Scottish Court of Session Decisions

Glasgow City Council v. Caststop Ltd [2003] ScotCS 25 (31 January 2003)

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
Lord Kirkwood Lord Nimmo Smith Lord Weir	XA160/01 OPINION OF THE COURT delivered by LORD KIRKWOOD in RECLAIMING MOTION in the cause GLASGOW CITY COUNCIL Pursuers and Respondents; against CASTSTOP LIMITED Defenders and Reclaimers: _______

 

 

Act: Wolffe, E. Bain (for Pursuers and Respondents)

Alt: Sandison, DLA (for Defenders and Reclaimers)

31 January 2003

1. By missives dated 18 October 1996, 24 and 25 February and 27 March 1997 the defenders and reclaimers, Caststop Limited, purchased from the pursuers and respondents two plots of land at Kelbourne Street, Glasgow. The missives provided inter alia that on the occurrence of certain events the purchase price would be increased in accordance with a certain formula. In the present action the pursuers seek payment from the defenders of a sum which they maintain has become due in accordance with that provision, while the defenders deny that in the events which have happened the increased price is payable. Each party has a plea to the relevancy of the other side's averments. The action was appointed to a debate on the parties' preliminary pleas and by interlocutor dated 6 September 2001 the Lord Ordinary sustained the pursuers' pleas-in-law and granted decree de plano in terms of the first conclusion of the summons, which sought payment from the defenders of the sum of £228,979 with interest.
2. The missive letter of 18 October 1996 was expressed as an offer to purchase two plots of land at Kelbourne Street, referred to together as "the Subjects" and individually as "Plot A and Plot B". In terms of Clause 2.1 the price was to be £935,000, of which £635,000 was to be payable on the Plot A Completion Date, and £300,000 on the Plot B Completion Date. The Plot B Completion Date was defined in Clause 1.4 as meaning seven days after the date of purification or waiver of the suspensive condition contained in Clause 4 or such other date as might be agreed in writing.
3. Clause 4.1 provided inter alia as follows:

"It shall be a suspensive condition of the Missives that the Purchaser obtains in writing on terms satisfactory to it (as to which the Purchaser shall be acting reasonably sole and absolute judge) all necessary planning permissions ... and other consents for the Purchaser's Works and to enable the Purchaser to use Plot B for the Purchaser's Proposed Use."

In Clause 1.7 the Purchaser's Works were defined as:

"the demolition/partial demolition of the existing buildings on the Plot B and the erection on Plot B of a residential development of not less than 16 flats with ancillary car parking all as shown on the Schedule annexed and subscribed as relative hereto."

In Clause 1.6 the Purchaser's Proposed Use was defined as:

"the use of Plot B for a residential development of not less than 16 flats and ancillary car parking all as shown on the Schedule annexed and subscribed as relative hereto."

4. Clause 12 of the qualified acceptance of 24 February 1997, on which the pursuers rely in this action, provided inter alia as follows:

"In the event that the Purchaser achieves planning permission for the erection or redevelopment of the Subjects for more than forty-nine residential units then the purchase price shall be increased to such an amount as would correspond to the number of units for which planning permission is obtained multiplied by the purchase price of £935,000 divided by forty-nine ..."

5. The pursuers aver, under reference to Clause 12, that the purchaser has achieved planning permission for the erection or redevelopment of the subjects for 61 residential units. It will be convenient at this stage to set out the planning history of the subjects which was not in dispute. On or about 6 June 1997 the defenders applied for planning permission for demolition and conversion of buildings on Plot A. The application involved the proposed development of 32 flats and one house on Plot A. That application for planning permission was granted. On or about 22 September 1997 the defenders applied for planning permission for the erection of 16 residential units on Plot B. On 25 March 1998 that application was granted subject to the condition that 25 car parking spaces be provided. On 3 October 1997 Sorbieridge Limited applied for variation of the planning permission which had been granted to the defenders in respect of Plot A by the subdivision of five flats to create ten flats, by change of use of a commercial unit to create five flats and by change of use of two ancillary spaces to create two flats and parking, and that application was granted. On 26 October 1998 a further application by the defenders was granted which had the effect of reducing to 16 the number of car parking spaces specified in the condition attached to the planning permission in relation to Plot B which was granted on 25 March 1998. The pursuers aver that, by virtue of that variation of the condition about car parking spaces, the suspensive condition in Clause 4.1 of the missives was purified, the defenders by that stage having obtained all that they had asked for in the application granted on 25 March 1998.
6. The pursuers aver that the defenders are controlled by Ronald Clapham and Mari Clapham in respect that the defenders are a wholly owned subsidiary of Credential Holdings Limited, of which company Ronald Clapham and Mari Clapham are the sole shareholders and directors. Mari Clapham is the sole director of the defenders. The pursuers aver that the defenders' financial statements for the years ended 31 March 1997, 31 March 1998 and 31 March 1999 each contained a note in the following terms:

"The Directors regard Credential Holdings Limited ... as the company's ultimate parent company. Credential Holdings Limited, which is controlled by R.B. Clapham is the parent undertaking of the largest and smallest group of which Caststop Limited is a member and for which group accounts are drawn up."

