Scottish Court of Session Decisions

This is a reclaiming motion in an action in which the pursuers and respondents ("Shoprite") seek declarator that they are entitled in terms of an agreement with the defenders and reclaimers ("Kwik Save") to have a dispute between them concerning subjects in Sauchiehall Street, Glasgow determined by an independent expert. The agreement founded on, dated 2 November 1994, provided for the sale by Shoprite and purchase by Kwik Save of the retail supermarket business carried on by Shoprite in England and Scotland together with the real and heritable and leasehold properties in which the business was carried on so far as not excluded from the scope of the agreement. Provision was made in the agreement as to the circumstances in which any of the properties in which the business was carried on would be excluded from the sale. In particular, provision was made in section 10.5.3 of the agreement as follows:

The "Principal Completion Date" referred to in this provision is defined for present purposes as 26 November 1994. A definition of "the Excluded Properties" was also contained in Part Nine of the Schedule to the agreement to which we make reference later.

The agreement also made provision in regard to what were called "Encumbrances". A definition of that word is contained in Part Nine of the Schedule which includes in respect of Scottish properties a provision that

The effect of certain other provisions of the contract was that if there was such an encumbrance which had not been removed or waived by Kwik Save, the property could not be transferred.

Section 4.3 of the Agreement provided as follows:

The declarator sought proceeds on the basis that Shoprite are entitled to avail themselves of the latter provision in relation to the Sauchiehall Street property.

The subjects in Sauchiehall Street (hereinafter referred to as "the subjects") were one of a number of properties in which Shoprite's business was carried on which are described in the agreement as "the Scottish Leasehold Properties". In February 1995 a dispute arose between Shoprite and Svenska Handelsbanken, the proprietors of property over which service access was obtained to the subjects, as to the nature and extent of Shoprite's rights. As the Lord Ordinary records, both parties in this action accept that "an Encumbrance" arose from the existence of Svenska Handelsbanken's contentions. It is further agreed that this encumbrance would have to be removed to allow transfer of the lease of the subjects to take place. On or shortly before 22 November 1995 Shoprite exhibited to Kwik Save's agents documents which they contend satisfied the requirements of the contract relating to transfer, and two days later they sent the keys of the subjects and requested confirmation that completion of the transaction had taken place. The keys were returned by Kwik Save's agents on 13 December 1995 who stated that the subjects had become excluded property because at the expiry of twelve months from Principal Completion Date there was an unresolved dispute whether or not encumbrances had been removed. Shoprite's position is that the tendering of the documents constituted a "transfer" of the subjects, within the time limit, and that the question whether or not the encumbrance had been removed at the time when these documents were tendered was one which could be determined by an independent expert after the expiry of the twelve months. If the expert determined that question in their favour it would mean that the property had not been excluded from the sale as contended by Kwik Save. Kwik Save dispute that the encumbrance constituted by Svenska Handelsbanken's contentions has been removed and contend that the title exhibited to them does not provide for adequate access rights to permit servicing. In the absence of any determination of these matters before 26 November 1995 they contend that the subjects became excluded on that date.

Although both parties founded on what they contended was the general intention of the agreement and also on particular provisions which they maintained supported their position, it seems to us that the real issue in the case is whether a "transfer" of the property took place within the twelve months. If it did not, there is no ambiguity as to the effect of section 10.5.3 which clearly provides that the property is excluded. If, as Shoprite contend, a transfer did take place when they tendered the documents which they did tender, it is equally clear that the subjects were not excluded at the expiry of the year and that they are entitled to the declarator which they seek so as to establish if they can that Kwik Save's objection is ill-founded. This approach was ultimately accepted by both parties as correct, although it differs from that adopted by the Lord Ordinary.

Ordinarily, the transfer of an interest in heritable property, whether or not the interest is that of a lessee, requires certain formalities to be carried out. However senior counsel for Kwik Save expressly disclaimed any intention to found on the general law in submitting that no transfer had taken place within the year. His submission was that the word "transferred" contained in section 10.5.3 was to be understood only by reference to the contractual provisions. That approach is supported by the interpretation of the word contained in section 2.2 of the agreement which is as follows:

Section 10, so far as directly relevant, provides that: "Completion of the transfer in respect of each Scottish Leasehold Property...shall take place on the date provided for in Part Eleven of the Schedule".

The result of these provisions is, as was acknowledged by both parties, that transfer takes place in relation to any Scottish leasehold property when and if it is in accordance with provisions relating to that property contained in Part Eleven of the Schedule, but not otherwise. Shoprite's position is that they did observe all of the requirements contained in that part of the Schedule when they tendered the documents which they did, which included assignation of an unencumbered leasehold interest, and that a transfer then occurred.

