RECLAIMING MOTION BY ARDMAIR BAY HOLDINGS LTD AGAINST JAMES DOUGLAS CRAIG [2020] ScotCS CSIH

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	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> RECLAIMING MOTION BY ARDMAIR BAY HOLDINGS LTD AGAINST JAMES DOUGLAS CRAIG [2020] ScotCS CSIH_21 (12 May 2020) URL: http://www.bailii.org/scot/cases/ScotCS/2020/2020_CSIH_21.html Cite as: 2020 GWD 16-230, 2020 SLT 549, [2020] ScotCS CSIH_21, [2020] CSIH 21

Pursuer and Respondent: Lord Davidson of Glen Clova QC; CMS Cameron McKenna Nabarro

[1] In October 2017 the parties entered into an agreement for the purchase by the

pursuer from the defender and others of the whole share capital of the Craig Group Ltd

(“the Company”) for a price of £82,570,677. The agreement in question, known as the Sale

and Purchase Agreement (“the SPA”), was executed on 14 October 2017. The Company and

its subsidiaries provide support and supply vessels and emergency response and rescue

services to operators in the North Sea oil industry. The defender was a major shareholder in

the Company. The pursuer alleges that the defender, together with other shareholders, is

liable for two breaches of warranties contained in the SPA, and is also liable for breach of a

further clause of the contract dealing with matters becoming known between the date of

execution of the SPA and its completion. Before the Commercial Judge the pursuer also

advanced two further cases based on wilful concealment and common law

misrepresentation, but these were rejected by the Commercial Judge and are no longer

[2] All of the remaining three grounds of action relate to alleged failures by the defender

and other shareholders to disclose that, immediately prior to the execution of the SPA

Repsol, a major client of the Company, had emailed an invitation to tender (“ITT”) for

services that were at the time provided by a subsidiary of the Company. The pursuer claims

that the terms of the invitation to tender indicated that the Company was likely to lose its

two most valuable contracts, or at best would require to renegotiate those contracts on

markedly less favourable terms. That is said to amount to a breach of two warranties, one

relating to the completeness and accuracy of a document known as the Current Contracts

Summary (“CCS”) and the other relating to the disclosure of negotiations relating to the

Company’s business. In short, the pursuer alleges that the receipt of the ITT was a matter

that should have been included in the CCS but was not, and that the ITT initiated

negotiations that should have been notified prior to signature of the SPA. The pursuer

further alleges that the defender is liable for breach of a clause, clause 8.1.3, which requires

disclosure of certain matters arising during the period between execution and completion of

the SPA. The Company bid for renegotiated contracts with Repsol but was unsuccessful.

The pursuer estimates its loss from the breaches of warranty and breach of contract to be

[3] Before the Commercial Judge the pursuer was successful in arguing that the

defender was liable for breaches of the two contractual warranties and breach of the

notification requirement in clause 8.1.3. The Judge accordingly pronounced declarator that

the defender was in breach of the SPA in respect of the two breaches of warranty and the

further breach of contract relating to non-disclosure. By interlocutor dated 11 September

2019 she allowed a proof before answer restricted to quantum. The defender was granted

[4] The Company and its subsidiaries owned and operated one of the largest wholly-

owned British shipping fleets engaged in the UK offshore industry. The defender was the

largest single shareholder in the company, holding 46.73% of its shares. He had joined what

was then a family business in about 1977, when it was principally involved in deep sea

trawler fishing in the North Sea. He became managing director but, upon his father’s death

in 2010, he became chairman. Under the provisions of the SPA he received £33.5 million of

the consideration paid for the company’s shares. From 1977 onwards the business had been

developed significantly through the creation of a number of new companies operating in

marine and offshore services and the development of bases in Singapore, Houston and Abu

Dhabi, as well as elsewhere in the UK. By the time when it was sold the group provided

emergency and rescue services, assistance to tankers, supply services to platforms and

[5] North Star Shipping (Aberdeen) Ltd (“North Star”) is a subsidiary of the Company.

North Star provided support vessels, known as “emergency response and rescue vessels”

(“ERRVs”), and services to offshore installations. The ERRV business in the UK is a highly

regulated sector. Among the vessels operated by North Star were two specialist “S-class”

vessels, the Sceptre and the Sovereign. These were purpose built to satisfy certain health

and safety and operational requirements for North Sea oil installations operated by the

company that is now known as Repsol Sinopec Resources UK Ltd (“Repsol”). Each vessel

had a maximum displacement of 5,000 tonnes with an assigned draft of 5.0 metres (“the

displacement requirement”). By comparison with other vessels operating in the same sector,

those represented a relatively low displacement and draft. The S-class vessels were

constructed with a low displacement to meet the requirements of Repsol’s North Sea

installations. Those installations were considered “ageing assets”, and consequently a low

displacement was needed to protect the integrity of the installations and to prevent the risk

[6] The S-Class vessels became operational in 2013. North Star provided them to Repsol

on an exclusive basis, together with associated support services, pursuant to two five-year

charterparties. The charterparties included five successive one-year options whereby Repsol

could extend the charterparties on the same terms. The charterparties were due to expire,

respectively, in May and in October 2018. The options were exercisable on 90 days’ notice,

that is, in about March and August 2018. Generally, an option would be exercised about

four or six weeks before. If that had occurred, the two charterparties would have been

extended until May and October 2023 respectively. In the event, the options were not

[7] The S-class vessels’ ability to comply with Repsol’s displacement requirements was

understood by the Company’s management team to be unique among service vessels

operating in the North Sea. Consequently North Star, so long as it retained the vessels that

satisfied those displacement requirements, had a de facto monopoly of ERRVs capable of

servicing Repsol’s installations. That enabled North Star to charge a premium day rate for

those vessels. In 2013 the rate had been approximately £13,500 for each of the S-class

vessels, which increased to £13,700 in 2015 and dipped to £13,400 in 2016. This was

approximately double the day rate for other vessels. The S-class vessels were accordingly a

major contributor to the value of North Star’s and the Company’s business.

[8] The management of the Company thought that the de facto monopoly enjoyed by

North Star through its ownership of the S-class vessels would ensure that Repsol’s options

would be exercised following the termination of the existing charterparties for those vessels.

That would mean that in practice the contractual arrangements between North Star and

Repsol would continue until 2023, with consequent benefits to the Company’s income

stream. In the course of the negotiations that preceded the SPA the pursuer’s advisers,

Wood MacKenzie (see paragraph [16] below), examined the charterparties entered into by

the Company and its subsidiaries. Their analysis, which was of importance in determining

the pursuer’s approach to the SPA, proceeded on the assumption that the S-class vessels

would continue to be required by Repsol into the option period. They further noted that

North Star made a great deal of money from the S-class vessels, notwithstanding possible

difficulties in Repsol’s long-term position. Overall, therefore, the pursuer proceeded on the

assumption that Repsol would in fact exercise its options. The Commercial Judge states that

there was no doubt that those who represented the Company, including its management,

were well aware of that approach to the valuation of the Company.

[9] The SPA is a contract for the sale and purchase of the whole of the issued shares in

the Company. The Sellers, defined in Part 1 of the Schedule, comprise the defender, two

other persons and two sets of trustees; the defender holds 13,968 of the 29,894 issued shares.

