Scottish Court of Session Decisions

In this action the defenders are a firm of solicitors. The pursuers seek damages for an alleged breach of the contract under which the defenders agreed to undertake certain professional services for the pursuers. In particular the pursuers aver that the defenders failed to raise an action in due time against a Mr. Cameron for damages for his failure to perform his obligation under missives to carry out certain building works on property which the pursuers had bought from him. The pursuers seek reparation for loss flowing from the defenders' alleged breach of contract.

In the missives Mr. Cameron undertook that he would "by 31st March, 1990 convert the steading building on the said subjects to form a single storey detached dwellinghouse". It is common ground that he never carried out the conversion. But in execution of the missives on 17 April 1990 he granted a disposition which included this provision:

The clause was drawn on the basis of a recommended style. See, for instance, G.L. Gretton and K.G.C. Reid, Conveyancing (second edition, 1999), p. 281. In the disposition the date of entry was specified as 31 January 1990 and so the missives were to cease to be enforceable on 31 January 1992. The issue between the parties therefore falls to be determined according to the common law before the Contract (Scotland) Act 1997 came into force.

The pursuers aver that, once the period of two years had elapsed from the date of entry, they could no longer sue Mr. Cameron for damages for failing to convert the steading building. The defenders' failure to raise an action against him within the two-year period had therefore resulted in loss to the pursuers. The defenders tabled a general plea to the relevancy of the pursuers' pleadings on the basis that, although after the period of two years the pursuers could no longer have sued Mr. Cameron for implement of the obligation under the missives, they could have sued him for damages for breach of the obligation until the expiry of the prescriptive period. The pursuers' case that they had suffered loss due to the alleged failure of the defenders to raise an action against Mr. Cameron was therefore irrelevant. After a procedure roll debate the Lord Ordinary sustained the defenders' plea to the relevancy and dismissed the action: Smith v. Lindsay & Kirk 1998 S.L.T. 1096. The pursuers reclaimed. Since the relevant clause in the disposition is in a commonly used form, the point of interpretation is of some importance to others besides the parties to this particular dispute. Gretton and Reid, Conveyancing, p. 281 n. 13 regard the Lord Ordinary's decision as "doubtful".

A clause of the kind with which we are concerned is known among conveyancers as a "non-supersession clause". The term derives from the doctrine that, when a seller grants a disposition, it supersedes the missives and is thereafter the sole measure of the rights and liabilities of the contracting parties: Lee v. Alexander (1883) 10 R. (H.L.) 91 at p. 96 per Lord Watson. The purpose of non-supersession clauses is to counteract the effect of this doctrine and to ensure that the missives are not immediately superseded when the disposition is granted. But this type of non-supersession clause has built into it a time-limit, in this case two years, after which the missives "cease to be enforceable". Although the Lee v. Alexander doctrine was originally stated in somewhat absolute terms, it came to be recognised that certain collateral obligations contained in missives were not in fact superseded by the disposition. They would therefore continue in full vigour despite the grant of the disposition even if it did not contain a non-supersession clause. All these aspects of the law were accepted by counsel for both parties at the hearing of the reclaiming motion. In addition, they agreed that Mr. Cameron's obligation to convert the steading building was a collateral obligation which would have remained in force even if the disposition had not contained a non-supersession clause. The only dispute between the parties was as to the meaning of the provision that the missives would "cease to be enforceable" after two years.

The Lord Ordinary held that the phrase meant that the pursuers could no longer enforce the obligations in the missives by specific implement but could still bring an action of damages for any loss caused by a breach which occurred before the expiry of the two-year period. The argument for the defenders which the Lord Ordinary accepted was based on the idea that, although an action of damages for breach of contract was "founded upon" a contract (University of Strathclyde (Properties) Ltd. v. Fleeting Organisation Ltd. 1992 G.W.D. 14-822), it was not an action brought to "enforce" a contract. In advancing that argument before us, counsel for the defenders proceeded on the footing that the pursuers had terminated the contract in the missives because of Mr. Cameron's material breach of contract in failing to convert the steading building. This was said to be implicit in their averments, in particular their averment that they had been "obliged to sell the steading". The question at issue was whether the pursuers could have raised an action for damages for that material breach after the expiry of the two-year period. As the Lord Ordinary recorded the argument, in any action of damages against Mr. Cameron, the pursuers would not have been seeking to enforce his primary obligation under the missives but merely to "enforce a secondary or substitutional obligation to redress, by way of damages, the breaching party's failure to perform" (1998 S.L.T. at p. 1098 D - E). Accepting the essentials of the defenders' argument, the Lord Ordinary was not persuaded

For present purposes I assume that Mr. Young, who appeared for the defenders, was correct to say that the pursuers' averments imply that they terminated their contract with Mr. Cameron. I also readily acknowledge the cogency of the analysis of primary and secondary liabilities tirelessly championed by Lord Diplock in cases such as Lep Air Services v. Rolloswin Investments Ltd. [1973] A.C. 331 and Photo Production Ltd. v. Securicor Transport Ltd. [1980] AC 827. In its essentials that analysis was accepted by Lord Justice Clerk Ross in Lloyds Bank plc v. Bamberger 1993 SC 570. In my view, however, interesting though the implications of Lord Diplock's analysis may be, it is unnecessary to explore them in order to resolve the issue between the parties in the present case. That issue turns on the interpretation of the term "enforceable" in the particular clause in the disposition.

