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Cite as: [2012] ScotCS CSOH_112

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OUTER HOUSE, COURT OF SESSION

[2012] CSOH 112

CA115/00

OPINION OF LORD MENZIES

in the cause

TOR CORPORATE A.S.

Pursuer;

against

SINOPEC GROUP STAR PETROLEUM COMPANY LIMITED

Defender:

ญญญญญญญญญญญญญญญญญ________________

Pursuer: Howie QC; M Ross; Tods Murray LLP

Defender: Wolffe QC; McBrearty; Simpson & Marwick, WS

3 July 2012

Introduction

[1] This is the latest round in a protracted dispute. The defender is the owner of the semi submersible drilling rig Kan Tan IV. On 14 June 1999 the defender entered into a Management Agreement with the pursuer whereby the pursuer undertook to act as the exclusive manager of the rig and the defender undertook to pay to the pursuer certain sums of money. On 30 March 2000 the defender repudiated the agreement, and on 24 May 2000 the pursuer accepted that repudiation, and on or about the same day the pursuer raised these proceedings, in which it seeks payment of a sum claimed to be due in terms of the contract, and various sums by way of damages for breach of contract. For further background details, I refer to my Opinion dated 22 June 2010, [2010] CSOH 76, and the Opinion of the First Division dated 16 August 2011 in the ensuing reclaiming motion [2011] CSIH 54.

[2] After the opinion of the First Division was issued, the defender lodged a Minute of Amendment which sought to add two further pleas-in-law, in the following terms:

"2. It having been competent for the pursuer to seek to prove before the arbiters that the pursuer could have remedied any material breaches of the Management Agreement, and the pursuer having omitted to do so, the averments to the effect that the pursuer could have remedied the material breaches should not be remitted to probation.

3. Esto the averments to the effect that the pursuer could have remedied the material breaches of the Management Agreement are not subject to the plea of competent and omitted (which is denied), they are in any event matters relating to the fulfilment of the Management Agreement, and the action should be sisted in order that they may be determined by arbitration."

[3] The pursuer answered this Minute of Amendment by adding averments which focus on Clause 1 of the Management Agreement, which contains the following provision:

"For the avoidance of doubt, the Agreement cannot be terminated solely with the intent to award the management of the Vessel to another contractor".

The pursuer maintains that even if the defender had attempted to terminate the contract at a later date, as it avers that it would, any such attempt would have been invalid, because the defender's sole purpose in doing so was to change the Manager.

[4] Following a period of adjustment, the Closed Record was allowed to be amended in terms of the defender's Minute of Amendment and the pursuer's Answers thereto (numbers 53 and 54 of process), and a debate was allowed on the defender's second and third pleas-in-law and the pursuer's fifth and sixth pleas-in-law (each in the principal action). In summary, the issues argued before me at debate were as follows:-

(1) The defender's plea of competent and omitted.

(2) The defender's plea that the action should be sisted for arbitration.

(3) The pursuer's argument based on the sole intent clause.

Submissions for the defender

[5] Senior counsel for the defender moved me to sustain the defender's second plea-in-law by excluding from probation the averments mentioned at paragraph 9.1 of his written Note of Arguments (number 55 of process), and to sustain the second plea-in-law for the defender to the extent of refusing the second and fourth conclusions and refusing to admit to probation certain averments of loss. His motions to the court were as set out in section 9 of his Note of Arguments. That Note of Arguments helpfully summarises the position adopted by the defender at debate, and I do not seek to rehearse it in detail here.

