claim under the Warranties (other than the Warranties relating to Taxation to which the provisions of clause 6 of the Tax undertaking shall apply): - ...

in the absence of wilful dishonesty on the part of the Vendor or its agents, unless the Purchaser has given written notice of the circumstances giving rise to the claim in question to the Vendor (including sufficient detail to enable the Vendor to identify the nature of the claim together with an estimate of the likely amount of the claim to the extent that the Purchaser can reasonably provide such) as soon as reasonably practicable after it becomes aware of those circumstances ..."

Paragraph 13.1 provided:

"The Vendor shall have no liability in respect of any claim under the Warranties unless notice in writing of such claim has been given to the Vendor within 60 days of the purchaser or the Company or any of their respective officers becoming aware thereof."

[15] He submitted that paragraph 6.3 required MGH to give written notice of the circumstances giving rise to the claim in question. This was required both to alert Mr Harwood to the claim and also to give his solicitor a communication which was clearly a notice which stood out from the correspondence involving exchanges of information under clause 5.9. It also benefited MGH as its formality tied in to the time limits in paragraph 13. It was clear that paragraph 13 was a condition precedent of a claim and that time started running under paragraph 13.1 when any of MGH, SAL and their respective officers became aware of a claim. Again, the formality of the notice in writing, which clause 15 prescribed, had the benefits to both parties which the same requirement had in relation to paragraph 6.3.

[16] Mr Moynihan submitted that the repeated use of varying formulae to the effect that MGH had complied with the substantive requirements of the SPA was insufficient as it did not address either the form of the notice requirements or disclose when the requisite knowledge was acquired. The time limits in those paragraphs demonstrated the need for compliance with the prescribed form of notice to distinguish general correspondence, which exchanged information, from notices which had significant contractual consequences. Those provisions defined the scope of the rights which the contract conferred on MGH through the warranties. Unless MGH complied with their requirements, it did not have the benefit of the warranties and indemnified warranties.

[17] He also raised a challenge under paragraph 13.2 in relation to MGH's claims in articles 9 and 10 of condescendence in respect of the warranties in paragraphs 5.24 and 5.25 of Part 4 of the Schedule (see Appendix Part 3). In relation to those claims Mr Harwood admitted that he received a valid notice of claim on 17 June 2008 but averred that the claims were time barred under paragraph 13.2. Again, I set out paragraph 13.2 for convenience:

"Claims against the Vendor shall be wholly barred and unenforceable unless written particulars thereof has been given to the Vendor on or before:

(a) two years from the Completion Date in respect of those warranties which do not relate to taxation; and

(b) 31 August 2014 in the case of any claim under the Tax Undertaking and the Warranties relating to Taxation;

it being agreed that the liability of the Vendor in respect of any claim under the Warranties (other than those relating to Taxation) shall absolutely determine (and such claim shall be deemed to be withdrawn) if proceedings in respect of it have not been commenced and served within 6 months of service of such written notice or, if later, within 6 months of the last action taken by the Company and/or the Purchaser pursuant to clause 7 of this part of the Schedule." (my italics)

Counsel agreed that as the reference to clause 7 made no sense, it should be read as a reference to paragraph 8 of Part 7 of the Schedule.

[18] Mr Moynihan submitted that the phrase "written notice," which I have italicised, referred to written notice in paragraph 13.1 and not to the "written particulars" to which paragraph 13.2 referred. He advanced three reasons for that contention. First, it was the plain meaning of "written notice." Secondly, the structure of the sub-paragraph showed that one part ended at the semi-colon at the end of sub-heading (b) and that what followed thereafter was a separate provision. Thirdly, paragraph 13.2 referred to the barring of the claim and the deemed withdrawal of the claim. That referred to the withdrawal of the written notice of the claim in paragraph 13.1. As MGH had not commenced legal proceedings within six months of service of any relevant written notice, the claims in articles 9 and 10 of condescendence were out of time.

[19] He accepted that clause 13.2 fell to be categorised as a limitation clause but submitted that such clauses were not judged by specially exacting standards. Its purpose was clear, that it was not ambiguous and accordingly it fell to be enforced: Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd 1982 SC (HL) 14, Lord Wilberforce at pp.57-58, Lord Fraser at p.61.

[20] He therefore moved the court to delete articles 9 and 10 of condescendence on the ground of failure to comply with paragraph 13.2 and articles 5-8 and 11 to 18 because of a failure to give the contractually prescribed notice.

(iii) The repelling of the plea in law of waiver and personal bar

[21] He turned to MGH's alternative defence against the challenge that there had not been proper notice. He submitted that MGH's formulaic averments, that Mr Harwood by engaging in informal correspondence had waived the notice requirements, were irrelevant. Even if such averments were sufficient to support an informal approach to the exchange of information under clause 5.9, they did not amount to an unequivocal waiver of the separate contractual requirement of the time limits on the claims in paragraph 13 of Part 7 of the Schedule. For its pleadings to be relevant, MGH needed to aver (a) which protective provisions had been waived by Mr Harwood and (b) how it had acted in reliance on that waiver.

[22] Waiver was a voluntary, informed and unequivocal election not to raise an objection: Miller v Dickson 2002 SC (PC) 30, Lord Bingham at paragraph [31]. Further, there were no averments of reliance which was needed to complete a waiver; unless MGH conducted its affairs on the basis of an abandonment of a right by Mr Harwood, there was no waiver. He referred to Armia Ltd v Daejan Developments Ltd 1979 SC (HL) 56, Lord Fraser at pp.68-69 and Lord Keith at pp.71 - 73; Evans v Argus Healthcare (Glenesk) Ltd 2001 SCLR 117, Lord Macfadyen at paragraph [11]; Mc Laughlin, Petitioner [2010] CSIH 24, Lady Paton, giving the judgment of the Extra Division, at paragraph 18; and City Inn Ltd v Shepherd Construction Ltd 2011 SCLR 70, Lord Osborne, who gave the leading opinion, at paragraphs [67]-[75] and [83]-[91]. In relation to the latter case, Mr Moynihan helpfully produced the opinion of the Lord Ordinary, Lord Drummond Young, ([2007] CSOH 190) to assist in understanding the decision of the Extra Division. He referred to Lousada & Co Ltd v J. E. Lesser (Properties) Ltd 1990 SC 178, the Lord Justice-Clerk (Lord Ross) at pp.189-190, for a succinct statement of the need for the person asserting waiver to have acted in reliance on a belief induced by the other that that other had abandoned a right. He also cited E & J Glasgow Ltd v UGC Estates Ltd [2005] CSOH 63, Lord Eassie at paragraphs [26] and [27], as an example of a case where there were proper averments of such reliance.

[23] He addressed two insurance cases from the pursuer's bundle of authorities, which he considered needed some explanation. First, in Kosmar Villa Holidays plc v Trustees of Syndicate 1243 [2008] Bus LR 931, the Court of Appeal in England rejected the assertion that an insurance company had waived, either by election or estoppel, its right to rely on an absence of timely notice of a claim, both because the company had made no unequivocal representation that it accepted liability and because the insured did not rely on such a representation to its detriment. Although in the older Scottish case of Donnison v The Employers' Accident and Live Stock Insurance Company Ltd (1897) 24 R 681 the judges of the Second Division did not emphasise the rôle of reliance in their opinions, it was a case in which such reliance was present. The widow of the deceased acted on the basis that the insurance company would accept her claim although made out of time when she consented to its request for a post mortem examination: see the Lord Ordinary, Lord Low, at p.684.

[24] He also submitted that MGH's averments of personal bar were irrelevant as they did not suggest that MGH relied on any representation by Mr Harwood to alter its position. He referred to William Grant & Sons Ltd v Glen Catrine Bonded Warehouse Ltd 2001 SC 901, the Lord President (Lord Rodger) at p.923A-D, Lord Nimmo Smith at p.938F-H and Lord Clarke at p.942 D-G. He observed that the Lord President at p.915C-G had warned against reliance on English authority in this field. But in relation to change of position, he referred me to the Lord President's quotation (at p.921D-G) of what he described as a luminous passage in the judgment of Dixon J in the Australian case of Grundt v Great Boulder Pty Gold Mines Ltd, which I mention below. He also referred to McLaughlin, Petitioner (above) at paragraphs [27] and [28].