On the Lord Ordinary's approach, in the phrase "shall cease to be enforceable", the adjective "enforceable" means "enforceable by specific implement". In support of that interpretation Mr. Young referred to the use of "enforce" and "enforceable" in Gloag, Contract, p. 657 in relation to the kinds of agreement of which the courts will or will not grant specific implement. The same use of "enforce" is to be found also, for instance, in McBryde, Contract, p. 511. I accept therefore that the term "enforceable" can be used in this way in our law. The question, however, is whether that is how it is being used in this particular provision in the disposition and, in order to decide that, the whole of the relevant clause requires to be considered, not least because the term "enforceable" occurs elsewhere in the clause.

The purpose of the clause as a whole is to ensure that, despite the grant of the disposition, the missives remain in force for a specified period. That is achieved in the first place by the provision that "the Missives of Sale ... shall form a continuing and enforceable contract". As Lee v. Alexander shows, in the absence of such a provision, the core obligations in the missives would be superseded. Mr. Young accepted that this would mean that neither an action of implement nor an action of damages could be founded on these core obligations. Equally clearly, the effect of the words which I have quoted from the clause in this case was that the granting of the disposition was to have no immediate effect on the missives. They were to remain as enforceable after the disposition as they had been before. In particular, after the disposition was granted, where otherwise appropriate, the parties could have sought either implement of all the obligations in the missives or damages for breach of those obligations. It follows that, in this first part of the clause, the term "enforceable" is not used in the restrictive sense of "enforceable by specific implement" but more generally, to refer to the missives being legally enforceable. This corresponds to a well-established usage of "enforceable" and "unenforceable" in relation to various categories of agreements of which the courts will or will not take cognisance. See, for instance, Gloag and Henderson, The Law of Scotland (10th edition), pp. 74 - 75.

The Lord Ordinary's restrictive interpretation of the later phrase "shall cease to be enforceable" therefore implies, as Mr. Young acknowledged, that the term "enforceable" is being used with different meanings in two places in the same provision. That would be surprising even if there were no relationship between the two phrases in the clause. But, in fact, there is a close relationship between them since the first phrase is used to make the missives enforceable and the second is used to define the period after which they are no longer enforceable. In that situation the term must be interpreted in the same way in both places in the clause and, since its meaning in the earlier phrase is to refer to the missives being legally enforceable, that same meaning must be applied where the term occurs later.

This interpretation of the phrase "shall cease to be enforceable" is consistent with its function in the clause as a whole. The clause prescribes that the missives are to be legally enforceable despite the disposition but that they are to be so only for a period of two years after the date of entry. Once the two year period has elapsed, the missives and all the particular obligations which they contain cease to be legally enforceable. Since they are no longer legally enforceable, no action of any kind can be founded upon them. On this matter I agree with the approach of Lord Abernethy in Hamilton v. Rodwell 1998 S.C.L.R. 418 at p. 424 E. In effect, as Mr. Upton submitted on behalf of the pursuers, the clause postpones the date at which the disposition supersedes the missives. In one respect, of course, when it bites, the unenforceability of the missives under the express clause has a wider effect than supersession under the rule in Lee v. Alexander: it applies to collateral obligations also. But this is simply the consequence of the wide terms in which the provision is drafted, presumably to achieve certainty and to avoid the kind of dispute which arose in Winston v. Patrick 1980 SC 246 and so dismayed the community of conveyancers.

I should add that this interpretation of the phrase "shall cease to be enforceable" is supported by the wording of the last part of the clause taken as a whole. The missives are to cease to be enforceable after two years "except insofar as they are founded upon in any Court proceedings which have commenced within the said period". If the defenders' interpretation were correct and an action of damages remained competent after the expiry of the two-year period, then the missives could be founded upon in an action of damages, whether commenced within or beyond that period. Only an action of specific implement would be cut off. On that approach the actual wording used in the clause would be inept: it would properly have said something like "except insofar as [the Missives] are founded upon in any Court proceedings for specific implement which have commenced within the said period."

For these reasons I would recall the Lord Ordinary's interlocutor, repel the defenders' first plea-in-law and allow the parties a proof before answer.

I agree with the Opinion of your Lordship in the Chair. As your Lordship points out, the clause concerned was drawn on the basis of a recommended style. While I agree that the style used suffices for the pursuers' contention in the present case to be sustained, I also consider that this style is capable of useful improvement for the purposes of circumstances such as those of the present case. In this connection, I agree with the comment by Professor Rennie in his commentary in the S.C.L.R. report on this case in the Outer House (1998 S.C.L.R. 572 at p. 576E) that "No one would deny that the main definition"...(of the word "enforce")..."is to compel the fulfilment of an obligation"...albeit that (my words)..."damages is a remedy designed to place the innocent party in the situation he would have been in had the other party performed his contractual obligations insofar as this can be achieved by payment of money."

I also agree with the comment in Conveyancing (Professors Gretton and Reid, 2nd edition (1999), footnote 13 on the page 281 to which your Lordship has already referred) with respect to the Lord Ordinary's decision in the present case that, while the word "enforceable" has been standard, "founded upon" may be better, except that for "may" I prefer "would" in the absence of any suggested disadvantage of such clarifying change.

I agree with the Opinion of your Lordship in the Chair and have nothing to add.