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CA236/14
OUTER HOUSE, COURT OF SESSION
[2017] CSOH 120
OPINION OF LORD DOHERTY
In the cause
MARIN SUBSEA LTD
against
EDS & T&T HOLDINGS AS
Pursuers: Thomson; Shepherd & Wedderburn
Defenders: MacGregor; Wright Johnston & Mackenzie LLP
Pursuers
Defenders
14 September 2017
Introduction
[1] The pursuers and the defenders entered into a Share Purchase Agreement (“the
SPA”) and a Memorandum of Understanding, both dated 11 December 2013. In terms of the
SPA the pursuers purchased from the defenders the entire shareholdings in two companies,
AGR Seabed Intervention Limited (“ASIL”) and AGR SET Limited (“ASET”). The
consideration was a completion payment of £600,000 (subject to certain adjustment). The
assets of the companies were set out in sections A and B of Part 5 of the Schedule to the SPA.
Part A listed items of equipment. Part B listed three patents, one of which was GB 2359103
BTE 80. In terms of clause 7 and Part 3 of the Schedule the defenders warranted certain
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matters. Each party had the benefit of independent legal advice. The transaction was
completed on 16 December 2013.
[2] In this commercial action the pursuers maintain that the defenders have breached
several of the warranties in the SPA. They advance warranty claims in respect of those
breaches.
[3] I heard a preliminary Proof Before Answer which focussed on two issues:
(i) the correct interpretation of the contract with particular reference to clause 7.4
and to paragraph 2.6 in Part 3 of the Schedule;
(ii) whether disclosures in the Data Room relating to Patent GB 2359103 BTE 80
qualified the warranty in para 6, Part 3 of the Schedule (and if so, to what
effect).
The parties entered into an extensive Joint Minute of Admissions (No 53 of Process). The
pursuers called two witnesses, George Stroud (Chief Executive Officer of the Marin Group)
and Gary Ebbrell (an oil and gas industry expert witness). The defenders also called two
witnesses, Lasse Nergaard (a former employee of the defenders) and Paul Betteridge
(formerly Vice President of ASIL and managing director of AGR Subsea Limited). Each of
the lay witnesses prepared signed witness statements and these were treated as the main
part of their evidence-in-chief. Similarly, Mr Ebbrell prepared a report (6/30 of Process)
which he adopted as the main part of his evidence-in-chief.
The SPA
[4] The SPA provided:
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“1. INTERPRETATION
1.1 In this Agreement and the Schedule, the following expressions shall have the
following meanings:-
…
‘the Assets’ means the assets of the Companies as set out in section A and B of
Part 5 of the Schedule (but expressly excluding the Excluded Assets);
…
‘Companies’ means together ASIL and ASET and the term ‘Company’ shall
mean either of them;
…
‘Data Room’ means the documentation, matters and information disclosed
and exhibited to the Purchaser prior to the Completion and included on two
identical flash drives (USB) one of which is delivered to, and accepted by, the
Purchaser immediately before Completion;
…
‘Warranties’ means the representations and warranties set out in Clause 7 and
Part 3 of the Schedule;
‘Warranty Claim’ means any claim for a breach of any of the Warranties other
than the Title Warranties;
…
1.3 In this Agreement, unless the context otherwise requires:-
…
1.3.2 the headings are inserted for convenience only and shall not affect the
construction of this Agreement;
…
1.3.14 The eiusdem generis rule of construction or any other rule of law analogous
thereto shall not apply to the construction of this Agreement and accordingly
general words introduced by the word ‘other’ or such like expression shall
not be given a restrictive meaning by reason of the fact that they are preceded
by words indicating a particular class of acts, matters or things and general
words shall not be given a restrictive meaning by reason of the fact that they
are followed by particular examples intended to be embraced by the general
words.
…
7. WARRANTIES
7.1 The Vendor warrants and represents to the Purchaser that each of the
Warranties is true and accurate and not misleading as at the date of
Completion, and acknowledges that the Purchaser has entered into this
Agreement in reliance upon the terms of the Warranties. The Warranties
(other than the Title Warranties) are subject only to, and qualified by, the
matters fairly disclosed (with sufficient details to identify the nature and
scope of the matter disclosed) in the Data Room.
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7.2 Each of the Warranties shall be construed as a separate Warranty and (save as
expressly provided to the contrary) shall not be limited or restricted by
reference to or inference from the terms of any other Warranty or any other
term of this Agreement.
