South Lanarkshire Council Against Aviva Insurance Limited
| Jurisdiction | Scotland |
| Judge | Lord Doherty |
| Neutral Citation | [2016] CSOH 83 |
| Published date | 16 June 2016 |
| Docket Number | CA226/15 |
| Court | Court of Session |
| Date | 16 June 2016 |
OUTER HOUSE, COURT OF SESSION
[2016] CSOH 83
CA226/15
OPINION OF LORD DOHERTY
In the cause
SOUTH LANARKSHIRE COUNCIL
Pursuer;
against
AVIVA INSURANCE LIMITED
Defender:
Pursuer: Duncan QC, Edwards; Ledingham Chalmers LLP
Defenders: Thomson; Brodies LLP
16 June 2016
Introduction
[1] In this commercial action the pursuer seeks payment by the defender of the £3,117,724 which it avers is due under a “Performance Guarantee Bond” (“the Bond”) granted by the defender to the pursuer. The principal issues in dispute are (i) whether the Bond is a performance bond or an ordinary guarantee; (ii) if the Bond is a performance bond, whether the pursuer has complied with its requirements so as to oblige the defender to make payment thereunder. The matter came before me for a debate on the commercial roll.
The planning permission
[2] In April 2001 the pursuer granted the Scottish Coal Company Limited (“SCCL”) planning permission to extract coal using open-cast methods at Broken Cross Muir, near Douglas Water, Lanarkshire. Thereafter SCCL applied for and received further grants of planning permission to extend the surface coal mine at the site. On 3 September 2012 the pursuer granted SCCL planning permission (reference CL/11/0405) (“the planning permission”) consenting to further development at the site. The planning permission has not been produced but it was not disputed that it had been granted subject to the forty-three conditions (“the Conditions”) which had been appended to the report prepared for the planning committee’s meeting of 24 January 2012 (6/2 of process). For present purposes only the following Conditions need be mentioned:
“2 That the development hereby approved shall be implemented strictly in accordance with drawings;
…
- 26472-G040.dwg - Figure 2.8 – Cross Section showing the Sequential Construction of the Overburden Mound
- 26472-G041a.dwg- Figure 2.9 – Restoration Plan
No change to the design will take place without the prior written approval of the Council as Planning Authority.
3 That all coal and other mineral extraction operations on the site shall cease not later than the 31st December 2018 and the entire site shall be restored in accordance with the approved restoration scheme … not later than 31st December 2020.
4 That the development shall be carried out strictly in accordance with the plans hereby approved …
…
7 That within one year of commencement of development hereby approved, a final detailed restoration scheme (based on Drawing 26472-G041a.dwg – Figure 2.9 – Restoration Plan) shall be submitted for the approval of the Council as Planning Authority. No deviation from the restoration plan approved through this condition shall take place unless agreed in writing by the Council as Planning Authority.
8 That within one year of commencement of development, an aftercare scheme which details the steps to be carried out and their timing within the 5 year aftercare period shall be submitted to and approved in writing by the Council as Planning Authority …
…
20 At least one month prior to the commencement of the development, a guarantee to cover all site restoration and aftercare liabilities imposed on the expiry of this consent will be submitted for the written approval of the Council as Planning Authority. Such guarantee must;
…
ii be granted by a bank or other institution which is of sound financial standing and capable of fulfilling the obligations under the guarantee;
iii be for a specified amount which covers the value of all site restoration and aftercare liabilities as agreed between the developer and the planning authority at the commencement of development
iv either contain indexation provisions so that the specified amount of the guarantee shall be increased on each anniversary of the date of this consent by the same percentage increase in the General Index of Retail Prices … or be reviewable to ensure that the specified amount of the guarantee always covers the value of the site restoration and aftercare liabilities
v come into effect on or before the date of commencement of development, and expire no earlier than 12 months after the end of the aftercare period.
…
21 That the outer face of the sub-soil storage tip located along the northern boundary of the site shall be seeded during the first planting season available, and the area shall be maintained as a grassed area in accordance with the appropriate agricultural management techniques thereafter until the removal of the subsoil tip, unless otherwise agreed in writing by the Council as Planning Authority.
