Outer House case in which HFD sought to challenge Aberdeen City Council’s decision to appoint Muse Development Limited as preferred bidders for the development of a site (the former Council headquarters) at Broad Street in Aberdeen.

HFD argued that:

1. there had been various quantitative errors in the scoring matrix used to assess the bids;
2. what had been advertised had been a sale of the site but the successful bid was made on the basis of a sale and leaseback; and
3. a revised version of the HFD bid (based on a sale and leaseback) submitted after the closing date should, if the Council considered themselves precluded from accepting it, have given rise to recommencement of the bidding procedure.

Lord Brailsford refused HFD’s petition.

Errors in the scoring matrix
The alleged errors in the scoring matrix were not sufficient to impugn the bidding process and did not affect the overall ranking of the bids.

Sale and leaseback
The language used in guidance documents (issued for potential bidders by the Council), which indicated that the Council would accept joint venture and partnership agreements, made it “tolerably clear” (having regard to the importance/value of the subjects and the fact that the bidders were commercial bodies with expertise in the property market and with access to skilled professional advice) that the Council were actively seeking and encouraging innovative proposals for what was a major commercial development. As such, the language of the documents was sufficiently wide to encompass a sale and leaseback arrangement.

Submission after the closing date
Lord Brailsford agreed with reasoning in a prior case[1] to the effect that, although a seller can accept higher bids after a closing date, the practice is not well regarded and would involve the seller departing from the competitive tendering process which may be seen as an act of bad faith by the bidders. It would put into question the reliability of any future tendering process and, if it were to be routinely sanctioned by the courts,  the degree of certainty which a bidding process is designed to achieve would be lost. That reasoning also applied to HFD’s suggestion that the bidding process should have been started afresh after receipt of the Muse’s offer.

The full judgement is available from Scottish Courts here.

Inner House case concerning 3 actions by AMA in which they sought payment of the purchase price under concluded missives for the sale of properties after the purchasers had failed to pay and advised AMA that they were unable to proceed with the purchases.

The purchasers argued that the contract was incomplete and that a seller can only sue for payment of the purchase price where no action is required by the purchaser to complete the contract. In this case, as the purchasers still had to make payment of the price and to accept the dispositions, they contended that the only option open to AMA was to accept their repudiation of the contract and sue for damages.

That argument was rejected by the court. It is a well-established rule of Scots law that if one party to a contract repudiates it, the innocent party has an option to accept the repudiation and sue for damages for breach of contract, or[1] to seek enforcement of the contract. If the purchasers’ arguments were accepted, the innocent party’s option could be negated simply by the repudiating party declining to pay the sum due in terms of the contract. Here, the purchasers were required to pay the purchase price on the date of entry. The date of entry was not dependent on anything being done by either of the parties and was not a matter within the control of the purchasers. There was no contractual obligation on the purchasers to accept a disposition and no other contractual obligations incumbent on them which had to be completed in order to render the contract complete. All they required to do was to pay the price. Their refusal to do that could not deprive the sellers of their option to seek enforcement of the contract.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

“As a case study of the causes and consequences of the property crash in 2008, this litigation is probably as good as any.”  Lord Malcolm

Outer House case in which RBS sought payment of sums due under a personal guarantee granted by Mr O’Donnell and Mr MacDonald, the directors of Whinhill Developments Ltd which had been formed to purchase a potential development site at Stone Farm in Greenock. The directors argued that the guarantee had been induced by negligent misrepresentations made on behalf of RBS.

RBS and Whinhill entered a one year loan agreement in September 2007 whereby RBS would provide a loan of £1.65m to fund the purchase. Whinhill bought the site for about £1.5m and planned to obtain planning permission then sell the site to a builder or developer. Whinhill granted a standard security and floating charge in favour of RBS (the site being Whinhill’s only asset).  Whinhill were unable to repay the loan at its expiry in September 2008. The parties then agreed to refinance the loan facility with a new loan of £1.695m to be repaid by March 2011; the Whinhill directors providing a personal guarantee for the company’s liabilities to a maximum aggregate value of £300k.

