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Aerpac & Anor v. NOI Scotland [2004] ScotCS 82 (31 March 2004)

OUTER HOUSE, COURT OF SESSION

CA128/03

OPINION OF

LORD DRUMMOND YOUNG

in the cause

AERPAC UK LIMITED (in administration) and BRYAN ALAN JACKSON, C.A., as Administrator thereof

Pursuers;

against

NOI SCOTLAND LIMITED

Defenders:

________________

Pursuers: Clark; Henderson Boyd Jackson, W.S.

Defenders: Reid, Solicitor; Maclay Murray & Spens

31 March 2004

[1] On 7 March 2001 an administration order was made in respect of the first pursuers, and the second pursuer was appointed as their administrator. The second pursuer decided to market the business of the first pursuers for sale as a going concern. NOI GmbH, a German company, was selected as the preferred purchaser. NOI GmbH decided to implement the purchase by a transfer of the business to the defenders, an associated company. The first pursuers had traded from property at Mitchelson Industrial Estate, Kirkcaldy, which they did not own; the owners of the property were an associated company, Aerpac Investment UK Ltd, from whom the first pursuers leased the property.

[2] Missives for the sale of the business by the pursuers to the defenders were concluded on 8 June 2001. Under those missives ("the business missives"), the defenders purchased certain of the assets of the business; these comprised the equipment used in the business, the first pursuers' goodwill and intellectual property rights and their stock and records. The heritable property from which the first pursuers traded was excluded. The sale of the business had effect as at the completion date, which was defined as close of business on 7 June 2001 or such other date as might be agreed in writing; no other date was in fact agreed. Clause 2 of the offer containing the terms of the business missives provided that those missives should be subject to two suspensive conditions. First, the landlord of the property, Aerpac Investment UK Ltd, should accept an offer to renounce the lease tothe first pursuers; secondly, the landlord should enter into missives for the sale of the property to the defenders. The missives for the sale of the property ("the property missives") were to be in a form set out in the schedule to the offer to sell the business, and were to contain a licence permitting the defenders to occupy the property. That licence was to subsist until the date of entry specified in the property missives or until either party to it exercised any valid right to terminate the property missives. The property missives were concluded on 7 June 2001, and specified that the date of entry should be 27 July 2001. It was accepted by both parties that the property missives had not been terminated. Consequently the licence conferred by the property missives came to an end on 27 July 2001.

[3] The consideration for the sale of the business was stated in clause 5 of the offer containing the terms of the business missives. Clause 5.1 provided that the consideration should be £500,000, exclusive of value added tax. That sum was divided into two parts, known as the Initial Consideration and the Deferred Consideration. The Initial Consideration, £250,000, was to be payable on the completion date, 7 June 2001. The Deferred Consideration was to be held in an interest bearing deposit account in the joint names of the agents for the second pursuer and the defenders. In due course it was to become payable as provided in clauses 5.4 and 5.5. Clause 5.4 provided, broadly speaking, for the Deferred Consideration to become payable to the second pursuer in the event that the defenders or an associated company should become entitled as heritable proprietor, tenant or in certain other capacities to occupy the property other than through the licence contained in the property missives. If one year should elapse from the Completion Date without the defenders' or an associated company's obtaining such a right, the defenders were to be entitled to the return of the Deferred Consideration in terms of clause 5.5. The legal structure that was set up to determine how the Deferred Consideration should be dealt with was that, if the defenders and their associated company, NOI Immobilien und Vermoegensverwaltungsgesellschaft mbH (referred to as "the Guarantor"), granted a declaration (referred to as "the Declaration") in the terms set out in Part 5 of the Schedule to the business missives, the Deferred Consideration would be repayable to the defenders. The Declaration consisted of a warranty to the first pursuers that the purchaser and its associated companies had not obtained any rights of ownership, tenancy or security or other rights to occupy the heritable property. Consequently, if the Declaration were improperly granted, the first pursuers would be entitled to sue the defenders and the Guarantor for breach of warranty. If no such declaration was granted within three months after the end of the one year period, the second pursuer was to be entitled to the Deferred Consideration on behalf of the first pursuers. Clause 5.4 was in the following terms:

