Outer House case concerning RBS’s sale of an interest rate swap agreement to Grant Estates Limited (a property development company) in 2007.  RBS put Grant into administration in February 2011 after Grant had suffered financial difficulties during the economic downturn. Grant claimed that RBS had mis-sold the agreement, which the bank had represented as a device to protect Grant from a rise in interest rates. In actual fact, when interest rates fell sharply and remained low, the agreement prevented Grant from benefitting from those lower interest rates it would have otherwise paid on its borrowing. Grant maintained that, were it not for the agreement, it would not have gone into administration.

Although Grant had accepted RBS’s terms of business which, amongst other things, expressly stated that RBS was not providing advice on the merits of the transaction and advised Grant to obtain independent financial legal advice, Grant contended that:

1      the agreement breached the Conduct of Business Sourcebook issued by the FSA and the Markets in Financial Instruments `Directive (2004/39/EC);

2.1   RBS had entered into a contract to give it advice on financial products and had given negligent advice on those products; and

2.2    the agreement was entered as a result of fraudulent or negligent misrepresentation by RBS.

Grant sought reduction of the agreement and repayment of the sums paid under it together with damages in respect of the breach the Sourcebook and Directive.

Lord Hodge rejected Grant’s arguments.

Conduct of Business Sourcebook
In terms of the Financial Services and Markets Act 2000, breaches of the Sourcebook and Directive are only actionable by “private persons”. As a limited company acting in the course of business, Grant was barred from raising an action.

Negligence and misrepresentation
There had been no contract to provide advice. Although Grant argued that, when they had asked for financial advice and been given it by RBS, a contract arose by implication, Lord Hodge found that the terms of business contradicted any such implied contract and there was no evidence of an express agreement to depart from the terms of business. If Grant had relied on the statements by RBS as investment advice, that reliance had not been reasonable in the face of the contractual arrangements the parties had entered.

The full judgement is available from Scottish Courts here.

Outer House case concerning the termination of a wind farm agreement relating to property in Aberdeenshire.   In terms of the agreement, Backmuir granted an option to Mountwest to develop a wind farm on the property. The option period was ten years (with a right to extend for a further five years).  Mountwest was entitled to apply for planning permission and other consents but Backmuir had a right to see and make representations about the proposed application before its submission to the planning authority. If Mountwest obtained the necessary permissions, it could choose to exercise the option in which case Backmuir required to grant a twenty five year lease of the property to Mountwest. The agreement also contained a termination provision in the following terms:

“[Backmuir] may determine this Agreement by written notice to [Mountwest] if:-

 [Mountwest] materially fails to perform or observe any of its obligations in this Agreement and such failure or event is incapable of remedy or it is capable of remedy and [Backmuir] have [sic] served on [Mountwest] written notice specifying the failure or event and requiring it to be remedied within a reasonable time (to be specified in the notice and taking into account the nature of the obligation in question) and [Mountwest] has failed to do so;”

In June 2011 Mountwest lodged a planning application but failed to send a copy to Backmuir in advance. When it learned of this, Backmuir wrote to Mountwest advising them that they had breached the agreement and requiring them to remedy the breach “if it was capable of being remedied”. The letter also required Mountwest to provide the documentation required by the agreement within 21 days.  Mountwest then wrote to Backmuir enclosing a copy of the application and asking for comments. However, Backmuir’s solicitors replied purporting to terminate the agreement on the basis that Mountwest had failed to remedy the breach of the agreement.  The issue for the court was whether the agreement had been validly terminated.   Three questions required to be answered.

1. Was there a material failure by Mountwest?
2. If so, was it remediable?
3. Did Backmuir serve a valid notice of termination?

Material failure?
On a commercial construction of the contract Lord Woolman found that there had been a material failure by Mountwest. The purpose of the contract was to facilitate Mountwest’s wish to develop a wind farm at the property. But it contained built in checks drawn in Backmuir’s favour of which the right to make representations about the planning application was the most important. The parties had not intended that right to be illusory. Rather, they provided a mechanism which allowed Backmuir to influence the planning at a critical stage in the procedure.