Whinhill failed to repay the sums due after a default event occurred and RBS sought payment of the sums due under the guarantee in February 2011. Central to the case was the property crash in 2008 and the falling value of the property. The loan was originally advanced in mid-2007 on the strength of a market valuation of £3m. When the facility was refinanced in 2008, property values had “fallen off a cliff” and the credit division of RBS was enforcing a 70% loan to value ratio. However, Whinhill’s relationship director in RBS’s commercial banking division was keen to avoid the crystallisation of what may have been by then a worthless security. He received word from Ryden that the property could be valued at £2m which, with a personal guarantee from Whinhill’s directors, would allow the 70% loan to value ratio to be met.

On three separate occasions RBS told the directors that Ryden would or had re-valued the subjects at £2m. The directors had understood the revaluation could be relied on for lending and guarantee purposes and Lord Malcolm took the view that it was reasonable for them to do so. Shortly after the first occasion (but before the second), RBS’s relationship director received the updated valuation from Ryden by letter. However, the letter made it clear that the report was not suitable for, nor to be relied on by the bank, for lending purposes (it was also based on an assumption of increased development density which had not been discussed with the Whinhill directors). There was no evidence that the report had been sent to the Whinhill directors.

Lord Malcolm found that the RBS statements were material factors in the directors’ decision to grant the guarantee and that the guarantee would not have been granted if they had been aware of the true position. As a result, a reduction of the guarantee was granted.

Whether the Whinhill directors were also entitled to damages for their losses depended on whether the misrepresentations amounted to a breach of a duty of care owed to them. Lord Malcolm found that, in using the assurance given by Ryden before receipt of the report to help persuade the Whinhill directors to agree to the guarantee, the relationship director had to be taken as having assumed responsibility for its accuracy. He then came under an obligation of enquiry or disclosure if he subsequently received material which cast doubt on the information given to the directors. And thereafter, he had a duty not to repeat the misrepresentation. The relationship director had breached that duty and the Whinhill directors were entitled to damages for loss sustained as a consequence.

The full judgement is available from Scottish Courts here.

(See also Inner House decision here)

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Outer House case in which Whyte and Mackay sought to enforce an adjudicator’s decision requiring Blyth & Blyth to pay them almost £3m in damages.

Blyth & Blyth had designed the structure of a new bottling plant at Whyte and Mackay’s Grangemouth premises. Whyte and Mackay claimed that the foundations were defective and would result in settlement and damage to the building. They referred the resulting dispute to an adjudicator (as they were entitled to do in terms of the contract between the parties)[1].

When Whyte and Mackay sought to enforce the adjudicator’s decision in the Court of Session, Blyth & Blyth argued that the adjudicator had failed to give adequate reasons for his determination and that to enforce the decision was incompatible with Blyth & Blyth’s rights under the European Convention on Human Rights.

Reasons for the decision
Lord Malcolm found that the adjudicator had failed to give adequate reasons for his determination as he had failed to deal with Blyth & Blyth’s contention that, even if the additional piling deemed necessary to make the foundations adequate had been specified in their design, Whyte and Mackay would not have been prepared to pay the additional time and financial costs required to carry out the extra work. This was potentially a complete answer to the claim and a very significant omission from the adjudicator’s decision. As such, it was sufficient to justify reduction of the award.

Human Rights
Arguably of more importance, however, was Lord Malcolm’s finding that to enforce the adjudicator’s award would be a disproportionate interference with Blyth and Blyth’s right to their possessions under article 1 of the first protocol to the Convention on Human Rights.  Lord Malcolm observed that adjudication is a “rough and ready” process which is “designed to provide a speedy and relatively cheap provisional award pending a final determination by litigation, arbitration or agreement”; the “rough and ready” aspect being particularly true in large and relatively complicated cases such as this one. He also noted judicial concerns as to whether difficult questions of law should be referred to adjudication. Whilst a court, in the face of a Convention challenge, will usually be able to justify enforcement of an adjudicator’s award on the basis of the general interest benefits arising from adjudication (e.g. speed, cost, efficiency and cash-flow requirements), this was a case where such benefits were largely, if not entirely absent. No general or public interest had been served by Whyte and Mackay taking the dispute to adjudication (it would be many years until the cost savings gained by the absence of piling would be outweighed by the projected losses and the bulk of the claimed losses would not occur until 2035/6).