[6] Under reference to the summary of the essentials of the plea of competent and omitted given in McPhail on Sheriff Court Practice (3rd Edition) at paragraph 2.112, senior counsel submitted that the question of whether it would have been possible for the pursuer to cure its material breaches within three months was an issue which arises in connection with the "fulfilment" of the contract and was accordingly within the terms of the arbitration clause. It would have been competent for the pursuer to have advanced this as a defence to the defender's argument that it was entitled to terminate the Agreement in terms of Clause 1(D). The pursuer did not advance such an argument before the arbiters, and it is not open to it to do so now. The pursuer cannot now argue that it would not have been competent to advance such an argument before the arbiters - some time was taken in evidence in the arbitration as to how long it would have taken to cure the defects complained of, and it was an important part of the pursuer's position before the arbiters that any breaches could have been cured within a short period of time (see paragraphs (319) to (323) of the arbiters' Note of Reasons, number 6/24 of process). If the question of how long it would have taken to cure the defects was properly within the terms of the arbitration clause, it was competent and necessary for the pursuer to raise the issue of whether the defects could have been cured within three months for the purpose of Clause 1(D).

[7] Mr Wolffe accepted that his plea of competent and omitted could only be sustained if the court was satisfied that it would have been competent for this issue to have been raised before the arbiters. Although the question had a bearing on the assessment of any claim for damages (which was a matter not before the arbiters), it was also relevant to fulfilment of the contract, so it could and should have been raised at that time. Senior counsel for the pursuer expressly refrained from doing this (see pages 957/958 of the transcript of counsels' oral submissions to the arbiters). The question of whether the breaches of contract by the pursuer which the arbiters found established could have been cured within three months was a matter properly included within the arbitration, notwithstanding that it arises incidentally in the context of the assessment of damages.

[8] There was a body of evidence, both factual and expert, from several witnesses (e.g. Mr Guy, Mr Moore, Mr Stevenson and Mr Krahn) as to how quickly particular breaches could be remedied. It would have been convenient and competent to have considered the three month time limit at the same time; one of the purposes of the plea of competent and omitted is to avoid duplication of effort and wasted time and costs in looking at substantially the same material on more than one occasion. It was correctly accepted by the pursuer before the arbiters that the question of whether the pursuer was in material breach was a question of fulfilment of the agreement for the purpose of Clause 9(a) of the Management Agreement; equally, the question of how quickly a breach could be cured was also a question of fulfilment. It therefore fell within the terms of the arbitration clause, and within the material to be considered by the arbiters in terms of the interlocutor of the court dated 3 May 2001. The pursuer did raise the issue of how quickly defects could have been cured in its Answer Four to the defender's counterclaim in the arbitration (see pages 88 and 104/5 in the record in the arbitration, number 7/2 of process), but the pursuer did this only in the context of its argument that any breaches were not material. It would have been competent and proper for the argument to have been developed to the effect that, standing the mechanism in Clause 1(D), any material breach should not of itself be regarded as a repudiation of the contract.

[9] Mr Wolffe submitted that the underlying rationale and purpose of the plea of competent and omitted was twofold - (a) to protect the integrity of the previous proceedings, and (b) to avoid prejudice both to the parties and to the efficient and effective resolution of the dispute arising from wasted time and costs and duplication of effort. The natural place to deal with this issue would have been in the context of the counterclaim in the arbitration (in which context the present pursuer was in the capacity of defender); the plea of competent and omitted is accordingly available against the pursuer now - Earl of Perth and Melfort v Lady Willoughby de Eresby's Trustees (1875) 2 R 538 at 545. I was referred to passages in the institutional writers, namely Stair, IV.I 50, and Bankton IV.xxxvi.17, but it was submitted that the modern law has expanded on Stair's statement and that it was now necessary to look to the particular circumstances of the case - Murray v Seath 1939 SLT 348.

[10] The rationale behind the Scots plea of competent and omitted is essentially the same as that behind what is known in England as the "rule in Henderson" (Henderson v Henderson (1843) 3 Hare 100); some light on the considerations held to be relevant to that rule is shed by British Airways Plc v Boyce 2001 SC 510 (at 513), (although that case was itself concerned with res judicata), and by Mustill & Boyd, The Law and Practice of Commercial Arbitration in England (2nd Edition) at page 412. Mr Wolffe also referred to Dickson v United Dominions Trust Limited 1988 SLT 19, and adopted Lord McCluskey's approach to the plea of competent and omitted at page 24 of that report. That decision was reclaimed, and the Second Division approved the Lord Ordinary's disposal on this point (19/12/86, unreported except in 1987 GWD 2-67). It should, however, be noted that that case was concerned with the protection of a prior decree in foro, in contrast to the present case. Mr Wolffe accepted that if the court did not give the plea a wider ambit, his submission must fail. However, having regard to the considerations outlined in British Airways v Boyce and in Mustill & Boyd, the plea should be given a broader application. He referred to McLaren on Court of Session Practice at 396 and 401, Balfour's Handbook of Court of Session Practice at 268/9 and Professor Beaumont's article in 1985 SLT (News) at page 345.

