Outer House judge rejects averments of pre-contract discussions in dispute over quality of construction stone

A judge in the Outer House of the Court of Session hearing a commercial action by a contractor relating to the Aberdeen Harbour Expansion Project has rejected from proof averments by a supplier of stone that there was agreement that a lower class of material would be supplied than that specified in the contract.

Outer House judge rejects averments of pre-contract discussions in dispute over quality of construction stone

The action was raised by Dragados UK Ltd, which had a contract for the supply and purchase of armourstone with DC Eifeket Aggregates Ltd. It was averred by the defender that the parties were fully aware that the material supplied by them was different to the contractual requirement and that this had been accepted by the pursuer. The pursuer challenged the relevancy of these averments to the case.

The case was heard by Lord Braid. MacColl QC appeared for the pursuer and Brown, advocate, for the defender.

Shared understanding

 The pursuer had been contracted to carry out construction work for the expansion of Aberdeen Harbour, for which it required category A armourstone. It was contended by the pursuer that the stone supplied by the defender was of a lower quality than the category of stone that was contracted for, and that it was therefore in breach of contract.

It was the position of the defender that it was required only to supply the lower-grade category B armourstone, and the pursuer was not entitled to sue them for any loss. It averred that the communications between the parties made it apparent that there was a shared understanding that the goods supplied did not conform precisely with the specification derived from the goods information in the contract. Further, the pursuer was now personally barred from asserting it was entitled to category A stone.

In support of its averments, the defender relied on documentation issued to the pursuer that specified that the stone supplied would be “in strict accordance” with category B specification, and that the pursuer had at no time queried these references either during negotiations or in the post-contractual period.

Counsel for the pursuer submitted that pre-contract negotiations of the sort averred by the defender were not admissible in construing contractual terms, nor in establishing personal bar. Not only was such a case precluded by the express terms of the contract, the defender’s case of reliance on any representation made by the pursuer was undermined by the theme underpinning its case that it believed throughout that the contract was for the supply of category B stone.

In response, it was submitted for the defender that the fact that the parties had negotiated on the basis that category B stone would be supplied was relevant in determining what the contract meant. Since a proof would follow regardless of the outcome of debate, the pragmatic approach would be to admit all the averments in question to probation.

Subjective intention

In his decision, Lord Braid said of the applicable law: “The general rule is that the court will not have regard to statements of parties or their agents in the course of the negotiation of a contract as an aid to the construction of the words which the parties use in the final version of the contract which alone expresses their consensus. Another way in which the rule has been expressed is that such evidence is not admissible if its purpose is to put a gloss on the contract.”

He continued: “When the defender’s averments are tested against the rule, they can clearly be seen to be irrelevant in that the evidence which would be led by reference to them would be inadmissible. It is plain the defender seeks to ascertain the proper construction of the contract by reference to what the parties thought it meant, to be gleaned by examining communications between them both before and after the contract was entered into. However, evidence of subjective intention is not relevant to the objective meaning of the words of the contract.”

Noting that the defender had not offered to prove the background circumstances of the contract, Lord Braid added: “The averments are no more and no less than an attempt to have regard to statements made in the course of the negotiations as an aid to the construction of the contract, or to put a gloss on its terms, which is precisely what the rule excludes.”

Clearly irrelevant

Turning to the issue of personal bar, Lord Braid noted: “At its highest the defender’s position is that, acting on its own belief as to its contractual obligation which on its own averments it held from the time of the pre-contractual negotiations and which it continued to hold throughout its execution of the contract (despite the express terms of the contract which it entered into), it supplied category B stone. Even if the payment by the pursuer of thirteen invoices can be regarded as a representation, the defender does not aver that it was that which engendered any belief on its part.”

He continued: “The defender did not supply or continue to supply category B stone because it believed that the pursuer was condoning its breach of contract in so doing; it did so because of its belief that it was complying with the contract. It may well turn out to be the case that by retaining and using stone which it knew (if that is the case) was category B and as such disconform to contract, the pursuer has not mitigated its loss, but that is an entirely separate issue.”

Lord Braid concluded: “The requirement for concise pleadings in the commercial court does not absolve the defender from the need to give fair notice of its case. The court should not allow averments which are clearly irrelevant to the purpose for which they are pled – in this case, construction of the contract – to be admitted to probation simply on the off chance that something might emerge at proof which is relevant to other issues.”

For these reasons, the offending averments were excluded from probation. The case was put out by order for discussion of further procedure.

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