Remediable?
Lord Woolman found that Mountwest’s failure to send the planning application to Backmuir was plainly capable of remedy; the application being at an early stage and local planning committee not yet having considered it.

Valid termination?
The clause allowing termination of the agreement had been a bespoke irritancy clause. The potency of the clause suggested that Backmuir would have to adhere to its precise requirements (it required Backmuir to serve written notice on Mountwest specifying the failure and requiring it to be remedied within a reasonable time). However, Backmuir’s initial letter notifying the breach had not been clear. It had both expressed doubt as to whether the breach was remediable and had required Mountwest to provide the documentation within 21 days. Lord Woolman found that the reasonable recipient of the letter would read it as requiring delivery of the documentation within 21 days and, if it were done, that would comply with the terms of the agreement.

Another approach was to ask whether the mischief created by Mountwest’s omission had been cured. Lord Woolman concluded that it had. Backmuir had asked for the documents. Mountwest had supplied them in return. If Backmuir had wished to insist on Mountwest withdrawing its application and beginning the process again, that would have been a simple message to convey and could have been easily and clearly set out in its letter.

The purported termination was therefore invalid.

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.

Sheriff Court case considering a lease of residential property at 39 Calside Road in Dumfries.  The landlords (Calmac) were seeking to recover possession of the property from the tenant at the end of the term. The issue for the court was whether the lease was a short assured tenancy (in terms of the Housing (Scotland) Act 1988).

For a tenancy to qualify as a short assured tenancy, it must be “for a term of not less than 6 months” (s 32(1) of the 1988 Act).

The lease stated:

 “The Date of Entry will be 29th April 2011. The Let will run from that date until 28th October 2011…”

The general rule for calculating time periods, known as the civilis computatio, is that the whole of the day on which a period commences is excluded and the whole of the day on which it ends is included (days being indivisible for the purposes of the rule).

Following that rule, the period of the lease in question would be one day short of 6 months. The sheriff rejected Calmac’s argument that there is a general exception to the rule for leases (on the basis that the date of entry should always be counted when computing the term of a lease).  However, after considering the authorities, he found that use of the words ‘date of entry’ in the lease meant that it had been contemplated that the tenant would take entry on that date thus creating an exception to the general rule[1].

Consequently, the lease ran from midnight on the 28^th April meaning that its term was exactly 6 months and the lease was correctly constituted as a short assured tenancy.

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.

Outer House case considering the interpretation of missives between two builders for the sale of land at Broomhouse in Glasgow. The land was to be sold by Bellway to Persimmon for £4.16m. Bellway were to undertake works before the sale and the date of entry was tied to Bellway’s completion of these works (which involved the upgrading of a road and construction of a roundabout).

In terms of the missives, if the works were not completed before the longstop date, Bellway were to offer an alternative site of comparable size and value to Persimmon. In a previous decision Lord Glennie found that, although Bellway were not breach of contract at the point they failed to complete the works, the alternative site they offered to Persimmon was not of comparable size and value and, following the failure to offer an alternative site, Bellway were then in breach of contract.

Persimmon’s letter giving notice that they were rescinding the contract referred only to the fact the works had not been completed in time and not to the failure to provide an alternative site. In these proceedings Bellway argued that, as they were not limited to only one opportunity to offer a suitable alternative site, the contract was still open for performance and they were not in breach of contract. However, Lord Glennie found that the contract had been validly rescinded by Persimmon’s letter. In doing so he confirmed the principle that, providing the intension to rescind is clear, the fact that no reason is given or the wrong reason is given is not normally significant. Further, although Persimmon failed to issue an ultimatum notice [1] before rescinding the contract, even if they had served an ultimatum, Bellway would have been unable to comply as they did not have a comparable site in their land bank at the relevant time. Also, as Bellway’s argument had been that the alternative site they had offered fulfilled the requirements of the contract, the service of an ultimatum notice would have served no purpose.

