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 the sellers works (which involved the upgrading of a road and construction of a roundabout).

Condition 10 of the missives made provision for completion of the works and included a longstop date of 15 December 2007. Condition 12 of the missives also related to the long stop date and provided:

“In the event that the Seller has failed to Complete all of the Seller’s Works or the Seller has not fully implemented the Seller’s Obligations by the Long Stop Date as such date may be extended in terms of Condition 10(a) hereof then the Seller will be obliged to offer to sell to the Purchaser another residential development site within Central Scotland of comparable size and value to the Subjects. Upon settlement of the transaction contemplated by the missives in respect of the said other residential development site the missives to follow hereon (of which this offer forms part) shall be terminated”.

 Bellway failed to complete the works by the longstop date and wrote to Persimmon offering to sell a site in Airdrie to them instead. Persimmon sought damages for breach of contract.

There were two questions for the court:

(1)   Whether the requirement for Bellway to offer an alternative site to Persimmon was the only remedy available to Persimmon in the event Bellway failed to meet the longstop date or whether Persimmon were also entitled damages for breach of contact.

(2)   Whether condition 12 had in fact been breached by Bellway.

The remedies available to Persimmon

Persimmon argued that when Bellway failed to fulfil the obligation contained in condition 10 by the long stop date they were in breach of contract and the existence of Condition 12 was irrelevant to that.

However, Lord Glennie took the view that Bellway were not in breach of contract at this stage. Although the right to damages for breach of contract is an important right which can only be taken away by clear provision to the contrary, Bellway were not arguing that the provisions of condition 12 were an alternative to damages for non-performance of the contract. Instead, they were arguing that breach of Bellway’s obligation under Condition 10 gave rise to a further obligation under Condition 12 to offer an alternative site. If the alternative site were not offered then, at that stage, a breach of contract would occur giving rise to damages.

If the contract were construed in the manner suggested by Persimmon condition 12 would amount to an option exercisable by them. If that was what was intended it was difficult to understand why it was not expressed as such. That damages would not be available unless there was a failure to provide an alternative site, was further supported by the commercial background to the contract. What Persimmon wanted was an alternative site for development to enable them to deploy their resources efficiently. That could best be satisfied by the provision of an equivalent site if the Broomhouse site was unavailable. Thus the obligation to provide an alternative site was an essential feature of the structure of the contract and it was only if that obligation were breached that the right to rescind and claim damages arose.

Breach of Condition 12

The next question was whether the offer of the site at Airdrie was sufficient to satisfy the requirements of Condition 12. Lord Glennie found that it was not. Whilst, the Airdrie site was (taking a broad view) of comparable size (the difference in gross areas was 6.07% and the difference in net developable areas was 13.4%), it was not of comparable value. After considerable discussion as to the method of valuation to be applied, Lord Glennie found that the value of the Broomhouse site was 17% higher than that of Airdrie and, as such, the sites were not of comparable value within the meaning of Condition 12.

The full judgement is available from Scottish Courts here.

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