[11] Mr Wolffe accepted that the case of Dickie v Goldie 1995 SLT 780 did not support his proposition that a broader application of the plea was justified. In that case Lord Penrose reached the view that neither the Lord Ordinary nor the Second Division in Dickson v United Dominions Trust intended to innovate upon the established view that use of the plea was confined to a subsequent challenge to a decree in foro. However, senior counsel maintained that there were good reasons for a wider application of the plea, and that the court should be concerned to prevent issues being re-raised in circumstances which go beyond those of a prior decree in foro. He did not go so far as to adopt the position in Dickie v Goldie described at page 786H, but in the particular circumstances of the present case in which parties went to arbitration on a number of issues, and one of these was the time within which breaches could be remedied, the plea was engaged. There had been a lengthy proof (lasting about ten weeks) before the arbiters, which included technical evidence led on both sides about the time it would take to cure the breaches (although the arbiters did not make a finding in this regard). The reason that the plea was not allowed in Cantors Properties (Scotland) Limited v Swears and Wells Limited 1978 SC 310 was simply that the issue would not have been competent if it had been raised (see page 324). Similarly in Dollar Land (Cumbernauld) Limited v CIN Properties Limited 1996 SC 331 it was held that the plea could not avail the defenders in the circumstances of that case, because any claim by the then pursuers for relief after the irritancy clause had been invoked would only have been a counterclaim in the previous action and there is no requirement on defenders in any action to raise a counterclaim rather than raise a separate action at a later stage. Senior counsel referred to Glasgow Shipowners' Association v Clyde Navigation Trustees (1885) 12 R 695 as authority for the proposition that, in certain circumstances, the plea of competent and omitted is available even when the parties are different. In the present case, the inter-relationship between the present issue and the issues which were before the arbiters was so close that this issue should have been raised before the arbiters and dealt with at that stage.

[12] The law in England has adopted a broader approach to this problem, which is categorised there as abuse of process. The leading modern English authority is Johnson v Gore Wood and Co [2002] 2 AC 1. Lord Bingham of Cornhill explained his approach to the rule in Henderson at pages 30/31, and Lord Millett explained his approach at page 59. The present case was sisted for a long time to enable arbitration proceedings to be concluded. Those proceedings included a lengthy proof, in which evidence was led about the time that it would take to remedy breaches. That was the pursuer's opportunity to argue this issue; if the pursuer is allowed to argue it now, there will be duplication of effort, time and costs. For these reasons the defender's second plea-in-law should be sustained, the averments listed should be excluded from probation, and the claims for damages in conclusions 2 and 4 should therefore be deleted.

[13] Mr Wolffe's secondary position was that, if the court was against him on the plea of competent and omitted, the question of whether the pursuer's breaches of contract could have been cured within three months should be remitted to arbitration, as this is a question of the fulfilment of the contract.

Submissions for the pursuer

[14] In inviting me to refuse the defender's motion, Mr Howie adopted his Note of Arguments (No. 56 of process); again, I do not rehearse its terms in detail here. He categorised the present dispute as being "about whether the pursuer gets a lot or a little" - it is all about damages.