…
7.4 Notwithstanding any other provision of this Agreement, but without
prejudice to the Title Warranties, the Assets are presented and sold (by virtue
of the sale of the Sale Shares) on an “as seen basis” where the Purchaser
confirms it has inspected and satisfied itself as to the condition, use, safety
and fitness for purpose of the Assets (upon which matters the Vendor gives
no assurances) and accordingly the express terms and conditions of this
Agreement shall apply in place of all warranties, conditions, terms,
representations, statements, undertakings and obligations whether expressed
or implied by statute, common law, custom, usage or otherwise, all of which
are excluded to the fullest extent permitted by law.
…
8. LIMITATION ON CLAIMS
…
8.2 The Vendor shall not be liable for any Warranty Claim if, and to the extent
that, the fact, matter, event or circumstance giving rise to such Warranty
Claim was fairly disclosed (with sufficient details to identify the nature and
scope of the matter disclosed) in the Data Room.
…
13. ENTIRE AGREEMENT
13.1 This Agreement and the documents referred to herein together constitute the
entire agreement and understanding between the parties in connection with
the sale and purchase of the Sale Shares …
…
SCHEDULE
PART 3 - THE WARRANTIES
1. INFORMATION
The recitals and Parts 1, 2, 5, 6, and 7 of the Schedule to this Agreement are true and
accurate and not misleading in all material respects and there is no fact not disclosed
which would render any such recitals and Parts 1, 2, 5, 6, and 7 of the Schedule
inaccurate or misleading.
…
2.6. Statutory books and registers
(a) The statutory books and registers of the Companies are written up to date
and are in the possession or under the control of that Company.
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(b) All current books of account of the Companies are written up to date and
all such documents and other necessary records, deeds, agreements and
documents relating to each Company’s affairs are in the possession or under
the control of that Company.
…
6. INTELLECTUAL PROPERTY
The Companies are the sole legal and beneficial owner, and where registered, the
sole registered proprietor of the intellectual property listed in section B of Part 5 of
the Schedule, which is a true and accurate list of all the intellectual property owned
by either of the Companies.
The Companies’ intellectual property rights are valid, subsisting and enforceable.
Nothing has been done or omitted and no circumstances exist whereby any of them
may cease to be valid, subsisting and enforceable. In respect of the Companies’
registered intellectual property, all renewal fees have been duly paid, all steps
required for their maintenance and protection have been taken and there are no
grounds upon which any person may be able to seek revocation, cancellation,
rectification or modification of any registration.
…”
Memorandum of Understanding
[5] The Memorandum of Understanding (6/23 of Process) entered into between the
parties narrated that ASIL had, either on its own behalf or jointly with the pursuers, made
proposals in relation to two projects offshore of Indonesia. It provided that should the
pursuers or any other member of the Marin Group be engaged to provide certain services
for either project prior to 30 June 2015 the defenders would be entitled to share in any profits
the pursuers or its related company made; and that each party would use best endeavours
to enter into a profit share agreement within ten business days of the award to the member
of the Marin Group of the project work.
Patent GB 2359103 BTE 80
[6] Most of the facts concerning patent GB 2359103 BTE 80 were agreed or were
uncontentious. It is convenient to set them out first.
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[7] On 12 February 2000 Nicholas Sills applied to register an invention patent in the
Patent Register. Notification of the grant of patent GB 2359103 BTE 80 was issued on
11 December 2001. The title of the patent was Balanced Thrust Underwater Excavation
Apparatus. Following an assignation by Mr Sills to Seavation Ltd, on 31 July 2006 that
company was registered in the Patent Register as the proprietor of the patent. The patent fell
to be renewed on 12 February 2012, but no application to renew or renewal fee were
submitted on that date or during the following six month period. As a result the patent
ceased with effect from 12 February 2012. On 23 November 2012 ASIL submitted an
application under section 28 (3) of the Patents Act 1977 (on Form 16) for restoration of the
patent. On 17 February 2013 the Patents Directorate wrote to ASIL indicating that the
Register showed Seavation Limited to be the registered proprietor and explaining that a
restoration request could only be made by the registered proprietor. Further correspondence
between ASIL and the Directorate ensued. By letter dated 29 August 2013 the Directorate
sent ASIL a completed Form 21 for signature with a view to updating the Register and
entering ASIL as owner of patent GB 2359103 BTE 80 (and two further patents) in place of
Seavation Limited. The letter continued:
“Once these matters have been concluded the restoration request in respect of GB
2359103 BTE 80 can be dealt with.”
By letter dated 16 September 2013 ASIL responded to the Directorate indicating inter alia:
“As requested we have pleasure in returning duly signed Form 21 …
We confirm that the correct address for AGR Seabed Intervention Ltd is …:
AGR Seabed Intervention Ltd
Union Plaza
1Union Wynd
Aberdeen
AB10 1SL”
All of these matters were disclosed in the Data Room.
