Outer House case considering a contract between the Bank of Ireland and Knight Frank relating to a valuation which Knight Frank provided to the Bank in respect of a client’s property over which the Bank received a standard security.

Background
The Bank claimed that it had suffered substantial loss as a result of the valuation and sought damages for negligence from Knight Frank. However, Knight Frank’s standard terms provided that any contract to provide a survey report was subject to English law and that the English courts would have exclusive jurisdiction in respect of any dispute arising from it. The issue for the court was whether the standard terms formed part of the contract and, consequently, whether the court had jurisdiction to hear the case.

Knight Frank had provided a valuation for the Bank’s client in relation to the property (near Kilmacolm) which was to be the subject of a development. The Bank instructed its own valuation of the property from Knight Frank (by letter dated 2 May). This was provided and included Knight Frank’s standard terms. However, in a departure from its normal practice, Knight Frank had not sought to ask the Bank in advance for written confirmation that the standard terms formed part of the contract. Following receipt of the valuation, the Bank advanced a loan of £2.35m to the client in return for a standard security.

Arguments
The parties were agreed that the Bank’s letter of instruction constituted an offer that the offer had been accepted by conduct. The Bank argued that the offer was accepted by Knight Frank when it delivered the valuation report to the bank. The contract was accepted at the moment the report went through the bank’s letterbox at which point it was too late to introduce new terms (the bank argued that it would have been odd if the fulfilment of the contract –i.e. providing the valuation- were to be treated as a counter offer.)

On the other hand, Knight Frank argued that the delivery of the valuation report along with the standard terms constituted a counter offer which the bank had accepted when it relied on the report to grant the loan.

Decision
Lord Woolman preferred Knight Frank’s argument noting that it had been open to the bank to raise an issue with Knight Frank regarding the standard terms and it had not one so. It was irrelevant that the officer of the bank dealing with the transaction had not read the standard terms. The Bank could not “cherry pick” the document: i.e. it could not accept the valuation without also accepting the standard terms attached. In coming to his conclusion, Lord Woolman also took account of the facts that it had not been surprising to the bank’s employees (giving evidence in the case) that surveyors would seek to introduce their own standard terms into the valuation agreement and that the terms introduced were not unusual.

As such, Lord Woolman found that the court did not have jurisdiction to hear the dispute.

The full judgement is available from Scottish Courts here.

Outer House case considering the extent of a repairing obligation under a lease of industrial premises in Shotts.

Background
Demi-Master were the landlords and HES, the tenants. Demi-Master sought declarator that the lease had been terminated in terms of notices of irritancy which they had served following HES’s failure to respond to notices requiring HES to comply with the repairing obligations under the lease and also to make the premises clean and tidy in terms of the repairing clause in the lease.

The repairing clause provided:

“The Tenants accept the Premises as being in such condition as shown on the attached Photographic Schedule and in all respects fit for the Tenants’ purposes and shall at their sole expense and, to the reasonable satisfaction of the Landlords, repair and maintain and renew (and, if necessary for the purposes of maintenance and repair, to replace and rebuild) and decorate and keep the Premises and all permitted additions and new buildings, if any, in like condition as is evidenced on the said Photographic Schedule and in a clean and tidy condition, clear of all rubbish, for the Duration…”

Although the repairing clause referred to a photographic schedule detailing the condition of the premises at the commencement of the lease, neither party had a copy of the schedule and it may have been that it had never existed.

Arguments
Dem-master, who were seeking a summary decree (which can be granted where, even if a defender succeeds in proving the substance of its defence, its case must fail), argued that as HES had (in terms of the repairing obligation) accepted the Premises as being “in all respects fit for the tenants’ purposes” at the date of entry, they had accepted that the Premises were in a tenantable condition at that time.

On the other hand, HES argued that, the premises were already badly dilapidated at the date of entry.  They were not wind and water tight and had not been for some years previously.  The reference to the premises being fit for the tenants’ purpose in the lease was not an acceptance that the premises were wind and watertight or otherwise in a good state of repair. HES’s use of the Premises did not require them to be wind and watertight and, in contrast to Dem-master’s assertion, the effect of the reference was to make it clear that the premises had not been wind and watertight or in a tenantable condition at the date of entry.

Decision
Lord Doherty found that he was not in a position to determine the meaning of the repairing clause without an inquiry into the material circumstances surrounding the signing of the lease and, in particular, the state of the premises at the date of entry (finding that HES were not bound to fail in their defence and he could not grant summary decree in favour of Dem-Master) and put the case out by order for a discussion as to further procedure.