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 concerning tripartite agreement between East Dunbartonshire Council, Bett Homes and Glasgow University. The agreement allowed the Council to sell the Bearsden Academy site to Bett for development and relocate the school to a site at St Andrews College in Bearsden which it was purchasing from the University of Glasgow.

The Council sought declarator that Bett was bound to fulfil its side of the bargain and pay the final instalment of the purchase price for Academy site. The dispute centred on whether the time was of the essence regarding the entry date on which vacant possession was to have been given to Bett. Bett argued that it was of the essence and, the Council having been unable to give vacant possession on the agreed date, it had been in material breach of contract and Bett had validly rescinded the contract. The Inner House upheld Lord Glennie’s decision finding that time was not of the essence and the contract remained live for performance.

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.

Outer House case considering the interpretation of missives for a property in Melrose, near Galashiels. Pinecraven sought damages and interest from Mr and Mrs Taddei as a result of their failure to settle the transaction. Mr and Mrs Taddei argued that there was no concluded contract.

The crux of the Taddeis’ argument was that Pinecraven’s offer to sell contained a time limit for acceptance after which the offer would be null and void. Whilst the Taddeis’ qualified acceptance arrived within the time limit, as it contained a qualification, it was not an acceptance of the offer. Consequently, Pinecraven’s subsequent letter concluding the bargain had no effect.

Lord Kinclaven rejected the Taddeis’ arguments finding that, although the acceptance was qualified, it was still an acceptance within the meaning of the clause containing the time limit. Even if that were not the case, the Taddeis’ qualified acceptance was a counter offer which was capable of acceptance within a reasonable time, and indeed, was so accepted by Pinecraven’s letter concluding the bargain. As a result it was found that there was a concluded contract between the parties.

The full text of the decision is available from the Scottish Courts website here.

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

Inner House case considering an agreement between NCP and EDI for a development at Castle Terrace car park in Edinburgh. The agreement involved EDI being interposed into a lease of the subjects between the City of Edinburgh Council and NCP in return for a capital payment of £5m and then using its close links with the City of Edinburgh Council (EDI being wholly owned by the Council) to deliver the development.

In terms of the agreement, EDI were obliged to “use all reasonable endeavours” expected of “a normal experienced prudent developer in the circumstances” to pursue the development. However, the development did not take place and, as it was entitled to do under the agreement, EDI served notice on NCP requiring NCP to buy back the tenant’s interest under the lease. NCP failed to do so contending that they were not obliged to serve the appropriate notice[1] as EDI were in material breach of the agreement having failed to comply with their obligation to use all reasonable endeavours.  NCP argued that EDI had approached the project as if they merely had an option to pursue the development rather than an obligation compelling them to undertake it. The question for the court was whether EDI had met the required standard.

The Inner House upheld Lord Glennie’s judgement that EDI had met the standard and found that the work they carried out and the assessment they reached were not significantly different from those to be expected of a normal experienced prudent developer in the circumstances. In particular, EDI could not be criticised for failing to pursue further steps in relation to any of four alternative sites since (on the evidence heard by Lord Glennie) such further steps would have been futile. It was clear from the papers available to the court that the problem of finding alternative car parking space was critical to unlocking the development and it had not been possible to identify alternative provision for car parking.