The Buyer is defined as the pursuer. Clause 2 provides that the Sale Shares (a defined term)

are to be sold with effect from Completion of the sale and purchase; the Completion Date is

defined as 6 November 2017, although the Commercial Judge found that Completion in fact

occurred on 2 November 2017 (opinion, paragraph [5](4)). Clause 3 defines the manner in

which the Purchase Price is calculated. This involves basic price of £101,500,000 with a

range of adjustments. The Provisional Purchase Price was set at £82,300,296.

[10] The parties’ dispute turns principally on three particular provisions of the contract:

first, clause 8.1.3; secondly paragraph 11.3 of the warranties in Part 4 of the Schedule; and

thirdly paragraph 26 of the warranties in Part 4 of the Schedule, and in particular

paragraph 26.6 thereof. We will set out these provisions in turn.

[11] Clause 8 of the SPA deals with the period before completion. It imposes obligations

on the Warrantor, a term defined as being the defender. So far as material, the clause

“8.1 The Warrantor shall ensure that during the period beginning on the signing

8.1.3 the Warrantor shall, as soon as reasonably practicable, notify the

Buyer in writing of any matter which becomes known to him after the date of

reasonably be expected to constitute, a material event in respect of the

The term “material event” is not expressly defined. Clause 9 deals with Completion.

Clause 9.3 provides that Completion is conditional on compliance by the Warrantor with its

[12] Clause 10 of the SPA deals with the contractual warranties. So far as material, it

“10.2 The Warrantor warrants to the Buyer that each Warranty (other than the Title

Warranties and the Warranties set out in paragraph 27 of Section B of Part 4 of the

Schedule) is true and accurate as at the date of this Agreement”.

[13] Part 4 of the Schedule to the SPA contains extensive warranties. Those that are

relevant to the present proceedings are found in paragraphs 11 and 26. First, paragraph 11,

“11.2 Complete and accurate copies of all Material Contracts have been Disclosed.

11.3 There are no outstanding or ongoing negotiations of material importance to

the business, profits or assets of the Company or any of the Subsidiaries, or any

outstanding quotations or tenders for a contract that, if accepted, would give rise to a

“Material Contract”, as used in the two foregoing provisions, is defined as:

“(i) all charter agreements to which the Company or any of the Subsidiaries is

party; and/or (ii) all other agreements to which the Company or any of the

Subsidiaries is party which are of material or fundamental importance to the operation

“26.6 Document 6.1.1 of the Disclosure Bundle (“Current Contracts Summary”) sets

out complete and accurate details of all the charter arrangements that are in place as at

The Current Contracts Summary referred to in the foregoing warranty (“CCS”) had

emerged during earlier sale negotiations between Basalt Infrastructure Partners (“Basalt”), a

midmarket infrastructure fund focusing on equity investment in Europe and North

America, and the Company in 2016. It was a detailed document, incorporating, in respect of

each vessel owned by the sellers, utilisation figures for each vessel, average day rates,

estimated cessation of production (“CoP”) for the platforms serviced, assumed scrap

weights and a comments section relative to each vessel which contained information not

falling under any other headings but which was important for the buyers of the business to

know and track. The CCS disclosed that the Sceptre/Sovereign contracts with Repsol were

due to end in October/May 2018, but that the option end dates were October/May 2023.

Thus the option arrangements were clearly referred to in the CCS. This appears to us to be a

[15] It is convenient to refer, as the Commercial Judge did, to the two sides of the

transaction as the buy side and the sell side, the former being the pursuer and the latter

being the existing shareholders of the Company. Those operating on the sell side were as

follows. The managing director of the Company was Callum Bruce; he was retained after its

sale as chief executive. He was also a director of North Star. The group finance director was

Graham Payton. He was the prime conduit of information from the Company management

team to the sellers’ agents, Simmons and Company (“Simmons”); Simmons provides

advisory services for mergers and acquisitions. The commercial director of North Star was

Gordon Wallace; he was kept on as chief operating officer after the sale of the company.

Messrs Bruce, Payton and Wallace, and Alan Holden, were defined as the company’s

“Managers” in the SPA. The defender was not actively involved in the exchange of

information between the pursuer and the sellers in the period prior to the signing date. The

advisers primarily involved were Ross Atkinson and Fraser Dobbie of Simmons, who both

gave evidence, and Douglas Crawford of Brodies LLP, who was the defender’s solicitor in

[16] Those operating on the buy side of the transaction were as follows. The entity which

funded the pursuers’ acquisition of the company was Basalt. Steven Lowry was one of

Basalt’s founders and played a major role in the acquisition of the Company. Wood

MacKenzie was responsible for carrying out due diligence on behalf of Basaalt in connection

with the SPA, but this did not extend to legal diligence. Wood MacKenzie assisted in the

analysis of commercial data provided in relation to the Company. Wil Jones was a project

manager for Wood MacKenzie, reporting to Malcolm Forbes-Cable, a vice president of that

business. Wei Lui worked on financial modelling for Wood MacKenzie.

[17] Mr Lowry had become aware in 2016 of an Aberdeen based business (the Company)

whose owners were interested in selling it and which, compatibly with Basalt’s investment

model, was subject to regulatory oversight, operated in a market with high barriers to entry,

was driven by health and safety regulation, and had tangible assets and fixed term contracts.

Simmons sent an information pack about the company to Mr Lowry. He delegated the day

to day management of the potential deal to Wil Jones. Basalt made an indicative offer for

the Company of £152 million on 28 September 2016, subject to due diligence. As a

consequence of due diligence undertaken by Wood MacKenzie, this valuation could not be

supported. The offer was withdrawn on 3 November by a letter indicating concern about

uncertainty in the market and, in particular, whether the contract or day rates had

[18] A second approach to buy the company was made in 2017, after Simmons had

produced an updated business plan and forecasts. On 13 June 2017, Basalt submitted a new

offer of £110.5 million. £10 million was deferred against future performance, reflecting the

buy side’s view that the decline in day rates had abated or reached an acceptable level. A

further exchange of information on 16 June led to the offer being amended to £105 million

without deferral. On 21 August, the North Star management team, via Simmons, provided

a market update, reflecting a reduction in the day rate for several vessels. This was the day

before Mr Lowry was to meet North Star’s managing director. A final offer of £101.5 million

[19] Mr Lowry had explained in evidence that prior to each offer being made, the pursuer

had spent time with the management team of North Star going through “contract by

contract, vessel by vessel” to understand the status of each. The current and future

contracts, including those for the deployment of the S-class vessels and associated services

to Repsol, were integral to the pursuer’s valuation of the Company, and the Company’s

contracts, present and future, were “crucial to understanding the value of the business”.

The Company’s management team described the S-class vessels as “specialist” and

“purpose-built” for Repsol and on long-term contracts. The sellers’ forecast of the day rates

for the S-class vessels was not affected by general concerns about a fall in day rates, because

it was only the Company that was in a position to meet Repsol’s specific needs. Thus the

Company was not concerned about competition for Repsol’s business, and proceeded on the

assumption that the existing contracts for the S-class vessels would be extended for the

[20] The buyers’ and sellers’ sides exchanged emails on 5 October 2017. One of the Basalt

team emailed Simmons at 9.37am with a query about the S-class vessels:

“… we are not clear on the circumstances of the previous rate reductions for these

vessels. If management could provide their expectation and rationale for the day

rate for these assets in the option period that would be helpful”.