7. The pursuers further aver that Sorbieridge Limited was incorporated on 9 September 1997, and that it was and is controlled by Ronald Clapham and Mari Clapham. Since 19 September 1997 its issued share capital of £2 has been held by the defenders. Between 19 September 1997 and 10 September 1999 its directors were Mari Clapham and John Brown, both directors of the defenders. Since 10 September 1999 Mari Clapham has been its only director. Its financial statement for the period ended 28 February 1999 contained a note in the same terms as in the defenders' three financial statements already referred to. The averments as to the circumstances in which Sorbieridge Limited was incorporated, and the averments in the preceding paragraph, were not in dispute, nor was the planning history.
8. It is common ground that when Sorbieridge Limited applied for planning permission on 3 October 1997, and when the application was granted, Plot A was owned by the defenders. The pursuers made averments to the effect that at the date of conclusion of the missives the parties were aware that the purchaser was a company which was being used as a vehicle for property development by Ronald Clapham and Mari Clapham, that Mr. Clapham was involved in property development and that he intended to develop the subjects of the missives. They were aware that he used a number of different corporate vehicles for his property development activities. In reply, the defenders admitted that the parties were aware that Mr. Clapham was involved in property development and that he was associated with a number of companies in that connection, one of which was the defenders. The defenders went on to make averments which were not disputed by the pursuers. They were that after the pursuers invited offers for the plots at Kelbourne Street they had received the defenders' offer and at least one other offer for the plots which would have given a materially greater price but involved the demolition of the existing buildings and their replacement with a densely residential development of 90 units. The development plans submitted by the defenders for the plots envisaged 33 residential units on plot A, 16 on plot B, and the creation of a restaurant, bar or other commercial enterprise in part of the old fire station engine hall at Kelbourne Street. The defenders' plans for plot A involved the creation of only one more residential unit than already existed as firemen's accommodation on the plot. The pursuers determined that they preferred the defenders' plans and proceeded to negotiate missives with the defenders. The defenders went on to make further averments, which were not agreed, to the effect that during negotiation of the missives officials of the pursuers had indicated that they would prefer the development to be entirely residential in character. Those representing the pursuers were aware from the discussions between the parties that the defenders were prepared to consider such a change in the proposed use of the subjects of sale, and that the defenders might substitute further residential development by another company for the proposed commercial use.
9. The principal issues between the parties at the debate were (1) the proper construction of Clause 12 and (2) whether the purchaser, namely the defenders, had "achieved" planning permission for the erection or redevelopment of the subjects for more than 49 residential units. The pursuers' case was that the defenders had achieved planning permission for the erection or redevelopment of 61 residential units. The defenders averred that Sorbieridge Limited (a) had purchased from them the right to five flats on Plot A, and had planning permission to convert them to ten smaller flats and (b) had purchased from them the right to turn an office on Plot A into five flats and to use a void space there as a further two flats. The pursuers admitted that parts of the plots have been disponed by the defenders to Sorbieridge Limited, but state that this happened only after the planning permission was granted.
10. The Lord Ordinary has set out fully in his Opinion the submissions which were made to him on behalf of each of the parties. The Lord Ordinary observed that while each of the parties suggested different approaches to the task of construction, it did not seem to him that the differences were as great as was suggested, and he took the view that, in the circumstances of this case, the result should be the same whichever approach was adopted, and that the language of the contract was of paramount importance. He also observed that the court is entitled to be placed, by evidence of the surrounding circumstances, in the same position as the parties were in when they entered into the contract, but that the importance of the surrounding circumstances was a question of degree. The Lord Ordinary accepted, as did both counsel, that the word "achieve" connotes acquiring by effort, so that in the present case the pursuers had to establish that planning permission for more than 49 units was "achieved" by the defenders, and not by a third party unconnected with them. He did not consider that Clause 12 meant that, for liability to arise, the relevant planning permission had to be granted as a result of an application made by the purchaser. He expressed the opinion that the defenders could be regarded as "achieving" the relevant grant of planning permission if they had made some material contribution to bringing about the grant. He reached the conclusion that the circumstances disclosed that a material contribution had been made by the defenders to the obtaining of the planning permission granted on the application of Sorbieridge Limited. That company had been incorporated in September 1997 and became a wholly owned subsidiary of the defenders under the management of directors representing the defenders, and on 3 October 1997 Sorbieridge Limited had made the application for planning permission which, if it had been granted on the application of the defenders themselves, would undoubtedly have triggered liability to pay the increased price. In his opinion, the circumstances were sufficient to amount to "achievement" of the requisite planning permission by the defenders. It had been obtained as the result of effort on their part in the form of setting up their subsidiary, Sorbieridge Limited, and procuring that it made the relevant application. In the Opinion of the Lord Ordinary, this was an appropriate inference to be drawn in the absence of any contrary explanation tendered by the defenders.
11. The Lord Ordinary went on to observe (1) that the approach which he had adopted to the construction of Clause 12, and its application to the circumstances of the case, did not involve any piercing of the corporate veil and (2) that consideration of the background circumstances had not made any material difference to the construction of Clause 12. He also held that in the circumstances no question of construing Clause 12 contra proferentem arose. In the event, the Lord Ordinary granted decree de plano in terms of the first conclusion of the summons.