The Court also said the following on the standard of effort required from the Council:

“In our opinion it is clear that the obligation to pursue a project or seek a planning consent with all reasonable endeavours is one that requires the court to consider whether there were reasonable steps which the obligant could have taken but did not. For that reason it is a higher or more onerous obligation than one restricted to using “reasonable endeavours”. However, whether the phrase used is “all reasonable endeavours… or “reasonable  endeavours” we agree with the view expressed by Lord Hodge in MacTaggart & Mickel Homes Ltd v Hunter… that an obligation in either terms does not require the obligant to disregard its own commercial interests. Where the balance between the obligation to use reasonable endeavours and countervailing commercial considerations falls to be struck depends on the wording of the obligation in question. In considering what steps would be reasonable, the court also has to consider whether any further steps would have been successful. We agree with Lord Hodge… that if an obligant can show that it would have been useless for it to have taken a particular step (or steps), because it would not have been sufficient to achieve success, that would provide an answer to any claim that the obligant had acted in breach of contract… Equally if there was an insuperable obstacle, it is irrelevant that there may have been other obstacles which could have been overcome, or at any rate in respect of which the obligant had not yet done all that could reasonably be expected of it to try to overcome.”

 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.

Sheriff court case in which Wimpey sought damages from Mr Henderson in respect of his failure to pay the purchase price for subjects at Ferry Village in Renfrew.  Mr Henderson was acting on behalf of a group of investors who were purchasing multiple properties from Wimpey. Missives were concluded on 21st December 2007.  Wimpey had been anxious to conclude missives before Christmas and put pressure on Mr Henderson to conclude.  However, although Mr Henderson was also keen to proceed, he had concerns about the state of the property market and the fact that he was purchasing before the subjects had been built as he required finance for the transaction and the amount he could borrow would depend on a valuation of the property which could not be obtained until completion of the subjects.

This led to an email exchange indicating an underlying agreement by which missives would be concluded allowing Wimpey to show the properties as sold on their accounts but by which the properties would also be re-valued during 2008. Further negotiations could then take place and the properties could, if necessary, be re-marketed by Wimpey. In particular, Wimpey made the following comment by email:

“With this in mind, I want to give you some reassurance that should the circumstances arise that there are difficulties with the valuations we will find a resolution one way or another and I suggest that against this background I would like to have a “gentleman’s agreement” that we will have valuations carried out in the new year with a view to having them all back early Feb which will be the basis of any negotiations (if need be). I just want to give you the comfort that in concluding missives now will still allow for further negotiation should the valuations necessitate this.”

And, in response to a question by Mr Henderson as to what would happen if exchange bonds (being used by the parties in place of a deposit)[1] were not in place by the end of January as had been agreed:

“I would take the view of (sic) should this happen then we remarket the properties. If the question is will we come after you then I can give assuarnce (sic) that we wont, all I need is enough notice, ie as early in the year as possible to remarket. Hope this helps.”

Further emails were exchanged in which it was agreed that a condition would be inserted into the missives providing  that, if exchange bonds were not in place by 31^st January 2008 for plot 38, then Wimpey would be entitled to withdraw from the transaction at their instance. In the course of these emails Wimpey also advised that they could agree that, should the situation arise that all Bonds were in place and the property had not achieved the values required, an agreement would be reached by both parties whereby Wimpey could remarket all or some of the properties.  They said that, in effect Wimpey would resile from the missives at no penalty to Mr Henderson expressing the hope that this would alleviate the concerns of Mr Henderson and his business partner. However, nothing to this effect was inserted into the missives.

In September 2008 valuations were obtained which were substantially below that required for Mr Henderson to obtain finance for the subjects. The parties entered into negotiations aimed at enabling the sale to proceed but no agreement was reached. Nevertheless Wimpey wrote to Mr Henderson advising that the subjects were ready for occupation and that entry should take place on 17 October 2008. Entry was not taken and Wimpey resiled from the bargain, resold the property and sought damages from Mr Henderson in terms of the missives.

Mr Henderson argued that Wimpey were personally barred from enforcing the missives and also sought rectification[2] of the missives to reflect the true agreement; in his opinion that, following a revaluation of the properties, the price could be revised or the transaction aborted.

Sheriff William Holligan found that Mr Henderson was not entitled to rectification of the missives as he was unable to show that there was a common intention[3] between the parties as to what would happen in respect of valuations were any further negotiations to fail.