"The Deferred Consideration (together with interest earned thereof) shall become payable to the Administrator (on behalf of Aerpac) in the event that the Purchaser or the Guarantor or [any company associated with the Purchaser or Guarantor] becomes entitled, as heritable proprietor or tenant or in such other capacity as is stated in the Declaration, to occupy the Property or part thereof as stated in the Declaration. If a period of one year from the Completion Date shall expire without the Purchaser or other party as aforesaid becoming entitled to occupy the Property as aforesaid or entering into an agreement in respect of such occupation of the Property, then the provisions of clause 5.5 thereof shall apply. Occupation by the Purchaser or other party in terms of the Licence shall not be occupation requiring payment of the Deferred Consideration".

Clause 5.5 provided as follows:

"In the event that the Purchaser shall not have obtained the rights referred to in clause 5.4 hereof to the Property within the one year period referred to therein, then the Purchaser shall be entitled to the return of the Deferred Consideration (together with interest earned thereon) upon receipt by the Administrator of the Declaration validly executed in probative form by both the Purchaser and the Guarantor, unless the Administrator (acting reasonably) knows the Declaration to be untrue. The Purchaser and the Guarantor agree that they shall warrant as true the contents of the Declaration, and confirm that they will accept liability as stated therein. In the event that the period of three months shall have passed since the expiry of the said one year period without delivery of the Declaration as aforesaid, then the Administrator (on behalf of Aerpac) shall be entitled to retain the Deferred Consideration as if the Purchaser had obtained right to occupy the Property in accordance with clause 5.4 hereof)."

In the Declaration referred to in those clauses, "the Period" was defined as "the period from 7 June 2001 to 6 June 2002", and, except in relation to the definition of Warrantors, "the Purchaser" was defined as including, in addition to the defenders, the Guarantor and companies associated with the defenders or the Guarantor. The Declaration included the granting of a warranty which was in the following terms:

"2.1 The Purchaser and the Guarantor (hereinafter referred to as 'Warrantors') hereby warrant to Aerpac the following statements:

2.1.1 During the Period the Purchaser has had no rights of ownership to the Property or any part thereof.

2.1.2 During the Period the Purchaser has had no rights in security in respect of the Property or any part thereof.

2.1. During the Period the Purchaser has had no right to occupy the Property or any part thereof, as tenant under a lease or otherwise, with the exception of occupation in terms of the Licence referred to and defined in the Missives.

2.1.4 During the Period the Purchaser has not leased any of its asset or otherwise made any of its assets available to a party which is carrying on business from or intends to carry on business from the Property or any part thereof.

2.1.5 During the Period the Purchaser has not obtained ownership of, or any other rights to, any of the share capital of the said Aerpac Investment UK Limited, or any holding company thereof.

2.1.6 During the Period the Purchaser has not entered into any agreement, written or unwritten, expressed or tacit, to obtained any of the rights referred to in clauses 2.1.1 to 2.1.5 hereof."

The maximum liability under the warranty was limited to the amount of the Deferred Consideration.

[4] The Deferred Consideration was placed in a joint deposit account in the names of parties' agents. The defenders had taken occupation of the heritable property prior to 7 June 2001. As mentioned above, the property missives were concluded between the defenders and Aerpac Investment UK Ltd on 7 June 2001, and provided that entry would be taken on 27 July 2001. The relevant clause of the property missives, clause 3, is in the following terms:

"Entry

Full vacant possession of the Subjects (subject only to the Lease) will be granted to the Purchaser on the Date of Entry or on such other date as may be mutually agreed".

The purchase price for the heritable property was to be payable on the date of entry. The purchase price was defined as the sums of principal, interest, insurance and management charges specified in a redemption letter issued by Aerpac Investment UK Ltd's heritable creditor dated 1 June 2001. In effect, the sums specified in that letter were the amount required to redeem the indebtedness incurred by Aerpac Investment UK Ltd to the heritable creditor.