The full judgement is available from Scottish Courts here.

Inner House case considering an appeal from the sheriff court. The sheriff granted an order requiring J&D Pierce to remove encroachments it had built on neighbouring land owned by the McLellans in Glengarnock.

J&D Pierce approached the McLellans in 2006 with a view to purchasing land bounding their property (in order to create additional space for their business) but were told by the McLellans on a number of occasions that the land was not for sale.  In 2012 the McLellans became aware of a boundary wall encroaching onto their property and their solicitors wrote to J&D Peirce requiring them to cease all works immediately. However, despite this, a building encroaching onto their property by 4 to 6 metres, was erected and roofed by September 2012.

J&D Pierce argued that it was inequitable in all of the circumstances to order them to remove the encroaching building. However, although the sheriff acknowledged that the law recognises an equitable power in the court to refuse to order the removal of encroachments in certain cases[1], she concluded that the company’s encroachment was not in good faith and, as such, declined to exercise that discretion in this case, noting that the effect of doing so would have been to sanction the J&D Pierce’s deliberate action in simply building the on land which they had unsuccessfully attempted to purchase in 2006.

J&D Pierce appealed on the basis that the sheriff’s order was not precise enough to identify exactly what they had to remove from the property pointing to the difficulty in identifying the exact boundaries of the property on the ground. However, the Inner House refused their appeal pointing to the fact that  the extent of the encroachments had been agreed (as being 4 to 6 metres) by the parties in a joint minute and noting that the boundaries of both properties are specified in the land certificates and that J&D Pierce had knowledge of what had been built.

 The full judgement is available from Scottish Courts here.

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[1] As summarised in the cases of Anderson v Brattisani 1978 SLT (Notes) 42. See Gordon Munro v Walter Finlayson and Catherine Finlayson and Gareth Ince and Emma Bilsland, 30th January 2015.

Inner House case relating to the repossession of a residential property subject to a standard security (in favour of Swift Advances) securing a loan in respect of which the debtors (Mr and Mrs Martin) were in considerable arrears.

The main issues for the court were whether Swift had complied with the necessary pre-action requirements a creditor is required to take before repossessing a residential property[1] and whether it was reasonable, in the circumstances, for the court to grant decree allowing repossession of the property.

Amongst the pre-action requirements are obligations on the creditor:

1. to make “reasonable efforts to agree with the debtor proposals in respect of future payments to the creditor under the standard security and the fulfilment of any other obligation under the standard security in respect of which the debtor is in default”; and

2. not to make an application (allowing it to repossess the property) if the debtor is taking steps likely to result in (a) “payment to the creditor within a reasonable time of any arrears, or the whole amount, due to the creditor under the standard security; and (b) fulfilment by the debtor within a reasonable time of any other obligation under the standard security in respect of which the debtor is in default”.

The Martins property formed part of a larger property, the other part of which was owned by their daughter and son-in-law (the Hendersons). Discussions took place between the solicitors acting for Swift and those acting for the Martins regarding a potential purchase of the Martins property by Hendersons. The Hendersons were prepared to purchase the property on the basis of a valuation of £300k (obtained in July 2010). However, the property had been valued at £750k at the time of the loan (3 years previously) and Swift were concerned at the low valuation (the outstanding debt was said to be approaching £700k).  Mrs Henderson had also indicated to Swift that there was a problem with access to the Martins property (in that access to the Martins’ property depended on the consent of the owner of the Hendersons’ property). Correspondence followed in which Swift’s solicitors unsuccessfully sought the original title deeds from the Martins solicitors (which were held by the holder of a prior security) to ascertain the correct position regarding access (in order that the effect on the valuation could be ascertained) and the Martins solicitors repeatedly sought to insist that Swift accept the Henderson’s proposal of a purchase at £300k. Swift then resumed court proceedings aimed at repossessing the property (an action had previously been brought to an end to explore the possibility of resolving matters without litigation).

The Martins argued that Swift had not made reasonable efforts to agree its proposals to sell the property to the Hendersons (breaching pre-action requirement 1. above) and that, by taking steps to repossess the property while the Martins were proposing a sale to the Hendersons, Swift failed to comply with pre-action requirement 2. (above).