[15] There are several reasons why the defender's plea of competent and omitted should be repelled. First, it is inconsistent with the First Division's Opinion dated 16 August 2011. As was pointed out in paragraph [14] of that opinion, no issue arose in the arbitration as to whether or not the composite eventuality provided for by Clause 1(D) had arisen (or might have arisen), and no issue arose in the arbitration in relation to damages or their scope. There was nothing in the reference, nor in the arbitration pleadings, to suggest that there was an issue in relation to Clause 1(D). This was not surprising, as the interlocutor of 3 May 2001 excluded from arbitration questions of entitlement to, assessment of or award of damages for any or all breaches of contract the arbiter or arbiters might find to be established. The First Division reiterated at paragraph [18] of its Opinion that Clause 1(D) was not in issue before the arbitrators, and in paragraph [19] observed that certain elements within the composite terms of Clause 1(D) will require to be explored in evidence. It is clear that the First Division took the view that the arbitration was only concerned with liability, that assessment of damages did not form part of the arbitration process, and that Clause 1(D) was a matter relevant to the assessment of damages. The position which the defender now seeks to advance is an attempt to subvert the decision of the Inner House.

[16] Second, the plea may only be advanced where there is already a decree in foro, and its purpose is to prevent reduction of such a decree. So much is clear from the passages in Stair and Bankton referred to by Mr Wolffe, and there is nothing in the authorities to suggest that the scope of the rule has been altered since then. The explanation of the plea given in McLaren on Court of Session Practice (at page 401) begins with the sentence "Where a defender has put forward a defence which is unsuccessful, he cannot in a subsequent process challenge the prior judgment on grounds which it was competent to plead in the prior process, but which he omitted to do." Similarly, Balfour's Handbook states (at 268) that "it cannot in the general case be pleaded in a subsequent action about the same matter - such as a reduction of the decree in the first action - as it would be met by the plea of 'competent and omitted'". McPhail on Sheriff Court Practice (at paragraph 2.112) states that "the plea will be sustained only if the party against whom it is stated is seeking to challenge a prior judgment given against him". All the authorities in the 20th century adopt McLaren's requirement that there must be a prior judgment before the plea is available - see Murray v Seath, Cantors Properties v Swears and Wells and Dickie v Goldie. Each of these cases was concerned with a defender seeking to reverse a final decision in an earlier case with a point canvassed in a later case which ought to have been raised in the earlier case and which, if it had been so raised, would have succeeded and avoided the need for the later case. In each of these authorities, the court was considering a proposed reversal of what had gone before. That is what the Second Division was concerned with in Dickson v United Dominions Trust - as Lord MacDonald stated in that case, "A decree in foro in the Court of Session cannot be reduced upon grounds which were competent to a party that neglected to be put forward before decree", and the Lord Justice Clerk stated the same rule. Lord Penrose agreed with this in Dickie v Goldie (at page 785).

[17] There are two requirements for a plea of competent and omitted to be sustained - (i) there must be a prior decree in foro against the party, in proceedings in which he could have advanced the omitted argument, and (ii) that argument would have been successful and would have avoided the need for the subsequent action. Neither of these requirements is present here. The pursuer is not seeking to reduce, suspend or challenge a previous decree. There is no decision or finding in the arbitration which the pursuer seeks to undermine or reverse. None of the arbiters' findings in paragraph (231) (at pages 60-62 of their Note of Reasons) are challenged by the pursuer seeking to lead evidence about its capability to rectify any breaches within the three month period.

[18] There is simply no basis in authority for the wider application of the plea for which Mr Wolffe argues. It was important not to confuse the reasons behind the rule with the rule itself - the underlying reasons may be wider than the rule. The rule has always been confined to the situation in which an earlier decree in foro has been pronounced against the party. As Lord Neaves put it in the Earl of Perth's case (at page 545):

"A defender, on the other hand, is bound, for his own protection, to state all his defences, and if he omits anything, and judgment has gone against him, he has lost his opportunity: that judgment must take effect, although he may have had a relevant, competent and well founded plea, which he has not chosen or has omitted to state".

Again, Lord Campbell stated in MacDonald v MacDonald (1842) 1 Bell's App at page 829 that "I think the dicta from institutional writers, and the decisions brought before us, are conclusive to shew, that the doctrine of "competent and omitted" applies only to defenders who cannot challenge a judgment regularly pronounced against them, on the grounds that there was a defence, which it was competent to them, but which they omitted to set up."