[5] The parties are in agreement that on 27 July 2001 the purchase price was not in fact paid, and has not been paid subsequently. They are further in agreement that the defenders continued to occupy the property and that the property missives have not been terminated. Against the background, the pursuers aver that the defenders' continued occupation is based on the property missives. The defenders, by contrast, aver that, after the licence expired on 27 July 2001, they entered into protracted discussions with representatives of Aerpac Investment UK Ltd with a view to completing the purchase of the premises, and that these discussions included proposals to regulate the defenders' continued occupation of the premises. It is said that no agreement was reached, and specifically that no agreement was reached entitling the defenders to occupy the premises. Throughout the discussions, however, the defenders continued to occupy the property with the knowledge and acquiescence of Aerpac Investment UK Ltd. The defenders further aver that throughout the period from 27 July 2001 no steps have been taken by any party to remove them from the premises. Throughout that period, it is said, both Aerpac Investment UK Ltd and their heritable creditor have chosen to refrain from exercising legal rights in relation to the property otherwise available to them. Throughout the period no steps have been taken by any party to remove the defenders from the premises. It is averred that Aerpac Investment UK Ltd and their heritable creditor have merely tolerated the defenders' continued occupation of the premises, and that such tolerance was in the commercial interests of both of those parties. On that basis, the defenders aver that at no stage since 27 July 2001 have they become entitled to occupy the premises, either generally or in any capacity stated in the Declaration referred to in paragraph [3] above.

Pursuers' claim
[6] On 5 September 2002 the defenders delivered a Declaration in the form set out in the business missives to the second pursuer. Under clause 5.5 of the business missives, the delivery of the Declaration would normally have entitled the defenders to the return of the Deferred Consideration. The pursuers, however, challenge the validity of the Declaration. They have raised an action in which they conclude for an order that the defenders instruct their solicitors to consent to the release of the Deferred Consideration together with accrued interest from the joint deposit account that was set up in the names of the parties' agents to hold the Deferred Consideration. In the alternative, the pursuers conclude for payment by the defenders of the sum of £250,000 with interest from 9 September 2002.

[7] In support of their claim to payment of the Deferred Consideration, the pursuers rely on two distinct grounds. First, they aver that, by entering into the property missives, the defenders had entered into an agreement in respect of occupation of the property. Consequently, in terms of the property missives, the defenders became entitled to occupy the heritable property from 27 July 2001, the date of entry under the property missives, in a capacity set forth in the Declaration. The licence granted to the defenders under the property missives, which is excluded by the last sentence of clause 5.4 of the business missives, terminated on that date. Thereafter the defenders' continued occupation of the property could not have been based on the licence, and must accordingly have been referable to the right to occupy conferred by the property missives following the date of entry. Thus the defenders had since 27 July 2001 occupied the property in a capacity set forth in the Declaration; in particular, they had a "right to occupy the Property" in terms of clause 2.1.3 of the Declaration. The result of that, the pursuers aver, is that in terms of clause 5.4 of the business missives they are entitled to payment of the Deferred Consideration. The pursuers further aver that the declaration granted by the defenders was false, in respect that (i) it stated that during the period of twelve months from the completion date under the business missives the defenders had no right to occupy the property, with the exception of occupation in terms of the licence, and (ii) it stated that during that period of twelve months the defenders had not entered into any agreement to obtain inter alia rights of ownership of the property.

[8] Secondly, the pursuers aver that, even if the property missives did not amount to an agreement in respect of occupation of the property and the defenders did not become entitled to occupy the property on 27 July 2001, an arrangement had been reached between the defenders and the heritable creditor of Aerpac Investment UK Ltd whereby the defenders paid the sums due to the heritable creditor in respect of the property. That arrangement, it is said, entitled the defenders to continue to occupy the property and thus constituted an agreement in respect of occupation of the property. That also made the declaration untrue, and under either clause 5.4 or clause 5.5 of the business missives the Deferred Consideration was payable to the pursuers. In support of this ground, counsel for the pursuer made reference to certain documents that had been produced by the defenders in response to a specification of documents for the pursuers.