Those arguments were rejected by the Inner House which agreed with the findings of the Sheriff Principal to the effect that the pre-action requirements were aimed at protecting against the situation where a creditor takes action rapidly following a debtors default without communication with the debtor and without making any accommodation allowing the debtor to remain in occupation of the property with an adjusted payment regime. However, in this case, both parties were held to have made reasonable efforts to reach an agreement albeit those efforts had failed and Swift were found to have complied with the pre-action requirements.

“The pre-action requirements introduced by the 2010 Act[2] in respect of residential borrowing are designed to ensure that there is a genuine exploration of the possibility of an arrangement being reached whereby, in due course, the default can be remedied, albeit this may require indulgence on the part of the creditor.  The whole tenor of section 24A(3) and (4) is of discussions aimed at an alternative agreement whereby the debtor’s obligations can be fulfilled, for example, on the basis of a lower monthly payment extending over a longer period.  There is nothing to suggest that a proposal to pay only a fraction of the sum due must be accepted, or that it can stop the raising of court proceedings.”

The court also found that, in the whole circumstances, including the pre‑action correspondence, it could not be said that it was unreasonable for the court to sanction possession of the subjects and their sale on the open market by Swift.

The full judgement of the case is available from Scottish Courts here.

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[1] Contained in s24A of the Conveyancing and Feudal Reform (Scotland) Act 1970.

[2] The Home Owner & Debtor Protection (Scotland) Act 2010 (which amended the 1970 Act).

Outer House case in which a trustee in sequestration sought to challenge four securities and three dispositions granted by Mr Fortune.

Background
The trustee was appointed over the sequestrated estate of Mr Fortune in February 2011. As a result, Mr Fortune’s estate vested in the trustee (for the benefit of his creditors) on 24 December 2010.  Mr Fortune owned a number of properties in Edinburgh and attempted to grant a standard security of 4 of the properties and a disposition of 3 of the properties in favour of Medwin Investments (the deeds were registered in April 2014).

Arguments
Medwin argued that, in terms of s44(4)(c) of the Conveyancing (Scotland) Act 1924[1], as 3 years had passed since Mr Fortune had been sequestrated without the trustee having completed title to the properties, the properties subject to the standard securities and dispositions no longer vested in the trustee meaning that the deeds in favour of Medwin were immune from challenge by the trustee.

At the heart of this case was a procedural failure in the recording of a sheriff’s order (pronounced in December 2010). Where a petition for sequestration of the debtor’s estate is presented by a creditor, the sheriff to whom the petition is presented must grant warrant to cite the debtor to appear before him (in order to allow the debtor to show why sequestration should not be awarded). When the sheriff grants the order, the sheriff clerk must send a certified copy of the order to the keeper of the register of inhibitions and adjudications for recording[2]. In this case (for reasons unknown) the certified copy of the sheriff’s order was not recorded.

Decision
Lord Jones agreed with the trustee’s contention that, in terms of the legislation, the three year period leading to immunity from challenge in respect of the deeds granted in favour of Medwin was dependent on the recording the sheriff’s order. As the order had not been recorded, the three year period had not begun to run and therefore could not be said to have expired prior to registration of the deeds in favour of Medwin (meaning that the dispositions and standard securities were not immune from challenge by the trustee).

However, during the case an additional complication emerged in that solicitors acting for the trustee advised the court that the trustee had applied for an order[3] waiving failures to comply with requirements of the legislation and restoring parties to the position that would have occurred were it not for the failure. That application led to the sheriff pronouncing two interlocutors. The first (on 6 February 2014) amended the warrant to cite and ordained the sheriff clerk to intimate the interlocutor and the order of 24 December 2010 to the keeper whilst “reserving to pronounce further”. The sheriff clerk sent a certified copy of the interlocutor to the keeper and it was recorded on 11 February 2014. The second interlocutor authorised the Keeper to record the certified copy of the order of 24 December 2010 and a memorandum of renewal extending the 3 year period and was recorded on 22 May 2014.

Lord Jones found that, although the sheriff may not have intended the certified copy of the order to be recorded until he made the second interlocutor, it had in fact been recorded. The effect of this was to retrospectively trigger the beginning of the three year period (from the date sequestration) meaning that at the time the dispositions and standard securities were granted the three year period had expired (and consequently the deeds may potentially have been immune from challenge).