Fraser Dobbie forwarded the query to Messrs Bruce and Wallace asking for a response.

Mr Wallace replied, copying in Messrs Paton and Bruce, by asking Mr Dobbie whether the

rate level he had projected for both of the S-class vessels was £10,000 or £12,000. At 12.56

Ross Atkinson of Simmons responded, copying in Messrs Wallace, Bruce, Payton and Fraser

“The Sceptre and Sovereign are currently in the financial model on rates of £13.4k on

contracts, we have assumed the option period to go out to 2023 at these rates and the

rate then basically stays the same at £13.4k under our market assumptions.

At 13.31 Fraser Dobbie responded to Messrs Bruce, Wallace and Payton:

“…these are essentially carried through at the contract rate throughout the forecast.

[It] has been decided the best thing was to keep the external view that the vessels are

unique and Repsol have nowhere else to go, as such why would the rate move”.

[21] At 15.23 Gordon Wallace replied to an earlier email from Fraser Dobbie with a

“The Grampian S class vessels were purpose-built to satisfy HSE requirements whilst

working alongside certain ageing North Sea assets. This followed a Global Tender

exercise to identify the specific tonnage capable of meeting the charterers [sic] requirements,

consequently, we believe that the Grampian S class vessels are the only vessels capable of

meeting this specific requirement. As far as we are aware these are currently the only

vessels in the North Sea that can satisfy these requirements. As such the rate

expectations would be in line with projected expectations. The current time we have

no information on Repsols [sic] Marine strategy going forward, as such we have based

The rates were reduced by a token amount in 2016 as a strategic move to resecure

Fraser Dobbie proposed deleting the sentence underlined. He gave two reasons for this in

evidence: first, that Mr Wallace could not have a valid opinion on the subject matter, but

secondly, after it was noted in cross examination that the deleted sentence was a statement

of fact, that it was best to keep diligence responses “concise”. Mr Wallace emailed a further

amendment adding the italicised text and deleting the text struck through.

The rates were reduced by a token amount in 2016 as a strategic move to re-

The Grampian S class vessels were purpose built to satisfy HSE requirements whilst

working alongside certain age-ing North Sea assets. This followed a Global Tender

exercise to identify the specific tonnage capable of meeting the charterers [sic]

requirements, consequently, we believe that the Grampian S class vessels are the only

vessels capable of meeting this specific requirement. As such the rate expectations

would be in line with projected expectations” (emphasis added).

Wood MacKenzie gave advice to Basalt on the basis of this response, in the following terms:

“For the S-Class vessels the minimum day rate reduction in the 2016 as part of a

larger contract deal highlights to us the specific nature of the Sceptre and Sovereign

vessels. In light of this it is fair to assume that the options will be exercised at the

current rate. Post the option period we will take into consideration the reduced

operational base of platforms of Repsol Sinopec at that time and assume a utilisation

[23] Prior to receipt of this email, Wood MacKenzie’s analysis had been that the options

would be exercised by Repsol but that the rates would drop by approximately 35%. That

assumption changed because North Star confirmed that, because of the bespoke nature of

the S-class vessels, these were the only vessels capable of meeting Repsol’s needs. In his

evidence Mr Forbes-Cable explained that he would have found it helpful to see the sentence

which had been deleted before the final draft of the 15.23 email was sent out (see

paragraph [21] above). He stated that if Wood MacKenzie had not received confirmation

from North Star that the day rates would be maintained at current levels during the option

period, they would not have revised their original analysis. Mr Forbes-Cable stressed the

significance of the S-class vessels to the overall valuation of the company; their day rates

were the highest of all the vessels, and thus had a disproportionate impact on the valuation.

[24] Late in the afternoon of 13 October 2017 the Company received an email from

Repsol; the email was timed at 16.23. A covering letter and an ITT were attached. The email

did not refer specifically to the S-class vessels, but details in it made it clear that it referred to

the services currently provided by those vessels, in particular the commencement dates

specified (May and October 2018). The Commercial Judge notes (paragraph [62]) that the

sell side management team knew that it referred to those vessels. In the email Repsol noted

a requirement for two Platform Supply Vessels (PSVs) starting in late May and late October

2018 for one, two or three years plus options. The letter further stated that a methanol

capability was mandatory on the vessel delivering in May. Tenders were required by close

of business on 31 October 2017. The covering letter requested competitive “tenders” for PSV

services beginning in late May for the first vessel and late October for the second. Bids were

invited for contracts of one and three years, each with two one-year options, and for two

years, with three one-year options. A methanol capacity was required for the vessels sought

from May 2018, although it was indicated that alternative tenders would be considered if

they provided a robust and cost effective solution. The letter stated that Repsol reserve the

[25] Accompanying the email was an ITT. The technical specifications for the PSVs in the

ITT did not stipulate any requirement for displacement or deadweight tonnage. That meant

that there was no maximum requirement for either displacement or deadweight tonnage.

The ITT also referred to the possibility that a vessel might be tendered with a methanol

capability. The Commercial Judge notes (paragraph [63]) that the most significant feature of

the ITT was the absence of any displacement requirement, because that meant that the S-

class vessels lost their advantage of being the only vessels capable of meeting Repsol’s

requirements. Also significant was the new stipulation regarding methanol capacity for

vessels serving the Repsol platforms, as the S-class vessels did not have that capacity.

Retrofitting them to provide methanol capacity would cost approximately £500,000 per

vessel. It was also significant that the date of commencement of any successful tenderer was

the date when the first option under the existing charterparties became operative. Thus the

granting of a charter in accordance with the ITT would be inconsistent with the exercise of

The sell side’s reaction to Repsol’s email and accompanying documents

[26] As already noted, Repsol’s email was sent late in the afternoon of 13 October 2017.

That evening the completion meeting was scheduled to take place at Brodies’ office. The

timing accordingly caused difficulties. Evidence was led about the reaction of the

Company’s employees to receipt of Repsol’s email on 13 October 2017. Callum Bruce, the

Company’s managing director, received the email and ITT at 17.23. He gave evidence that it

was clear from the email that it related to the S-class vessels. Shortly afterwards Gordon

Wallace, the Company’s chief operating officer, had also received the email, and contacted

Mr Bruce with a comment that the timing was bad. Mr Bruce forwarded the email to

Simmons, but they did not ask to see the ITT. It appears that no individual on the sell side

opened up the ITT on the date when it was received; that did not occur until four days later,

Completion of the contract for the sale of the shares in the Company

[27] The Commercial Judge notes (paragraph [67]) that she heard a considerable amount

of evidence about the meeting for completion of the contract that had been fixed for Brodies’

office during the evening of 13 October 2017, including the advice that was tendered

(principally by Douglas Crawford of Brodies) and the defender’s participation for part of the

meeting; he made a call from on board a cruise ship. It was not controversial that none of

the North Star management team had opened the ITT attached to the Repsol email. The

meeting was attended by Douglas Crawford, but he was not told about the reference in the

email to a requirement for methanol capacity, or the anticipated cost, in the region of

£500,000 per vessel, of adapting the S-class vessels to provide such a capability. As to the

timing and significance of the Repsol email, this was represented to Mr Crawford as a

normal business event. The Commercial Judge notes that this was significant; Mr Crawford

had considered the warranties that were to be granted and advised the defender that he did

not require to disclose the ITT. No reference was made at the meeting to the representation

in the Simmons email of 5 October 2017 (paragraph [20] above), to the effect that it had been

assumed that the option period on the two S-class vessels would continue until 2023 at

existing rates. Nor, therefore, was any reference made to the need to correct that email.