[19] The conventional view of the plea is clearly that it is directed at a prior decision of the court, and the Scottish courts (unlike the English courts) have been generally reluctant to accept a wider application of the plea, or of similar pleas such as res judicata. They have not been disposed to allow "wider issue estoppel" based on the rule in Henderson, and have been reluctant to import a concept such as abuse of process as a term of art into Scots law (Wright v Paton Farrell 2006 SC 404; Tonner v Reiach and Hall 2008 SC 1, at 30). Despite seeing the attractions of an extension of the plea of res judicata in avoiding repeated litigation of what should be treated as settled, the Scottish courts have resisted any such extension - Clink v Speyside Distillery Co Limited 1995 SLT 1344; British Airways Plc v Boyce. The reasons for preferring a narrower application of the plea of res judicata apply with equal force to the plea of competent and omitted.

[20] Third, even if a wider application of the plea is permissible, it is not engaged in the circumstances of this case. While it is correct that there was some evidence led before the arbiters as to the length of time that it would take to rectify defects, this was in the context of whether the defects were minor or constituted a material breach. There was no discussion of the three month period, because this was a question of damages. Indeed, senior counsel for each of the parties in their submissions argued that this was a matter ultimately for the court to consider in assessing damages, and was not properly a matter for the arbiters (see pages 957/8 and 1106/7 of the transcript of submissions). The arbiters accepted this position (see the last sentence of paragraph (247) of their Note of Reasons and Findings). Accordingly, there has been no prejudice, and no duplication of effort or wasted expense.

[21] Fourth, in any event, as Mr Wolffe recognised, the plea is only stateable if it would have been competent to argue the matter before the arbiters - if the question of the possibility of rectifying defects within the three month period was not properly within the scope of the arbitration, the plea is not available - Cantors Properties (Scotland) Limited v Swears and Wells at page 324. The issue of whether deficiencies could be cured within three months for the purpose of Clause 1(D) was not canvassed before the arbiters because it was not within the scope of the arbitration; it was concerned with damages. That is why the issue of Clause 1(D) is the subject of averments on behalf of the defender in Answer 5 in the pleadings presently before the court (see the Closed Record as amended, No. 57 of process, at pages 19/20), which is an answer to the pursuer's claim for damages. The scope of the arbitration was defined by the interlocutor dated 3 May 2001, and by the terms of Clause 9 of the Management Agreement, namely any dispute arising in connection with the interpretation and fulfilment of the Agreement. Clause 1(D) was not about what a party had to do in order to fulfil the Agreement; rather it was about the duration of the contract, damages, and whether there can be a termination. Termination is only of relevance because it serves to cut the damages payable to the pursuer. The arbiters' power extended only to determining whether there had been a material breach. In the Mihalis Angelos [1971] 1 QB 164 Lord Denning MR (at page 196) treated the equivalent issue in that case as a question of damages, as did Megaw LJ (at pages 208/210). They were correct to do so. Clause 1(D) is relevant because it determines whether the defender was entitled to terminate, and if so, whether this would reduce damages. As the arbiters correctly pointed out, it was therefore outwith their jurisdiction, and a plea based on this clause could not competently have been raised in the arbitration. The plea of competent and omitted cannot therefore be advanced now.

[22] For all these reasons Mr Howie moved me to sustain the pursuer's sixth plea-in-law and repel the second and third pleas-in-law for the defender, all in the principal action. He also invited me to refuse to remit to probation passages of Answer 5 at pages 18/20 of the Closed Record.

[23] Turning to his argument on the sole intent clause in the last sentence of Clause 1 of the Management Agreement, Mr Howie adopted the terms of paragraphs 14-18 of his written Note of Arguments. This contract was open ended and might last for many years; it was capable of being terminated in the six circumstances set out in Clause 1, but absent those circumstances it could not be terminated. The last sentence (quoted at paragraph [3] above) cannot be regarded as otiose; it must mean something. It amounts to a qualification of each of the potential grounds of termination, and is a limitation on the defender's ability to determine the contract. The arbiters held as much - see the last two sentences of paragraph (146) of their Note of Reasons and Findings. The arbiters also held that the sole intent clause was operative here - in paragraph 41 at page 6 of their Note of Reasons and Findings they stated:

"CNSPC purported to terminate the Management Agreement. Its sole purpose in doing so was to change the Manager contrary to the provisions of Clause 2 of the Management Agreement."