However, Lord Jones also found that, although the three year period had passed, the Trustee retained the personal right to the properties which had vested in her on 24 December 2010. And, although expiry of the 3 year period prevented the deeds being challenged on the grounds of sequestration, because Medwin was aware that the trustee had a prior personal right to the property when Medwin acquired title to the property, Medwin was acting in bad faith and the deeds could be challenged on the basis of that bad faith. As such the deeds were reduced.  (Essentially, Medwin had fallen foul of what is known as the “offside goals rule” [4] which protects a person with a prior right from a second party who appears later and knows (or ought to have known) of the prior right but nevertheless attempts to obtain rights to the property anyway.)

The full case report is available from Scottish Courts here.

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[1] “No deed… granted… by a person whose estates have been sequestrated under … the Bankruptcy (Scotland) Act 1985,… relative to any land or lease or heritable security belonging to such person at the date of such sequestration or subsequently acquired by him shall be challengeable or denied effect on the ground of such sequestration if such deed… shall have been granted… at a date when the effect of recording… under subsection (1)(a) of section 14 of the Bankruptcy (Scotland) Act 1985 the certified copy of an order shall have expired by virtue of subsection (3) of that section, unless the trustee in such sequestration shall before the recording of such deed… in the appropriate Register of Sasines have completed his title to such land… or heritable security by recording the same in such register…”

[2] In terms of s14(1)(a) of the Bankruptcy (Scotland) Act 1985.

[3] In terms of s63 of the Bankruptcy (Scotland) Act 1985.

[4] The rule is described in Rodger (Builders) Ltd v Fawdry and Others 1950 S C 483.

Background
Outer House case considering a planning appeal[1] arising out of Dumfries and Galloway Council’s adoption of the Dumfries and Galloway Local Development Plan 2014 (the 2014 LDP).

Calmac owned the Woodland’s House Hotel, situated between Woodlands and Newbridge to the north-west of Dumfries, and also had an interest in promoting a small scale housing development around the hotel.

Prior to the adoption of the 2014 LDP[2] the hotel (and Woodlands and Newbridge) lay within the settlement boundary of Dumfries. However, as a consequence of the adoption of the 2014 LDP the settlement boundary changed and the hotel then fell outside the boundary meaning that an application for the development around the hotel would be dealt with under different and, it was argued, more restrictive housing policies.

When, what was to become the 2014 LDP, was published as a Proposed Local Development Plan Calmac had made representations[3] to the Council regarding the proposed plan. However, a reporter (appointed to resolve unresolved representations) recommended that no modification be made to the plan in the area of Calmac’s property.

Arguments
Calmac appealed on the basis that the reporter had failed to consider its representations regarding the change in the Dumfries settlement boundary. Further, it contended that the reporter had failed to take account of a representation that Newbridge should have been reclassified as a village in the event the settlement boundary was moved (which would have resulted in less restrictive housing policies applying to the proposed development).

Decision
Lord Turnbull rejected those arguments and refused the appeals.

It was found that, although the representations made by Calmac regarding the position of the Dumfries settlement boundary had included a statement that Newbridge was not designated as a village (and went on to show that more restrictive housing policies would apply as a result), it did not suggest that the absence of the designation was incorrect or inappropriate.  As such, when considering Calmac’s representations, it was only necessary to provide reasons relating to the placement of the Dumfries settlement boundary. The reasons given by the Council and reporter in that respect (that the decision had been taken by identifying an appropriate and defensible boundary for the settlement of Dumfries, identifying a landscape buffer and reaching the conclusion that the housing needs of the area were otherwise met) were held to be an exercise of understandable planning judgement and, as such, were adequate.

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.

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[1] Under s238 of the Town and Country Planning (Scotland) Act 1997.

[2] Under the Nithsdale Local Plan 2006.

[3] As they were entitled to do under s18 of the Town and Country Planning (Scotland) Act 1997.

Inner House court case relating to a lease of premises on Buchanan Street in Glasgow. ELB were the Landlords and Prestwick Hotels Ltd, the tenants.

Background
Prestwick were dissolved in June 2013 and then restored to the register of companies in October 2013. In terms of the Companies Act 2006 (s1012), when a company is dissolved its property (including leasehold property) falls to the Crown as bona vacantia and the Crown must then decide whether or not to disclaim the property. In this case the Crown opted to disclaim the property which (in terms of s1020 of the 2006 Act) had the effect of terminating the lease.  ELB therefore sought to recover possession of the subjects from Prestwick.

