Inner House case concerning the interpretation of a minute of agreement between the owners of a development site in Ayr (the trustees) and Dickie & Moore.

The Trustees and Dickie & Moore had concluded missives for the sale of the site but later Dickie & Moore resiled from the missives (after paying an abortion fee). Dickie & Moore had been attempting to obtain planning permission for the site. When they resiled from the missives, the parties agreed that Dickie & Moore would continue to seek planning permission and the parties entered the minute of agreement by which the trustees would reimburse Dickie & Moore for professional costs if the trustees were to agree unconditional missives (i.e. missives which were not conditional on the obtaining of planning consent) with a third party.

The trustees entered unconditional missives to sell the site to a third party and, despite the fact that they had not succeeded in obtaining planning permission, they sought recovery of their professional costs from the trustees.

The minute of agreement provided:

“AND WHEREAS it has been agreed between the parties that in the event of the Sellers concluding unconditional (that is not subject or no longer subject to a suspensive condition) missives with a third party for the sale of the said subjects extending to 6.293 hectares or a substantial part thereof during the shorter of the period when the Planning Consent obtained or to be obtained by DMH for the development of the said subjects remains extant and the period of five years from the date of these presents, as the case shall be, the Sellers will reimburse DMH the full amount of the said professional fees together with any further vouched professional fees (up to a maximum of TEN THOUSAND POUNDS (£10,000) STERLING) incurred by DMH in obtaining such Planning Consent”

The question for the court was whether, in terms of the agreement, Dickie & Moore were entitled to recover their professional costs incurred in pursing the planning permission when the trustees concluded unconditional missives with the third party despite the fact that Dickie & Moore had not obtained planning permission.

The Inner House (allowing an appeal) took the view that the whole structure and purpose of the agreement was predicated on Dickie & Moore successfully pursuing their outstanding planning application. The Court did not consider that the parties had agreed to a situation whereby Dickie & Moore could achieve nothing in respect of planning consent but, provided that there was a sale within five years of the date of the minute of agreement, would be entitled to payment of the fees they had already incurred. Lady Clark made the following comments as regards the commercial sense of the possible interpretations:

“It is very difficult to understand why it would make any commercial common sense for the [the trustees] to pay substantial fees, for which they were not liable, in circumstances where [Dickie & Moore] were not obliged to achieve anything in relation to future planning consent but became entitled to repayment merely in the event of a sale to a third party within five years of the minute of agreement.”

The full judgement is available from Scottish Courts here.

Outer House case considering an option agreement over land at Greystone farm, Alford in Aberdeenshire.

Background
Mr Kenwright owned the land and entered into an option agreement with Stuart Milne by missives agreed in 2003. In terms of the agreement Stuart Milne could exercise the option to purchase parts of the farm land with detailed planning permission (which the parties were to work together to obtain) and consents for a housing development. Under the agreement Mr Kenwright was bound to enter any section 75 agreement[1] required by the local authority and Stuart Milne was to indemnify Mr Kenwright against any obligations he incurred under such an agreement.

Stuart Milne applied for and entered negotiations with Aberdeenshire Council regarding planning permission. It was agreed that the council would grant planning permission for two areas referred to as phase 1 and phase 2 and that an area of land between the two phases would be conveyed (for no purchase price) by Mr Kenwright to the council for the building of a new school/community centre. The planning permission was then granted subject to a section 75 agreement obliging Mr Kenwright to transfer the school land to the council.

In June 2010 further missives varied the agreement to change the purchase price for the phase 1 land and made provision for Stuart Milne to exercise the option in respect of the school land (at a purchase price of twice the open market agricultural value of the land). Stuart Milne also wrote to Mr Kenwright in June 2010 undertaking to “implement and perform or to procure the implementation and performance” of the obligations under s75 agreement and indemnifying him against any loss.

In July 2010 Stuart Milne exercised its option to purchase phase 1 and began building the development. The option agreement expired in January 2013 and the council called on Mr Kenwright to convey the school land to it in August 2013. He did so in September 2013.

Arguments
Mr Kenwright argued that the indemnity granted in June 2010 obliged Stuart Milne to exercise the option in respect of the school land (paying him the agreed price) and then convey it to the council (for no consideration) in terms of the 2010 missives.

The questions for the court were whether Stuart Milne was obliged to indemnify Mr Kenwright and, if so, what loss had he suffered.