…”
The Bond
[3] On 29 June and 4 July 2012 the pursuer, the defender and SCCL entered into the undernoted deed:
“PERFORMANCE GUARANTEE BOND
In respect of BROKEN CROSS NORTH EAST SURFACE MINE
…
1. Background
…
1.2 The Company [SCCL] has requested the Cautioner [the defender] and the Cautioner has agreed to guarantee the performance of obligations of the Company which are to be created in the Conditions to be attached to the planning permission [CL/11/0405] …
…
2. Scope of Bond
2.1 The Cautioner subject to the terms hereof hereby guarantees to the Council the due and proper performance of the obligations in the Conditions.
2.2 In the event of any breach of the Conditions, the cautioner shall, if called upon by the Council, pay to the Council the proper and reasonable cost of restoration works required to be carried out in terms of the Conditions.
3. Condition of Bond Notice
3.1 Prior to the obligation on the Cautioner to pay any sums due hereunder becoming enforceable by the Council, notice in writing of any breach of the Conditions by the Company and a full breakdown of any proper and reasonable the (sic) cost of restoration work to be carried out must be provided to the Cautioner … together with reasonable evidence of the intention of the Council to proceed with any such operation.
3.2 If the costs incurred by the Council after carrying out the restoration exceed the cost paid by the Cautioner, the Council may give notice in writing of the total of the costs incurred by the Council and a full breakdown thereof together with reasonable evidence of such costs, and the Cautioner shall pay to the Council the difference between the costs actually incurred by the Council, and the sum previously paid by the Cautioner. Provided that the liability of the Cautioner to the Council shall be limited in accordance with the Schedule annexed to this Bond.
3.3 The Cautioner shall be obliged to make payment within thirty working days of receipt of sufficient evidence that such sums are due for payment either under clause 3.1 or 3.2.
4. Date of commencement and Limits of Bond
4.1 This Bond shall commence on the 29th day of June 2012.
4.2 The maximum aggregate total liability of the Cautioner in relation to all claims made by the Council under this Bond shall not in any circumstances except where expressly agreed in writing by the Cautioner and the Company exceed the sum of … £3,150,000 …
4.3 The maximum aggregate liability at any particular time of the Cautioner to the Council shall under deduction of any sum previously claimed by the Council under and in terms of Clause 2.2 above be limited to such sum as is determined in accordance with the Schedule annexed to this Bond.
…
5. Discharge or release
5.1 The Cautioner shall not be discharged or released by any variation in or waiver of any of the provisions of the Conditions or the extent or nature of the Works or any forbearance or allowance of time by the Council or by the insolvency of any of the parties or any breach by the Company of its obligations hereunder.
5.2 The obligations of the Cautioner under this Bond shall cease and the Cautioner shall be released and discharged absolutely except in relation to claims already received by the Cautioner and not paid once the obligations incumbent on the Company referred to in the Conditions have been fulfilled or if the Company shall procure a replacement Bond for this Bond on terms mutatis mutandis with this Bond or on the expiry of 42 months from 1st July 2012 whichever shall first arise …
6. Continuing Obligations of the Company
6.1 In recognition of the Company’s request that the Cautioner undertakes the obligations under this Bond, the Company undertakes with the Cautioner to perform and discharge promptly and fully the Company’s obligations imposed by the Conditions.
…”
The Schedule annexed to the Bond provided that the maximum aggregate Bond liability of the defender in respect of all claims made by the pursuer during the period 29 June 2012 – 30 June 2013 was £2,850,000; for 1 July 2013 – 30 June 2014 it rose to £3,000,000; for 1 July 2014 – 31 December 2015 it rose to £3,150,000; and from 1 January 2016 it was £0. The Bond was subscribed on behalf of the pursuer by its Legal Manager, Margaret Mary Cairns, who was designated “Proper Officer”.
Subsequent events
[4] On 29 April 2013 the Court of Session pronounced an interlocutor ordering that SCCL be wound up pursuant to the Insolvency Act 1986 and appointing interim liquidators. The defender does not dispute that on their appointment the liquidators caused SCCL to cease its activities at each of its open cast sites. On 13 May 2013 the pursuer wrote to the defender informing it that SCCL had entered liquidation and that the liquidators had ceased all works on the site. It advised that SCCL was in breach of its planning obligations and of the planning permission Conditions, and that it was likely that the Bond would be called up.
[5] The pursuer avers that in late April 2013 the liquidators made clear to it and to other local authorities that by reason of the level of insolvency of SCCL they did not intend to carry out any restoration or aftercare works on SCCL’s sites because the cost of those works would far exceed the value of any unsecured funds; that SCCL had failed to do or pay for any of the...
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