[25] He referred to clause 12.2 (see Appendix Part 5) which provided that the rights of each party may be waived only in writing and specifically, submitting that there were differences between Scots law and English law on the effect of such clauses. Scots law suggested that a clause of that nature might exclude implied waiver, while English law allowed estoppel by conduct in the face of such clauses.

[26] On the basis that the averments of waiver and personal bar were irrelevant, he moved the court to repel the pursuer's fourth and fifth pleas in law and to exclude from probation articles 5-8 and 11 to 18 of condescendence because of a failure to give the contractually prescribed notice.

(iv) The exclusion of averments in Article 3 of Condescendence based on paragraph 5.11 of Part 4 of the Schedule.

[27] MGH pleaded in the second part of article 3 of condescendence that if it were not allowed to recover the sums claimed in respect of the project known as "Peat House -3840" as a breach of indemnity under clause 5(g) of the contract (a case which Mr Moynihan accepted should be the subject of a proof before answer), the circumstances pertaining to the project amounted to a breach of the warranty in paragraph 5.11 of Part 4 of the Schedule. See Part 3 of the Appendix hereto.

[28] Mr Moynihan submitted that MGH had not pleaded a relevant warranty case in article 3 of condescendence. It had averred certain knowledge of the problem by 15 and 18 July 2008, when the parties met, but the notice it sent was dated 22 January 2009. He questioned whether MGH had complied with the 60-day rule in paragraph 13.1 of Part 7 of the Schedule, explaining that MGH had failed in this and other cases to plead the date on which it acquired the relevant knowledge and the date of the notice in order to show compliance with paragraphs 6.3 and 13.1. In any event, the alleged notice did not conform wholly with the requirements of clause 15.4; and, on his interpretation of paragraph 13.2 of Part 7 of the Schedule, the claim was deemed to be withdrawn because the action, which commenced on 1 April 2010, was raised more than six months after the notice of 22 January 2009.

[29] He therefore invited the court to delete the averments in article 3 of condescendence which related to paragraph 5.11 of Part 4 of the Schedule.

(v) The repelling of the plea in law that the contract was induced by fraudulent or negligent misrepresentation

[30] Mr Moynihan also submitted that the court should exclude from probation as irrelevant MGH's alternative case in article 14 of condescendence that its claims for unaccounted invoices and liabilities in relation to the Peat House and Finnieston Street projects were recoverable on the ground on Mr Harwood's fraudulent or negligent misrepresentation. First, he submitted that, on a proper analysis of the SPA, the case of negligent misrepresentation was irrelevant. That was because clause 5.4.1 (see Appendix Part 2) included an acknowledgement by MGH that it had not relied on any representations beyond the contractual provisions in deciding to enter into the agreement.

[31] Secondly, he submitted that the averments of fraud were irrelevant (a) because of clause 5.4.1 (above) and also because clause 5.7 (again see Appendix Part 2) suggested that fraud was relevant only in so far as it impacted on a warranty, and (b) as the averments had not been pleaded with sufficient specification to give Mr Harwood fair notice. On the need for specific averments to support an allegation of fraud he referred to the well-known dictum of Lord Macfadyen in The Royal Bank of Scotland plc v Holmes 1999 SLT 563 at p. 569K-L. He also referred to Semple Cochrane plc v Clark 2003 SLT 532 as a case in which the pursuer had pleaded a case of fraud with considerable specification.

[32] The averments in article 14 of condescendence founded on the warranty in paragraph 2.4 of Part 4 of the Schedule which was in these terms:

"The Disclosure Letter lists all liabilities and commitments of the Company (other than those incurred in the ordinary course of business) which have been incurred, entered into or arisen since the Accounting Date and have a value of more than £10,000."

MGH averred breach of this warranty in three particulars. First, the defender had failed to account in SAL's accounts for invoices for labour-only subcontractors, plant hire, and supply and install contractors for projects listed in a schedule, which MGH produced. It asserted that failure to account for such invoices was not in the ordinary course of business. Those invoices, it averred, amounted to £390,168 and, if taken into account, would have demonstrated that SAL would at best break even in the year ended August 2008. Secondly, in relation to the Peat House project, MGH referred to a document headed "Peat House Contract 4380 - Claim in relation to non disclosures", which set out liabilities of £263,855.65 which it averred had not been properly accounted for in the ordinary course of business. Thirdly, it referred to the Finnieston Street project and averred that it had discovered that

"there were significant contra charges which the Defender was aware of which were not disclosed to the Pursuer."

Again it referred to a document which it had produced and which disclosed that the contra charges amounted to £54,388.56. Mr Moynihan submitted that those averments were irrelevant to support a breach of the warranty as it was not asserted that any of the liabilities were incurred other than in the ordinary course of business.

[33] MGH's alternative case of misrepresentation in article 14 of condescendence was tersely pleaded. It averred:

"Alternatively, the claims for unaccounted for invoices and liabilities in relation to Peat House and Finnieston Street are recoverable from the Defender as a result of his fraudulent or negligent misrepresentation of the performance of the company in this respect. The Pursuer believes that these invoices and the Peat House and Finnieston Street liabilities were deliberately hidden during the due diligence process in order to inflate the price paid for SAL. The total liabilities that were hidden were in the sum of £708,414 which would have had the effect of wiping the entire estimated profits forecast for the year ended August 2008 and also seriously impacting upon profitability in the following year"

MGH went on to aver that it was not aware of the hidden liabilities "nor the extent of the Defender's knowledge of the same" until it prepared written particulars of the claim on 2 April 2010. MGH referred to three schedules in its pleadings in article 14 of condescendence. The first was MGH's calculation of the projected gross profits on SAL's contracts as at 28 February 2008 and recorded a failure to accrue invoices amounting to £390,168 which had been received by that date. The second document was MGH's summary of undisclosed estimating errors and additional costs in relation to the Peat House Contract No 4380, of which all directors of SAL were said to be aware, which gave rise to a claim for £263,855.65. It in turn referred to correspondence dated 16 March 2009. The third document related to the Finnieston Street contract No 3470 and listed four contra charges amounting to £64,714.67, a figure which differed from that which was pleaded.

[34] Mr Moynihan submitted that it was not a trivial matter to plead fraud and that it was incumbent on MGH to focus its assertions to prevent Mr Harwood's advisers engaging in a forensic accounting exercise on the wrong track. The case of fraud was so essentially lacking in specification that it was irrelevant.

Overview of defender's submission

[35] It would not be practicable to set out in this opinion the details of each claim, the documents on which MGH relies in its schedule accompanying its pleadings and Mr Harwood's detailed criticisms of those documents, including whether particular letters amounted to valid claims. The effect of Mr Moynihan's submissions, if I were to accept his criticisms of MGH's pleadings, can, I think, be presented in summary in the following table:

Art of Cond	Contract Provision	Contracts	Alleged non-compliance: Cl 5.9	Cl 15	Sch Pt 7 Para 6.3	Para 13.1	Para 13.2
3 (pt 2)	Cl 5.11	Peat House		Yes	Yes	Possibly	Yes
4	Cl 5.10	Finnieston St and Heysmoor Heights	For PBA
5	Pt 4 para 5.17	Subsea 7		Yes	Possibly	Yes	Yes
6	Pt 4 para 5.19	Q5		Yes	Possibly	Possibly	Yes
7	Cl 5.8 and Pt 4 para 5.20	SMMA Islington	Yes	Yes	Yes	Yes	Yes
8	Pt 4 para 5.21	Q5		Yes	Possibly	Possibly	Yes
9	Pt 4 para 5.24	Consort House					Yes
10	Pt 4 para 5.25	Dundas Campus					Yes
11	Pt 5 para 5.26	Q5 and Dumfries College		Yes	Possibly	Possibly	Yes
12	Part 4 para 5.28	Misc. bad debts		Yes (some)	Possibly	Possibly	Yes
13	Part 4 para 5.30	Pollock TC: CMM claim		Yes			Yes
14	Part 4 para 2.4	Misc.: Disclosure letter				Relevancy challenge
15	Part 4 paras 2.2(a) & 5.3	Misc.: Accounts and litigation		Yes			Yes
16	Part 4 para 5.11	Misc.: defective products			Yes; and relevancy	Yes; and relevancy	Possibly
17	Part 4 para 2.4	Alternative case based on disclosure letter			ditto	ditto	ditto
18	Part 4 para 5.12	Topek Ltd: contracts at arm's length			Possibly: relevancy	Possibly: relevancy	Possibly

The Pursuer's response

[36] Mr Connal QC for MGH invited the court, as he had done at the procedural hearing, to allow an initial proof before answer on the issue of the notices and waiver. He opened his case with the following general submission.