Submissions on behalf of the defenders and appellants

12. So far as the proper construction of Clause 12 was concerned, counsel for the defenders submitted that the words which had been used, and the context in which they were used, had to be subjected to close examination in light of the observations made by the court in Bank of Scotland v. Dunedin Property Investment Co. Ltd. 1998 SC 657. There was no obligation on the defenders to pay the increased price simply in the event of planning permission for more than 49 residential units being granted. Planning permission for more than 49 units had to be "achieved" by the purchaser. It was necessary that the planning permission should have been granted as the result of substantive efforts made by the purchaser, and efforts meant purposive activity directed towards an aim. There had to be a high level of causative potency on the part of the defenders. "Achieved" meant substantially caused, not just the playing of a minor role. There must have been more than a material contribution by the purchaser. There were, however, indications in the contract that the parties had in mind the potential involvement in the transaction of companies associated with the defenders. In other words, the missives anticipated the involvement, or potential involvement, of another party. Reference was made to Clauses 11.2 and 16. Dealing with the linguistic construction, it could not be said that it was intended by the parties that an act of an associated company which brought about the planning permission for the increased number of units would trigger Clause 12. The court could not guess what the parties intended as to when Clause 12 was to bite. It was dangerous to try to construe Clause 12 in a way which was perceived by the court to support the commercial reality of the contract. There was the risk of imposing on the parties a meaning which neither of them had considered when the terms of the contract were being negotiated. Indeed, the judicial view might have little relevance to the reality of the Glasgow property market in 1997. There was no evidence before the Lord Ordinary on the basis of which he could determine the commercial purpose or sense of the contract, or what a commercially sensible construction of Clause 12 should be. The Lord Ordinary accepted the paramount importance of the language of the contract, but the linguistic considerations founded on by the defenders were not mentioned by him. Counsel referred to Antaios Compania Naviera SA v. Salen Rederierna AB [1985] A.C. 191 per Lord Diplock at page 200. What had to be ascertained was what the parties had intended by the words which they had chosen. With regard to the suggestion that the defenders could avoid liability under Clause 12 simply by using another company to make the relevant application for planning permission, the position was that if the pursuers had wished Clause 12 to apply in these circumstances they could have so stipulated in the missives, but they had not done so. And, in any event, it could not be said that the defenders would necessarily have accepted such a provision. If the terms of the contract permitted such a device to be used to avoid liability under Clause 12, then the pursuers could not succeed. The issue was what both parties had agreed, not what one of the parties wanted. It was submitted that the Lord Ordinary had been wrong in the construction which he had placed on Clause 12.
13. It was necessary to consider the whole background circumstances (Prenn v. Simmonds 1971 1 W.L.R. 1381 per Lord Wilberforce at pages 1383-1385). So far as the admitted background circumstances were concerned, it was clear from the terms of the contract that the parties were aware that Mr. Clapham also operated through other corporate bodies which were active in the same line of business, and that these related companies would or might have a role to play in this complicated transaction. The pursuers had made provision for other associated companies to be involved but had not excluded their involvement in relation to the operation of Clause 12. The admitted background circumstances showed that Clause 12 was not meant to apply if an associated company applied for, and obtained, planning permission which had the effect of increasing the number of residential units. The defenders had also made averments of other background circumstances, which were not admitted, which showed that the parties knew that another of the associated companies might be involved in this development. In these circumstances the Lord Ordinary should have ordered a proof before answer, and he had erred in that he had paid no attention to any of the background circumstances, whether admitted or not admitted.
14. Further, it was submitted that the court had to recognise the separate legal personalities of the companies involved, even if they were members of the same group. Parties entering into a commercial contract expected the contract to be construed in that way. It was not permissible to try to pierce the corporate veil just because it suited one of the parties to do so (Adams v. Cape Industries plc [1990] Ch. 433 at pages 532 and 537). An economic relationship did not justify piercing the corporate veil, but that was, in effect, what the Lord Ordinary had done. Casting the defenders as the directing force behind the application for planning permission, as the Lord Ordinary had done, offended against the principle of separate corporate legal responsibility. It could not be inferred that a subsidiary acts on the directions, or is under the control, of its parent company. The inference drawn by the Lord Ordinary, to the effect that Sorbieridge Limited had acted on behalf of the defenders, was an illegitimate one to draw, particularly at this early stage of the proceedings. If there was an ambiguity in Clause 12, then that ambiguity should be resolved by an application of the contra proferentem rule (Tam Wing Chuen v. Bank of Credit and Commerce Hong Kong Limited [1996] 2 B.C.L.C. 69).
15. In any event, it was submitted that the Lord Ordinary had not been entitled to infer, without any evidence being heard, that Sorbieridge Limited had been incorporated in order to make the application for planning permission on 3 October 1997. There were a number of companies in the group, although it was accepted that they all danced to Mr. Clapham's tune. However, the defenders had denied that Sorbieridge Limited had been acting on their behalf, or that the application was made in the name of Sorbieridge Limited in a deliberate attempt to avoid the provisions of Clause 12 coming into force. By drawing the inference which he did, the Lord Ordinary had gone too far, too fast. The interlocutor of the Lord Ordinary dated 6 September 2001 should be recalled, the pursuers' pleas-in-law repelled, the defenders' pleas-in- law sustained and the action dismissed. Alternatively, a proof before answer should be allowed leaving all parties' pleas-in-law as standing.