In coming to this conclusion, Lord Malcolm also dismissed Whyte and Mackay’s argument that a decision not to enforce the adjudicator’s award on the basis of article 1 of the first protocol would undermine the whole adjudication scheme, finding such a contention to be “exaggerated and unconvincing”.

A further challenge to the award under article 6 of the Convention (the right to a fair hearing) was rejected on the basis that article 6 is only engaged when a civil right or obligation is being determined and an adjudication cannot be regarded as a final determination of the right or obligation at stake.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Inner House case relating to an agreement for lease of subjects at the Maxim office park in North Lanarkshire. Tritax were owners of the development and Regus were to take a lease of part of the development. Monies were to be made available to Regus in respect of its fit out costs as an incentive.  Regus did not comply with restrictions on the type of tenant imposed by sale agreements and so HUB (a company created to run the restaurant and other facilities at the development) was interposed to sub-let to Regus.

In terms of the agreement for lease, HUB were to deliver a letter to Regus (although the letter was not addressed to Regus) from the Bank of Scotland relating to sums which the Bank held on deposit in respect of the fit out costs. This letter formed the crux of the case and was in the following terms:

“We understand that Heads of Terms have been agreed between TAL CPT and Regus (Maxim) Limited for the lease of the first floor of Building 1 at Maxim.

It may assist the proposed tenant to have confirmation from us that, on behalf of the landlord (Tritax Eurocentral EZ Unit Trust) and TAL CPT, we hold the sum of £913,172 to meet the landlord’s commitment to fit-out costs. These funds will be released in accordance with the drawdown procedure agreed between the parties, whereby the proposed tenant’s contractors will issue monthly certificates.

This is subject always to agreement of wider commercial terms with the incoming tenant.”

Regus carried out the fitting out works and issued invoices to HUB who confirmed that the costs were properly incurred and that the contribution should be paid to Regus. However, the bank refused to release the costs as there had been a default in the facility agreement and they were exercising a right of retention over the sums referred to in the letter.   Regus sued for payment of the costs from the bank. In the Outer House Lord Menzies had dismissed the action. He found that he was unable to construe the letter as amounting to a unilateral undertaking by the bank of a legally enforceable obligation to pay the sum to Regus. On appeal to the Inner House, Regus relied on two arguments:

1. The letter was an undertaking in terms of which the bank were obliged to make payment.
2. That the letter contained negligent misrepresentations acted on by Regus to its detriment and the bank were obliged to make reparation to the Regus for breach of a duty of care.

The court rejected Regus’s appeal. For a promissory obligation of the type argued for by Regus, clear words are required. The letter merely confirmed that, at the date of the letter, the bank held the funds on behalf of Tritax and TAL (the developer/development manager). It did not contain an unconditional obligation on the bank to pay the funds to Regus on demand as the bank’s own debt. The bank’s freedom to pay out the money would depend on the terms and conditions on which it held the funds and the letter also spelt out that release of the money was governed by an agreed procedure. In addition, the sentence referring to wider commercial terms made it plain that the confirmation was not unconditional. For the same reasons, whilst the letter made the representation that the bank held the funds; it did not make a representation that the money would be released whatever the circumstances when Regus came to demand payment.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Case from the Court of Appeal for England and Wales concerning a developer’s claim for damages against a consulting engineer who failed to perform tasks by an agreed date. The developer (a farmer) sought damages in respect of the fall in the value of his development (due to the property slump) during the period of the delay.