(i) The factual matrix and the expectations of reasonable businessmen

[37] He submitted that the agreement fell to be interpreted against the background that Mr Harwood was the sole shareholder and one of two directors of SAL. He was intimately involved in the management of the company. The contract concerned the sale of the shares in the company. Mr Harwood was very much in control of the company and was assisted by lawyers and other professional advisers in the negotiation of the agreement and in the handling of the correspondence which had led to the claims. Because of his knowledge of the details of SAL's commercial and financial affairs, he had been in a position to accept liability for detailed warranties and indemnities in relation to specific contracts. The contract should be construed against that background. Also relevant background factors were the nature of SAL's business, the types of contract which it had entered into, and the number and nature of the issues which the warranties and indemnities gave rise.

[38] Further, the correspondence, which had passed between the parties since the SPA was signed, was detailed and related to potential claims. There was no basis for an assertion that Mr Harwood had not had fair notice of MGH's claims. The correspondence also had to be construed against the backdrop of the parties' knowledge of the issues. He reminded the court of the hurdle in Jamieson v Jamieson 1952 SC (HL) 44 and submitted that the issues raised in the debate should be resolved in a proof before answer.

(ii) The notice provisions

[39] Mr Connal submitted that the court should construe the provisions of the contract, including the notice provisions, commercially, with a view to the legitimate expectations of reasonable businessmen. Such an approach was hostile to technicalities. The reasonable businessman would not construe the agreement as imposing a series of hurdles to the pursuit of a claim. He advocated a functional approach, which recognised that the contract envisaged a sequence of events each of which had practical content. The court should consider how a reasonable businessman would view the function of the provisions. The contract excluded the remedy of rescission in paragraph 9.2 of Part 7 of the Schedule (see Part 4 of the Appendix). In its place the contract envisaged that the parties and their advisers would correspond to mitigate claims and to agree the quantification of the claims. To do so, the contract provided for the following sequence. First, MGH would alert Mr Harwood to the possibility of a claim if a particular matter were not resolved. Secondly, it would allow him and his advisers an opportunity to assist in resolving the issue, for example with third parties, to mitigate or avoid a claim. Thirdly, if that were not wholly successful, MGH would provide written particulars of a claim in due course. Finally, if the claim were not met, legal proceedings would follow. It was against this background that MGH had averred that there had been "substantial compliance" with the terms of the agreement: it had alerted, informed and involved Mr Harwood and his professional advisers in the issues giving rise to the claims and had then provided detailed written particulars of the claims.

[40] He advised that he did not have case law to cite on the concept of "substantial compliance" but submitted that a clear distinction should be drawn between the SPA on the one hand and, on the other, the case law relating to provisions in leases which created, continued or terminated rights. There was a difference between substance and pure technicality: Scrabster Harbour Trust v Mowlem Plc 2006 SLT 250, Sir David Edward especially at paragraphs [47] and [55].

[41] In this context clause 5.9 should not be construed as a condition precedent. The only mention of a condition precedent was in the heading to clause 2.4 (see Appendix Part1) but he acknowledged that clause 1.2.2 provided that headings did not affect the construction of the agreement.

[42] In relation to the notice requirements in clause 15 (see Appendix Part 5), Mr Connal submitted that it was a general clause at the end of the contract which governed both notices and other communications. A reasonable businessman would not regard compliance with clause 15 as essential. In so far as clause 15.4 envisaged that Mr Harwood would have access to advice in response to such notices, the reasonable businessman would see the function of the provision was met in the copying of emails to Mr Harwood's lawyers at MacRoberts LLP and in his engagement of Mr Mason as a professional adviser. In relation to Education 4 Ayrshire Ltd he submitted that, while Lord Glennie had adopted a strict approach to the notice requirements in the building contract with which that case was concerned, the SPA was a different type of contract in which an individual was one of the parties and not a commercial organisation or public body.

Clause 13.2

[43] He submitted that on a proper construction paragraph 13.2 of Part 7 of the Schedule provided that the six-month time limit for raising legal proceedings ran from the date of service of the written particulars for which it provided. He advanced three arguments in support of that contention. First, he submitted that paragraph 13 as a whole had a logical sequence of events: there was the notice of claim, then the written particulars which in turn were, if necessary, followed by the legal proceedings. Secondly, considerations of practicality pointed to an interpretation which gave two years for the written particulars which were to be followed within six months by the legal proceedings. On Mr Harwood's interpretation an action on a particular warranty could be time barred under paragraph 13.2 long before the deadline for the service of the written particulars. Thirdly, the structure of the paragraph, in which the expression "written notice" appeared in sub-paragraph 13.2 after the reference to the written particulars, pointed to the phrase being a reference to those particulars. These considerations in the context of the contract as a whole pointed to the linking of the expression "written notice" to the written particulars also in paragraph 13.2.

(iii) Waiver and personal bar

[44] Mr Connal submitted that waiver was a flexible and practical concept which had the objective of preventing someone who had not taken points or raised objections in a timely manner from relying on them later in circumstances which could be seen as unfair. It was important to recognise, as Lord Drummond Young had done in City Inn (at paragraph 150), that commercial people often act informally and that it was unfair to ignore what people had done. Lord Glennie in Education 4 Ayrshire Ltd at paragraph [19] had observed that issues of waiver and personal bar may arise in such cases.

[45] In this case nobody had taken issue with the mode of communication adopted, whether a director of MGH wrote under an associated company's letterhead or whether the parties communicated electronically, contrary to clause 1.3.1(a). He cited various instances of Mr Harwood's solicitors encouraging email communication. He submitted that the court should view and interpret the many documents in this case in their proper context of a sequence of communications rather than analyse each individually without regard to its context. He had produced a schedule which showed the sequence of the communications in relation to each claim. In every case which required a paragraph 6.3 or 13.1 notice there was a document which conveyed the needed information in writing.

[46] Turning to the case law, he submitted that the essence of waiver, as in Donnison, was a failure to take an objection at a time when the objection ought to have been taken. Waiver was a flexible concept; it did not necessarily involve an abandonment of a right but could cause something which did not come within the terms of a contractual provision to be treated as if it did: E & J Glasgow Ltd, Lord Eassie at paragraph [33]; City Inn, Lord Osborne at paragraphs [68]-[75]. While in that case Lord Osborne discussed reliance in relation to ground of appeal 15 at paragraphs [88] and [89], he expressed the essence of waiver in paragraph [86]. The employers had failed to assert against the contractor the requirement of the timely submission to the architect of its assessment of the consequences of a variation caused by an architect's instruction and so had waived that requirement. If, after such a failure to assert a contractual right, the parties proceeded as before, that was sufficient to amount to reliance. He referred to the discussion of the elements of personal bar in Reid and Blackie, Personal Bar, and to cases involving leases where the landlord, after giving notice of irritancy, accepted rent from a tenant who remained in occupation. In such cases the court did not need to look for reliance by the tenant on the landlord's acceptance of the rent. See for example H.M.V. Fields Properties Ltd v Bracken Self Selection Fabrics Ltd 1991 SLT 31.

[47] In relation to the effect of clause 12.2 (see Appendix Part 5), which purported to restrict the operation of waiver, Mr Connal submitted that the clause had no effect against a clear waiver. Its effect was that if there were to be a waiver, it must be a clear case. He referred to R v Paulson [1920] 1 AC 271, Lord Atkinson at p.283; Tele2 International Card Company SA v Post Office Ltd [2009] EWCA Civ 9, Aikens LJ at paragraphs 55 and 56; and McLaughlin, Petitioner, Lady Paton at paragraph [19].

[48] Mr Connal did not advance separate arguments on personal bar but contented himself with the submission that, if there were a proof before answer on waiver, that should extend to the case of personal bar.

(iv) Article 14 of Condescendence and the averments of fraud

[49] Mr Connal submitted that MGH had relevantly averred breach of the warranty in paragraph 2.4 of Part 4 of the Schedule (see Part 2 of the Appendix) because the liabilities, although incurred in the ordinary course of business, had been concealed and thus their treatment in SAL's internal accounting records had not been in the ordinary course of business.