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[8] On 16 December 2013, immediately following Completion, ASIL’s registered office
was changed from Union Plaza to Marin House, Castlepark Industrial Estate, Ellon. ASIL
has not had either its registered office or a place of business at Union Plaza since that time.
No-one informed the Patents Directorate of this change until after 25 March 2015. The
address for service for ASIL noted in the Patent Register in respect of all three patents
remained Union Plaza.
[9] By letter dated 9 October 2014 addressed to ASIL at Union Plaza the Patents
Directorate indicated that ASIL’s application for restoration was allowed subject to payment
of the outstanding renewal fees for the thirteenth, fourteenth and fifteenth years of the
patent (totalling £890), and that payment should be made by 9 December 2014. By letter
addressed to ASIL at the same address dated 18 December 2014 the Directorate noted that
the fees had not been paid and advised that an extension of a further two months to pay
could be sought in writing. Neither letter was forwarded from Union Plaza to ASIL. In a
decision dated 25 February 2015 the Comptroller refused the application for restoration. The
decision indicated that any appeal must be lodged within 28 days. The decision was sent
under cover of a letter of the same date addressed to ASIL at Union Plaza. That letter was
forwarded from Union Plaza to ASIL, but it was not received by it until after the expiry of
the 28 day appeal period. Thereafter ASIL pursued an appeal to the High Court of Justice,
Chancery Division against the Comptroller’s refusal to restore the patent. The appeal was
refused by Nugee J on 19 November 2015.
The Other Evidence
[10] Mr Stroud explained that the pursuers provide personnel and equipment for sub-sea
work. They specialise in design development and the provision of mass flow excavation,
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clay cutting, and jet sled technology. They undertake a wide range of projects in shallow
inshore and deep water offshore locations.
[11] Mr Stroud was involved in negotiating and entering into the SPA. His
understanding at that time had been that ASIL and ASET had, in or around 2012, taken over
the business and assets of AGR Subsea Limited. The pursuers had known that ASIL and
ASET had not traded for over a year and did not have any active projects, but that the
companies had been working hard to try to win a number of contracts in the oil and gas
sector. The defenders had wanted the opportunity to share the benefit of such work by
ASIL, ASET and AGR Subsea Limited. Accordingly the parties had entered into the
Memorandum of Understanding at the same time as the SPA. The Memorandum envisaged
profit sharing in the event of any companies in the Marin Group obtaining work on either of
two specified projects. Mr Stroud indicated that the pursuers could not credibly bid for
either project without having the complete tender documentation and the bid documents
submitted by ASIL and ASET, and that it would be essential to be able to use assets listed in
the SPA if the Marin Group won the work. He deponed that throughout the world the oil
and gas industry was heavily regulated from a health and safety perspective. In order for
equipment to be used offshore it was critical that its origin and its track record could be
vouched. That involved origin certificates for each component of equipment, test
certificates, purchase invoices, documentation showing the projects it had been used on,
maintenance records and the like. It was essential and was standard practice in the oil and
gas industry. Without the relevant documentation the equipment could not be used.
Everyone involved in the oil and gas industry knew that.
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[12] Mr Stroud had seen the equipment in about September 2013. Many items were in a
much poorer condition than he had expected. Significant repair and servicing would be
needed before the equipment could be used. Some items would have to be scrapped.
[13] Mr Stroud stated that the pursuers’ understanding at the time of the SPA was that
the defenders had taken the administrative steps which were necessary to restore the
GB 2359103 BTE 80 patent. The pursuers had not believed there was any serious issue with
the validity of that patent. That was why the defenders were able to give the warranty they
did. He recalled that a patent renewal document had been mistakenly sent by the Patents
Directorate to Mr Sills. Mr Stroud had passed this on to Mr Betteridge in about August 2013.
Mr Stroud’s recollection was that Mr Betteridge had told him that “the outstanding fee
would be paid”.
