Patersons Of Greenoakhill Ltd V. Biffa Waste Services Limited
| Jurisdiction | Scotland |
| Judge | Lord Hodge |
| Neutral Citation | [2013] CSOH 18 |
| Court | Court of Session |
| Date | 01 February 2013 |
| Published date | 01 February 2013 |
| Docket Number | CA18/12 |
| OUTER HOUSE, COURT OF SESSION [2013] CSOH 18 | |
| CA18/12 | OPINION OF LORD HODGE in the cause PATERSONS OF GREENOAKHILL LIMITED Pursuer; against BIFFA WASTE SERVICES LIMITED Defender: ________________ |
Pursuer: Clark QC; Pinsent Masons LLP
Defender: Lord Davidson of Glen Clova QC, Delibegovic-Broome; Dundas & Wilson CS LLP
1 February 2013
[1] The pursuer ("PGL") operated a landfill site at Greenoakhill, Mount Vernon, Glasgow ("the site"). Mr William Paterson ("Mr Paterson") and his family, who controlled PGL, also had controlling shareholdings in companies with interests in quarries, and waste collection and disposal.
[2] In 1998 the defender ("Biffa") wanted to expand its waste collection business into Scotland in order to create a national UK-wide service. It sought to provide services to companies that traded throughout the UK such as supermarket chains. Biffa offered to buy the waste collection business which Patersons Waste Disposal Ltd ("PWDL") operated. PWDL delivered about 110,000 tonnes of waste to the site in the years shortly before 1998. Mr Paterson was willing to sell the assets of the waste collection business but wanted to secure the continued supply of waste to PGL's landfill site.
[3] The commercial deal was effected by three contracts. They were:
(i) the asset purchase agreement ("APA") by which Biffa acquired the assets (other than book debts) and goodwill of the waste collection business;
(ii) the Clydesdale agreement ("CA"), by which Biffa agreed to deliver to the site waste from the Carluke transfer station, which it collected when it took over PWDL's responsibility under a contract with South Lanarkshire Council that ran until 30 April 2004; and
(iii) the general tipping agreement ("GTA"), which committed Biffa to deliver waste to the site and had a term of 15 years.
PGL were assisted and represented by McGrigor Donald and Biffa by Shepherd & Wedderburn (S&W) in the negotiation and preparation of the contracts. Both were firms with experienced commercial solicitors.
[4] The parties negotiated the three contracts promptly and without rancour. They planned to complete the deal by 31 March 1998 to correspond to the end of PGL's accounting year. The solicitors who represented the parties circulated drafts of the agreements in late March. There was a late night negotiation on Sunday 29 March and the agreements were signed at a completion meeting on Monday 30 March.
[5] PGL and Biffa dispute the interpretation of a clause in the GTA. In the proof which I heard the parties raised four principal issues. They were (i) the correct meaning of the disputed clause, and, if the court agreed with PGL's interpretation, (ii) whether the contract should be rectified, (iii) personal bar and waiver and (iv) whether the clause was unenforceable as a penalty clause. The court reserved any issue of the quantification of claims for a later hearing.
Credibility and reliability
[6] There was no issue of credibility of the witnesses in this case. Biffa questioned the reliability of Mr Paterson's recollection. He did not recall the extent of Mr Prosser's involvement in the negotiations which I discuss below. I accept that he was not to be relied on in that respect, but I did not find him otherwise to be any more or less reliable than the other witnesses in recollecting the negotiations. I believe that all the witnesses did their best to recall events accurately. But, with the passage of time, they struggled to recall the details of the discussions. Also, inevitably, the witnesses when asked to recall events had knowledge of what occurred afterwards, which they had not had in 1998. This knowledge coloured some of their assertions.
The general tipping agreement
[7] The GTA was a fifteen-year contract unless Biffa supplied 1.65 million tonnes of waste to the site more quickly. For the first six years, until 30 March 2004, Biffa was obliged to supply a minimum of 85,000 tonnes (subject to specified exclusions) annually to the site ("the minimum annual tonnage"). To give it some flexibility, the minimum annual tonnage was aggregated over three years. A different regime applied from year seven. Biffa had to supply 80% of the waste collected within a defined geographical area in the central belt of Scotland, which the GTA referred to as "the Collection Area".
[8] Biffa did not comply with the latter obligation in 2006‑2007, 2007‑2008, 2008‑2009 and 2009‑2010. That failure brought into effect the contested clause 5.3.2 of the GTA and Biffa paid all or almost all the shortfall sums that were due in respect of those years.