Arguments
[9] The defenders have tabled a plea to the relevancy of the pursuer's averments, and at debate their solicitor sought to have that plea upheld. He submitted first that the pursuers had no entitlement to payment in terms of clause 5.4 of the business missives. The pursuers' first ground of action proceeded on the basis of an alleged agreement in respect of the occupation of the property. Clause 5.4, however, was in two parts, corresponding to its first two sentences. The second sentence, which dealt with the defenders' entitlement to the Deferred Consideration, made express reference to entering into an agreement in respect of occupation of the property. By contrast, the first sentence, which dealt with the pursuers' entitlement, contained no such reference. On that basis, the pursuers were not entitled to found on any agreement in respect of occupation, and their averments were therefore irrelevant. Although it might be argued that the first sentence referred to an entitlement to occupy in any "capacity" stated in the Declaration, and the Declaration made reference to entering into an agreement to obtain rights of inter alia ownership, it was wrong to suggest that that could amount to a "capacity" in the ordinary sense of the word. Secondly, it was submitted that the property missives could not amount to an event that triggered the pursuers' entitlement to payment. The property missives had been concluded on 7 June 2001. That was the completion date in terms of the business missives, and consequently, in terms of the second sentence of clause 5.4, the defenders had not become entitled to occupy the property under the property missives during "a period of one year from the Completion Date". Thirdly, it was submitted that by necessary implication the property missives must be excluded from the expression "an agreement in respect of such occupation" as used in clause 5.4, because otherwise the result would be that clause 5.5 could never be invoked; that would be an absurd result. Fourthly, the property missives could not be regarded as causing the defenders to become entitled to occupy the property; nothing in those missives entitled the defenders to occupation, apart from the licence, which was excluded from the operation of clause 5.4. For the defenders to have an entitlement to occupy the property, it was necessary that they should receive a disposition; mere missives would not suffice for that purpose. Fifthly, the defenders submitted that, even if the Declaration were untrue, that simply meant that the defenders were not entitled to payment of the Deferred Consideration. It did not follow that the pursuers were therefore entitled to payment; all that was required was that the Deferred Consideration remain in the joint deposit account. Sixthly, the defenders submitted that the pursuers' averments relating to an arrangement between the defenders and the heritable creditor were irrelevant because they did not set out any entitlement to occupy the property, still less any entitlement to occupy in one of the capacities contemplated by clause 5.4. In his reply to counsel for the pursuers, the solicitor for the defenders developed a further point, based on the doctrine of mutuality of contractual obligations. He submitted that the defenders could not claim entitlement to occupy the property under the property missives on one hand while on the other hand they repudiated the contemporaneous counterpart obligation to pay the price for the property. The price had not been paid, and accordingly the defenders could not have claimed a right to occupation.

[10] Counsel for the pursuers submitted that the result of the property missives was that the defenders had become entitled to occupy the property from 27 July 2001 in a capacity set forth in the Declaration. The result was that, in terms of clause 5.4 of the business missives, they were entitled to the Deferred Consideration. In addition, the Declaration given by the defenders was false, in that it stated that during the period of twelve months from the completion date under the business missives the defenders had had no right to occupy the property as tenants under a lease or otherwise, with the exception of occupation in terms of the licence contained in the property missives. It was also false in stating that during the period of twelve months from the completion date the defenders had not entered into any agreement to obtain rights of ownership in the property. The pursuers have a plea to the relevancy of the defences, and counsel submitted that, for the foregoing reasons, that plea should be sustained and decree granted de plano. In addition, counsel for the pursuers submitted that the arrangement that was averred to exist between the defenders and the heritable creditor of Aerpac Investment UK Ltd, as summarised in paragraph [8] above, was capable of amounting to an agreement in respect of occupation of the property. If that were so, it would fall within clause 2.1.3 of the Declaration, with the result that the pursuers would be entitled to the Deferred Consideration in terms of clause 5.4 of the business missives. For this argument to be sustained, however, counsel conceded that a proof before answer would be necessary, in order that the nature of the arrangement in question could be established by evidence.

Analysis of clauses 5.4 and 5.5
[11] The purpose of clause 5.4, taken together with clause 5.5 and the Declaration, is obviously to determine the party who is to be entitled to payment of the Deferred Consideration. Nevertheless, the construction of the two clauses is not straightforward, largely because the structure used is relatively complicated. I was not provided with any explanation as to why such a complex structure should be used to achieve a result that, at first sight at least, looks simple.

