Scottish Court of Session Decisions

Clause 1 defines "Satisfactory Planning Permission" as meaning "a Planning Permission that is satisfactory to the Purchaser at his sole discretion subject to the terms of Clause 6.4", "Planning Permission" as meaning "a planning permission for Development" and "Development" as meaning "the development of the Property or some part or parts thereof either alone or in conjunction with other land as the Purchaser may require". The word "development" is not further defined in the Agreement. The "Option Date" is defined, subject to exceptions which are immaterial for present purposes, as meaning the second anniversary of the date of delivery of the Agreement. The Option Date was accordingly 8 November 1999.

[2] Immediately prior to the Option Date the Purchaser (by two separate modes) served on the Owner a notice purportedly in furtherance of Clause 6. The extent of the Property indicated in the notice was the whole of it. With regard to Clause 6.4 of the Agreement, the notice bore "... we hereby WAIVE the requirement for obtaining a Satisfactory Planning Permission and for the avoidance of doubt we confirm that such Planning Permission as would have been satisfactory to us would have been Planning Permission for the existing use of the Relevant Land". The existing use of the land at the date of the notice was agricultural use.

[3] Thereafter certain disputes arose between the parties, which disputes were in terms of the Agreement referred to arbitration. The arbiter (Mr P. S. Hodge Q.C.), having heard parties' legal representatives at a debate, produced a draft award setting out his views on the issues argued before him. At the request of the appellant the arbiter stated certain questions for the Opinion of this Court. These are:-

It was accepted by parties before us that the answer to question (b) turned upon the answer to question (a).

[4] The arbiter's conclusion in paragraph 17 of the draft award was expressed as follows:

The arbiter explained his conclusion as follows:

[5] Mr Connal for the appellant submitted that the arbiter's conclusion was erroneous. In the relevant context it was, he contended, open to the Purchaser to state in the notice under Clause 6.4 that no planning permission was required by it - the effect being that the Purchaser would proceed to purchase the land as it was. The Agreement envisaged a two-stage process; the first stage involved the service of a Provisional Notice which triggered procedure for determining the Purchase Price (by agreement or, failing agreement, by valuation by an expert), the second the facility for the Purchaser to exercise (or not) within a specified time limit the Option to purchase at the determined price. The Purchase Price was a proportion (85%) of the Open Market Value of the land at the date of service of the Provisional Notice. That Value did not necessarily depend on there being in existence, at the date of service of the notice, any particular planning permission in respect of the land. In an earlier, but distinct, arbitration between the same parties arising out of the Agreement, the arbiter (in that instance also Mr Hodge) had held that the determination of Open Market Value required account to be taken of the potential for development of the land rather than the making of any assumption as to the existence of some particular planning permission. That conclusion was sound and was binding on the parties. The approach to interpretation adopted by the arbiter on that earlier issue had necessarily involved, in the context of waiver, some qualification of the actual words used in the Agreement. A similar approach was, in order to make sense of the Agreement, appropriate in the present case. In the context of a waiver provision the reference in Clause 6.4 to "such Planning Permission" meant such planning permission, if any, as the Purchaser confirmed would have been satisfactory to it. The alternative construction (that effective operation of the waiver clause required some development to be specified) did not make commercial sense, since the Purchaser, in whom was vested a sole discretion, could meet it by specifying some minor development, such as the raising of a wall. There was no unfairness to the Owner. The identification of a particular development would not necessarily increase the existing value of the land - conceivably some developments might reduce its value; in any event, as the arbiter had already held, it was the potential for development which was significant for valuation purposes. The other provisions of the Agreement upon which the arbiter had relied in support of his conclusion were not in point. Nor did the remaining provisions of the Agreement assist. Question (a) should be answered in the negative, as also should question (b).

[6] The Dean of Faculty for the respondents submitted that both questions should be answered in the affirmative. Two issues fell to be distinguished, namely, (1) the validity of the Provisional Notice and (2) the approach to the valuation exercise. For present purposes only issue (1) was germane; if the Provisional Notice was invalid, one never got to issue (2). Clause 6.4 clearly envisaged that, in any notice served in furtherance of it, the Purchaser would confirm a permission for development of the land (in the usual understanding of that expression) which would have been satisfactory to it. A "planning permission for existing use" was a nonsense. The definition of "Planning Permission" in the Agreement, and the general context of planning law and practice, pointed to the permission to be confirmed as being one involving development as defined by section 26 of the Town and Country Planning (Scotland) Act 1997. A notice which referred to the existing (agricultural) use of the land could not meet the requirements of Clause 6.4 (as read with Clause 6.2.1). There was no justification for ignoring or radically altering the final part of Clause 6.4 (as the appellant's argument involved). Further support for the respondents' position could be found in other provisions of the Agreement, which clearly envisaged that there would be development of the land with the respondents benefiting from any enhancement in the value of their land which the prospect of such development would bring. The purpose of the requirement in Clause 6.4 for the confirmation of a Planning Permission which would have been satisfactory to the Purchaser was to assist in identifying the Open Market Value and thus the Purchase Price. The respondents were entitled to insist that the requirements of Clause 6.4 were duly met.

[7] In our view the Dean of Faculty's argument is to be preferred. The parties to the Agreement clearly had in mind the prospect of development - in the sense of building or similar operations on the land or the making of a material change in its use - and provided a mechanism for the sharing of any enhancement of value which the grant of planning permission or the prospect of such a grant would bring. The Purchaser was bound (Clause 9.1) to use all reasonable endeavours to obtain a Satisfactory Planning Permission as soon as reasonably practicable. The Owner was bound (Clause 9.4) to assist the Purchaser in a number of ways, including to "co-operate with the Purchaser and use all reasonable endeavours to assist the Purchaser to obtain Planning Permission ..." (Clause 9.4.1). The procedure under Clause 6 for the exercise of the Option to purchase required, subject to Clause 6.4, that the Purchaser had first obtained a Satisfactory Planning Permission. Only then could it take the initiating step of serving a Provisional Notice under Clause 6.2.1. Clause 6.4 empowered the Purchaser, at its sole discretion, to waive the requirement for obtaining a Satisfactory Planning Permission, but it did so by a mechanism which linked the effective operation of such waiver to the service of a Provisional Notice in certain terms. It is clear, and it was undisputed before us, that a Provisional Notice, served when the power to waive was to be exercised, required for its validity that the Purchaser thereby confirmed that something would have been satisfactory to it. The expression used in the sub-clause is "Planning Permission". That expression is defined in the Agreement. It is plain that it imports, as one would expect in an agreement of this kind, permission for development of the land. A declaration of satisfaction with the existing use of the land (which, of course, required no planning permission) did not meet the requirements of Clause 6.4.

[8] It might be that the waiver provisions could have been framed otherwise. But that is irrelevant to the task before the arbiter and before this court. It cannot be said that the requirement, in a Preliminary Notice served in the event of waiver, for confirmation of a Planning Permission which would have been satisfactory to the Purchaser is meaningless or absurd. While such confirmation might not have been determinant of the basis on which Open Market Value (and thus the Purchase Price) fell to be fixed, it could, if exercised bona fide in the light of the Purchaser's development proposals, have been of significance in the carrying through of that exercise. There is no justification for modifying or altering the actual words used in Clause 6.4. (The Dean of Faculty did not rely on the specific reasoning adopted by the arbiter; and we need make no comment on it).

[9] In the event, the notice served did not meet the requirements of the Clause and must be held to have been inept to trigger the exercise of the Option. The questions posed by the arbiter must accordingly both be answered in the affirmative.