The reference to Clause 2 was erroneous, and should have been to Clause 1. This sole purpose on the part of the defender was exposed by its campaign of deficient notices. This last sentence of Clause 1 imposed a qualification even where circumstances existed which would otherwise have justified termination for one of the reasons specified in Clause 1 - otherwise, it would be otiose. If the defender had already decided that it wanted to get rid of the pursuer and to award the management of the vessel to another contractor, this Clause prohibited termination. In this case, the arbiters held that it was proved that the defender had already formed this intention. There is nothing in the arbiters' findings, nor in the averments for the defender, to suggest that the defender had changed this intention. Any determination under Clause 1(D) would be unjustified, as it would be rooted in the desire to change the manager. It is therefore not open to the defender to rely on the argument that it would have terminated the contract, if it had known of the pursuer's material breaches, three months after it discovered the breaches. For these reasons, Mr Howie invited me to sustain the pursuer's fifth plea-in-law and to refuse to remit to probation passages of the defenders' averments in Answer 5 at pages 18-20 of the Closed Record as amended.

Response for the defender

[24] Mr Wolffe responded to Mr Howie's submissions by observing that the case of MacDonald v MacDonald was in fact concerned with res judicata, although it was authority for the proposition that the plea of competent and omitted was available only to a defender in proceedings. He did not advance his case on the basis of abuse of process, but rather on the basis that the plea of competent and omitted should be given an effect consistent with its underlying rationale, which went beyond the narrow view of the plea advanced by the pursuer. On the question of whether Clause 1(D) could competently have been raised before the arbiters, he maintained that the issue of whether any breaches could have been cured within three months could have been argued before the arbiters, although it was not. He accepted that the context in which Clause 1(D) was relevant in this case was as a component in the assessment of a claim for damages - applying the ratio of the Mihalis Angelos, asking what the value of the contract was, and whether this fell to be assessed with a view to its full duration or whether it was likely to be determined quickly. Accordingly, Clause 1(D) arose as an incidental question en route to an assessment of damages; however, the question of whether the Clause could be validly invoked was still a question of fulfilment, and it did not cease to be such just because it arose also in the context of damages.

[25] With regard to Mr Howie's submission on the sole intent clause, Mr Wolffe submitted that Finding 41 at page 6 of the arbiters' Note of Reasons and Finding was concerned with the factual situation where there were notices which the arbiters concluded were invalid. This is beside the point if one is asking what would have happened if the defender had been aware that the rig had never been operational and that the pursuer did not have a competent plan to make it fully operational. The finding was made in a context in which the defender was ignorant of the true state of affairs - it cannot be applied to a hypothetical situation in which the defender knew of the pursuer's breaches.

[26] It is important to note that the last sentence of Clause 1 of the Management Agreement begins with the words "For the avoidance of doubt" - its purpose is no more than that. For example, if the defender received a request from the Chinese Government in terms of Clause 1(B), termination would not be solely with the intent to award the management of the vessel to another contractor. Similarly, in a situation of material breach, one is not solely concerned with such intent. The question whether the defender terminated the Agreement solely with the intent to award the management of the vessel to another contractor is a matter which cannot be answered without proof.

[27] Moreover, it is open to question whether the arbiters' Finding 41 meets the provision of the last sentence of Clause 1. The "For avoidance of doubt" provision is not intended to deal with a situation in which the owner wishes to get rid of the manager because of his material breaches, it is dealing with the situation in which the owner has lined up someone else to become the manager and intends to award the management to another contractor. This is consistent with the view that the sentence is an avoidance of doubt provision.