[12] The first sentence of clause 5.4 is clearly intended to define the circumstances in which the pursuers are to become entitled to payment of the Deferred Consideration. It must be read along with the last sentence of clause 5.5, which provides that the pursuers are to be entitled to the Deferred Consideration if no Declaration has been granted by the defenders under the earlier part of clause 5.5 within 15 months of the Completion Date. In terms of the first sentence of clause 5.4, the pursuers are to be entitled to payment of the Deferred Consideration if the defenders or the Guarantor or any associated company becomes "entitled... to occupy the Property... as stated in the Declaration". Such entitlement must be "as heritable proprietor or tenant or in such other capacity as is stated in the Declaration". It is accordingly necessary to go to the Declaration to understand the import of the first sentence of clause 5.4. The main provision of the Declaration is the warranty contained in clause 2. Clause 2.1, whose terms are quoted in paragraph [3] above, sets out a number of rights that the defenders or Guarantor or an associated company might obtain in respect of the property, and contains a warranty that no such rights have been obtained. In my opinion the reference in the first sentence of clause 5.4 to an entitlement to occupy the property as heritable proprietor or tenant or in another capacity stated in the Declaration must be a reference to the various entitlements set out in clause 2.1; rights as a heritable proprietor or tenant are mentioned there, and the reference to "such other capacity" can only refer to the other entitlements specified in clauses 2.1.1 to 2.1.6. The word "capacity" is perhaps not entirely appropriate, but the general sense of what is intended seems sufficiently clear. For the defenders it was argued that the word "capacity" denoted some form of status by which a person might possess or occupy property, and that in particular an agreement relating to occupation did not satisfy that criterion. In my opinion that is not correct. It is clear that the word "capacity" is used in a specialised sense in clause 5.4, and I do not think that any general definition of the word is of assistance. The word seems habile to denote the various ways in which a person can become entitled to occupy property, and in my opinion that is the sense in which it must be construed in clause 5.4. That includes occupation by virtue of an agreement.

[13] Clause 2.1.3 of the Declaration refers to a "right to occupy the Property... as tenant under a lease or otherwise". The licence created by the property missives is excluded from the definition, but that licence expired at latest on 27 July 2001. The reference to that licence is important, however, because it makes it clear that the reference in clause 2.1.3 to a right to occupy otherwise than as tenant must include a right to occupy by virtue of a personal contract; otherwise there would be no need to exclude the licence. A licence is merely a personal contract other than a lease that grants a right to occupy land. The pursuers' primary argument is that, with effect from 27 July 2001, the defenders had a right of occupation conferred by clause 3 of the property missives. In my opinion that contention is correct. The pursuers aver, and the defenders admit, that the defenders continued in occupation of the property after 27 July 2001. It is clear that that occupation was with the consent of Aerpac Investment UK Ltd, the owner of the property. The parties agree that the property missives remained in place after that date. Consequently the defenders must have continued to enjoy the right to full vacant possession in terms of clause 3 of the property missives. The obvious inference is accordingly that the defenders' continued occupation of the property was attributable to that right contained in the property missives. That is no doubt a personal right under the missives. It nevertheless amounts in my opinion to a "right to occupy the Property" in terms of clause 2.1.3 of the Declaration. That is sufficient to satisfy the first sentence of clause 5.4, with the result that the Deferred Consideration is payable to the second pursuer on behalf of the first pursuers.

[14] The defenders presented a number of arguments against that conclusion. In the first place, they argued that the first sentence of clause 5.4 should be contrasted with the second sentence. The second sentence, which defines the circumstances in which the defenders could issue a Declaration, thereby rendering themselves entitled to the Deferred Consideration under clause 5.5, made express reference to the defenders' becoming entitled to occupy the property "or entering into an agreement in respect of such occupation of the Property". The reference to an agreement in respect of occupation was absent from the first sentence. Consequently, by necessary implication merely entering into an agreement was not sufficient to trigger clause 5.4; something more, such as a recorded disposition or a lease, was required. In my opinion that argument is mistaken. It is true that the second sentence of clause 5.4 refers expressly to an agreement, whereas the first does not. Nevertheless, the first sentence refers to the defenders' becoming entitled, in a capacity stated in the Declaration, to occupy the property as stated in the Declaration. The Declaration, in clause 2.1.3, refers to a "right to occupy the Property... as tenant under a lease or otherwise", with an exclusion for the licence contained in the missives. For the reasons stated above, I am of opinion that that provision necessarily applies to a personal contract conferring rights of occupation. The same is true in my opinion of clause 2.1.6 of the Declaration, which once again refers to an agreement to obtain any of the rights referred to in clauses 2.1.1 to 2.1.5. Once again, it is clear in my opinion that a personal contract is covered. The result is that the first sentence of clause 5.4 is capable of referring to a personal contract. This does not explain the presence of the additional wording found in the second sentence, which is redundant on the interpretation that I have adopted. Nevertheless, it is not unusual to find examples of redundant wording in commercial contracts. In the case of clause 5.4, I do not think that the presence of a redundant provision in the second sentence can alter the clear meaning of the first sentence.