[28] The agreement between the parties was signed on 14 October 2017. Consequently it

seems clear that the understanding of the representatives of both the buyers’ and the sellers’

sides following the meeting the previous evening was of fundamental importance to that

agreement. Evidence was led regarding the significance of the receipt of an ITT. Gordon

Wallace stated that ITTs were used as a means of generating competition. Mr Wallace and

Callum Bruce were both surprised that the ITT had been issued so early, well before the

options in respect of the S-class vessels fell to be exercised. The Commercial Judge observes

that the receipt of an ITT was “not a neutral factor”. Mr Wallace had accepted in evidence

that the ITT had the potential to “make Basalt think again”. The defender had given

evidence to the contrary, that the ITT was not a surprise to him or even the management

team, but the Commercial Judge described that evidence as not credible and inconsistent

[29] Evidence from Mr Wallace indicated that the market for PSVs in October 2017 was

“soft”, and that charter rates were subject to downward pressure. That would apply to

Repsol. Mr Wallace considered the ITT to be important, because of the significance of the

charterparties for the S-class vessels. Consequently it was a matter about which the sell

side's lawyers should be informed. The evidence of Callum Bruce was broadly to the same

effect. He accepted in hindsight that the receipt of the ITT indicated that continuation of the

charters for the S-class vessels would not be automatic, and Repsol were probably

attempting to obtain a reduction in charter rates. The reaction of the representatives from

Simmons was limited by the information that they had been given at the meeting about the

ITT. Fraser Dobbie of Simmons had limited recollection of what was said, but he recalled

that the North Star management team regarded the ITT as an ordinary business event. He

stated that had he been acting for the buyer he would have asked further questions about

the ITT. Ross Atkinson, the other Simmons representative, also accepted that the buy side

would have an interest in knowing about the ITT because of its impact on the risk in respect

[30] The Commercial Judge comments that the sell side management were well aware of

the significance of the S-class vessels for the value of the business, the softening of the PSV

market in the North Sea, and the buy side’s focus on factors such as day rates to forecast

future profitability. The latter factor had been demonstrated by Basalt’s withdrawal of an

offer for the Company in 2016, and the buy side’s interest in day rates during the 2017

“It is difficult to reconcile the sell side’s collective quiescence on receipt of the ITT

with their knowledge of these matters. All of the witnesses on the sell side accepted

in one form or another that the buy side would have wanted to know about the

receipt of the ITT, and that it introduced a risk of the S-Class Vessels charters not

She further notes that the witnesses on the sell side did not individually regard the ITT as

within their managerial responsibility; significant downsides would only occur if the sale

[31] The Commercial Judge records the evidence led about a telephone call that was

made to the defender during the meeting in Brodies’ office. For present purposes it is

sufficient to note that she did not regard the defender’s evidence as credible and reliable. In

particular, his evidence that the ITT was not a surprise to him or others on the sell side was

not credible. Otherwise the defender’s evidence did not assist in assessing the materiality of

the receipt of the ITT from Repsol. The Judge concluded, however, that she considered it

more likely than not that the defender knew of the principal features of the ITT and Repsol

email during the window between the meeting of 13 October and completion.

[32] Legal advice was given at the meeting in Brodies’ office by Douglas Crawford, of

that firm, to the effect that there was no requirement to disclose the email and the ITT. The

Commercial Judge observes that Mr Crawford could only give advice on the receipt of the

ITT based on the way in which that event was presented to him by the sell side management

team. On that, she considered that the significance of the ITT was significantly downplayed;

The consequences of the ITT and the failure to disclose it prior to completion

[33] As we have noted, the parties contract was signed on 14 October 2017. The receipt of

the ITT had not been disclosed to the buy side at that time. Douglas Crawford

recommended that the ITT should be disclosed by the sell side, although not against the

contractual warranties. In an email to the sell side, sent on 22 October 2017, Callum Bruce

dealt with seven distinct matters, the fifth of which was the relationship with Repsol. That

“Repsol have issued an RFQ looking for a tender to be submitted mid-November,

awarded likely in Q 1 next year, for the two ‘S’ Class vessels commencing on expiry

of the current contracts in May and October next year. As per our normal approach

as the incumbent but particularly as these are specialist vessels we will wait until

near the submission date to come to a firm decision on the rate to be offered”.

On receipt of this email, Steven Lowry circulated it to others within Basalt, with the

comment “S class gets a mention but things look relatively solid”. It was accepted that an

RFQ (request for quotation) was not the same thing as an ITT, although in evidence Callum

Bruce attempted to minimize the difference. A further meeting between the North Star

management team and the buy side was held on 7 November 2017, and Callum Bruce

telephoned Wil Jones of Basalt on 9 November, but no mention was made of the ITT on

either occasion. Information about it was only provided on 30 November 2017, in reply to a

direct question by the buy side. Steven Lowry stated in evidence that the buy side had been

very surprised and believed that the ITT should have been disclosed before the signing date.

In evidence both Steven Lowry and Ross Atkinson accepted that the ITT and the potential

loss of the Repsol contracts was a serious matter. The Commercial Judge concluded that the

buy side had been not been aware of the ITT prior to completion (paragraph [120]); it had

been mischaracterised as a lesser “RFQ”, the date on which it was received was withheld,

and the abandonment of the displacement requirement and the requirement for methanol

[34] Steven Lowry stated in evidence that if he had known about the ITT the buy side

would have been “concerned” about other competitors for the Repsol contract. If he had

known of the ITT, the buy side would have paused and investigated it. The Commercial

Judge states that he was “clear” that the buy side would not have signed the agreement until

it understood the risk around the S-class vessels. The foregoing features, Mr Lowry stated,

would have pushed the transaction “outside the parameters” that had been approved by

Basalt’s investment committee. Even in respect of methanol capacity, the buy side would

have compared the specification appended to the ITT with the existing contract

specifications, to seek comfort that the S-class vessels were still unique so far as Repsol’s

requirements were concerned. In addition, Mr Lowry stated that knowledge of the ITT prior

to signing of the agreement would have led to adjustment of the price by a substantial

margin, in view of the importance of the S-class vessels, which comprised between 20 and

25% of the Company’s EBITDA (earnings before interest, taxation, depreciation and

[35] Malcolm Forbes-Cable gave evidence that Wood MacKenzie had initially intended to

discount the day rates for the S-class vessels by about 35% but changed that approach upon

receipt of the Simmons email of 5 October 2017 (quoted at paragraph [22] above) to the effect

that the S-class vessels were the only vessels capable of satisfying Repsol’s precise

requirements. Mr Forbes-Cable gave evidence, however, that the receipt of the ITT implied

that Repsol were looking to revise the agreement, which affected the risk; it meant that

Repsol were wanting to renegotiate the agreement, at a lower rate. Non-exercise of the

options would result in a price impact of about £25 million. Evidence to broadly similar

effect was given by Wil Jones, a more junior member of the buy side team. He stated that if

he had known of the ITT that would have been “a major red flag”.