The crux of the case was the meaning of s1032(1) of the Companies Act 2006 which provides:

“The general effect of an order by the court for restoration to the register is that the company is deemed to have continued in existence as if it had not been dissolved or struck off the register.”

Arguments
Prestwick argued that the effect of this section was that when it had been restored to the register all matters reverted to the pre-dissolution status quo to the extent that bona vacantia no longer applied to the premises. As such the lease continued and there was no foundation for ELB’s action to recover possession of the premises. The sheriff agreed with those arguments and dismissed ELB’s action.

Decision of the Sheriff Principal
However, on appeal, the Sheriff Principal recalled the sheriff’s decision and found that ELB were entitled to recover possession of the premises. In coming to this conclusion the sheriff principal took account of the uncertainty which would result if the restoration of the company were also to restore the lease. In terms of s1030(4) of the 2006 Act a company can be restored to the register up to 6 years after it has been dissolved. Thus if, for example, a landlord recovered possession of the premises following a dissolution and let it to another tenant, following Prestwick’s reasoning, the new tenant would cease to have any rights to the premises, if (at any point during the 6 year period) the original tenant were restored to the register.

As such, the Sheriff Principal found that Parliament did not intend that 1032(1) should operate so as to re-write history in an unrestrained manner and that specific provisions concerning the company’s property (contained in ss1012 to 1014 and 1020 to 1022) should prevail over the general effect of s1032. Again Prestwick appealed.

Decision of the Inner House
The Inner House agreed with the approach taken by the Sheriff Principal and refused the appeal. When a company is dissolved and the Crown opts to disclaim the property, the effect is that (1) all of the company’s rights in the property are brought to an end (in terms of s1020(1)) and (2) the property is deemed not to have vested in the Crown (in terms of s1014)[1]. This meant that PHL’s rights in the lease had been terminated from the date the Crown opted to disclaim the property. The judgement states:

“on a proper construction of the 2006 Act, “the general effect” of the restoration of the company as provided for by section 1032, namely “that the company is deemed to have continued in existence as if it had not been dissolved or struck off the register”, merely provides for the general approach which is to be adopted in such circumstances;  but that general approach must give way to the specific and detailed provisions concerning the company’s property as set out in sections 1012 to 1014 and 1020 to 1022.  As a result, therefore, we consider that PHL’s rights in the lease came to an end on 15 July 2013. [The date the Crown opted to disclaim the property.]”

 And goes on:

 “The construction contended for by [Prestwick] would lead to uncertainty and confusion in the commercial world…  In general, applications for restoration of a company may be made at any time in the six years following dissolution, but in the case of a personal injuries claimant, there is no time-limit (section 1030(1)).  Thus on [Prestwick’s] construction, any transactions, contracts, titles, leases, and loans relating to the relevant company property would be struck at years later by an application for restoration resulting in an “as-you-were” position whereby the property simply reverted to the restored company as if the company had never ceased to exist and as if the dealings with the property over the recent years had never occurred…  Parliament cannot have intended to produce such results.”

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.

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[1]The Act also makes provision (ss1021 and 1022) for interested third parties such as creditors or sub-tenants to apply to the court for the property to be transferred to them but there was no suggestion that Prestwick qualified in terms of the Act.

Sheriff Court case in which a creditor (Westfoot) sought to repossess and eject a debtor (EPH) from residential properties secured by standard securities after the EPH defaulted on payments relating to the associated loan.

EPH (a Panamanian company registered in the USA) admitted that the loan had been made and that it was in continuing arrears. However it argued that Westfoot had failed to comply with the strict statutory requirements necessary to repossess the property.

Calling up procedure
As the properties were residential, EPH argued that, when enforcing the security, Westwood required[1] to comply with the range of statutory obligations[2] aimed at protecting homeowners from being unfairly removed from their homes.

The sheriff rejected that argument finding that the protections contained in the legislation were intended for home owners and not corporate property speculators. It was noted that a company (in contrast to a natural person) does not have a ‘home’ in the sense that it would require to find alternative accommodation if it were ejected from the premises.

The sheriff found that:

“the sole beneficiaries of the legislation are debtors who own their home and use it as a security for debt, home owners who allow the home they mostly live in to be used as security for someone else’s debt, occupiers whose home is not otherwise protected by legislation[3] and entitled residents [including, for example, estranged partners of debtors] who live solely or mainly in a home used by a debtor or proprietor to secure a debt…”

However:

“corporate borrowers that grant standard securities over their residential property assets and use these as collateral security, to raise capital on the financial markets, are not included within the scope of the protection created. That kind of borrowing is a commercial activity.”