“I return to the proposition that section 8 concerns a defectively expressed document. In this case it is said to be defective because it does not contain a provision as to what would happen if the negotiations failed. What then was the common intention of the parties on that issue? Viewed objectively, I find myself unable to say what that was. I have no doubt, with the benefit of hindsight, [Mr Henderson] is quite clear what he expected. However, even if [Wimpey’s sales director] accepted that his expectation might have been reasonable, I cannot conclude it reflects the common intention of both parties… The issue is one of rectification. This does not allow the court to write into a contract provisions where it is not proved both parties shared a common intention on that particular issue.”

However it was clear that, when agreeing to conclude missives, Mr Henderson had relied on the content of the emails and Wimpey were found to be personally barred from enforcing the missives:

“On any view of this matter, the missives did not reflect the whole commercial relationship between the parties. Not only did both parties know that but they both acted on the strength of it.”

And further:

“To leave [Wimpey] with the unqualified right to insist on their rights under the missives, given [Mr Henderson’s] business model, does not make commercial sense. It would make the agreement to renegotiate the price almost meaningless. Whether [Wimpey] deliberately said nothing or genuinely did not turn their minds to the issue does not matter. As I have said the matter requires to be looked at objectively. The missives said one thing: the words and to some extent the actions of [Wimpey] conveyed to [Mr Henderson] something different. To that extent there was inconsistency. The element of unfairness is largely self evident.”

A full report is available from Scottish Courts here.

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

Supreme Court case concerning the interpretation of commercial missives for Stewart Milne’s purchase of development land from Aberdeen City Council.  The missives contained the following provision for an uplift in the price on the occurrence of certain events:

“In addition to the purchase price detailed in Clause 2 hereof, the Purchasers and the Sellers have agreed that the Sellers shall be entitled to a further payment (‘the Profit Share’) upon the Purchasers purifying the suspensive conditions contained in Clause 4 hereof and issuing a notice to the Sellers intimating to the Sellers that the Purchasers wish to purchase the relevant part of the profit-share as defined in the Schedule to which the Sellers are entitled. The Sellers’ entitlement to the relevant part of the profit-share will also be triggered by the Purchasers disposing either by selling or by granting a lease of the whole or part of the Subjects.”

The clause therefore contains 3 triggers for the payment of the uplift (or profit share):

1. Stewart Milne could buy out the Council’s share by serving a notice on them indicating that they wished to do so;
2. the Council would be entitled to a share on the sale of the property by Stewart Milne; or
3. the Council would be entitled to a share on a lease of the property by Stewart Milne.

 Profit Share was defined in the schedule as follows:

“‘the Profit Share’ means 40% of 80% of the estimated profit or gross sale proceeds or lease value less the Allowable Costs as herein defined.”

Stewart Milne sold the property to a group company and then argued that the uplift payable should be based on the actual price paid (£483k- which meant that no uplift was payable) rather than the open market value (£5.67m) of the property. The Council argued the reverse.

It may have been intended that “estimated profit”[1]  applied to the notice procedure, “gross sale proceeds” applied to a sale of the property and “lease value” applied to the lease of the property with the prospect of a sale to group company simply not considered[2] (by the Council at least).

However, although the Supreme Court[3]  (Lord Hope giving the leading judgement) observed that, it was not stated that “gross sale proceeds” are only to be used in the event of a sale on the open market, it also noted that there was nothing in the definitions to say that “estimated profit” (or “open market value”) could not also be applied to a sale.

Having observed that it was a reasonable assumption that all three methods were intended to produce the same figure (albeit by different routes) and that basing the calculation in the open market was (on a fair reading of the agreement) the commercial purpose the various methods were intended to achieve, the Supreme Court came to the conclusion that the context showed that the base figure was to be the open market value of the subjects.