[36] The Commercial Judge stated (paragraph [129]) that she had no hesitation in

accepting the evidence of the buy side witnesses on the foregoing matters. The buy side was

intensely interested in the vessel contracts, day rates and other factors relied on to forecast

the future profitability of the business. Basalt’s 2016 offer had been withdrawn because of

concern about day rates. We would observe that that conclusion appears to us to be a

matter of clear commercial common sense. The day rates represent gross income, and as a

matter of elementary economics gross income feeds directly through into earnings.

[37] Finally, on the issue of the consequences of the ITT, North Star submitted a tender to

Repsol on 14 November 2017, in which day rates were cut by half, but the tender was

[38] The Commercial Judge’s decision proceeded on the evidence summarized in the last

part of this opinion. She concluded that the defender was in breach of the SPA, in respect

that the defender breached (i) warranties provided at paragraphs 11.3 and 26.6 of Section B

of Part 4 of the Schedule to the agreement, consequent on clause 10.2 of the agreement; and

(ii) the stipulation in clause 8.1.3 of the SPA. She accordingly allowed the parties a proof

before answer on quantum. Her reasoning may be summarized as follows.

[39] The defender’s failure to include in the CCS any reference to the receipt of the ITT

was a breach of warranty 26.6 (paragraphs [151]–[172] ). That warranty used the term

“charter arrangements”, which required to be construed in the context of the SPA as a

whole. So construed, the warranty covered something broader than the warranties in

paragraphs 11.2 and 11.3. The existing options for the specialist vessels were details of

charter arrangements in place; consequently “the receipt of the ITT clearly had the potential

to affect the charter arrangements” (paragraph [171] ). Information raising a serious doubt

about the exercise of the options was within the scope of the term “charter arrangements”.

Moreover, the data contained in the CCS included options that were exercisable for the

period after the primary charter had expired. The foregoing construction was supported by

the factual context. It was apparent that the commercial rationale of the transaction

depended in large measure upon the value to be ascribed to the Company’s future activities.

The S-class vessels made a major contribution to its income, and it was likely that that would

remain so in the future as long as Repsol retained the existing displacement requirement.

The ITT, however, indicated that the existing arrangements might come to an end on the

expiry of the existing contract, as there was a doubt about the exercise of the option. The

ITT was therefore a detail of the charter arrangements in place for the S-class vessels.

[40] The failure to disclose the ITT was a breach of warranty 11.3 (paragraphs [195]–

[202] ). Repsol, through the ITT, were saying that they were “considering not exercising the

option but, rather, [were] renewing negotiations for vessels currently subject to a

charterparty between us, but on terms other than those contained in the charter agreement

and which exercise of the option would have continued”. The ITT thus “signalled Repsol’s

clear intention to re-negotiate the options on offer” (Commercial Judge’s emphasis). The “re-

opening of negotiations” could be considered to be “outstanding or ongoing”, particularly

in the light of the evidence regarding the significance of the specialist vessels and the

existing charterparties. Warranty 11.3 was particularly fact-sensitive; it was necessary to

construe it against the evidence about the use of ITTs in this sector and the de facto monopoly

the company had to satisfy Repsol’s requirements. It was thus not helpful to consider

discussions of the word “negotiations” in other, very different, cases (eg Harvela Investments

Ltd v Royal Trust Company of Canada (CI) Ltd [1986] AC 207) or general textbook discussions

(Cartwright, Contract Law, (3rd edn; 2016), p 110; MacQueen and Thomson, Contract Law in

Scotland (4th edn; 2016), para 2.17; Stair Memorial Encyclopaedia, Volume 15, s 626;

MacNeil, Scots Commercial Law (2014), para 2.25). In this context in particular, the

description of the ITT as a “unilateral” negotiation was inapposite, where North Star had no

option but to respond if it wanted to retain Repsol’s business.

[41] There was a breach of clause 8.1.3 (paragraphs [214]–[221]). The email of 22 October

2017 did not meet the requirements of that clause because it had not been sent as soon as

reasonably practicable, and it downplayed the significance of the ITT in terms of risk.

Moreover, it did not expressly refer to the clause. The ITT was significant in that it signalled

a disinclination on Repsol’s part to secure the use of the S-class vessels without further

negotiation. Consequently, against the whole evidence, background and context, the ITT

was important to the future of the business. Thus it constituted a material event falling

within the terms of clause 8.1.3, and the sell side were in breach of their obligation to give

[42] The pursuer also advanced a case based on misrepresentation. This was rejected by

the Commercial Judge. She held that the communications alleged to be a misrepresentation

did not have the requisite quality of a statement or representation of fact (paragraphs [247]–

[249] ). They amounted to no more than a statement of opinion by the defender of his

expectation that the day rates charged for the vessels would continue because the options

would be exercised. Given that conclusion on misrepresentation, a further case based on

wilful concealment was bound to fail (paragraph [255]). The matter of wilful concealment

was closely related to, if not dependent on, the matter of misrepresentation. The

Commercial Judge did, however, observe (paragraph [250]) that the law recognized a duty

to correct a pre-contractual representation if by reason of events it subsequently became a

misrepresentation by the point when the representee and representor entered into a

[43] The reclaiming motion proceeds on the following grounds. First, in relation to the

warranty in paragraph 26.6 of Part 4 of the Schedule to the SPA, it was submitted that a

proper construction of the warranty only required disclosure of charters that were in place

as at the date of the SPA, 14 October 2017. There was no requirement for the defender, or

the sell side generally, to mention the existence of any ITT. The Commercial Judge, it was

said, was in error in having regard to commercial common sense rather than the “clear”

language of the warranty. Furthermore, it was submitted that the ITT was not a “detail” of a

charter arrangement in place as at 14 October 2017. Nor was the ITT a detail that required to

be disclosed in the CCS. While it possibly had the potential to affect the existing charter

[44] It is further submitted that the Commercial Judge was in error in failing to hold that

the language used in the warranty did not extend to contract opportunities or potential

future charters. The ITT was a unilateral document, whereas “arrangements” must be

bilateral or multilateral. Furthermore, it was not “in place” as at 14 October 2017.

Moreover, it was submitted that the Commercial Judge was in error in holding that

information raising a serious doubt about the exercise of the options swap was within the

scope of the expression “charter arrangements”; it could only be concerned with future

charter arrangements. The Commercial Judge had, in addition, conflated the words

“agreements” and “arrangements”. Nothing could qualify as a charter unless it were the

product of agreement, and no arrangement or agreement had been occasioned by the receipt

of the ITT. The terms of the existing charterparties were not impacted by the ITT or any

[45] Secondly, in relation to the warranty in paragraph 11.3 of Part 4 of the Schedule to

the SPA, it was submitted that the Commercial Judge’s reasoning summarized at

paragraph [40] above was in error because it failed to recognize that negotiations must

necessarily be bilateral or multilateral. An invitation to tender is an invitation to negotiate,

rather than part of the negotiation itself, and consequently the receipt of the ITT did not give

rise to any “ongoing” or “outstanding” negotiations; those required to be bilateral or

multilateral. Furthermore, it was said that the Commercial Judge was in error in treating the

concept of a “negotiation” as fact-sensitive. The established law on offers to negotiate was

relevant. Nothing was said in the pursuer’s pleadings to suggest that “negotiations” have

anything other than its ordinary meaning. The ITT was a unilateral document, and thus

could not form part of any negotiation. Nor can it be said that any negotiation was

“outstanding” as at 14 October 2017. The wording of the ITT envisaged that it might not be

taken up by the recipient, and it is stated that negotiations would follow a response to the

invitation. Finally, on this issue, it was submitted that the Commercial Judge was in error in

holding that the ITT signalled Repsol’s clear intention to renegotiate the options on offer. If

it did in fact signal an intention to renegotiate, it would not be part of any outstanding or

[46] Thirdly, in relation to clause 8.1.3 of the SPA, it was submitted that the Commercial

Judge failed to apply well-established principles of contractual interpretation. These, it was

said, required the court to uphold the ordinary and natural meaning of words used. In

clause 8.1.3 the words “any matter” are cut down by the qualification that such matter

“constitutes, or might reasonably be expected to constitute” a material event in respect of the

business. The word “constitutes” meant that something, of itself, amounted to something.