[14] In terms of the joint minute it was agreed that the oil and gas industry is a global
industry; that it is heavily regulated inter alia for health and safety reasons; that the
Provision and Use of Work Equipment Regulations 1998 (“PUWER”) and, in respect of
lifting equipment, the Lifting Operations and Lifting Equipment Regulations 1998
(“LOLER”) apply throughout the United Kingdom, including in respect of offshore activities
in UK territorial water and on the UK continental shelf; and that equipment used in the
offshore oil and gas industry in those locations has to comply with the requirements of
PUWER and LOLER.
[15] Mr Ebbrell had extensive experience of the assessment of work equipment and of the
oil and gas industry. He explained the consequences of the application of PUWER and
LOLER in UK offshore locations. He confirmed that in almost all other jurisdictions where
there is an offshore oil and gas industry there are similar regulatory requirements; and that,
in fact, in order to facilitate the use and movement of equipment worldwide, industry
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practice tends to require compliance with PUWER and LOLER wherever equipment is used.
His evidence was that the regulatory requirements in the oil and gas sector had the result
that in order for equipment to be able to be used it was necessary to have documentation
vouching its origin, design and manufacture and its subsequent track record (including its
use, and repair and maintenance). Without such documentation it would not be possible to
use the equipment. That was the position throughout the world other than in a few places
where there was civil unrest, where he was aware of undocumented equipment being used.
Anyone operating in the oil and gas sector would know that (and would have known that at
the time of the SPA being concluded). While independent certification bodies existed, they
would require to see much of such documentation in order to certify equipment. Where a
document such as the original design of a simple component had been lost it might be
possible in some cases to obtain a replacement or retrospective documentation from the
manufacturer if the component’s unique manufacturer’s serial number was available.
However, where equipment was comprised of multiple components retrospective
certification was very unlikely to be feasible.
[16] Mr Nergaard indicated that in 2012 “certain assets” of AGR Subsea Limited were
transferred to ASIL and ASET. At that time AGR Subsea Limited was dormant. He and
Mr Betteridge represented the defenders in the negotiations which led to the SPA. His
evidence was that both the pursuers and the defenders knew that significant repair work
would be needed if the equipment was to be used in an offshore environment. Both parties
were aware that Mr Stroud of the pursuers considered that many items would require to be
scrapped. Both parties were aware that only limited warranties were being given in relation
to the assets of ASIL and ASET. Mr Nergaard accepted that for the equipment to be used
offshore in the oil and gas industry in any jurisdiction where the pursuers, ASIL or ASET
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would be likely to be soliciting business, documentation relating to the equipment would be
necessary. He agreed that there would have been no point in the pursuers buying the shares
in ASIL and ASET if the equipment could not be made capable of being used. The value in
the companies was in their equipment and their intellectual property. The Memorandum of
Understanding had been an “agreement to agree” a future profit share for the defenders if
any Marin Group company was awarded a role in either of the two projects in Indonesia.
[17] Mr Betteridge claimed that at the time of the SPA he had no knowledge of what the
pursuers proposed to do with ASIL and ASET or their assets. He was unaware if they
proposed to use any of their equipment. As far as the defenders were concerned it was simply
a share sale. There was no warranty that the equipment could be used lawfully and safely in
the oil and gas industry. The share sale proceeded on the basis that the companies’ assets
were presented and “sold” on an “as seen basis”. The Memorandum of Understanding was a
gentleman’s agreement. Both parties had been aware that the equipment had been idle,
storage had been poor, and it would have needed significant servicing and repair before it
could be used. Both parties were aware that Mr Stroud considered that many items were
beyond economic repair. However, the Calder pumps and the Claycutter had been in good
condition, and Mr Betteridge had thought that those items of equipment would be used in the
oil and gas industry. The pursuers had been keen to add them to their portfolio because they
would give them a competitive edge when quoting against other companies that did not have
such equipment. Mr Betteridge accepted that in order for equipment to be used in the oil and
gas industry it was necessary to have documentation demonstrating that it was designed and
built to the applicable standards, but in his view that was not the defenders’ concern. The
companies’ equipment had been presented and “sold” on an “as seen basis”. In his experience
a full track record was only demanded if (and after) a serious incident had occurred. He
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accepted that if requested it would have to be exhibited, but in his experience it was not asked
for in every case. He agreed that if original documentation was not available retrospective
certification was very unlikely to be a feasible option with much of the equipment, especially
the more complicated equipment.