[50] In relation to the alternative case of fraudulent misrepresentation, there was nothing in the contract which excluded such a claim. He accepted the well-known standards required if a person is to plead fraud: it was a question of fair notice: see Semple Cochrane plc v Clark, Judge Thomson QC at paragraph 39. In this case MGH had produced all of the invoices in relation to the Peat House and Finnieston Street projects which had not been disclosed and also a schedule explaining them. It had produced them earlier with the written particulars of claim. Mr Harwood had been personally and closely involved in the financial affairs of SAL and in the negotiation of the SPA. The value of the invoices which were not disclosed -£390,000 in the context of a company expected to make an annual profit of between £700,000 and £800,000 - gave rise to the inference that he must have been aware of them. The negotiation of the contract had involved consideration of the profitability and the margins expected from SAL's contracts and had given rise to detailed warranties and indemnities in relation to the individual contracts. It was legitimate in the circumstances to infer that Mr Harwood knew of those matters as he had been involved in predicting the outcome of contracts when he signed up to the warranties. Fair notice had been given.

Discussion

(a) Questions of construction

(i) Overview

[51] The objective of the court in approaching commercial contracts is clear. The law should provide an effective and fair framework for contractual dealings; and court in construing a commercial contract should have regard to the need to protect the reasonable expectations of the honest businessman: see, for example, the articles by Lord Goff, "Commercial Contracts and the Commercial Court" [1984] LMCLQ 382, at p.391, Lord Steyn, "Contract law: fulfilling the reasonable expectations of honest men" (1997) 113 LQR 433, at p.434; and Lord Bingham of Cornhill, "A New Thing under the Sun? The Interpretation of Contract and the ICS Decision" 2008 12 Edin LR.374. The court should therefore eschew a technical approach unless it is clear that the parties contracted for such an approach. But that does not mean that where business people have, with the assistance of skilled legal advice, prepared a detailed commercial agreement in which rights are conferred on one party but are circumscribed or defined by protections given to the other, the court is free to water down the protections while giving full force to the rights. The fundamental question remains: what would a reasonable businessman with the relevant and shared background knowledge have understood the parties to be using the language in the contract to mean: Chartbrook Ltd v Persimmon Homes Ltd, [2009] 1 AC 1101, Lord Hoffmann at paragraph 14. In answering that question the court, while being alive to the possibility of a mistake in expression, cannot disregard the words the parties have chosen to use to express their meaning.

[52] In construing a commercial contract it is well established that the court should have regard to the factual matrix, which comprises pertinent factual matters of which both parties were aware at the time they entered into their agreement. Some of those matters may be inferred from the terms of the agreement. Thus Part 2 of the Schedule disclosed that Mr Harwood was one of two directors of SAL and the definition of "Sale Shares" and the warranty (Schedule Part 4 paragraph 1.2) that those shares constituted the whole issued and allotted share capital of the company established that he was the sole shareholder. Further, it may be possible to infer from the detailed nature of certain of the indemnities in clause 5.8 and of the warranties in Part 4 of the Schedule that MGH had done due diligence and that Mr Harwood or his advisers had sufficient knowledge of the individual projects for such detailed provisions to be appropriate. But where there are extraneous matters on which a party wishes to rely as part of the factual matrix to support a particular construction of the words used in an agreement, I would expect him to give fair notice of such matters in his pleadings.

(ii) Clause 5.9

[53] Clause 5.9 required MGH to keep Mr Harwood informed of specified matters in relation to the indemnities under clauses 5.8(g) to 5.8(j). The clause ended with the words:

"The Indemnities set out in Clauses 5.8(g) to 5.8(j) are given subject to the Purchaser complying with the above."

[54] Mr Moynihan submitted that the averment that clause 5.9 was not a condition precedent to the enforcement of the indemnities was irrelevant. See paragraph [8] above. In my opinion he is correct in that submission. The words which I have just quoted are unambiguous and they make the provision of the information prescribed in clause 5.9 a precondition of the enforcement of the indemnities.

(iii) Schedule Part 4, paragraph 2.4

[55] In his challenge to the first part of article 14 of condescendence Mr Moynihan submitted that MGH had misconstrued paragraph 2.4 of Part 4 of the Schedule. See paragraph [32] above. In my view he is correct in that submission. Paragraph 2.4 refers to liabilities and commitments "other than those incurred in the ordinary course of business". The disclosure letter was not intended to cover liabilities incurred in the ordinary course of business. The allegation that those liabilities were excluded from SAL's accounts, contrary to normal business practice, if correct, does not make them liabilities incurred other than in the ordinary course of business. The word "incurred" refers to the running up or undertaking of a liability and not the accounting for it in the company's books.

(iv) The exclusion of negligent misrepresentation: clause 5.4.1

[56] I also agree with Mr Moynihan's submission that the averment in article 14 of condescendence, which seeks to make a free-standing case of negligent misrepresentation in relation to unaccounted for invoices and liabilities in the Peat House and Finnieston Street projects, is irrelevant. See paragraph [30] above.

[57] Clause 5.4.1 states:

"The Purchaser acknowledges and agrees that, save for the Warranties, Indemnities and the Tax Undertaking, it has not relied upon or been induced to enter into this Agreement upon the basis of any representation, warranty, undertaking, promise or assurance made or given by any party at any time (whether of not in writing) and the Warranties, the Indemnities and the Tax Undertaking are the only representations given by or on behalf of the Vendor on which the Purchaser may rely in entering into this Agreement."

[58] It seems to me that a clause such as this, in which the soi-disant recipient of a representation has limited or defined the material on which he has relied in entering into the contract, is fatal to a case of negligent misrepresentation in relation to material outside of those defined limits. In my opinion, where the parties have agreed such a provision, the law will not impose on the representor a duty of care in relation to a representation of the extraneous matter and the representee cannot be heard to say that such matter induced him to enter into the contract.

[59] Different considerations apply in relation to fraudulent misrepresentations.

(v) Whether averments of fraud must be confined to the scope of the warranties and indemnities

[60] In paragraph [31] above, Mr Moynihan relied on clause 5.4.1 and clause 5.7.2 to submit that fraud was relevant only where it impacted on a warranty. Clause 5.7.2 provided that:

"The limitations contained in Part 7 of the Schedule shall not apply to any claim which arises as the consequence of, or is based on, or is delayed as a result of any fraud or wilful concealment by the Vendor."

[61] In my view, neither clause has the effect of excusing a fraudulent person from liability or limiting the scope of that liability. Clause 5.7.2 makes it clear that the limitations on the vendor's liability which had been agreed do not protect him against claims arising out of any fraud on his part. That provision does not purport to limit the effect of fraud. Nor am I persuaded that clause 5.4.1 excludes liability for fraudulent misrepresentation in relation to matters beyond the warranties, indemnities and tax indemnity. I do not consider that it was the intention of the parties to protect a dishonest person by that provision. Rather the clause excludes remedies for innocent or negligent misrepresentation, which might otherwise have been available to the purchaser. In any event, the parties have made the matter quite clear in clause 16.4 of the agreement which provides:

"Nothing in this agreement shall limit or exclude any party's liability in respect of fraud or fraudulent misrepresentation."

(vi) Schedule Part 7, paragraph 13.2

[62] I have set out the text of this paragraph and the parties' competing submissions on it in paragraphs [17]-[19] and [43] above. The whole of paragraph 13 is set out in Part 4 of the Appendix.

[63] I have decided that I prefer Mr Connal's construction of the paragraph for three reasons. First, the structure of the paragraph as a whole suggests that the "written notice" in the final part of sub-paragraph 2 is the written communication referred to in that sub-paragraph, namely the written particulars. Had the parties wished to impose a six-month time limit from the date of the service of the paragraph 13.1 notice, I would have expected them to have set that out in that sub-paragraph and not to have placed the time limits for the service of written particulars as if in a sandwich between provisions concerning written notice properly so called. Secondly, the provision seems more practicable if there is a progression from the prompt written notice of the claim (paragraph 13.1) to the provision of written particulars before the two-year cut off date and a subsequent six-month period within which legal proceedings must be raised (paragraph 13.2). There is nothing in the wording of the paragraph which militates to any extent against this interpretation other than the use of the ambiguous expression "written notice" in paragraph 13.2. Thirdly, if Mr Moynihan were correct, it would be readily foreseeable that the purchaser would have to initiate a number of separate legal proceedings in respect of individual indemnities and warranties. It is not necessary for me to decide whether the contract allowed a multiplicity of proceedings; but I think that it is unlikely that reasonable businessmen would interpret the provision in a way which made multiple proceedings a readily foreseeable and probably unavoidable outcome if several claims emerged.