In terms of an oral agreement (followed by a formal letter of engagement) reached with the developer on 6 September 2006, the engineer was to design a road and drainage to the developer’s site and to obtain s38 approval (allowing adoption of the road by the roads authority in terms of the Highways Act 1980) by March 2007. An initial s38 approval was not obtained until 17 February 2008 and even then some parts had not been finalised. In April 2008 the developer engaged another consulting engineer who obtained the necessary approval in June 2008. The judge found that the first engineer’s breach of contract delayed the development by 15 months and that had resulted in loss to the developer because of the reduced value of the development.

The question for the appeal court was whether the developer’s loss was too remote to allow recovery. The appeal court dismissed the engineer’s appeal agreeing with the judge’s finding that that the loss was not too remote as it was reasonably foreseeable as a serious possibility if there was a delay. It also agreed with the judge’s finding that the case was not one of the unusual cases where the nature of the contract and the commercial background, or other relevant special circumstances, mean that an implied assumption of responsibility for losses that can be reasonably foreseen was inappropriate.

The Court of Appeal’s comments on the length of delay are also worth noting:

 “It may well be that the reason for the absence of many cases of this kind is that the property market does not move as quickly as certain other types of market involving commodities and other goods, and it takes a very lengthy delay in breach of contract before a provable loss of value can occur. A few days or even a few weeks delay is unlikely to give rise to a demonstrable loss on the property market. It was the appellant’s delay of 15 months, in the Judge’s words an egregious delay, which in the present case gave rise to a quantifiable loss.”

The full judgement is available from BAILII here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Outer House case concerning arbitration proceedings in respect of a lease over Pentlandfield business park at Roslin in Midlothian. Midlothian Innovation let the premises from Robert W Ferguson & Co.

The lease was for 5 years and included an option to purchase as at 1 July 2007. The parties had also signed a minute of agreement. Both of the documents stipulated that, if the option were exercised, Robert W Ferguson would grant a renunciation of the lease.  Midlothian exercised the option on 1 December 2006 and a renunciation was signed on 2 July 2007. However, on 16 August 2007 both parties signed a joint application form seeking the appointment of an arbitrator in respect of a dispute over compliance with the repairing obligations in the lease. The arbitration proceeded slowly but in 2011 Robert Ferguson (the surviving partner of the firm of Robert W Ferguson & Co) changed his position and argued that, given the granting of the renunciation, the arbitrator had no power to make an award.

Lord Woolman rejected that argument. Although the acceptance of a renunciation by a landlord implies a discharge of all claims against the tenant, the renunciation is potentially subject to any further agreement made by the parties. The parties had freedom of contract and were entitled to agree not only that they had a dispute arising out of the lease, but also that they wished to resolve it by arbitration. The signing of the joint application form demonstrated the parties’ intention to have the dispute referred to arbitration and Mr Ferguson’s participation in the proceedings until 2011 implied that he consented to the arbitration. Lord Woolman found that the arbitrator had jurisdiction and the proceedings should proceed to a conclusion.

The full judgement is available from Scottish Courts here.

(See also related decision here).

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Outer House case in which the Scottish Ministers sought an interim order bringing to an end a prohibition under regulation 47(10) of the Public Contracts (Scotland) Regulations 2006. The prohibition prevented the Ministers from entering contracts relating to the provision of services in relation to trunk roads.

In November 2010, the Ministers (acting through Transport Scotland) advertised two contracts for the management, maintenance and improvement of trunk roads. After adopting the competitive dialogue procedure the Ministers invited tenders. Amey and three other operators submitted tenders. However, the Ministers wrote to Amey advising that they considered Amey’s tender to be abnormally low. They stated that this presented them with unacceptable financial, operational and reputational risks in fulfilling their statutory duties. They considered that Amey had manipulated the prices and rates and explained their concerns in some detail. Correspondence followed in which Amey argued that it had taken a “holistic approach to the tender” and provided price and other information. However, the Ministers rejected Amey’s bid concluding that the offer: (a) carried significant unacceptable risks; (b) was neither economically viable nor sustainable; and (c) was not genuine.”