Alternative argument
The Supreme Court also allowed Stewart Milne to introduce an alternative argument (which they had been prevented from presenting to the Inner House) to the effect that the word “disposal” in clause 9 should be read as referring to an arms length transfer at market value but not to an associated company for a notional value. Thus the sale to the group company would not trigger the uplift but instead the onward sale by the group company on the open market would trigger the uplift.  However, the Supreme Court rejected that argument observing that that interpretation did not fit with the words of the contract. Also, as the group company were not party to the contract between the Council and Stewart Milne, adopting the argument would mean that it would have been necessary to re-write the contract to protect the Council against the obvious risks that the arrangement would entail. That was not an option open to the court.

Helping the feckless?
Lord Hope also referred to the argument that a party who has been feckless in drafting a contract should not be protected from its fecklessness by the court’s application of a commercially sensible approach[4] However, Lord Hope did not view the current case in that way. In this case the context showed that the parties’ intention must be taken to be that the base figure for the calculation of the uplift was to be open market value. The fact that this made good commercial sense was simply a makeweight, the words of the contract making it clear that open market value must have been what the parties had in mind when they entered the contract. The only question was whether effect could be given to the unspoken intention without undue violence being done to the words; the court finding that it could.

The full judgement is available from the Supreme Court here.

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

Outer house case concerning the interpretation of conditional missives and a purification letter relating to the sale of property at Great Junction Street in Leith.

The missives were conditional on the results of ground and site examinations and environmental audits.  Clause 3.2 allowed for the purchasers to waive the conditions by giving a notice of deemed purification:

 “This Condition 3 shall be construed solely for the benefit of the Purchasers and it shall be in the sole option of the Purchasers at any time to intimate to the Sellers in writing that any or all of the suspensive conditions contained in Condition 3.1 is/are waived, in which case the Missives shall be deemed purified to that extent. This condition shall however only be purified or deemed to be purified by the Purchasers giving written notice to the Sellers to that effect.”

Condition 3.3 provided that if the conditions hadn’t been purified by 30 July 2011 then either party could resile from the missives without penalty.

On 22 July the Housing Association’s solicitors, TC Young sent Mr and Mrs Akram’s solicitors, Somerville & Russell a letter advising that the conditions could be regarded as purified in terms of clause 3.2.

Mr and Mrs Akram argued that service of the notice was invalid as, in terms of clause 3.2 of the missives, it required to be served on them and not their solicitors.  They also contended that the notice was invalid as it referred to an incorrect date of entry.

Lord Hodge did not accept either of these arguments.  With regard to service of the notice on the solicitors, the authorities on which Mr and Mrs Akram sought to rely were concerned with more precise provisions on the service of notices than those contained in the missives between the Akrams and the Housing Association.  The missives in this case had contained no precise requirements relating to the service of notices and no indication that the parties had intended that service of the purification letter on the sellers’ solicitors would not be valid.  Moreover, the other provisions of the contract did not suggest that the parties intended to draw a clear distinction between themselves and their agents. Lord Hodge said:

“I have formed the view that the very simplicity of the contractual provisions firmly points against a construction which would allow such a distinction to be drawn. Further, I do not see the practical advantage or business rationale of serving the notice on the sellers rather than on their solicitors; I would have expected the sellers immediately to take the notice to their solicitors to ascertain its validity”.

 With regard to the reference to the date of entry in the purification letter, Lord Hodge found that, assuming (there was dispute between the parties as to the correct date of entry which could not be determined at that stage) the date was erroneous; the mistaken statement did not invalidate the letter:

“In my view, the function of the purification letter was simply to intimate that the purchasers had waived the suspensive conditions …. That had the effect of deeming the conditions to be purified, as clause 3.2 provides. The contract fixed the date of entry in the definition section of the missives…. Accordingly, there was no need to specify the date of entry in the purification letter. Either the missives ruled or the parties had agreed to alter the date of entry.”

A separate question as to whether Somerville & Russell had actual or apparent authority to receive the purification letter required to be dealt with by proof.

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.