[15] In the second place, the defenders argued that the property missives could not satisfy the requirements of the first sentence of clause 5.4 because they had been concluded on 7 June 2001. The second sentence of clause 5.4 referred to the expiry of "a period of one year from the Completion Date"; that date is defined as 7 June 2001. It was submitted that the use of the word "from" indicated that the Completion Date itself, 7 June 2001, was excluded, with the result that any agreement concluded on that date could not be relevant for the purposes of clause 5.4. In my opinion this argument proceeds on an incorrect construction of the word "from". The same word is used in the Declaration, whose terms are of course incorporated into clause 5.4 by the latter's first sentence. The Declaration refers to rights obtained during the "Period", which is defined as "the period from 7 June 2001 to 6 June 2002". The latter expression makes it clear that the relevant period runs from the first date mentioned, 7 June 2001, to the second date mentioned, 6 June 2002, and it is obvious that both of those dates are included. Indeed, the normal meaning of the word "from" when applied to a period of time is that the starting date is included. In this respect, "from" must be contrasted with "after", which excludes the starting date. In the Declaration it is clear in my view that "from" is used in its normal meaning. The same must therefore be true of the second sentence of clause 5.4; it is obvious that the two periods referred to are intended to be the same, and it is to be expected that the word "from" will be used with exactly the same signification.

[16] In the third place, the defenders submitted that, if the property missives were regarded as "an agreement in respect of such occupation" for the purposes of clause 5.4, the result would be the clause 5.5 could never come into operation. That, it was said, would be an absurd result. In my opinion the conclusion that clause 5.5 could never come into operation is not correct. It was by no means certain that the property missives would either be implemented or remain in force during the period of one year from the Completion Date. One possibility was that the property missives might be rescinded by either party on account of the other's breach of contract. For example, Aerpac Investment UK Ltd might not be able to give a good title, either because their title was inherently defective or because the heritable creditor took action that prevented them from granting a disposition with clear searches. Alternatively, the parties to the property missives might decide to waive or alter their rights. In any of these events, clause 5.5 would come into operation.

[17] In the fourth place, it was argued that missives for the sale of heritable subjects did not create an entitlement to occupy such subjects, even though the object of the missives was ultimately to confer a right of occupation in the capacity of heritable proprietor. On that basis, it was said, the property missives could not satisfy the wording of clause 5.4 or of the Declaration, since they did not confer any entitlement to occupy the property. I consider that this argument proceeds on a false construction of clause 5.4 and the Declaration. It is true that missives as such do not confer any immediate right to occupy the subjects of sale. Nevertheless, the ultimate purpose of missives is the transfer of ownership, and the right to occupy inevitably goes with ownership unless an express provision is made to the contrary. Moreover, if entry and actual occupation are permitted before the delivery of a disposition, the basis for the purchaser's occupation will normally be the missives; that is clearly the most obvious inference in view of the personal rights conferred by the missives which include the right to take entry. It follows that there is nothing remarkable in regarding missives as conferring an entitlement to occupy property. In the present contract, it is clearly assumed that a contractual licence can confer a right to occupy; that appears, for example, from the last sentence of clause 5.4. I cannot see any sensible basis for distinguishing a contractual licence from missives for this purpose, as both confer rights that are merely personal in nature. When, therefore, the Declaration refers in clause 2.1.3 to a "right to occupy the Property... as tenant under a lease or otherwise", subject to an exception for the licence in the missives, the words "or otherwise" are in my opinion quite capable of applying to a personal right to occupy the property. Likewise, in clause 2.1.6, the reference to an "agreement... to obtain any of the rights referred to in clauses 2.1.1 to 2.1.6" is in my opinion capable of referring to a right to occupy conferred by missives or any other personal contract.