Noting that Courts function was limited reviewing the Ministers’ decision solely to see whether or not there is a manifest error and/or whether the process was in some way unfair, Lord Hodge saw no legal basis on which Amey could challenge the Minister’s conclusion that its offer (a) carried unacceptable risks for them and (b) was neither economically viable or sustainable. However, if by concluding that the offer was not genuine, the Scottish Ministers were suggesting that the offer was a sham that was more problematic. Lord Hodge though did not consider that that was what was meant. The bids were assessed on the “Comparative Cost of Tender” which was a figure based on prices and rates entered by the tenderers. Lord Hodge interpreted the use of the word “genuine” as referring to the way in which Amey chose to present its offer, noting that the prices and rates Amey provided bore little relationship to the turnover that Amey expected from the contract. However, even the Ministers’ use of the term ‘genuine’ had been incorrect, that would not have undermined their conclusions about the risk, economic viability and sustainability of the bid.

With regard to the limited scope of the court’s review, Lord Hodge found that Amey had at best a weak prima face case (for continuing the prohibition). That was an important factor when considering the balance of convenience.  Lord Hodge also took account of the need to avoid delay in the process which would in turn lead to mobilisation issues for the successful contractors and increased costs for both the successful contractor and the Scottish Ministers. On the other hand, if the contract went ahead and Amey subsequently successfully challenged the Ministers decision, it would then have a remedy in damages. Taking these factors into account, Lord Hodge found that the balance of convenience favoured lifting prohibition. He also found that consideration of the public interest favoured lifting the prohibition (noting the need for an effective and non-discriminatory procurement process but also taking account of the need for economic and efficient operation of the procurement process and the need for proper provision of the required services to Scotland’s trunk roads).

Consequently, Lord Hodge granted the Scottish Ministers’ motion and lifted the prohibition preventing Transport Scotland entering the proposed contracts with other contractors.

The full judgement is available from Scottish Courts here.

Sheriff court case considering the interpretation of missives for a property in Ellon. Missives were concluded on 9 June 2010 and provided for a date of entry of 6 August 2010. The following clauses (from the Aberdeen and Aberdeenshire standard clauses) were incorporated:

 “(i)         So far as the Seller is aware the Property is not affected by:-
…

(g)          any proposals, applications or re-development plans affecting the Property or any adjacent or neighbouring property which could reasonably be considered to be detrimental to the Property.

 (ii)       Without prejudice to the foregoing, the Seller warrants that he has not been served with nor received any neighbour notification notice issued in terms of planning legislation by any third party. If such notice is served on or received by the Seller prior to the date of settlement, the Seller will immediately forward the notice to the Purchaser’s Solicitor. If the proposals contained in the notice would have a materially detrimental effect on the Property the Purchaser will be entitled to resile from the Missives without penalty due to or by either party.”

The sellers then sent the purchasers a letter (dated 27 July) purporting to re-open the missives and changing the date of entry to 5 August 2010. The purchasers replied (on 30 July) accepting the terms of the seller’s letter and again concluding the missives.

When the purchasers moved into the property following settlement they discovered a handwritten note from the sellers attached to a letter (which had been received by the sellers on 15 July) to the sellers from Aberdeenshire Council.  The letter advised that the Council had published the proposed local development plan and that it included a proposal for development on or adjacent to the property. The notice and plan were, it was said, being issued to the sellers in line with regulation 14(2) of the Town and Country Planning (Development Planning) (Scotland) Regulations 2008. The purchasers raised an action for breach of contract.

The sellers argued:

1. that the notice was not a “neighbourhood notification notice”; and
2. that the warranty in the missives applied as at the date of conclusion of the “original” missives (5 weeks before the Council’s letter was received) and not as at the date the “amended” missives were concluded (2 weeks after receipt of the letter).

The sheriff principal, agreeing with the sheriff’s interpretation of the missives, rejected these arguments.