Decision
Lord Woolman found that, in terms of the June 2010 indemnity letter, Stuart Milne had the option to implement and perform the obligation contained in the s75 agreement using the procedure contained in the 2010 missives (i.e. purchasing the school land from Mr Kenwright for the agreed price then selling to the council for no consideration) or it could ‘procure’ the implementation and performance of the obligation. Stuart Milne had procured implementation and performance of the obligation when Mr Kenwright had conveyed the land directly to the council. There was no binding obligation requiring Stuart Milne to follow the procedure contained in the 2010 missives and it was able to choose not to do so.

Lord Woolman observed that, if Mr Kenwright had not transferred the school land to the council, the council would have refused to grant planning permission or required a developer’s contribution from Stuart Milne (which would have reduced the price Stuart Milne would have been willing to pay Mr Kenwright): meaning that, in effect, Mr Kenwright had already received the value of the school land. Lord Woolman also noted that Mr Kenwright retained the phase 2 land which had an enhanced value due to the planning permission.

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] Agreements which local authorities can use to divert some of the benefit received from the grant of planning permission for a development back to the public sector.

Case from the Court of Appeal for England and Wales concerning a sale of freehold property in the West Midlands. The central issue for the court was whether VAT was payable on the purchase price.

The Purchase Price was defined in the contract as being £130k (no mention was made of VAT in the definition). However, the contract also incorporated the Standard Conditions of Sale[1] (4^th Edition) except where they were in conflict with the express terms of the contract.

Clause 1.4 of the Standard Conditions provides:

“1.4.1   An obligation to pay money includes an obligation to pay any value added tax chargeable in respect of that payment.

1.4.2     All sums made payable by the contract are exclusive of value added tax.”

Contracts were exchanged and the transaction completed in August 2006. CLP, the seller, opted to tax and became liable to pay VAT on the transaction. HMRC raised a notice of assessment in late 2007. In March 2008 CLP’s solicitors wrote to the purchasers’ solicitors indicating that the purchasers were liable to pay the VAT due (£22,750) to CLP. The purchasers failed to pay and CLP raised proceedings against them.

The court noted that the only reasonable interpretation of clause 1.4 was that the purchasers would have liability for any VAT. Also, previous case law provided powerful support for CLP’s argument that the purchase price of £130k was exclusive of VAT and that the purchasers were liable for any VAT due on the transaction.

However, the analysis did not end with the ascertainment of the meaning of clause 1.4; the contract had to be interpreted as a whole in the light of all the circumstances of the parties’ relationship and the relevant facts surrounding the transaction known to them. In that regard the following points were relevant.

It was never suggested that CLP ever communicated to the purchasers that it had exercised the option to tax.

1. The purchasers were individuals and, whilst the property was commercial, there had never been any suggestion that they were aware or had any reason to suppose that the transaction might be subject to a VAT charge.
2. The purchase price for the property had been agreed in principle a considerable time before completion and had been paid over by the purchasers to CLP by, at the latest, 2005. There was never any suggestion that VAT might be payable, still less that the purchasers would be liable for it. To the contrary, a letter from CLP’s solicitors in March 2006 contained an express acknowledgement that CLP had received “all of the sale monies of £130,000 on this matter, subject to contract”.
3. The standard requisitions had asked for details of the exact amount payable on completion and had elicited the response: “Balance of purchase monies”. No hint was given that VAT was or might be payable.
4. The contract provided that the “Purchase price” was £130k. It contained no indication that this price was exclusive of VAT. Indeed it was clear that this and no other sum was due upon completion because the contract included a table in which details of any “Other payments/ allowances” could have been (but were not) included. Moreover, and importantly, the contract provided that where there was any conflict between the express terms of the contract and the Standard Conditions, the express terms of the contract would prevail.

Taking all these matters into consideration the Court took the view that a reasonable person would have understood the parties to have intended that nothing was or could become payable by the purchasers over and above the specified purchase price of £130k.

Notably, in the particular circumstances of the case, the court found that it was not possible to interpret “Purchase price” as the price exclusive of VAT. As such, it considered that a reasonable person would consider that the express terms of the contract were not reconcilable with clause 1.4 of the Standard Conditions. In those circumstances, the court held that the express terms of the contract had to prevail.

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.

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.