Ejection procedure
EPH also argued that, because the legislation governing the ejection of a debtor from a property[4] refers to the proprietor being in “personal occupation” of the property, it could not be used to eject a legal person (such as a company) from a property.

However, the sheriff found that, reading the legislation in a way that (in so far as possible) is ECHR compliant (which included protecting Westfoot’s right to enjoyment of its possessions), resulted in an interpretation of the legislation allowing the ejection of a company such as EPH.

Nevertheless, in this case, as there was no evidence that EPH itself was actually in possession of the properties (which were occupied by tenants[5]), an order for ejection of EPH was not required and the sheriff refused to grant it.

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.

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[1] This point was conceded by Westwood although the sheriff noted that he had “no doubt that these measures were never intended by the Scottish Parliament to shield Panamanian property companies from the ordinary consequences of their failure to comply with obligations in terms of contracts freely entered into, on the financial markets.”

[2] Contained in the Conveyancing and Feudal Reform (Scotland) Act 1970 and the Heritable Securities (Scotland) Act 1894 (as amended by the Homelessness etc (Scotland) Act 2003, the Home Owner and Debtor Protection (Scotland) Act 2010 and the Housing (Scotland) Act 2010).

[3] Including, for example, assured tenants under the Housing (Scotland) Act 1988.

[4] The Heritable Securities (Scotland) Act 1894.

[5] Who, if they were assured tenants under the Housing (Scotland) Act 1988, would have separate rights of protection from ejection.

Outer House case concerning an Option Agreement relating to a 4.6 acre Brownfield site near the Commonwealth Games Athletes Village in Glasgow which was owned by Glasgow City Council.

Background
PIP 3 wanted to construct a hotel and car park on the site and, between 2006 and 2011, instructed various investigations to be carried (which showed that the site was relatively free from hazardous waste) However, following receipt of a survey from the Council, PIP 3 discovered that a large quantity of extra earth had been deposited on the site which the Council then confirmed was spoil derived from the construction of the nearby Commonwealth Games facilities.

The parties entered an option agreement in late 2011 (schedule 1 of the agreement was termed “the Missives”). Amongst other things, the agreement provided for payment of an initial purchase price by PIP 3 (at settlement –which was 15 working days after PIP 3 exercised the option to purchase the property) and for the Council to instruct a remediation consultant to prepare a Site Waste Management Plan and a Materials Management Plan (as soon as reasonably practicable after execution of the option agreement). The Council were also to procure that the contractors and the remediation consultant were to provide collateral warranties to PIP 3.

The settlement date was 11 April 2013. PIP 3 asked for copies of the Site Waste Management Plan and a Materials Management Plan in February 2013 and, whilst the Council said it was obtaining the documents, it said that there was no obligation on them to deliver them at settlement. PIP 3 did not pay the initial purchase price at settlement. The Council delivered the copy documents to PIP 3 on 5 June 2013. However, PIP 3 still did not pay and the Council rescinded the Agreement on 4 July 2013.

PIP 3 raised an action for breach of contract on the basis that the Council had failed to provide (a) the Waste Management Plan and the Materials Management Plan and (b) the collateral warranties. PIP 3 sought damages of over £15m equating to an estimate of its lost profit if the development had gone ahead. Alternatively, PIP 3 sought abortive costs on the basis that the Council had (i) breached its obligations of good faith and (ii) negligently misrepresented the position by failing to disclose the deposit of hazardous waste.

Decision
Lord Woolman dismissed PIP 3’s claim for breach of contract. In the first place, it was found that, in terms of the wording of the relevant clause in the agreement, there was a duty to instruct the Waste Management Plan and a Materials Management Plan but not to deliver them on or prior to settlement. (In coming to that conclusion Lord Woolman also observed that there were only three working weeks between exercising of the option and settlement and it might have been difficult for the Council to obtain the documents in that period.)

Secondly, Lord Woolman referred to the missives. Clause 1.7 provided that Council was not entitled to rescind:  “for any period of time during which the delay in payment by PIP 3 is due to any failure or breach by or on behalf of the Council to implement its obligations or duties under the Missives on time”. Lord Woolman noted that, unlike clause 1.3 which provided that the Council was entitled to rescind both the missives and the option agreement if PIP3 failed to pay the initial purchase price, clause 1.7 referred only to the missives. As such, the limitation of the Council’s right to rescind contained in clause 1.7 applied only in respect of obligations contained in the missives (but not the option agreement). The obligation relating to the Waste Management and Materials Management Plans was contained in the option agreement but not the missives meaning PIP 3 could not withhold payment on the basis non-compliance with the obligation without giving the Council a right to rescind.

