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 However, PIP 3 still did not pay and the Council rescinded the Agreement on 4 July 2013.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.

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.