[18] Mr Betteridge said that to the best of his recollection there had been no communication
between him and Mr Stroud about renewal of a patent. He commented that August 2013 was
four years ago. It was put to him in cross-examination that Mr Stroud’s recollection on the
point might be right or his recollection on the point might be right. His response was “That’s
fair.”
Submissions
[19] Counsel for the pursuers submitted that on a proper construction of paragraph 2.6
(b) of Part 3 of the Schedule the words “other necessary records, deeds, agreements and
documents relating to each Company’s affairs” were wide enough to include records
necessary for the companies’ equipment to be used in the offshore oil and gas industry. The
words used were of very wide and general import. That was the ordinary and natural
reading. It was also the reading which accorded better with commercial common sense. At
the time of contracting reasonable people in the position of the parties would have been in
no doubt that the equipment was of no real value unless it could be used in the offshore oil
and gas industry, and that it was envisaged that it would be so used. The terms of the
contemporaneous Memorandum of Understanding supported that conclusion. The factual
and commercial context of the SPA was that its principal purpose was for the pursuers to
acquire ownership of the companies’ equipment and intellectual property. There was no
good basis for giving the expression a narrower meaning. Counsel reminded the court that
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the headings in the SPA required to be ignored when construing the contract (clause 1.3.2);
and that the expression was not to be given a restrictive meaning by reason of the preceding
part of paragraph 2.6 (b) (clause 1.3.14).
[20] While it was trite that the expression fell to be construed having regard to the terms
of the contract as a whole, it was not cut down by clause 7.4. Properly construed, the first
half of clause 7.4 was concerned with the physical characteristics and condition of the
equipment and matters capable of ascertainment on inspection. It made clear that the
defenders gave no assurances as regards the condition, use, safety and fitness for purpose of
the equipment, but that was a different matter from the warranty that necessary records
were in the possession or control of the companies.
[21] If, contrary to the pursuers’ submission, the expression was capable of more than one
meaning, the meaning contended for by the pursuers was at the very least a possible
reading. Having regard to the surrounding circumstances at the time of contracting, it was
the meaning which accorded with commercial common sense. It would have made no sense
at all for a purchaser to have acquired all the shares in the companies if the equipment could
not be used in the offshore oil and gas industry because of the absence of necessary
documentation.
[22] Reference was made to the following authorities on the interpretation of contracts:
Investors Compensation Scheme Ltd v West Bromwich Building Society (No 1) [1998] 1 WLR 896,
per Lord Hoffman at pp 912-3; Jumbo King Ltd v Faithful Properties (1999) HKCFAR 279, per
Lord Clark of Stone-cum-Ebony JSC at paragraphs 14, 21; L Batley Pet Products Ltd v North
Britton [2015] AC 1619, per Lord Neuberger PSC at paragraphs 14-15 and 17-23; @Sipp
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Pension Trustees v Insight Travel Services Limited 2016 SC 243; Wood v Capita Insurance Services
Ltd [2017] 2 WLR 1095, per Lord Hodge JSC at paragraphs 8-15; Hoe International Limited v
Andersen [2017] CSIH 9, per the Opinion of the Court delivered by Lord Drummond Young
at paragraphs 18-21 and 23-26.
[23] The pursuers accepted that the Data Room contained documentation (7/1 - 7/7 of
process) relating to patent GB 2359103 BTE 80. The documentation showed that the patent
had lapsed with effect from 12 February 2012 because of failure to pay the renewal fee: but
it also showed that an application in terms of section 28(3) of the Patents Act 1977 for
restoration of the patent had been submitted by ASIL, and that as at 16 September 2013 ASIL
appeared to have complied with the Directorate’s requirements for having ASIL noted as the
proprietor of all three patents (and thus removed an impediment to the restoration request
being dealt with). In those circumstances, while the warranty in paragraph 6 of Part 3 was
qualified to the extent of the disclosure, the import of the disclosure was that, although the
patent had lapsed in February 2012, the steps necessary to obtain restoration had been taken.
That was the extent of the qualification of the warranty.
[24] Counsel for the defenders submitted that both the pursuers and the defenders had
been commercially sophisticated individuals and both had employed solicitors to draft the
SPA. In those circumstances the primary focus should be on a textual analysis.