Reply for the pursuer

[28] Mr Howie maintained that the sole intent clause was of central importance in the present case, in light of the factual background prior to May 2000, and what happened subsequently. The arbiters found as a fact that the defender's sole purpose in purporting to terminate the Management Agreement was to change the Manager. Changing the Manager means awarding the management to another contractor. The finding is directly in point. In order for the defender to take itself out of that finding, it would be necessary for it to aver that its previous intention had changed. In the absence of an averment by the defender that it no longer had this intent, the taint continues.

Discussion

I deal with each of the three issues raised before me as follows:-

(1) The defender's plea of competent and omitted

[29] Despite the attractive presentation of his submissions by Mr Wolffe, I am not persuaded that they are well founded. In short, for each of the four reasons advanced by Mr Howie, I have reached the conclusion that the plea of competent and omitted cannot avail the defender in the present circumstances.

[30] First, it appears to me to run contrary to the decision of the First Division issued on 16 August 2011. Of course, the First Division was not considering matters in the context of a plea of competent and omitted; nonetheless, the consequence of sustaining the plea of competent and omitted would be to undermine that decision, and would fly in the face of the reasoning in paragraphs [14], [18] and [19] of the Opinion of the Court. The court observed that no issue arose in the arbitration as to whether or not the composite eventuality provided for by Clause 1(D) had arisen (or might have arisen). The court observed that Clause 1(D) was not in issue before the arbiters and, it not being essential to their determination, it is unsurprising that they declined to make a finding upon it. Finally, it observed that what the defender could and would have done, had it been aware that the pursuer was in material breach of contract in respect of its maintenance and other obligations, may bear on the value of the Management Agreement to the pursuer and accordingly on the appropriate measure of damages to which it is entitled, and that certain elements within the composite terms of Clause 1(D) will require to be explored in evidence. Standing these observations, I do not consider that it is open to me now to hold that the composite terms of Clause 1(D) cannot be explored in evidence. The First Division took the view that Clause 1(D) was a matter relevant to the assessment of damages and so fell outwith the terms of the arbitration. I do not consider that it is open to me to take a different view.

[31] Second, although it may be that the courts in England are now prepared to give a wider application to the rule in Henderson than was once given, I am not persuaded that the approach of the law of Scotland has changed in relation to the requirements of the plea of competent and omitted. No doubt one of the underlying reasons for that plea is the avoidance of unnecessary cost and expenditure of time in duplicating evidence; however, Mr Wolffe could point to no Scottish authority to support the proposition that the plea of competent and omitted may be stated even where there is no prior decree in foro. Indeed, all of the authorities and text books to which I was referred indicate that one of the cardinal reasons underlying the plea is the protection of an existing decree. All of the Scottish authorities, from MacDonald in 1842 and the case of The Earl of Perth and Melfort in 1875 to Dickson v United Dominions Trust in 1986 and Dickie v Goldie in 1995 support the view that the plea can only be stated when there is a prior decree in foro. The Scottish courts have adopted a rather more conservative and narrow approach to the application of the plea of res judicata than their English counterparts, and the dicta in Clink v Speyside Distillery Co Limited, British Airways Plc v Boyce, Wright v Paton Farrell, and Tonner v Reiach and Hall provide little support for the view that Scots law would look favourably on a wider application of the plea of competent and omitted. I am satisfied that in the present state of the law, the plea is available only where, unlike in the present case, there has been a prior decree in foro.

[32] Third, even if a wider application of the plea were to be supportable, the underlying rationale for that wider application is not present in this case. I can see that it might have been convenient (if the matter were properly within the arbiters' jurisdiction) for witnesses who were being asked questions about how long specific breaches of contract might take to rectify, in the context of whether they were material or not, might also have been asked to consider whether they could have been rectified within the three month period specified in Clause 1(D). However, they were not asked about this, and no evidence was given to the arbiters on this matter. There will accordingly be no duplication of effort, and no repetition of evidence - if this matter is explored in the context of assessment of damages at a proof, this will be the first occasion on which such evidence is given.