[18] The licence contained in the property missives came to an end on the Date of Entry, which is defined in the property missives as 27 July 2001. The defenders continued to occupy the property thereafter, a fact which is admitted by both parties. The pursuers aver that that occupation was in terms of the property missives. The defenders, by contrast, aver that the sellers of the property, Aerpac Investment UK Ltd, and their heritable creditor have chosen to refrain from exercising legal rights that were otherwise available to them and have merely tolerated the defenders' continued occupation of the property; such tolerance, it is said, was in the commercial interests of both of those parties. When entry and actual occupation is given on or after the date of entry specified in missives, the obvious inference is in my opinion that occupation has been permitted in terms of the right in the missives. If that inference is to be displaced, there must in my opinion be averments that state another basis for granting occupation. One possibility is perhaps an ad hoc agreement that occupation is to be permitted on a basis that is not founded on the missives; another is an appropriate form of personal bar. In the present case, however, the defenders' averments relate merely to the sellers' and their heritable creditor's choosing to refrain from exercising legal rights and tolerating the defenders' continued occupation. It is not stated that any form of personal bar arose in consequence. In my opinion those averments are not sufficient to displace the inference that the defenders were permitted to continue in occupation because of their rights under the property missives. The parties agree that the purchase price was not paid by 27 July 2001, and clause 2.2.2 of the offer contained in the property missives makes it clear that that was a material breach of contract; consequently the sellers could have rescinded the contract and thereby terminated the defenders' right to occupation. Likewise, it appears that the sellers' heritable creditor could have enforced rights under its standard security and thereby terminated the defenders' rights in respect of the subjects. To that extent it is accurate to state that the defenders' continued occupation was a matter of tolerance, resulting from the decisions of the sellers and their heritable creditor not to enforce their strict legal rights. The important point, however, is that the sellers and their heritable creditor chose not to interfere with the defenders' rights under the missives, including the right to occupation that arose on the date of entry. Thus the right under which the defenders occupied the property was still a right as purchaser under the missives.

[19] A fifth argument against the conclusion that the defenders had a right to occupy the property in terms of the first sentence of clause 5.4 was advanced in the defenders' reply to the pursuers' submissions. This was that the doctrine of mutuality of contractual obligations applied to the property missives. It was submitted that the defenders could not claim to be entitled to occupy the property and at the same time repudiate the contemporaneous counterpart obligation to pay the price for the property. Because the price had not been paid, the defenders could not claim a right to occupy the property. In my opinion this argument proceeds on a misconception of the principle of mutuality. What that principle involves is that, if one party commits a material breach of contract, the other party is entitled to withhold performance of his own obligations under the contract until the breach is remedied. It thus involves a negative remedy, the withholding of performance, and the innocent party has a choice as to whether to invoke that remedy. In the present case, it is clear that the remedy has not been invoked. The defenders have been permitted to continue in occupation of the property notwithstanding the non-payment of the purchase price. If the sellers were to invoke the remedy, they would need to take steps to have the defenders removed. If they did that, it might be open to the defenders to tender payment of the purchase price, and in that event the sellers would lose their entitlement to withhold performance. As matters stand, therefore, the principle of mutuality is of no actual relevance to the defenders' occupation of the property. It might become relevant, but that is a matter for the sellers and their heritable creditor.

[20] I am accordingly of opinion that the defenders' continued occupation of the property after 27 July 2001 was attributable to the rights that they had under the property missives, and in particular the right under clause 3 of the letter of offer forming part of those missives. Such a right is in my view a "right to occupy the Property... as tenant under a lease or otherwise" in terms of clause 2.1.3 of the Declaration. The property missives also amount in my opinion to an "agreement... to obtain... rights referred to in clauses 2.1.1 to 2.1.5", in terms of clause 2.1.6 of the Declaration. For either of these reasons, the right is sufficient to satisfy the first sentence of clause 5.4 of the business missives; the defenders are entitled in a "capacity... stated in the Declaration" to occupy the property as stated in the Declaration. The result of that is that the second pursuer is entitled, in terms of clause 5.4, to payment of the Deferred Consideration on behalf of the first pursuers. I should that that, if that conclusion is not correct, it would be possible for the defenders to avoid the obvious intent of clause 5.4 if they could ensure that the property missives were not implemented during the period of one year following the completion date under the business missives. Provided that they could leave the property missives in force during that period, they would preserve a personal right to the property but avoid payment of the Deferred Consideration to the pursuers. In that event, they could enforce the property missives a few days after the expiry of one year from the completion date, thereby obtaining a full real right to the property, but without paying the price of the property. That result appears to me to be contrary to the obvious intention of clause 5.4.