[64] I therefore conclude that paragraph 13 does not bar a claim if legal proceedings have not been commenced within six months of the service of a paragraph 13.1 notice.

(b) The defence of "substantial compliance"

[65] In my opinion it is important to distinguish two separate issues, namely (i) the meaning of the contract in relation to the notice provisions and (ii) the consequences of any failure to comply with the precise terms of the contract.

[66] In relation to the former issue, I am satisfied that the contract (a) excluded electronic mail as a means of written communication (clause 1.3.1 and paragraph 15.5 of Part 7 of the Schedule), (b) required MGH to give notice in writing before finalising "Payment Matters" under clause 5.9.2 in relation to the indemnities and indemnified warranties, and (c) required written notice under paragraphs 6.3 and 13.1 of Part 7 of the Schedule in relation to the warranties and indemnified warranties. In addition, clause 15 required any communication as well as any notice to comply with its terms both in relation to the method of service (paragraph 15.2) and in relation the method of addressing the recipient. As clause 1.2.2 provided that headings in the agreement do not affect its construction, I consider that clause 15.4 applied to communications as well as notices. Thus I am not persuaded that the contract drew a clear distinction between communications on the one hand and notices on the other as Mr Moynihan contended. In my view the clause applied also to MGH's written communications under paragraph 8.1 of Part 7 of the Schedule.

[67] It appears that MGH did not comply with the requirements of communication in writing on a consistent basis. I am not able to conclude, as Mr Connal urged me, that MGH's "alerting, informing and involving" of Mr Harwood in the various matters before it made a claim amounted to substantial compliance with the contract. While the SPA is clearly a different contract from the standard form building contract which Lord Glennie considered in Education 4 Ayrshire Ltd and can be distinguished from it to that extent, I think that the SPA envisaged that communications and notices, for which the agreement provided, were to be served in the prescribed manner. What is not clear is whether non-compliance, for example with the provisions of clause 15 of itself, was intended to invalidate any communication or notice. I consider that a reasonable businessman would be reluctant to impute such an intention to the parties, particularly when the clause did not differentiate between notices and other communications. There may, for example, be a difference in kind between a failure to comply with clause 15 formalities on the one hand and on the other a failure to give specific notice of a claim under a particular warranty in view of the separate and independent warranties clause (clause 5.4). Thus the court may need to consider what were the relevant warranties which MGH invoked in relation to the Peat House project and whether the letter of 22 January 2009 was capable of being a paragraph 13.1 claim in relation to warranties not specified therein.

[68] It follows that generalised and inspecific assertions of "substantial compliance" where it was clear that there had not been actual compliance with the terms of the agreement are irrelevant as pleaded. But, as I have decided that the case of waiver and bar should not be excluded from probation, it is in my opinion appropriate to allow MGH an opportunity to re-focus its averments in relation to what it alleges are instances of immaterial non-compliance before the scope of any proof before answer is determined.

(c) The defence of waiver and personal bar

[69] Waiver and personal bar belong to the same genus in which the law seeks to prevent one person's inconsistent conduct from unfairly affecting another person. As Lord Drummond Young stated in City Inn Ltd at paragraph [130],

"waiver, like other forms of personal bar, is based on elementary considerations of justice".

He continued in the same paragraph:

"In practice those involved in commercial relationships frequently act in an informal manner in their dealings with each other, no doubt because this enables their business to proceed quickly and efficiently. If effect is to be given to the parties' true intentions, objectively construed, these informal dealings must be recognized, and waiver and other forms of personal bar achieve this."

[70] Reid and Blackie in "Personal Bar", to which Mr Connal referred, helpfully discuss the elements of personal bar, inconsistent conduct and unfairness in chapters 2-4. From that discussion it is clear not only that the law does not adopt a mechanistic approach to waiver or personal bar but also that the same behaviour can on occasion be categorised as waiver, bar or acquiescence. Lord Keith in a celebrated passage in Armia Ltd v Daejan Developments Ltd (at p.72) stated:

The topic of waiver may arise in a number of guises in a variety of contexts. The truth is that it is a creature difficult to describe but easy to recognise when one sees it, subject to the proviso that it is on occasion difficult to distinguish it from a variation of a contract."

See also Lord Eassie in E & J Glasgow Ltd at paragraph [33].

[71] Lord Rodger in William Grant & Sons Ltd v Glen Catrine Bonded Warehouse Ltd (at p.921) set out the rationale of personal bar, citing Dixon J in Grundt v Great Boulder Pty Gold Mines Ltd:

"The basal purpose of the doctrine of estoppel 'is to avoid or prevent a detriment to the party asserting the estoppel by compelling the opposite party to adhere to the assumption upon which the former acted or abstained from acting. This means that the real detriment or harm from which the law seeks to give protection is that which would flow from the change of position if the assumption were deserted that led to it. So long as the assumption is adhered to, the party who altered his situation upon the faith of it cannot complain. His complaint is that when afterwards the other party makes a different state of affairs the basis of an assertion of right against him then, if it is allowed, his own original change of position will operate as a detriment. His action or inaction must be such that, if the assumption upon which he proceeded were shown to be wrong and an inconsistent state of affairs were accepted as the foundation of the rights and duties of himself and the opposite party, the consequence would be to make his original act or failure to act a source of prejudice.'"

[72] That statement of principle is in my view helpful in relation to the Scots law of personal bar and acquiescence. Its emphasis on avoiding unfairness is also relevant to most forms of waiver. At its most basic waiver involves the following: A, who knows or is presumed to know of his right, acts in a way which objectively justifies B in thinking that he will not insist on that right and B then acts in accordance with that understanding; if thereafter it would be unfair to B to allow A to enforce the right which he appeared to have abandoned, a plea of waiver will be upheld. Thus if A is silent or inactive where he would have been expected to intervene, and B acts or refrains from acting because of that silence in a way which makes it unfair to allow A later to assert his right, the circumstances may support a plea of bar or of waiver.

[73] While, as Lord Fraser stated in Armia Ltd at pp.68-69, a plea of waiver cannot be disposed of on the ground of the absence of an averment of prejudice, it seems to me that some form of unfairness is a component of most forms of waiver. Where there is what English law calls a waiver by election (as the Court of Appeal discussed in Kosmar Villa Holidays plc), there is no need for unfairness. Otherwise unfairness, as I have described, appears to be a component of waiver. See also R v Paulson, which is a Canadian case of waiver by election, and H.M.V. Fields Properties Ltd, a Scottish case with analogous factual circumstances. In the latter case there was no discussion of reliance or unfairness, perhaps because the tenant was seeking to preserve the status quo by preserving the lease and the landlord by accepting the rent appeared to consent.

[74] Like this case, both E & J Glasgow Ltd and City Inn Ltd were concerned with circumstances in which waiver was asserted to cause something which did not come within the terms of a contractual provision to be treated as if it did: see Lord Eassie at paragraph [33] of E & J Glasgow Ltd and Lord Osborne at paragraph [75] in City Inn Ltd. In the latter case the court held that an employer's silence at a meeting in relation to a point which could have been taken against the contractor, where there was evidence from the contractor that he would have complied with the contractual provision if the point had been taken, was sufficient to support a plea of waiver.

[75] In this case there is evidence in the schedules and documents which accompany the pleadings of (a) meetings between the parties and their advisers, (b) an early notice of claim dated 17 June 2008 which complied with clause 15 of the SPA and which identified the relevant warranties and (c) other documents which identified claims under specific warranties but were not addressed to Mr Harwood, care of his solicitors, as clause 15 provided. There are also email communications, including, in September 2008, requests by Mr Harwood's solicitors that MGH communicate with specific members of their staff by email.