[25] Counsel for the defenders maintained that, read as a whole, it was plain that
paragraph 2.6 (b) was dealing only with records necessary to comply with each company’s
statutory accounting and company law obligations. That was the ordinary and natural
reading of the provision. On the other hand, the pursuers’ suggested construction was one
which the expression could not bear. Records relating to the origins and track records of
individual items of equipment may have been needed if the equipment was to be utilised
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offshore in the oil and gas industry, but that was not invariably the case. A warranty that all
such documents were in the possession and control of the companies would have been an
unusual and onerous obligation for the defenders to have undertaken. Had the objective
intention of the parties been that such an obligation be incorporated in the SPA it was much
more likely that it would have been the subject of separate, specific provision.
[26] Moreover, the equipment was presented and “sold” on an “as seen basis”, with the
pursuers having inspected it and satisfied themselves as to its condition, use, safety and
fitness for purpose, and with the defenders giving no assurances as to those matters. On a
proper construction of clause 7.4 it was clear that it was not just referring to the physical
condition of the equipment. The language used contained no such restriction.
[27] Having regard to the terms of the contract as a whole, and all the circumstances
which would have been known to or reasonably available to both parties at the time of
contracting, it could not be said that the pursuers’ construction of paragraph 2.6 (b) accorded
more with commercial common sense than the defenders’ construction. The equipment had
lain idle for a lengthy period and it had not been carefully stored or maintained. It was not
true to say that without the documentation desiderated by the pursuers the equipment
would be incapable of being used anywhere in the world. It was clear from the terms of the
SPA that only limited warranties relating to the companies’ assets were being given by the
defenders. It followed that the pursuers’ averments setting out their suggested construction
of paragraph 2.6 (b) were irrelevant.
[28] In addition to the authorities mentioned by counsel for the pursuers, counsel for the
defenders referred to Credential Bath Street Ltd v Venture Investment Placement Limited 2008
Housing LR 2, per Lord Reed at paragraphs 24, 37; and Bank of Scotland v Dunedin Property
Investment Co Ltd (No 1) 1998 SC 657, per Lord President Rodger at pp 661F-H, 665F-G.
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[29] So far as patent GB 2359103 BTE 80 was concerned, the correspondence in the Data
Room fairly disclosed that the patent had lapsed with effect from 12 February 2012 because of
a failure to pay the renewal fee. It also disclosed that an application in terms of section 28 (3)
of the Patents Act 1977 for restoration of the patent had been submitted. Since there was no
later information in the Data Room indicating that the application for restoration had been
determined, the information fairly disclosed was that there was not a valid patent as at the
date of Completion. It was neither here nor there whether the recollection of Mr Betteridge or
Mr Stroud was correct in relation to there having been the suggested exchange about patent
correspondence. Even if Mr Stroud’s recollection was correct, the exchange did not affect the
parties’ rights and obligations vis-a-vis the patent standing the entire agreement clause
(clause 13). The lapse of the patent due to non-payment of the renewal fee had been fairly
disclosed, and the disclosure qualified the warranty in paragraph 6. Accordingly, the
undernoted averment in Article 8 of condescendence was irrelevant and ought not to be
admitted to probation:
“On a fair reading of the correspondence within the dataroom the information within
the dataroom did not qualify the warranty given by the Defender.”
Decision and Reasons
[30] It was common ground that evidence in relation to the negotiation of the SPA was
inadmissible except in so far as it disclosed facts known by, or reasonably available to, both
parties at the time of contracting. I also understood it to be uncontentious that passages in
the witness statements of Mr Nergaard and Mr Betteridge relating to the subjective intention
of the defenders and the meaning and effect of the contract were inadmissible. In his closing
submissions counsel for the pursuers insisted on his objection to the latter two matters, and
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to the evidence of negotiations except where directed to showing facts known to both parties
at the time of contracting. I sustain that objection.
[31] Each of the witnesses who gave evidence appeared to me to be doing his best to
assist the court. No issue of credibility arises from their evidence. Except where I indicate
otherwise I accept their evidence as reliable on all relevant admissible matters.