It was not the initial step in a chain of events that might ultimately lead to a material event.

Consequently the ITT did not trigger clause 8.1.3, and there was no breach of that clause.

Clause 8.1.3 related to new events that took place after the parties had concluded the SPA,

and the Commercial Judge had held that the defender was aware of the ITT before the SPA

was concluded. In these circumstances, it was said, there was no scope for clause 8.1.3 to be

[47] The general principles of contractual interpretation are now well established; they

have been discussed at some length in cases such as Rainy Sky SA v Kookmin Bank Co Ltd,

[2011] 1 WLR 2900, in particular at paragraphs 14 and 20-21, Arnold v Britton, [2015] AC

1619, at paragraphs 15 and 76-77, HOE International Ltd v Andersen, 2017 SC 313, at

paragraphs 18 et seq, Wood v Capita Insurance Services Ltd, [2017] AC 1173, Midlothian Council

v Bracewell Stirling Architects 2018 SCLR 606, at paragraph 19, and Scanmudring AS v James

Fisher MFE Ltd, 2019 SLT 295, at paragraph 47. From these cases, a number of basic

principles emerge. Four of these are important for present purposes.

[48] First, a contract must be construed objectively. The meaning of any particular

provision is what a reasonable person in the position of the parties would have understood

it to be. Indeed, no other approach would be possible; a contract will have two or more

parties, and it is obvious that its meaning cannot depend upon the subjective intention or

understanding of any one of those parties. Unsurprisingly, therefore, the objective approach

to contractual construction is supported by numerous authorities extending back over many

years: see, for example, Muirhead & Turnbull v Dickson, 1905, 7 F 686, at 694. Secondly, the

words of a contract must be construed contextually. Language is inherently ambiguous, and

in no serious intellectual field is it possible to reach a sensible view on the meaning of a

“... [T]he relevant reasonable person is one 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”: Rainy Sky SA v Kookmin Bank Co Ltd, supra, at

The relevant context takes in the contract itself, construed as a whole, and the surrounding

circumstances that ought objectively to be known to the parties. It includes not merely the

surrounding factual situation but also the legal context; that legal context comprises both the

surrounding contractual and other legal arrangements and the general law. The

Commercial Judge, correctly in our opinion, attached great importance to the specific

[49] Thirdly, the provisions of a contract must be construed purposively, that is, in such a

way as to give effect to the fundamental purposes of the contract; points of detail or niceties

of wording should not stand in the way of achieving the contract’s basic purposes. What the

basic purposes are must obviously be determined on an objective basis, and the context is

relevant. Fourthly, in construing a contract, commercial, or business, common sense may be

important. Such an approach is supported by the recent case law: see, for example, Rainy

Sky SA v Kookmin Bank Co Ltd, supra, at paragraphs 20 and 21, and Arnold v Britton (supra), at

paragraph 76. The application of commercial common sense is a relatively straightforward

process, despite suggestions to the contrary in some academic literature. It obviously

involves elements of general common sense as an aid to practical reasoning, such as

considering whether a view is widely held by those with knowledge of the particular field in

question, and testing a proposition against its converse, to discover whether the converse

makes sense; if it does not, that will usually support the proposition. At a commercial level,

the most important factor is probably the use of elementary microeconomics (the branch of

economics that covers the behaviour of individuals and businesses in their commercial

dealings with other persons). That will normally involve consideration of the practice

followed in a particular trade, and the understanding held by people operating in that trade,

for example as to what is commercially important or what would be regarded as

[50] The Commercial Judge held that the defender, and others on the buy side, was in

breach of each of the warranties provided at paragraphs 11.3 and 26.6 of Part 4 of the

Schedule, and was further in breach of clause 8.1.3 of the contract. We agree with her

[51] This warranty is to the effect that the Current Contracts Summary provided by the

sell side to the buy side “sets out complete and accurate details of all of the charter

arrangements that are in place as at the date of this Agreement in relation to all of the

Vessels”. The context of this warranty and its commercial function appear clearly from the

evidence as narrated by the Commercial Judge: see paragraph [14] above as to its

commercial function and paragraphs [5]-[7], [19] and [20]-[23] as to its context. The

Company’s business, partly through its subsidiary North Star, consisted of the chartering of

specialist vessels to the operators of North Sea oil fields in order to meet a range of

specialized requirements. The Company’s income came from the charterparties. The value

of the business therefore depended on the amount of such income together with the level

that that income was likely to achieve in the future. That is an elementary exercise for the

valuation of a business, and it emerged clearly from the evidence led at proof. It follows

that the value of the business, and accordingly the price that it might reasonably command,

depended fundamentally on the likely future income from vessel charters. That is why the

Current Contracts Summary was prepared, and why its completeness and accuracy were of

fundamental importance to valuing the business. That view is based on an objective

analysis of the contract, construed in context and in the light of commercial common sense.

Such a view is, moreover, supported by the evidence regarding the significance of the

Repsol email of 13 October 2017 and the accompanying ITT: see paragraphs [24]-[26] and

[52] The warranty in paragraph 26.6 must be construed in the light of these

considerations. Objectively, reasonable persons in the position of the parties must have

intended that everything in the charter arrangements that might affect the Company’s future

income stream should be disclosed in the CCS; the contrary view would make no sense, as it

is the future income stream that will determine the value of the business. The ITT was

plainly a development that could have an important effect on North Star, and hence the

Company’s, future income. Until it was received, it was assumed that North Star had for

practical purposes a monopoly on Repsol’s business, as the S-class vessels were understood

to be the only vessels operating in the North Sea that were capable of servicing Repsol’s

facilities, owing to their displacement and draft. The ITT made it clear that that was no

longer the case. According to its terms, Repsol intended to abandon the displacement and

draft requirements, and further intended to introduce a methanol requirement for one of the

vessels. That would destroy North Star’s monopoly. There was accordingly a serious risk

that the Company’s most profitable contracts, those with the two S-class vessels, would be

lost. The foregoing reasoning proceeds on an objective analysis of the contract, taken in its

commercial context, but it is supported by the evidence of the buy side’s witnesses as noted

by the Commercial Judge; they regarded the information that they had been given as

[53] In view of the importance of Repsol’s business to the Company, it would be

remarkable if a serious threat to deprive the Company of that business were not covered by

the warranty in paragraph 26.6. In our opinion the existence of the ITT, and the documents

that accompanied it, clearly fell within the terms of that warranty. The warranty refers to

“charter arrangements”. “Arrangements” is normally a less precise, and consequently

wider, expression than “agreements” or “contracts”; in our opinion in its normal meaning it

signifies both contracts and the framework in which those contracts operate, including such

matters as subsidiary and ancillary contracts, option rights and rights to terminate contracts.