[76] While MGH could have given further specification of the circumstances in which it asserts that waiver or bar has arisen and I may be receptive in the context of further case management to any request by Mr Harwood for greater specification in the interests of fair notice, I am not persuaded that MGH's pleas of waiver and personal bar are unsupported by averments which might not be capable after proof of allowing the court to infer waiver or bar. I therefore conclude that MGH's averments of waiver and personal bar are not so fundamentally irrelevant that they can be excluded from probation at this stage. Similarly, I consider the effect, if any, of clause 12.2.1(c) on the plea of waiver may depend on the facts which are established at the proof.

(d) Fraudulent misrepresentation: article 14 of condescendence

[77] The law requires that a person who alleges that another has been guilty of fraud must give him fair notice through adequate specification of the acts or representations which he alleges were fraudulent; general averments that someone has committed fraud will not suffice: The Royal Bank of Scotland plc v Holmes, Lord Macfadyen at pp.567-568 and the cases to which he referred and, in particular, Drummond's Trustees v Melville (1861) 23 D 450, the Lord President (Lord McNeill at p.462. In the Royal Bank case at pp.569K-L Lord MacFadyen stated:

"It is in my view essential for the party alleging fraud clearly and specifically to identify the act or representation founded upon, the occasion on which the act was committed or the representation made, and the circumstances relied on as yielding the inference that that act or representation was fraudulent."

I take this as the test to be applied.

[78] The allegation of fraud in this case concerns concealment rather than a specific act or statement. MGH has identified in article 14 of condescendence and in the documents which it has lodged in support of its claim the invoices which it alleges were concealed in relation to the Peat House contract. It also refers to contra charges in relation to Finnieston Street which it avers Mr Harwood was aware of. Parties did not address me in detail on the adequacy of the specification. Mr Moynihan complained about the existence of various figures in the supporting documents which were difficult to reconcile. He also submitted that it was necessary for MGH to aver the extent of Mr Harwood's knowledge of the allegedly concealed information.

[79] In relation to the latter point, I do not consider that MGH's pleadings are fundamentally irrelevant. While MGH could have averred what Mr Connal submitted about Mr Harwood's close involvement in SAL's financial affairs and, with his advisers, in the drafting of the warranties, I consider that it has pleaded enough to go to proof. It will be for MGH to persuade the court through evidence that it can properly infer that Mr Harwood was aware of and concealed the information as it alleges. If the truth is that Mr Harwood was not aware of the matters complained of because others dealt with them, he can make relevant averments and adduce evidence to that effect. If there are specific matters on which Mr Harwood seeks clarification both in relation to any inference as to his knowledge and also in relation to the make-up of the liabilities which MGH asserts were not disclosed and the reconciliation of the sums which it claims on this basis, I consider that that may be dealt with through case management.

[80] I therefore reject the challenge to the relevancy of the alternative claim of fraud in article 14 of condescendence.

Conclusion and further procedure

[81] I have decided to put the case out by order to determine further procedure. If both parties accept my findings at this stage, each will have to adjust its or his pleadings to address those findings. It is likely that it will be necessary to allow a period of adjustment before determining the scope of any proof before answer.

APPENDIX

Part 1: Definitions and a Condition Precedent

1. DEFINITIONS AND INTERPRETATION

1.1 Definitions

1.1.1 In this Agreement unless the context otherwise requires:

"Company" means Systems Aluminium Limited particulars of which are set out in Part 2 of the Schedule;

"Completion Date" means the day on which Completion takes place being the second business day after the satisfaction or waiver of the conditions set out in Clause 2.4 (Conditions Precedent) or such later date as the Vendor and the Purchaser may agree in writing but not being a date later than 4 April 2008;

"Disclosure Letter" means a letter described as such of even date from the Vendor to the Purchaser duly acknowledged by or on behalf of the Purchaser;

"Indemnities" means the indemnities contained in Clauses 5.8 and 5.10;

"Warranties" means the statements and representations given by the Vendor in Clause 5 (Warranties) and Part 4 of the Schedule;

1.1.2 Further definitions are set out in Clause 6 and the Part 4 and Part 7 of the Schedule;

1.2.2 Headings used in this Agreement shall not affect its construction or interpretation.

1.3 Other references

(a) "writing" or "written" includes faxes and any non-transitory form of visible reproduction or words but excludes electronic mail;

2.4 Condition Precedent

Completion is subject to and conditional upon the Vendor providing copies of documents changing the registered office of Topek, T I Tiles and Group Topek Holdings Limited from the Property and notifying HM Revenue & Customs of such change.

The Purchaser shall be entitled by notice in writing given to the Vendor to waive (to such extent as it may think fit) compliance with the condition stated above.

Part 2: Clause 5

5. WARRANTIES AND INDEMNITY

5.1 Extent of the Warranties

5.1.1 In consideration of the Purchaser agreeing to purchase the Sale Shares on the terms of this Agreement, the Vendor warrants to the Purchaser that, each of the Warranties is at the date hereof, when read in conjunction with the information disclosed in the Disclosure Letter, true and accurate in all material respects. For information to be disclosed, the Disclosure Letter must contain fair, clear and materially accurate details of the nature and extent of the matter disclosed.

5.2 Investigation by Purchaser

Save in respect of any matter disclosed in the Disclosure Letter in accordance with Clause 5.1, no investigation or inquiry made or to be made by or on behalf of the Purchaser nor any information relating to the Company of which the Purchaser, its agents or advisers has knowledge (whether actual, constructive or imputed) shall prejudice any claim which the Purchaser is entitled to bring or shall operate to reduce any amount recoverable by the Purchaser.

5.3 Information supplied by the Company

5.3.1 No information supplied by or on behalf of the Company or by any officer, employee or agent of any of them to the Vendor or his advisers in connection with the Warranties, or the Tax Undertaking nor the information disclosed in the Disclosure Letter shall constitute a warranty, representation or guarantee as to the accuracy of such information in favour of the Vendor.

5.3.2 the Vendor hereby undertakes to the Purchaser to waive any and all claims which he might otherwise have against the Company or against any officer, employer or agent of the Company in respect of the information referred to in Clause 5.3.1 above.

5.4 Separate and Independent Warranties

Each of the Warranties shall be separate and independent and save as expressly otherwise provided shall not be limited by reference to any other such Warranty or by anything in this Agreement, the Disclosure Letter or the Tax Undertaking.

5.4 Reliance

5.4.1 The Purchaser acknowledges and agrees that, save for the Warranties, Indemnities and the Tax Undertaking, it has not relied upon or been induced to enter into this Agreement upon the basis of any representation, warranty, undertaking, promise or assurance made or given by any party at any time (whether or not in writing) and the Warranties, the Indemnities and the Tax Undertaking are the only representations given by or on behalf of the Vendor on which the Purchaser may rely in entering into this Agreement.

5.7 Vendor Protection

5.7.1 Subject to Clause 5.7.2 below the provisions of Part 7 of the Schedule shall apply in relation to any liability of the Vendor in respect of the Warranties and to the extent expressly stated therein the Tax Undertaking and the Indemnities and the provisions of the Tax Undertaking shall to the extend stated therein apply in relation to the liability of the Vendor under the Tax Warranties.

5.7.2 The limitations contained in Part 7 of the Schedule shall not apply to any claim which arises as the consequence of, is based on, or is delayed as a result of any fraud or wilful concealment by the Vendor.

5.8 Indemnities

Without restricting the rights of the Purchaser to claim damages on any basis available to it in the event of any of the Warranties proving to have been untrue or inaccurate the Vendor undertakes to indemnify and keep the Purchaser indemnified from and against and in respect of all Losses which are suffered or incurred by the Purchaser or the Company, arising directly:

(g) in connection with the project known as "Peat House - 3480" and relating to 1) late completion or 2) the structural glazed units supplied by Hansen glass for the Schuco SG system which are currently showing signs of bowing (for the avoidance of doubt this includes but is not limited to the supply of replacement materials and all labour and access costs and any other McAlpine/or client related costs which could be levied against the Company);

(h) in connection with the project known as "Q5 Edinburgh 3503" and relating to the supply and installation of extruded aluminium horizontal planks which are rejected as a result of "Tiger Stripe Effect" in the paintwork or the creasing marks in the extrusions (for the avoidance of doubt this includes, but is not limited to, all lad, access, hoisting, labour costs, consequential loss or other penalties);

(j) from a breach of the Warranties contained at paragraphs 5.14 to 5.30 and 9.6 and 9.7 of Part 4 of the Schedule.