[32] Paragraph 2.6 (b) requires to be construed having regard to its documentary, factual
and commercial context. The documentary context is provided by the whole terms of the SPA
and by the contemporaneous Memorandum of Understanding. The factual and commercial
context included the following matters. ASIL and ASET had obtained the equipment from
AGR Subsea Limited. The last major contracts where the equipment had been used had been
prior to that transfer; but thereafter ASIL and ASET had used some of the equipment in the
offshore oil and gas industry, and they had tendered to use the equipment in further projects
in the future. At the time of contracting both parties had been aware that the equipment had
been idle for upwards of a year, that storage had been poor, and that the equipment would
have needed significant servicing and repair if it was to be used. Both parties had been aware
that the pursuers planned to have at least some of the items of specialist equipment - such as
the Calder pumps, the Seavator and the Claycutter - available for use in the offshore oil and
gas industry. The parties - and anyone in the industry appraised of the facts at the time of
contracting - would have known that the equipment would have no real value if it could not
be used in the industry because of the absence of the appropriate documentation. Anyone
involved in the offshore oil and gas industry in December 2013 - including the parties - would
have known that, if the equipment was to be used in that industry in any jurisdiction where
the companies such as ASIL and ASET might wish to do business, documentation verifying its
origin and its track record since manufacture would be required; and that the need for such
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documentation arose from the need to satisfy regulatory requirements and industry practice.
Retrospective reconstruction of documentation, by eg returning to manufacturers and
employing independent verifiers, was not a practicable alternative. Ultimately I understood
Mr Betteridge to accept all these matters: but whether that is so or not I find the evidence of
the other witnesses in relation to them persuasive.
[33] In construing paragraph 2.6 (b) the starting point is the language used. The warranty
in the second part of that subparagraph is not an unqualified warranty that all records
relating to each company’s affairs are in the possession of or under the control of the
defenders. The warranty is given only in respect of “necessary” records etc. The obvious
question is, “Necessary for what purpose or purposes?”
[34] The pursuers say necessary records etc. has a wide ambit and that it includes those
records needed to demonstrate the origins and track records of the companies’ equipment to
enable its use in the offshore oil and gas industry. The defenders say that, read as a whole, it
is plain that paragraph 2.6 (b) is dealing only with records necessary to comply with the
companies’ statutory accounting and company law obligations. They say that that reading
sits comfortably with the terms of clause 7.4; whereas, by contrast, the pursuers’ suggested
construction does not.
[35] I agree with the pursuers that on an ordinary and natural reading the language of the
relevant part of paragraph 2.6 (b) has a wide ambit. I think the ordinary and natural
meaning of the phrase is such records etc relating to the company’s affairs as companies
engaged in such affairs would reasonably consider it necessary to retain for the company’s
purposes. As already noted, part of the factual and commercial context was that the
companies’ affairs involved using the equipment in the offshore oil and gas industry in the
past, with proposed use of them in that industry in the future. In those circumstances
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documentation vouching the equipment’s origins and track record appears to me to fall
within the scope of the warranty in paragraph 2.6 (b). I am not persuaded that construing
the provision in the way the pursuers suggest involves the defenders having assumed an
unusual and unduly onerous obligation. Where the whole shareholding of a company is
acquired it is not uncommon for the seller to warrant that important records of the company
are in the company’s possession or under its control.
[36] I am doubtful whether the defenders’ suggested construction is a possible
construction of paragraph 2.6 (b). It involves reading in a limitation which the parties did
not express. Even if, contrary to my view, it is an available reading, in my opinion the
construction I favour is the more ordinary and natural reading. I think it is also the
construction which accords better with business common sense. It would make no sense for
a purchaser to have bought the shares if the companies could not use the equipment in the
offshore oil and gas industry because of an absence of necessary documentation.
[37] In reaching my conclusions I have had regard to the whole terms of the SPA,
including clause 7.4. The clause may conveniently be split in two. The second part (“and
accordingly …permitted by law”) provides that the express terms of the SPA are to apply in
place of all warranties etc expressed or implied by statute, common law, custom, usage or
otherwise in so far as the law permits their exclusion. No issue in relation to that part of the
clause arises. The first part of the clause provides that “the Assets” are presented and “sold”
on an “as seen basis” where the purchaser confirms it has inspected and satisfied itself as to
the condition, use, safety and fitness for purpose of “the Assets” (upon which matters the
defenders gave no assurances). It seems clear that the references to “the Assets” in the first
part of the clause ought not to be interpreted as references to the defined term. The context
suggests that the only sensible meaning of the words is the equipment in section A of Part 5
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20
of the Schedule (rather than the assets in both section A and section B). It was agreed that
the pursuers had inspected the equipment and satisfied themselves as to its condition, use,
safety and fitness for purpose, and that the defenders gave no assurances on those matters. I
accept that on a proper construction of this part of the clause the pursuers are to be taken to
have satisfied themselves as to those matters in so far as it was possible to do so by
inspection of the equipment. However, since such inspection could not inform the pursuers
whether the companies had the necessary documentation or not, in my opinion that matter
did not fall within the purview of the matters upon which the pursuers confirmed they were
satisfied by virtue of the inspection. Accordingly, I see no inconsistency between clause 7.4
and the interpretation of paragraph 2.6 (b) which I favour. In my view the provisions deal
with different matters. Moreover, it is readily understandable that reasonable contracting
parties in the position of the parties here would be content with paragraph 2.6 (b) making
such provision. They would be aware that unless the necessary records were in the
possession or control of the companies it would not be a matter that the purchaser would be
in a position to remedy: and that without the records the equipment would be of no real
value to it.