The neighbour notification notice
The sellers had argued that “neighbour notification notice” is a term of art derived from the statutory scheme contained in The Town and Country Planning (General Development Procedure) (Scotland) Order 1992. In terms of that order, the owner of ground required to intimate his intention to develop its property to its neighbours. However, the scheme was changed when the 2008 Regulations (above) came into force, making the local authority responsible for intimating proposed planning developments (and containing no reference to a “neighbourhood notification notice”). The sheriff principal found that, nevertheless, the clause referred to “any neighbour notification”, the word ‘any’ being significant and indicating that the clause was intended to cover planning legislation as a whole[1].

The warranty
As regards the warranty, the sellers argued that the contract was concluded on 9 June and that the sole purpose of the later letters was to amend the date of entry (effectively meaning that the warranty was given as at 9 June). However, the sheriff principal found that the best approach was to consider what the parties intended to be the date at which the warranty was given. The parties agreed that the warranty was as at the date of conclusion of the missives rather than as at the date of the original offer. The effect of the later letters was to create a new date for the conclusion of missives. Thus the natural consequence of amending the date of entry was to create a new date as at which the warranty was given.

The sheriff principal refused the appeal and agreed with the sheriff’s finding to the effect that the sellers were in breach of contract.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Two Inner House cases in which Cheshire Mortgage and Blemain Finance were the victims of a mortgage fraud and sought to sue the solicitors instructed by the fraudsters  (the banks had instructed separate solicitors) for breach of warranty of authority.

In each case the fraudsters had pretended to be persons owning property which they were seeking to use as security for a loan (of £355,000 in one case and £203,000 in the other).  They had been able to produce evidence of their identity in the form of utility bills and driving licences to their solicitors and to the banks.  In both cases the fraudsters had approached the bank (directly in one case and via a broker in the other) before instructing their solicitors.

The banks argued that, in each case, the solicitors warranted that they had the authority of the individuals who owned the properties over which standard securities were purportedly granted. The solicitors recognised the doctrine of a solicitor giving an implied warranty of authority. However, they contended that it does not go as far as giving a warranty of the identity of the person for whom they act, nor does it include any warranty as to whether he is or is not the owner or occupier of any particular property. In effect the solicitors said that they warranted only that they had authority from persons who were already known to the banks and with whom the banks were already dealing.

Outer house
In the Outer House Lord Glennie found in favour of the solicitors. The circumstances in which the solicitors came to transaction were of particular importance. By the time the solicitors became involved, the banks knew who they were (or who they thought they were) dealing with. They had already made the decision to lend to those individuals. The solicitors had been instructed (by the fraudsters) for the limited purpose of drawing up the loan and security documentation and liaising with the banks’ solicitors.

In one of the cases there was also discussion as to whether the solicitors were liable to the bank in terms of the letter of obligation they had granted. The bank argued that they suffered loss as a result of the solicitors’ failure to procure the title deeds recording the security in terms of the solicitors undertaking. However, Lord Glennie again agreed with the solicitors’ arguments on this point:

1. the letter of obligation was collateral to the principal transaction between the bank and the borrowers and could not be enforced if that principal transaction was void; and
2. in any event, the bank could show no damages flowing from the failure by the solicitor to produce a title encumbered with the Standard Security, since the Standard Security referred to in the letter of obligation was itself void.

 The Inner House refused an appeal of Lord Glennie’s decision.

Inner House –agent’s authority
An agent’s warranty authority is of limited scope. Whilst an agent will impliedly warrant that he has authority to act on his client’s behalf it does not follow that he warrants the identity of his client nor the client’s title to the property in question. Although it would be open to the agent to expressly warrant these things, it is almost inconceivable that the agent would agree to this. The court should not readily impose upon a person rendering professional services an absolute, unqualified obligation amounting, in effect, to a guarantee of his client’s identity and title. Where the risks are commercial risks involved in lending to a person who may not be all he claims to be, there is no reason why the risks should be transferred from a commercial firm to a professional firm such as a firm of solicitors.

Inner House –letter of obligation
The Inner House agreed that the letter of obligation was collateral to the void security transaction (and consequently unenforceable). Also (although it may simply have been another way of expressing the same thing) the Inner House agreed that the bank could show no loss since the obligation to which the letter was ancillary was void.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.