Submissions on behalf of the pursuers and respondents

16. Counsel for the pursuers submitted that the critical issue was the meaning to be attributed to the word "achieves" in Clause 12. Counsel suggested that the purchaser must have acted in such a way as to bring about the desired result, and but for that action the result would not have occurred. There had to be a causal connection. Whether that test, or the lower test of material contribution, applied the Lord Ordinary had been entitled to draw the inference that the defenders had achieved planning permission for more than 49 residential sites. Clause 12 did not state by whom the application for planning permission had to be made. The question was whether the relevant grant of planning permission came about because of the way in which the defenders had conducted themselves. The grant of planning permission, which enured to the land, could be achieved by procuring some other party to make the necessary application, and that is what had happened in this case. Indeed, it was a natural inference from the known facts that the defenders had set out to avoid the application of Clause 12 and the additional payment involved. It was a rebuttable inference, but the defenders had not put forward any competing explanation, although if there was one it must have been within their own knowledge. It was not necessary for the pursuers to attempt to set up a contract of agency.
17. There was no justification in this case for applying the contra proferentem principle. In a contract of this nature, which had been negotiated between the parties, there was no proferens and, in any event, there was in this particular contract no ambiguity which required the application of the rule (Gloag on Contract, page 401; G.A. Estates Limited v. Caviapen Trustees Limited, 1993 S.L.T. 1051). Further, there was no question in this case of the Lord Ordinary having pierced the corporate veil. At the stage of construing the contract, that issue did not arise and the submissions made by the pursuers did not offend against the rule of separate corporate personality.
18. So far as the issue of the construction of the contract was concerned, the Lord Ordinary's approach had been attractive and had been fully justified. He adopted a construction which made commercial sense and had steered a middle course. Counsel referred to Investors Compensation Scheme Limited v. West Bromwich Building Society [1998] 1 WLR 896 and Bank of Credit and Commerce International SA v. Ali and Others [2002] 1 AC 251.
19. Counsel invited us to refuse the reclaiming motion and adhere to the interlocutor of the Lord Ordinary dated 6 September 2001. Alternatively, if the court was not prepared to follow that course, a proof before answer should be allowed.