[38] I turn then to the para 6 warranties and the Data Room disclosure. I am inclined to
accept that there was indeed an exchange of some sort between Mr Stroud and Mr Betteridge
in about August 2013. However, I am not satisfied that the exchange was of any significance.
Mr Stroud’s evidence was that a renewal notice had been sent in error by the Patents
Directorate to Mr Sills, and that Mr Stroud had passed it on to Mr Betteridge. Mr Stroud did
not say in terms that the notice related to patent GB 2359103 BTE 80 (as opposed to one of the
other patents), and I think it highly unlikely that it did. In August 2013 patent GB 2359103
BTE 80 had been a lapsed patent for over a year. There would have been no reason for the
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21
Directorate to send a renewal notice. No fee was due in respect of the lapsed patent. On the
other hand, the other patents had not lapsed. They would have had to have been renewed
annually.
[39] In my opinion, fairly read, the Data Room disclosure relating to patent GB 2359103
BTE 80 informed the pursuers that the patent had lapsed with effect from 12 February 2012
because of failure to pay the renewal fee due on that date. It also informed them that as at
mid-September 2013 the patent had not been restored, but that an application for its
restoration had been submitted by ASIL and that an impediment to the application being
dealt with had been addressed by the return of the duly completed Form 21. It follows in
my view that, at the very least, the information in the Data Room fairly disclosed to the
pursuers what the position had been between those dates: and that the defenders did not
warrant that the renewal fee due on 12 February 2012 had been paid when it fell due, nor
did they warrant that the patent was valid, subsisting and enforceable etc between
12 February 2012 and mid-September 2013. Fairly read, did the disclosure do more than
that? The crucial question, it seems to me, is whether the information fairly disclosed what
the position was three months later (at the date of the SPA and at the date of Completion).
The warranties in paragraph 6 were matters which the defenders warranted were true and
accurate and not misleading as at the date of Completion (clause 7.1). It did not inevitably
follow from the facts that the patent remained lapsed as at mid-September 2013 with an
application for restoration outstanding, that the position would be bound to be the same at
the date of Completion. In the intervening period the restoration application might have
been determined, with a grant or refusal of restoration. However, the context was that the
Data Room could be updated until the delivery of the USB flash drive at Completion, but
that there was no material relating to the patent after mid-September 2013. Had the
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restoration application been determined in the interim, but documentation vouching that
determination not been included in the Data Room, the patent information which had been
included would have been misleading. It would not have fairly disclosed the current status
of the restoration application. In my opinion an objective reader of the patent information in
the Data Room would have reasonably inferred that it told the whole story, and he would
have concluded that it represented the position at the date of Completion. Accordingly, in
my view, the defenders fairly disclosed that at that time the patent had lapsed but that an
application for its restoration had been made and was outstanding. It follows that the
warranties in paragraph 6 were qualified by, and subject to, that disclosure. In the result, so
far as patent GB 2359103 BTE 80 was concerned, the principal effect was that, rather than
warrant that the patent was valid, subsisting and enforceable, the defenders warranted that
at the date of Completion ASIL had an outstanding application for restoration of the patent.
[40] Finally, I record that during the course of his submissions counsel for the pursuers
made brief reference to clause 19. I do not propose to comment on the submission. The
proper construction of clause 19 and its possible application in the circumstances of the
present case were not matters which formed part of the subject-matter of the Preliminary
Proof. It would be wrong to express a view on them before the issues are fully explored
with the benefit of any relevant evidence and more fully developed submissions.
Disposal
[41] Counsel requested that I issue my Opinion and put the case out By Order to discuss
the terms of an appropriate interlocutor to give effect to my decision. I shall accede to that
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