Scottish Court of Session Decisions

This is an appeal against an interlocutor of the Sheriff at Aberdeen dated 24 February 1998 granting firstly, decree of implement of certain missives of sale of heritable property entered into between the parties, and, secondly, decree for the sum of £124,852 in name of damages.

The following summary of facts is largely taken from the Sheriff's findings. The pursuer and respondent owns and operates a leisure and snooker club in premises at 98-108 John Street, Aberdeen. By missives dated 7, 14 and 25 February, 7 April and 6 May 1994 and 20 February, 3, 9 and 10 March 1995 the pursuer agreed to buy and the defenders and appellants agreed to sell subjects at 114 John Street, adjacent to the pursuer's premises, at a price of £165,000. A deposit of £5,000 was paid in May 1994. Entry and vacant possession were to be given on 28 March 1995, and settlement of the balance of the price of £160,000 was to be made on 29 February 1996. It was further agreed that interest was to run on the price with effect from 28 February 1995, payable on a monthly basis, the first payment being due on 28 March 1995. With effect from the latter date the pursuer was to have access to and use of the premises exclusively and unencumbered, and the right to create an access doorway between his adjacent premises and the subjects of sale. Between 28 March 1995 and February 1996 the pursuer made eleven interest payments of £1,300, a total of £14,300, to the defenders. The pursuer did not receive the keys to the premises on the date of entry, but eventually received them about July 1995. Between the date of entry and the date of settlement the defenders continued to use the premises for the storage of materials, plant and machinery connected with their business. They continued to take access until about 29 February 1996, by which time they had removed all their property from the premises. In the early stages of negotiation between the parties it had been the pursuer's intention to demolish the premises, but as at the date of entry his intention was to use them in conjunction with his existing leisure facilities next door. In the long term it was his intention to demolish the subjects as part of a development plan for his business on the whole site. In order to include the subjects in his business operation the pursuer required a grant of planning permission and a liquor licence. He made no application for planning permission or a liquor licence between March 1995 and the end of February 1996. The Sheriff found as a fact that, had he made such applications, they would have been granted within about three months of the making of the applications. She also found that, had the pursuer had exclusive and unencumbered possession of the premises, he would have operated them in conjunction with his existing premises. Had the pursuer been able to do so he would have obtained the necessary permission and licence and carried out the necessary refurbishment in time to operate the extended premises by July 1995. He would have incurred costs in refurbishing and in purchasing supplies. He would have made profits from the use of the premises. In a letter dated 5 April 1995 the defenders' agents wrote to the pursuer's agents suggesting that, although the defenders could not give immediate vacant possession for another ten days, interest should continue to be paid and any interest not due should be dealt with by deduction from the price at settlement. In the light of that letter the pursuer continued to make monthly payments of interest to the defenders. At settlement the defenders declined to make a deduction of these monthly payments and included in their draft state for settlement, in addition to the balance of the purchase price of £160,000, sums for rates and insurances for the period between the date of entry and the date of settlement, despite the fact that they had continued to use the premises and the pursuer had not had exclusive possession or use. The pursuer declined to accept the terms of the draft state for settlement. By letter dated 29 February 1996 the defenders purported to impose a time limit of fourteen days for payment of the balance of the purchase p

The pursuer raised an action in Aberdeen Sheriff Court craving firstly, implement of the missives by the execution and delivery of a valid disposition in exchange for the sum of £160,000, and secondly, payment of damages of £200,000. Proof was led before the Sheriff. At a by order hearing following the proof the first crave was allowed to be amended on the motion of the pursuer by inserting the words "£146, 312.02 or such other sum as the Court shall find payable" in place of "£160,000". Thereafter the Sheriff granted decree ordaining the defenders to implement the missives in exchange for the sum of £145,700. In respect of the second crave for damages she granted decree for the sum of £124,852.

The defenders appealed against the Sheriff's interlocutor on two grounds. Firstly they contended that the Sheriff had erred in fact and law in holding that the pursuer was entitled to retain from the balance of the purchase price the sum of £14,300. Before us, Mr Bovey for the pursuer ultimately conceded that the Sheriff had erred in holding that the sum due by the pursuer at settlement was £145,700 and consented to decree of implement in exchange for a payment of £160,000. He was right to do so, and since the concession has a bearing on the calculation of damages under the second crave, we consider it necessary to set out briefly why the concession was correctly made.