Thirdly, PIP 3 had also claimed that they were entitled to withhold payment on the basis that the missives required the Council to deliver certain documents including the collateral warranties at settlement. However, Lord Woolman found that, having regard to the wording of the agreement, payment of the initial purchase price was the hinge of the transaction and, until payment occurred, the Council had no obligation to deliver the collateral warranties (and other settlement documents).

Lord Woolman also held that, in the circumstances[1], the case was not one in which PIP 3 could argue alternative and inconsistent grounds of action. (I.e., on one hand, make a claim for damages equivalent to PIP 3’s lost profit on the basis that the development would have gone ahead were it not for the Council’s actions but, on the other hand, claim for abortive costs on the basis that PIP 3 would not have gone ahead with the transaction if it had known about the hazardous waste.) Lord Woolman took the view that PIP 3 must have known whether it would have exercised the option and developed the subjects and agreed with the Council that the whole thrust of the PIP 3’s arguments indicated that the transaction would not have gone ahead. As such, PIP 3 could only claim for abortive costs and not for damages amounting to lost profit.

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.

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[1] Lord Woolman took the view that this was an extreme type of case in which the court had to exercise supervision referring to Maclaren Court of Session Practice page 311 and Smart v Bargh 1949 SC 57.

Background
Outer House case relating to a joint venture agreement which five parties had entered with a view to obtaining planning permission for, and optimising the sale value of, an area of land to the west of St Andrews.

Four of the parties held title to the parts of the property to be developed and the fifth was the intended developer of the land. Two of the parties to the agreement (including the developer) were controlled by Joseph Headon.

Two of the parties to the joint venture (Headon Holdings and the Cuthills) reached a separate agreement under which the Cuthills would convey an area of land to Headon who would hold the land and any future sale proceeds (less the price paid by Headon to the Cuthills for conveyance of the land) in trust for the Cuthills.

Arguments
Two of the other parties to the agreement including the University of St Andrews were unaware of the agreement between Headon and the Cuthills when they entered the joint venture. When they became aware of the agreement, they sought to have the joint venture agreement reduced on the basis that (1) they had relied on a material misrepresentation by Headon and the Cuthills and (2) they argued that Headon and the Cuthills had a duty to disclose material facts to them when they entered the joint venture. The university argued that they had been led to believe that Headon and not the Cuthills had the “beneficial interest” (i.e. being the recipient of the benefit which would result from the development of the property in question) as a result of statements made by Joseph Headon and others.

The University pointed out that Headon was closely related to the developer (both were controlled by Joseph Headon) and that, as a party to the joint venture, Headon received certain privileges under the joint venture agreement including voting rights on matters affecting the developer and enjoyed the ability to block agreement amongst the parties to the joint venture on certain issues. As such, if the university had known about the agreement between Headon and the Cuthills (the result of which the university argued was that the Cuthills were the “beneficial owners” of the property in question and not Headon as they had believed), they claimed they would have not have allowed Headon into the joint venture and would not have entered the venture themselves.

Decision
Lord Tyre rejected the university’s arguments and dismissed the action.

Duty of disclosure
In the first place Lord Tyre found that, in the circumstances, there was no duty of disclosure. The general rule is that the parties to a contract have no duty of disclosure. However, a duty can arise in relation to certain special contracts or where the parties are in a special relationship. (A common example where the duty arises is contracts of insurance, where facts material to the insurer’s risk are known only to the insured.) The university argued that the duty also applies to parties negotiating a partnership. After noting that it was not definitely decided that the duty applies to such cases in Scotland, Lord Tyre found that he was not persuaded that the joint venture could properly be characterised as a partnership (or analogous to a partnership) for the purpose of applying the law of pre-contractual duties.

Misrepresentation
Secondly, Lord Tyre held that there had been no misrepresentation in the statements describing Headon as the owner or landowner of the land in question as Headon did in fact hold title to the land. Describing Headon as the landowner did not amount to a representation that Headon was a “beneficial owner” in the sense that the term had been used by the university.

The full judgement is available from Scottish Courts here.

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