5.9 In respect of the matters which are the subject of the Indemnities at Clauses 5.8(g) to 5.8(j) (the "Relevant Matters") the Purchaser undertakes to the Vendor as follows:

5.9.1 it shall (and shall procure that the Company shall) keep the Vendor informed throughout the duration of the Relevant Matters in relation to any discussions or developments that may impact upon or relate to amounts or levels of payment due to or by the Company in respect of the Relevant Matters ("Payment Matters");

5.9.2 it shall not (and shall procure that the Company shall not) agree or finalise any of the Payment Matters referred to in Clause 5.9.1 above without giving the Vendor prior notice in writing and a reasonable opportunity to make reasonable representations to the Purchaser in respect thereof;

5.9.3 it shall (and shall procure that the Company shall) provide the Vendor with information reasonably required by the Vendor to allow him to consider the above matters and make such reasonable representations and the Purchaser shall (and shall procure that the Company shall) consider any such representations made by the Vendor (and act reasonably in so doing and in deciding whether or not to act upon or follow such representations).

The Indemnities set out in Clauses 5.8(g) to 5.8(j) are given subject to the Purchaser complying with the above.

5.10 FM indemnity

The Vendor hereby indemnifies the Purchaser in respect of two thirds (⅔) of the amount of any Relevant Debts which is not paid by FM Construction to the Company solely as a result of FM Construction becoming insolvent.

Part 3: Relevant Warranties from Part 4 of the Schedule

SCHEDULE

PART 4

Warranties

2. Accounts

2.2 The accounts:-

(a) give a true and fair view, in accordance with United Kingdom Generally

Accepted Accounting Practice, of the state of the Company's affairs at the Accounting Date ....

2.4 The Disclosure Letter lists all liabilities and commitments of the Company

(other than those incurred in the ordinary course of business) which have been incurred entered into or arisen since the Accounting Date and have a value of more than £10,000.

5. Trading

5.3 The Company is not engaged in any litigation or arbitration proceedings, as plaintiff or defendant; so far as the Vendor is aware there are no such proceedings pending or threatened, either by or against the Company; and so far as the Vendor is aware there are no circumstances which are likely to give rise to any litigation or arbitration.

5.10 So far as the Vendor is aware the Company is not in default in respect of any obligation or restriction binding upon it.;

5.11 So far as the Vendor is aware the Company has not manufactured, sold or supplied products which are, in any material respect faulty or effective, or which do not comply in any material respect with any warranties or representations, expressly or impliedly made by it, or do not comply in any material respect with all applicable regulations, standards and requirements in respect thereof.

5.12 The Company is not a party to, nor has its profits or financial position prior to the date hereof been affected by, any contract or arrangement which is not of an entirely arm's length nature.

5.13 So far as the Vendor is aware, no transaction, agreement or arrangement entered into by the Company is capable of being challenged, adjusted or set aside under the terms of Sections 242, 243 or 244 of the Insolvency act 1986.

5.14 The project known as "Bolton Market" has not been stopped in any way that would cause an irrecoverability of the monies outstanding on such project and the Company has not executed any works on this project without proper instruction.

5.15 The project known as "Western Harbour" has no monies at risk of non-payment at the Completion Date as a result of the Company carrying out work without a proper written instruction and, so far as the Vendor is aware, all such amounts relating to that work will be paid by 31 July 2008.

5.16 The project known in whole or in part as "Western Harbour" is not behind schedule for completion in any area or location to the extent that it will not be reasonably possible for the project to be completed within the agreed contract period and so far as the Vendor is aware the Company will not incur liquidated damages/consequential loss or other penalties as a result of late completion.

5.18 The project known as "Heysmoor Heights" has an agreed insurance claim payable to the Company as beneficiary totalling £127,000 in connection with the project.

5.19 The project known as "Q5" has had its January 2008 and February 2008 claims reduced on each occasion by the customer and/or their representative by approximately £300,000 in aggregate. So far as the Vendor is aware, the value of turnover in the Company's 31 January 2008 management accounts and the associated Gross Margin of 16-19% on this project will be sustained until completion of the project.

5.20 The aggregate Gross Margin in respect of phases 1 and 2 of the project known as "SMMA Islington" will be not less than 12.78%.

5.21 So far as the Vendor is aware the project known as "Q5" will not incur liquidated damages and/or consequential loss and/or other financial penalties as a result of late completion.

5.22 The project known as "Crompton Shopping Centre - 3504" will have its outstanding balance of £45,368 paid to the Company by 31 March 2008. 5.23 [NOT USED].

5.24 The project known as "Consort House, Aberdeen -3456" will have its (excluding retention) of £47,281 paid to the Company by 31 May 2008.

5.25 The project known as "Dundas Campus - 3446" will have its outstanding balance (excluding retention) of £29,615 paid to the Company by 31 May 2008.

5.26 So far as the Vendor is aware the undernoted secured projects of the Company, both ongoing and due to commence have been reasonably priced and at the Completion Date the Vendor has no reason to believe that the gross margins (calculated in accordance with the estimation techniques employed by the Company prior to Completion) projected thereon are lower than as follows:

		Gross Margin
141 Bothwell Street	3,484	17.0%
Craigleith	3,495	20.0%
Q5 Quartermile	3,503	18.0%
Dumfries College	3,505	27.0%
Bolton Market	3,506	18.0%
Aberdeen Subsea	3,507	19.0%
Hope St Glasgow	3,508	19.0%
IKEA S'Hampton	3,512	23.0%
Project Wren	Pending	21.0%
Paisley University	Pending	24.0%
Leeds Core	Pending	25.0%
Craigleith Phase IV	Pending	20.0%
Elmgreen School	Pending	20.0%

5.27 Where Topek or T I Tiles or any other company controlled by the Vendor has quoted a supply to the Company in respect of any of the projects detailed in paragraph 5.26 above in support of the above margins that quotation will remain available to the Company for acceptance for a period of ninety days post Completion and there shall be no increase in any original prices quoted in the aforementioned quotation throughout such 90 day period.

5.28 Save for those debts for which a provision for non-recoverability has already been made (as stated in the columns marked "Bad Debt Provisions Required" in Part 8 of the Schedule), all debts as set out in part 8 of the Schedule are contractually due by the Company.

5.29 The last payment made to Topek, T I Tiles or any other company controlled by the Vendor by the Company was a cheque for £500,000 to Topek made on 1 April 2008.

5.30 The amount of monies recovered in relation to the "CMM Claim" (without the Company having to revert to a court action) in respect of defective materials used in connection with the contract known as "Pollock Town Centre" will be not less than £36,000.

Part 4: Clauses 5.7, 5.9 and relevant provisions from Part 7 of the Schedule

5.7 Vendor Protection

5.7.1 Subject to Clause 5.7.2 below the provisions of Part 7 of the Schedule shall apply in relation to any liability of the Vendor in respect of the Warranties and to the extent expressly stated therein the Tax Undertaking and the Indemnities and the provisions of the Tax Undertaking shall to the extent stated therein apply in relation to the liability of the Vendor under the Tax Warranties.

5.9 In respect of the matters which are the subject of the Indemnities at Clauses 5.8(g) to 5.8(j) (the "Relevant Matters") the Purchaser undertakes to the Vendor as follows:

5.9.2 it shall (and shall procure that the Company shall not) agree or finalise ay of the Payment Matters referred to in Clause 5.9.1 above without giving the Vendor prior notice in writing and a reasonable opportunity to make reasonable representations to the Purchaser in respect thereof;

The Indemnities set out in Clauses 5.8(g) to 5.8(j) are given subject to the Purchaser complying with the above.

Schedule

PART 7

Limitation of Liability

In this paragraph Part 7 of the Schedule "Third Party Claim" means a claim by any third party whereby it appears that the Vendor is likely to become liable under any claim under the Warranties or the Indemnities.

The provisions of this Part 7 of the Schedule shall operate, inter alia, to limit and reduce the liability of the Vendor in respect of claims under the Warranties and only, where expressly stated to do so, the Tax Undertaking and Indemnities.

For the avoidance of doubt, in respect of the Indemnity referred to at Clause 5.8(j), the limitations set out in this Part 7 of the Schedule (other than those set out at paragraphs 4 and 5 below) shall apply to that clause as if it were one of the Warranties.