In the context of the SPA there are particularly strong reasons for giving the word

“agreements” such a meaning, because if we are exercising rights of that nature they are

capable of bringing the existing arrangements to an end, with serious financial consequences

[54] The warranty requires that the CCS should set out “complete and accurate” details of

the charter arrangements. Those words are important. Construed in context, they indicate

that every element in the charter arrangements, including option rights and rights to

terminate contracts, must be disclosed. The word “details” is also important, in that it

signifies that all rights of that nature must be stated in a precise and intelligible form.

[55] When the warranty in paragraph 26.6 is construed in the manner that we have

indicated, we are of opinion that the sell side’s failure to disclose Repsol’s email of

13 October 2017 and the accompanying ITT had the result that complete and accurate details

of all of the charter arrangements in place at the date of the Agreement were not disclosed.

That amounts to a breach of the warranty, with the consequence that the sell side, including

[56] Counsel for the defender presented a range of arguments to the effect that there had

been no breach of warranty. In large measure these were based on a strongly literal

approach to contractual construction. In supporting such an approach counsel placed

considerable reliance on Arnold v Britton, supra, at paragraphs 17-20. In interpreting those

paragraphs, however, it is important to bear in mind that they are directed at the particular

facts of that case, which were highly unusual in that they turned on a clause that contained a

precise mathematical formula based on the compounding of an annual payment. The

consequences of that formula were entirely foreseeable. The most extreme problem with a

totally literal approach to construction occurs in cases where supervening events are not

readily foreseeable, especially the sort of events that are sometimes described as “unknown

unknowns”. In such cases it cannot be said that “the parties must have been specifically

focusing on the issue covered by the provision when agreeing the wording of that

provision”; and it is unrealistic to emphasize the parties’ control over the language that they

use in a contract. In cases of that nature, an emphasis on a strictly literal approach may

produce a result that is arbitrary or disproportionate, which is plainly undesirable as a

matter of commercial common sense. Alternatively, a highly literal construction may lead to

significantly longer contracts, a practice that is likely to impose greater transaction costs on

the parties than occurs at present. Overall, we are of opinion that construing contracts

according to the standards of a reasonable commercial person, as laid down in the cases

cited at paragraph [49] above, is likely to produce greater predictability than an over-literal

[57] On the evidence accepted by the Commercial Judge it is apparent that Repsol’s email

of 13 October 2017 and the accompanying ITT were not foreseen by the parties: see

paragraphs [19] and [21]-[23] above. Consequently a standard approach to contractual

interpretation should be adopted, with proper reliance on the purpose of a contractual

provision and commercial common sense. Counsel for the defender submitted that the

wording of the warranty in paragraph 26.6 indicated that what required to be disclosed

were charters in place as at the date of the agreement, on 14 October 2017, and that those

were set out in the CCS. In our opinion that ignores the wording of the warranty, properly

construed. The warranty requires that “charter arrangements” should be disclosed, and that

“complete and accurate details” should be given of those arrangements. For reasons that we

have already considered at paragraphs [52] and [53], we are of opinion that the existence of

the Repsol email and the ITT fell clearly within those expressions, and should accordingly

have been disclosed. No rewriting of the parties’ agreement is involved. The ITT had not

been fully implemented at the time that the SPA was concluded, but in that respect it was

similar to an option or other contingent obligation or liability affecting a contract; it was a

“detail” of the “charter arrangements” in force at that date.

[58] Counsel further submitted that the expression “charter arrangements” signified

arrangements that were bilateral or multilateral. The ITT, by contrast, was a unilateral

document. In our opinion that involves a mischaracterisation of the ITT. While it was

exercisable by one party, it formed an important element in the overall arrangements

governing the chartering of the two S-class vessels. This is not affected by the fact that the

ITT would take effect at the point where the existing charter came to an end. For reasons

already discussed, the parties clearly contemplated that the option to continue the charter

party, which formed part of the existing chartering arrangements, would be exercised. For

that reason we consider that the foregoing arguments must be rejected.

[59] So far as material to the parties’ dispute, the warranty in paragraph 11.3 provides

that “There are no outstanding or ongoing negotiations of material importance to the

business, profits or assets of the Company or any of the Subsidiaries”. This must be read in

the context of warranty 11.2, which provides that complete and accurate copies of all

Material Contracts have been disclosed. The expression “Material Contracts” is defined as

covering all charter agreements to which the Company or its subsidiaries is party which are

of “material or fundamental importance to the operation of the Business”; there can be no

doubt that the charterparties for the two S-class vessels were material contracts in that sense;

it was a matter of agreement that they were by some margin the Company’s two most

profitable charterparties, with charter rates well above the industry norm. The Commercial

Judge held that the warranty required to be construed in context, against the evidence about

the use of ITTs in this sector and the de facto monopoly that the Company had to satisfy

Repsol’s special displacement requirement by using the S-class vessels. The existence of an

option meant that the party who held the option could obtain the vessel without further

negotiation, simply by exercising an existing right. The ITT meant that Repsol was

considering not exercising the option but would rather renew negotiations for the S-class

vessels that were currently subject to a charter party, but on terms that were different from

[60] In our opinion the Commercial Judge’s reasoning is correct. The ITT was an

invitation to a number of persons, including North Star, to tender for a charter party serving

the Repsol oil installations but on terms that were materially different from those in the

existing charterparties for the S-class vessels. In particular, the displacement requirements

were to be changed, and for one of the two vessels a methanol facility was required.

Moreover, it was apparent that the change in requirements removed North Star’s de facto

monopoly, and was thus likely to result in a substantial reduction in charter rates. In our

opinion all of these features indicate that the ITT has to be considered as the first stage in a

negotiation; that was the inevitable consequence of it, and indeed was clearly its

fundamental purpose. That brings the service of the ITT and accompanying email within

[61] The defender founded particularly on the expression “outstanding or ongoing

negotiations”, and submitted that negotiations must be bilateral or multilateral. In the

present case, however, the ITT was no more than a unilateral invitation. In our opinion this

ignores the fact that the purpose of the ITT is to initiate negotiations for alternative tender

arrangements for the installations served by the S-class vessels. It was further suggested

that the negotiations could not be “outstanding” or “ongoing” until two or more parties had

begun to negotiate. Once again in our opinion this ignores the fundamental point that the

ITT is intended as the opening stage of a negotiation process. Once it had been served, it can

properly be said that there is an “outstanding” negotiation, for the simple reason that Repsol

are attempting to renegotiate their charter arrangements, with effect from the moment of

service. Indeed, if the defender’s construction were correct, the warranty would seem to

have effect from the point when another party responded to the ITT rather than the point

when the ITT was served. There is no commercial sense in delaying the effect of the

warranty in this way, however; once the ITT has been issued, on any objectively reasonable

interpretation of the expression “outstanding or ongoing negotiation” a negotiation process

[62] Counsel also relied on the legal principles established in cases such as Spencer v

Harding, (1870) LR 5 CP 561, Carlill v Carbolic Smoke Ball Company, [1893] 1 QB 256, and

Harvela Investments Ltd v Royal Trust Company of Canada (CI) Ltd, [1986] AC 207. He

submitted that on the basis of those principles the ITT should be regarded as no more than

an offer to negotiate, without any intention to begin the process of contract formation. The

cases cited, however, deal with situations that are very different from that in the present

case. They deal with the question of whether a document is intended as a contractual offer

rather than a mere invitation to treat. For the purpose of the warranty in paragraph 11.3,

however, the critical question is whether there is a “negotiation”. Whether there is must be

determined in the context of Repsol’s requirements for a charter party and the existing

charter arrangements that it had with North Star. In our opinion the issue of the ITT had the

clear purpose of signifying that Repsol wished to renegotiate its contractual arrangements

for servicing its North Sea facilities. The context is crucial. In the light of that context, what

was started must be a negotiation. No formal response is required to reach that conclusion.