The clause in dispute
[9] Clause 5.3 of the GTA provided:
"From and after the sixth anniversary of the Commencement Date the following provisions shall apply:
5.3.1 Biffa shall procure in respect of each Year that not less than 80% (measured by weight) of the commercial and industrial waste (under exception of (a) glass and (b) the Clydesdale Waste (c) Rejected Tonnage and (d) Excluded Materials referable to that Year) collected by or on behalf of Biffa within the Collection Area during that Year shall be delivered to the Landfill Site for disposal in accordance with the terms of this Agreement.
5.3.2 If Biffa breaches its obligations under Clause 5.3.1 hereof the following provisions shall apply in respect of the Year during which Biffa shall have breached said obligations and each subsequent Year during the Period of this Agreement (each such Year being referred to as a "Relevant Year") namely, if in any Relevant Year the aggregate tonnage of General Waste delivered on behalf of Biffa to the Landfill Site is less than the Minimum Annual Tonnage, Biffa shall, within 30 days after the end of that Relevant Year, make payment to the Site Operator of a sum (exclusive of Landfill Tax and Value Added Tax) calculated in accordance with the following formula:
£a = (b-c) x d
where a is the said Sum; b is the Minimum Annual Tonnage; c is said aggregate tonnage of General Waste disclosed during the Relevant Year; and d is Tonnage Rate (Ordinary) applicable to that Relevant Year; ..."
The parties' contentions on construction
[10] Mr Clark for PGL submitted that clause 5.3.2 was clear in its terms and that the court should give effect to the unambiguous language that the parties had chosen to use. It required strong evidence before the court could conclude that the parties had made a mistake in the words which they had chosen. This was particularly so where the parties had been assisted in framing a formal contract by experienced commercial lawyers. Here there was no clear mistake. The words of the clause should therefore be given their ordinary meaning. The clause meant that if once Biffa failed to deliver to the site 80% of the waste which it collected from the defined geographical area, it was obliged to pay PGL as if it had supplied 85,000 tonnes of waste (subject to the exclusions) each year until the termination of the GTA.
[11] Lord Davidson for Biffa submitted that the clause meant that the obligation on Biffa to pay PGL the sum calculated under clause 5.3.2 applied only in any year in which Biffa breached the obligation to deliver 80% of the waste collected in the defined area. The sub‑clause should be interpreted in the context of clause 5 as a whole. Clause 5.3.1 imposed an annual target. Like clause 5.2, which allowed the three-year aggregation, it was designed to achieve a flexible regime. PGL's construction would disapply it in the event of one breach. That was not commercially sensible and would conflict with the business reality of the transaction. The parties when entering into the GTA could more readily foresee developments in the years immediately after 1998 than in later years. Yet there was a stark contrast between the flexibility of the three‑year average that was available to Biffa in the first six years of the contract and the inflexibility of the annual target of 85,000 tonnes if Biffa were once to fail to comply, even in the smallest way, with clause 5.3.1 in the later years. This severe consequence did not apply in the CA which the parties executed at the same time. The subsequent behaviour of the parties is consistent with Biffa's construction.
[12] Counsel did not dispute the principles to be derived from the cases on the construction of contracts. I mention the leading cases to which they referred me below.
The law: evidence relevant to the construction of contracts
[13] The evidence that the court may admit to assist in the construction of a document is not the same as the evidence that is admissible for its rectification. Where, as here, both issues are raised, the court has to keep in mind a clear distinction between the two issues and the evidence that is relevant to each. The approach of the courts to the interpretation of contracts is well established and hardly merits restating. The approach to rectification in this jurisdiction is less fixed. There may therefore be benefit in summarising the two approaches.
[14] The court, when construing a contract, considers the language that the parties have used. It uses the concept of a reasonable person, who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. It ascertains what that reasonable person would have understood the parties to have meant by their use of that language. In doing so, the court has regard to the relevant surrounding circumstances, being the circumstances which were reasonably within the knowledge of both parties, or all of the parties in a multilateral contract.
[15] Modern authority for this approach is extensive (Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896, Lord Hoffmann at 912‑913; Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101, Lord Hoffmann at paras 21‑26; Pink Floyd Music ltd v EMI Records Ltd [2010] EWCA Civ 1429, Lord Neuberger MR at...
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