Notwithstanding any other provision of this Agreement or the Tax Undertaking:

Amount

1. The aggregate liability of the Vendor in respect of all claims under the Warranties, the Tax Undertaking and the Indemnities shall not exceed the consideration payable by the Purchaser for the Sale Shares.

3. The Vendor's liability in respect of each and any claim pursuant to Clauses 5.8(g), 5.8(h), 5.8(i) or 5.8(j) shall be restricted to 75% of the amount for which the Vendor would, but for this paragraph 3, have been liable in respect of such claim.

Claims Threshold

4. The Vendor shall not be liable for any claim under the Warranties unless and until the aggregate amount of the liability of the Vendor in respect of all such claims exceeds £15,000 in which event the Vendor shall be liable for the whole of such liability and not merely the excess.

5. There shall be disregarded, for all purposes, any claim under the Warranties in respect of which the liability of the Vendor would be less than £1,000 (and for these purposes a series of related claims with respect to related facts or circumstances shall be treated as a single claim).

General Limitations

6. The Purchaser shall not be entitled to make a claim under the Warranties (other than the Warranties relating to Taxation to which the provisions of Clause 6 of the Tax Undertaking shall apply):

6.3 in the absence of wilful dishonesty on the part of the Vendor or its agents, unless the Purchaser has given written notice of the circumstances giving rise to the claim in question to the Vendor (including sufficient detail to enable the Vendor to identify the nature of the claim together with an estimate of the likely amount of the claim to the extent the Purchaser can reasonably provide such) as soon as reasonably practicable after it becomes aware of those circumstances ...

8. Conduct of Third Party Claims

8.1 the Purchaser shall inform, or shall procure that the Company shall inform, the Vendor in writing of any Third Party claim within fourteen days from the date on which such Third Party Claim comes to the notice of the Purchaser.

8.2 The Purchaser shall, before making a claim, consider taking such action to avoid, dispute, resist, appeal, compromise or contest the liability of any third Party Claim as many reasonably be suggested by the Vendor. The Purchaser shall act reasonably when considering the same and in deciding whether or not to follow or act upon such suggestions by the Vendor.

8.3 The Purchaser will (and shall procure that the Company and their respective professional advisers will) make available to the Vendor such persons and all such information as the Vendor may reasonably require for investigating any such liability under such Third Party Claim.

9. Mitigation and Rescission

9.2 The Purchaser agrees that rescission shall not be available as a remedy for any breach of this Agreement and agrees not to claim that remedy.

11. Contingent and Unquantifiable Claims

The Vendor shall not be liable for any claim under the Warranties or the Indemnities which arises by reason of a liability which, at the time when written notice of such claim is given to the Vendor is contingent only or is otherwise not capable of being quantified and the Vendor shall not be liable to make any payment in respect of such claim unless and until the liability becomes an actual liability or (as the case may be) becomes capable of being quantified, provided that this paragraph shall not operate to avoid a claim notified in respect of a contingent liability within the applicable time limits in paragraph 13 notwithstanding that legal proceedings have not been commenced within the relevant period specified in paragraph 13 provided that once the liability becomes a non-contingent liability or quantifiable claim legal proceedings must be commenced within six months of such liability becoming non-contingent or such claim becoming quantifiable.

13. Time Limits & Notice

13.1 The Vendor shall have no liability in respect of any claim under the Warranties unless notice in writing of such claim has been given to the Vendor within 60 days of the Purchaser or the Company or any of their respective officers becoming aware thereof.

13.2 Claims against the Vendor shall be wholly barred and unenforceable unless written particulars thereof has been given to the Vendor on or before 4 April 2008:

(a) two years from the Completion Date in respect of those warranties which do not relate to Taxation; and

(b) 31 August 2014 in the case of any claim under the Tax Undertaking and the Warranties relating to Taxation;

it being agreed that the liability of the Vendor in respect of any claim under the Warranties (other than those relating to Taxation) shall absolutely determine (and such claim shall be deemed to be withdrawn) if proceedings in respect of it had not been commenced and served within 6 months of service of such written notice or, if later, within 6 months of the last action taken by the Company and/or the Purchaser pursuant to Clause 7 of this part of the Schedule).

14. No Double Recovery

14.1 Payment of any claim under the Warranties, the Indemnities or the Tax Undertaking shall pro tanto satisfy and discharge any other claim thereunder which is capable of being made in respect of the same subject matter.

14.2 If the Purchaser is entitled to make a claim against the Vendor under any of the Warranties, the Indemnities or the Tax Undertaking and in respect of the same matter a claim may also be made under any of the others of the Warranties, the Indemnities or the Tax Undertaking the Purchaser shall be entitled to make a claim under all of those but shall not be entitled to recovery twice in respect of the same loss or matter.

16 Recovery in relation to Warranty at paragraph 5.11 of Part 4 of the Schedule

The Vendor shall not be liable in respect of any claim by the Purchaser in relation to paragraph 5.11 of Part 4 of the Schedule (including any claim under Clause 5.8(j) in respect thereof) unless such liability exceeds £50,000. for the avoidance of doubt, where such liability exceeds £50,000 the whole amount of the liability shall be recoverable from the Vendor.

Part 5: Clauses 12.2, 15 and 16 (waiver, notices, and entire agreement)

12. AMENDMENTS, WAIVERS AND REMEDIES

12.2 Waivers and remedies

12.2.1 The rights of each party under this Agreement:

(a) may be exercised as often as necessary;

(b) are cumulative and not exclusive of its rights under the general law; and

12.2.2 Delay in exercising or non-exercising or non-exercise of any right under this Agreement is not a waiver of that right.

12.2.3 Partial exercise of any right under this Agreement shall not preclude any further or other exercise of that right or any other right under this Agreement.

15. NOTICES

15.1 Writing

Any notice or communication to be given under, or in connection with the matters contemplated by, this Agreement shall be in writing and signed by or on behalf of the party giving it.

15.2 Service

Any notice or communication referred to in Clause 15.1 shall be served by delivering it personally or sending it by pre-paid recorded delivery or registered post or by fax to the address and for the attention of the relevant party set out in Clause 15.4 (or otherwise notified by that party under this Agreement).

15.3 Deemed receipt

Any notice or communication referred to in Clause 15.1 shall be deemed to have been received:

(a) if delivered personally, at the time of delivery;

(b) in the case of pre-paid recorded delivery or registered post, 48 hours from the date of posting; and

provided that if deemed receipt occurs after 5pm on a business day, or on a day which is not a business day, the notice shall be deemed to have been received at 9am on the next business day.

15.4 Addresses for notices

The addresses and facsimile numbers of the parties for the purposes of Clause 15.2 are:

Vendor

Address: c/o MacRoberts, 152 Bath Street, Glasgow, G2 4TB

For the attention of: Robert Burns

Fax number: 0141 332 8886

Purchaser

Address: c/o McGrigors LLP, Pacific House, 70 Wellington Street, Glasgow, G2 6SB

For the attention of: Kevin Devanny

Fax number: 0141 204 1351

or such other address or facsimile number as may be notified in writing from time to time by the relevant party to the other party.

15.5 No electronic service

Any notice or communication given under this Agreement shall not be validly served if sent by electronic mail.

16 ENTIRE AGREEMENT

16.1 This Agreement and the documents referred to herein as being in the agreed form constitute the entire agreement and understanding of the parties relative to its subject matter and no other terms shall be deemed to be incorporated therein.

16.2 This Agreement and any document referred to as being in the agreed form constitute the entire agreement between the Parties and supersede and extinguish all (if any) prior drafts, agreements, understandings, undertakings, representations, warranties and/or arrangements of any nature whatsoever (whether or not in writing) between the parties in connection therewith.

16.3 Each party agrees that it has not been induced to enter into this agreement in reliance upon (nor has it been given) any warranty, representation, statement, agreement or undertaking of any nature whatsoever other than as contained in this Agreement or the documents referred to herein as being in the agreed form.

16.4 Nothing in this agreement shall limit or exclude any party's liability in respect of fraud or fraudulent misrepresentation.

	[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> McMullen Group Holdings Ltd v Harwood [2011] ScotCS CSOH_132 (12 August 2011) URL: http://www.bailii.org/scot/cases/ScotCS/2011/2011CSOH132.html Cite as: [2011] CSOH 132, [2011] ScotCS CSOH_132

Scottish Court of Session Decisions