Furthermore, the ITT expressly offered a change in the contractual relationship between

North Star and Repsol, which by itself appears sufficient to begin a “negotiation”.

[63] Finally, on the warranty in paragraph 11.3, counsel for the defender submitted that

the wording of the ITT, properly construed, did not evidence either the start or the

continuance of negotiations. He submitted that the ITT was a unilateral request for a

“tender”. Consequently even if a tender were accepted by Repsol a formal contract would

have to be agreed. This part of the argument was based on a very minute analysis of some

of the terms used in the ITT. In our opinion an analysis of this nature is not appropriate in

considering whether the ITT was sufficient to initiate a “negotiation”. When regard is had

to the fundamental purpose of the ITT, it is obvious that once a response has been received

negotiation may begin on the basis of that response. The fact that no formal contract has

been agreed at that stage is irrelevant; indeed, if a negotiation is proceeding one thing that is

certain is that no formal contract has been concluded. For all of the foregoing reasons we

reject the defender’s challenge to the Commercial Judge’s reasoning.

[64] Clause 8.1.3 applies during the period between the signing of the SPA and the time

of Completion. The Completion Date was defined in clause 1.1 as 6 November 2017, but in

fact occurred on 2 November 2017: paragraph [5] of the Commercial Judge’s opinion.

Clause 8.1 obliges the defender (referred to as the Warrantor, a defined term) to achieve

certain results during that period. Clause 8.1.3 obliges him, as soon as reasonably

practicable, to notify the Buyer (the pursuer) in writing of any matter which becomes known

to him during the period between signature and completion “which constitutes, or might

reasonably be expected to constitute, a material event in respect of the Business”. The

Business is that of the Company and its subsidiaries, including offshore support operations

and emergency response and rescue services. The expression “material event” is not

defined. Nevertheless, read in context the expression appears to us to signify a happening

that was likely to have a significant effect on the value of the business of the Company and

its subsidiaries. That effect on value would in turn have an impact on the equivalence

between the price paid by the buy side and the consideration provided in return by the sell

side. Generally speaking the equivalence of consideration is an important aspect of

commercial common sense, for obvious reasons. In the context of the sale of a business,

during the period between concluding of the contract of sale and completion, anything that

might have a significant effect on the adequacy of consideration is likely to be regarded as

[65] In our opinion the receipt of the ITT, and Repsol’s accompanying email, was an

“event” that triggered the obligation in clause 8.1.3. The receipt of the ITT and email was

plainly a happening. The terms of the ITT made it clear that the presumed de facto

monopoly that North Star had enjoyed in respect of Repsol’s business was liable to come to

an end, in part because of the expressed intention to abandon the displacement requirement

and in part because of the new requirement for methanol capacity. The loss of the de facto

monopoly would inevitably have an impact on the equivalence between the consideration

provided by the sell side and the price payable by the buy side. As a matter of elementary

economics, a monopolist can charge a higher price than a person operating in a competitive

market. Consequently it was obvious that the buy side, in the form of the pursuer, would

receive less than it had bargained for at the time of the SPA in consequence of the ITT.

[66] The Commercial Judge held (paragraphs [215] et seq) that clause 8.1.3 must be

construed in the context of the SPA as a whole and the surrounding circumstances as

disclosed in evidence. The purpose of a clause covering the gap between the signing of an

agreement and payment of the final sum due at completion was to ensure that by

completion the sell side should have all the information that ought to have been provided

under the warranties already discussed (those in paragraphs 26.6 and 11.3). The commercial

purpose of the clause was therefore obvious: to oblige the defender to bring to the pursuer’s

notice any matter becoming known to him which constituted, or might reasonably be

expected to constitute, a material event in respect of the Business. The Commercial Judge

notes that the scope of the clause was very broad; it covered matters that might reasonably

be expected to constitute a material event. We agree entirely with that view. Consequently

she held that the terms of the ITT were not mere words, but conveyed in words an intention

to bring into existence a state of affairs that would have legal effect, in the form of a contract

for the services of PSVs that would differ from the existing contract. If North Star did not

manage to obtain that contract, that would have an adverse effect on their profitability. We

should add that, in view of the loss of the de facto monopoly, even if they obtained the

contract it would in all probability be on markedly less favourable terms.

[67] It was a requirement of clause 8.1.3 that the matter to be notified should come to the

defender’s attention. The Commercial Judge addresses this issue on the evidence (at

paragraphs [118]-[119]). She clearly formed an adverse view of the credibility and reliability

of the defender’s evidence. In particular she did not find credible evidence to the effect that

the defender had never opened the ITT and had never been told of its terms until the present

dispute emerged. She considered on a balance of probabilities that he knew of the principal

features of the ITT and Repsol email during the pre-Completion window. That conclusion is

not challenged, and we have no hesitation in accepting it. On that basis it cannot be argued

that the defender was unaware of the terms of the ITT and email during that window.

[68] For the defender it was submitted that clause 8.1.3 should be construed in

accordance with the ordinary and natural meaning of the words used. The critical question

was whether the “matter” referred to in the clause “constitutes” a material event. It was not

enough that the matter should be an initial step in a chain of events that might lead to a

material event. On that basis the ITT was not a material event in relation to the Business; the

word “event” was not an apt description of the terms of a document. In our opinion this

argument must be rejected. A document may obviously have legal effect. The ITT clearly

had potential legal effect, in that it disclosed an intention to invite new tenders for the

services rendered to Repsol, on a basis that was inconsistent with a continuance of the

existing arrangements by exercise of the contractual options. The event is not the “terms” of

the ITT, but rather the practical effect that the ITT had in the real commercial world.

[69] The defender further submitted that in so far as the ITT might constitute an “event”,

that event took place before the conclusion of the SPA. Thus the warranty in clause 8.1.3

was not engaged. This argument too must be rejected. The Commercial Judge held

specifically that it was more likely than not that the defender knew of the principal features

of the ITT and Repsol email during the pre-Completion window (paragraph [119]). She

further rejected a suggestion by the defender that the buy side were aware of the ITT prior

to Completion. The first mention of the ITT was, in her view, “intended materially to

underplay its terms and effect and, in that respect, was disingenuous and misleading”

(paragraph [120]; see paragraph [33] above). On those findings in fact, which were not the

subject of any direct challenge, the defender knew of the ITT and at least its principal

features during the pre-Completion window, when clause 8.1.3 applied. That directly

[70] For the foregoing reasons we are of opinion that the Commercial Judge reached the

correct decision on the defender’s breaches of contract. We will accordingly refuse the

reclaiming motion against her interlocutor. Thereafter we will remit the action to the

Commercial Court for further procedure in accordance with the Commercial Judge’s

interlocutor of 11 September 2019; this will take the form of a proof before answer on

Scottish Court of Session Decisions