[33] Finally, I agree with Mr Howie (and with the First Division and the arbiters) that Clause 1(D) is only concerned with the proper assessment of any damages to which the pursuer may be entitled. In this regard, the issue is in the same category as the issue considered in the Mihalis Angelos. It was not raised before the arbiters because it was not a matter within their jurisdiction. It is raised in the pleadings presently before me in the context of assessment of damages. If an attempt to raise this matter in the arbitration had been made, it seems likely that an objection would have been made to this as being incompetent. Whether such an objection would have been made or not is perhaps beside the point - I consider that it would in fact have been incompetent. That being so, another essential basis for the plea of competent and omitted is absent.

[34] For these reasons, the plea of competent and omitted must fail.

(2) The defender's plea that the action should be sisted for arbitration

[35] It follows from the views expressed above that this plea must also fail. In the context in which it arises in this litigation, Clause 1(D) is of relevance only to the assessment of damages. It is therefore a matter which is properly excluded from arbitration, and falls within the matters excepted from arbitration in the interlocutor of 3 May 2001.

(3) The sole intent clause

[36] I do not consider that Mr Howie's submissions in this regard are well founded. I agree with Mr Wolffe's argument that finding 41 at page 6 of the arbiters' Note of Reasons was concerned with the factual situation where there were notices which the arbiters concluded were invalid. That was in the context of the matters properly before the arbiters, which did not include assessment of damages. As discussed above Clause 1(D) will be of relevance when the court assesses damages, and at that time it may be appropriate to consider the last sentence of Clause 1. I am inclined to agree with Mr Wolffe that the principal purpose of the last sentence of Clause 1 is for the avoidance of doubt; it is open for discussion as to whether it was intended to deal with a situation in which the owner wishes to change the manager because of the manager's material breaches.

[37] Mr Howie's argument does not take sufficient notice of the word "solely" in the last sentence of Clause 1. Finding 41 at page 6 of the arbiters' Note of Reasons related to the time at which the defender was issuing a sequence of invalid notices purporting to terminate the contract. The arbiters found that the defender's sole purpose in issuing these purported notices of termination was to change the manager. It does not follow that it would have been the defender's sole purpose if it had been aware that the pursuer was in material breach of its obligations of maintenance and repair, and issued a notice of termination in reliance on Clause 1(D).

[38] However, I do not consider that it is appropriate to indulge in discussion at this stage as to the proper construction of the last sentence of Clause 1 or its effect on a hypothetical notice under Clause 1(D) when assessing damages. The question of what might have been the defender's sole intent in such a hypothetical situation, and whether its sole intent remained to award the management of the vessel to another contractor, is something which cannot be answered before proof.

[39] For these reasons I am not prepared to sustain the pursuers' fifth plea-in-law to the extent of refusing to admit to probation any of the averments at pages 18 to 20 of the Closed Record which Mr Howie submitted should not be allowed to go to proof.

Conclusion

[40] For these reasons, the defender's submissions on competent and omitted and on sisting for arbitration fail, and the pursuer's submission on the sole intent clause fails. In respect of the first two matters, I shall repel the second and third pleas-in-law for the defender in the principal action and sustain the pursuer's sixth plea-in-law in the principal action by refusing to remit to probation those averments of the defender which are directed towards the plea of competent and omitted. Those averments fall into two parts, both of which are within Answer 5 in the principal action; the first part begins with the words "Before the arbiters" in lines 21 and 22 of page 18 of the Closed Record as amended (number 57 of process), and end with the words "determined by arbitration" in the penultimate line of that page. The second part is the passage in parenthesis beginning "(the pursuer" and ending with "said breaches)" in the fourteenth to sixteenth lines of page 19. With regard to the third matter, namely the sole intent clause, neither party has a plea-in-law directly aimed at that clause. Mr Wolffe suggested that certain averments for the pursuer at page 14 of the Closed Record as amended might be excluded from probation; however, in light of my views as to the possibility that the hypothetical sole intent of the defender may be an issue for probation, I shall not exclude any of these averments.


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