Decision

20. The principal issue for our determination is whether the Lord Ordinary was entitled to draw the inference, on the basis of admitted facts and circumstances, that the defenders had "achieved" planning permission for the erection or redevelopment of the subjects for more than 49 residential units, and thereby triggered the increase in the purchase price specified in that clause. The first question to be considered is what is meant by the word "achieved". At the debate before the Lord Ordinary counsel for the parties both accepted that "achieved" meant acquired by effort, and the Lord Ordinary stated that he had proceeded on the basis of that interpretation. In our view, that interpretation accords with the natural and ordinary meaning of the word in the context in which it has been used. We did not understand that, at the hearing before us, either counsel departed significantly from the interpretation which had been accepted before the Lord Ordinary. Thus, counsel for the defenders said that the planning permission should have been granted as the result of substantive efforts made by the purchaser, namely purposive activity directed towards an aim, while counsel for the pursuers submitted that the purchaser had to have acted in such a way as to bring about the desired result. In considering whether the grant of planning permission had been achieved by the defenders, the Lord Ordinary, at one stage in his Opinion, introduced the concept of "material contribution", but in our opinion this is an unnecessary and unjustified refinement of the construction of "achieved" which had been accepted by the parties. Indeed, it seems to us that a situation could readily be envisaged when simply making a material contribution to bringing about a grant of planning permission would not necessarily amount to "achieving" the grant. On behalf of the defenders it was argued that it had clearly not been intended by the parties that an act of an associated company which brought about the required planning permission would trigger clause 12. However, clause 12 did not provide that the liability to make the additional payment was only to arise in the event of an application for planning permission for more than 49 residential units being made by the purchaser (namely, the defenders), and granted. The provision was that the required planning permission had to have been "achieved" by the defenders, and it was for the pursuers to establish that it was so achieved in this case.
21. With regard to the relevance of background circumstances, the Lord Ordinary took the view that the court was entitled to expect to be placed, by evidence of the surrounding circumstances, in the same position as the parties were in when they entered into the contract, and observed that the importance of the surrounding circumstances was a matter of degree. He concluded that, in the particular circumstances of this case, consideration of the background circumstances did not make any material difference to the construction of clause 12, and he reached his conclusion primarily on the basis of the terms of the clause. In our opinion the Lord Ordinary was perfectly justified in adopting that approach and we note that, in the course of the debate, counsel for the defenders had submitted to him that there was little of materiality in the background circumstances mentioned in averment in the present case. This is a case where, as the Lord Ordinary observed, the wording of the contract is of paramount importance.
22. In the present case the facts, on the basis of which the Lord Ordinary drew the inference which he did, were not in dispute. It was conceded, as was obvious, that if the defenders had applied for, and obtained, planning permission for 61 residential units then they would have been obliged to pay the increase in the purchase price provided for in clause 12. It was not in dispute that Sorbieridge Limited was incorporated on 9 September 1997 and that since 19 September 1997 its issued share capital of £2 has been held by the defenders. From 19 September 1997 until 10 September 1999 its directors were Mari Clapham and John Brown, both directors of the defenders. On 3 October 1997, less than four weeks after it had been incorporated, and when it was a wholly owned subsidiary of the defenders under the management of directors representing the defenders, Sorbieridge Limited applied for planning permission in respect of Plot A, the effect of which, if granted, was to provide for an additional 12 flats, taking the total number of residential units on the two plots to 61. When the application for planning permission was made, and when it was granted, the two plots were still in the ownership of the defenders. What is of particular importance is that the defenders have not attempted at any stage to put forward any explanation to counter the inference which the Lord Ordinary was invited by the pursuers to draw. In the event, the Lord Ordinary, on the basis of facts which were not in dispute, drew the inference that the defenders had played an active part in bringing about the grant of planning permission for more than 49 residential units. The planning permission had been obtained as the result of effort on their part in the form of setting up their subsidiary, Sorbieridge Limited, and procuring that it made the relevant application, and the defenders had thus "achieved" planning permission for more than 49 residential units, thereby incurring liability for the additional payment provided for in clause 12. In our opinion, and applying the approach to the construction of "achieved" which was adopted by both parties, that is an inference which the Lord Ordinary was entitled to draw in the absence of any contrary explanation put forward by the defenders.
23. It was submitted on behalf of the defenders that the approach adopted by the Lord Ordinary had had the effect of piercing the corporate veil. In our opinion there is no merit in that submission. The drawing of an inference that a subsidiary was set up by the defenders in order to make an application for planning permission in relation to the defenders' property does not, in our view, have the effect of piercing the corporate veil. Further, we have, like the Lord Ordinary, not been able to discern any ambiguity in the wording of clause 12 which would justify invoking the contra proferentem principle.
24. There was no dispute as to the amount of the pursuers' claim and, being satisfied that the Lord Ordinary was entitled to draw the inference which he did and grant decree de plano, we shall refuse the reclaiming motion.