The pursuer's obligation under the contract was to pay the sum of £160,000 on 29 February 1996, and for that he was entitled to receive a valid title and vacant possession. The pursuer had not received vacant possession on the date of entry a year before. That failure on the part of the defenders gave rise to a potential claim for damages by the pursuer, and entitled him to delay performance of his part of the bargain until the obligations due to him were implemented or until any claim for damages could be quantified by the Court. When he was denied vacant possession in March 1995, the pursuer did not withhold performance of any of his part of the bargain, but continued to pay interest. At the date of settlement he was offered vacant possession and a valid title. While he had a potential illiquid claim for damages arising out of the defenders' earlier failure to give him vacant possession, as at the date of settlement that failure had been cured. In that situation the pursuer was not entitled to make a determination of damages of £14,300 at his own hand and to deduct that sum from the balance of the price, and at the same time demand performance of the contract by the defenders. His obligation, in return for vacant possession and a valid title, was to pay the full balance of the price. A right of retention entitles a party to delay performance of his part of a bargain until the obligations due to him are implemented or until any claim for damages can be quantified by the Court. It does not entitle him to demand full performance by the other party while at the same time freeing himself of part of his own obligations. Accordingly it was not open to the Sheriff to award decree of implement in exchange for anything other than the full price.

The defenders argued that it followed from this conclusion that the pursuer was not entitled to damages for loss of profit in respect of any period after the date of settlement. The Sheriff awarded damages under the second crave in respect of loss of profit for the period 28 March 1995 to 20 May 1997, a date approximately 15 months after the date of settlement. It is clear that as at the date of settlement the defenders were no longer in breach of contract, while the pursuer was now himself in breach by virtue of withholding part of the balance of the price. In these circumstances the pursuer was no longer suffering loss as a result of the defenders breach. It follows that he is not entitled to damages for any period after the date of settlement. We were informed that the appropriate adjustment to the figure for damages could readily be agreed between the parties in the event of our coming to this view. The appeal will require to be put out By Order for the agreed figure to be intimated.

The defenders' second ground of appeal was that the damages claimed by the pursuer were too remote, in respect that they could not reasonably be said to be in the contemplation of the defenders as the probable result of the breach of the contract at the time it was made. Reference was made to Hadley v Baxendale [1854] 9 Exch 341. Counsel for the defenders argued that the evidence was clear that the defenders had not been informed of the pursuer's intention to use the subjects of sale in conjunction with his existing adjacent premises on a temporary basis for profit. The fact that the subjects of sale were commercial premises was not enough to impute special knowledge to the defenders. The pursuer's own averments indicated that he was going to use the premises for a store. The defenders had been told that demolition was intended. There was nothing to show that the pursuer's proposals for the use of the premises in conjunction with his existing premises were in the reasonable contemplation of the defenders at the time the contract was entered into. In these circumstances the claim was too remote.

In her opinion, the Sheriff summarised the evidence which related to the kind of loss which might have been in the contemplation of the defenders at the time the contract was entered into, as follows:

We see no reason to differ from the inference which the Sheriff has drawn from the evidence. The later amendment to the missives to which she referred was contained in the missive dated 9 March 1995 from the pursuer's agents to the defenders' agents. That missive included the following provision:

That letter was responded to by a missive dated 10 March 1995 from the pursuer's agents accepting the qualifications in the missive of 9 March 1995 and holding the bargain as completed.

At the time of the completion of the contract therefore the defenders had been made aware that the pursuer was proceeding with applications for planning permission, building warrant and a liquor licence in respect of the subjects of sale for the period from 9 March 1995 to the date of settlement. By their acceptance of that provision the defenders acknowledged the pursuer's proposals and raised no objection to them. In these circumstances we are unable to hold that the use of the subjects of sale along with the pursuer's existing premises for the purposes of his business during the period up to the date of settlement was not within the contemplation of the defenders. It follows that it must also be assumed to be within the contemplation of the defenders that the pursuer might suffer loss of profit if he was prevented from using the subjects of sale along with his existing premises by any breach of contract on the part of the defenders. The defenders' second ground of appeal therefore fails.

Only one ground of cross appeal was argued on behalf of the pursuer. It was argued that the Sheriff had erred in deducting income tax from the sum of damages awarded in favour of the pursuer. The pursuer was a sole trader. The damages awarded to him constituted a receipt of his business and were taxable in his hands. Reference was made to Deeny v Gooda Walker [1996] 1 All E.R. 932. This argument was conceded on behalf of the defenders and the pursuer was allowed to amend the record by increasing the sum sued for in the second crave to take account of the additional sum attributable to the erroneous deduction of income tax. On behalf of the pursuer counsel sought leave to lodge and argue an additional ground of appeal to the effect that the Sheriff had erred in deducting the sum of £14,300 from the sum otherwise due in damages. No cause was shown for the pursuer's failure to lodge this ground of appeal timeously and leave was refused.

In the circumstances we will put the appeal out By Order, and make no order meantime.