At one stage of his argument senior counsel for Kwik Save suggested that the existence of a genuine dispute between the parties whether or not an encumbrance had been removed was in itself an encumbrance on the interest sought to be transferred. Since that dispute had not been resolved at the time when documents were tendered these documents could not satisfy the requirement in the Schedule that all encumbrances must be removed before a transfer could take place. Shoprite do not suggest that Kwik Save were acting in bad faith when they stated that they disputed that encumbrances had been removed, nor could they in view of the fact that they seek to have that dispute determined by an independent expert. However, we do not regard the existence of this dispute as itself constituting an encumbrance within the meaning of that word in the contract. The definition of the word contained in Part Nine of the Schedule is not entirely clear but it must at least refer to some potential constraint on the use of property, not the existence of a dispute whether or not such a constraint exists.

The issue whether there was a transfer therefore seems to us to depend only on the general question whether the documents tendered were tendered "in accordance with the provisions of Part Eleven of the Schedule" so as to constitute transfer within the meaning of section 2.2. The difficulty which arises for Shoprite in this connection is that Part Eleven of the Schedule makes no provision that the tendering of documents, although ex facie showing an unencumbered interest, is sufficient to achieve a transfer when there is a genuine question whether the interest sought to be transferred is indeed subject to no encumbrance. The absence of any such provision is particularly significant having regard to the fact that parties recognised in section 4.3 of the agreement (referred to supra) that such a question might arise and that a means should be provided for its resolution. It would be most surprising if in these circumstances Kwik Save were obliged to accept a transfer of interest although that question was still pending. In our opinion they were not so obliged. Part Eleven of the Schedule only provides, in clause 10(5) of section A5, for completion of the transaction following "removal (or waiver by Kwik Save) of any encumbrance", and this provision must proceed on the assumption that any question whether an encumbrance has been removed or waived has previously been resolved if necessary by the agreed mechanism. This is confirmed by the particular provisions relating to the subjects, contained in para. 66 of section B of Part Eleven of the Schedule which provide inter alia that the landlord's title to the property in respect of which the lease is to be transferred must include "an unchallengeable right of servicing and emergency egress". There may be a question as to what exactly constitutes "an unchallengeable right of servicing" in the landlord's title but it is at least clear from the use of that expression that Kwik Save did not intend to accept a transfer of interest in a situation where there was a genuine question whether that interest was unencumbered. In our opinion the entire provisions of Part Eleven of the Schedule, so far as related to transfer of a property, proceed upon the basis that if that question has arisen it has already been resolved by the means provided for in the agreement. It follows that the tendering of documents by Shoprite did not constitute a transfer of interest "in accordance with the provisions of Part Eleven of the Schedule", there being no provisions in the Schedule in accordance with which a transfer could take place in the situation which then existed. The subjects therefore became excluded on 26 November 1995, by virtue of the operation of section 10.5.3. There is no provision in the contract to suggest that after having been excluded any property can be subsequently reinstated by the determination of an independent expert as is sought in Shoprite's conclusion in the action, and their averments in support of that conclusion are therefore irrelevant.

The definition of "the Excluded Properties" to which we have referred is contained in Part Nine of the Schedule, and under heading (iii) thereof it is provided that the expression means "any Scottish Property in respect of which Property Completion shall not have occurred within twelve months from Principal Completion". For present purposes it is agreed that "Property Completion" is the same as the transfer of interest referred to in section 10.5.3, but it may be noted that the definition of "Property Completion" in the same Part also requires "the removal of any encumbrance...as provided for in Part Eleven of the Schedule". These definitions serve to confirm the effect which we have attributed to the provision contained in section 10.5.3 to the circumstances of this case.

The Lord Ordinary's decision proceeded on the basis that it was not possible to arrive at a satisfactory resolution of the present dispute by analysis of the language of the contract, and that on balance there were indications provided in certain of the provisions which supported Shoprite's position rather than that of Kwik Save. We consider that analysis of the language of section 10.5.3 does enable us to determine the case, and that there are no provisions in the contract which qualify the effect of its application. Moreover, differing again from the Lord Ordinary, we consider that a scrutiny of the whole provisions of the contract does support the view that if in relation to any property all outstanding questions could not be finally settled within a year, the parties intended that the property should then be excluded. A fixed price for each property was agreed when the principal agreement was executed. It is quite understandable that both parties would wish matters to be finally settled expeditiously, and there are several provisions obviously designed to achieve that objective. The provisions as to the time and method of payment and repayment of any balance of the price remaining in the joint account following the end of the one year period appear to us to confirm the effect which we have attributed to the operation of section 10.5.3, as do provisions relating to the period of limitation of Shoprite's liability for breach of the conditions, provisions relating to a right of pre-emption of excluded property, and provisions relating to searches which had to be carried out. We see nothing unfavourable to the view which we have expressed arising from the fact that parties provided a mechanism for the resolution of a dispute whether an encumbrance existed which might not (or might) have been concluded before the twelve month period expired. However we do not deal with such matters in detail, since in our opinion they cannot either supplement or qualify what we have held to be the effect of the operation of section 10.5.3.

For these reasons we grant the reclaiming motion, recall the interlocutor of the Lord Ordinary dated 14 March 1997, sustain the first and second pleas in law for the defenders, repel the first and second pleas in law for the pursuers and dismiss the action.