Falsity of Declaration
[21] The Declaration issued by the defenders on 5 September 2002 warranted that the defenders had not acquired any of the rights set out in clause 2.1 of the form of Declaration annexed to the business missives. For the reasons stated above I am of opinion that the defenders had acquired a right of the sort specified in clause 2.1.3, and also clause 2.1.6. It follows that the Declaration issued by the defenders was false. This has implications for clauses 5.4 and 5.5 of the business missives. The first sentence of clause 5.5 states that, if the defenders have not obtained the rights referred to in clause 5.4 within one year from the completion date, they will be entitled to the return of the Deferred Consideration upon receipt by the second pursuer of the Declaration. That is subject to an exception, however, if the second pursuer, acting reasonably, knows the Declaration to be untrue. Consequently a Declaration that is known to be untrue will not entitle the defenders to return of the Deferred Consideration. In such a case, the existence of the warranties in the Declaration is immaterial; the Declaration is itself invalid for the purposes of clause 5.5. On that basis, the Declaration must be invalid for any purpose connected with that clause, and in particular for the purposes of the last sentence of the clause. Thus the reference to a "Declaration" in the last sentence must be a reference to a valid Declaration.

[22] In the present case, I am of opinion that the Declaration issued by the defenders was false, in that it stated that during the period of 12 months from the completion date under the business missives the defenders had no right to occupy the property or any part thereof, as tenants under a lease or otherwise, with the exception of occupation in terms of the licence contained in the property missives. For the reasons stated in paragraphs [12]-[20] above, I consider that the defenders had acquired such a right by virtue of the property missives. The defenders submitted that, even if the Declaration were untrue, the only consequence was to deprive the defenders of the entitlement to payment of the Deferred Consideration. The pursuers' entitlement was a different matter, and in the absence of such entitlement the Deferred Consideration had to remain in the joint deposit account. In my opinion that argument is incorrect. If the Declaration was false, it was invalid for any purpose connected with clause 5.5, including the last sentence of that clause. In terms of that sentence, more than three months have passed since the expiry of one year from the completion date under the business missives, and no valid Declaration has been delivered. In accordance with that sentence, the second pursuer, acting on behalf of the first pursuers, is entitled to retain the Deferred Consideration as if the defenders had obtained right to occupy the property in accordance with clause 5.4. That is sufficient in my opinion to entitle the pursuers to payment of the Deferred Consideration in accordance with the first conclusion of the summons.

Arrangement with owners of property and their heritable creditor
[23] The pursuers' second argument is based on their averments relating to an arrangement said to have been entered into involving the defenders, Aerpac Investment UK Ltd, the present owners of the property, and the latter company's heritable creditor, Triodos Bank. The terms of that arrangement are set out in paragraph [8] above; essentially, it is said that an arrangement was reached whereby the defenders were entitled to continue in occupation of the property on making certain payments to the heritable creditor. In the support of this part of his case, counsel for the pursuers referred to correspondence that had passed between the defenders are those acting on their behalf and persons acting on behalf of Aerpac Investment UK Ltd; those persons were distinct from the second pursuer. The relevant documents are referred to in the pleadings. In particular, on 15 October 2001 a person described as the Executive Officer Strategic Purchase & Controlling of NOI Immobilien GmbH wrote to the administrator of Aerpac Investment UK Ltd's Dutch parent company in the following terms:

"Building Scotland:

Last week I spoke with the colleague of mr. Mathijs Bierman of the Triodos bank with regard to the rental and insurance of the building from starting up in July 2001 till now and on going. He would take contact with you with regard to invoicing etcetera. We are pleased to pay as soon as possible the rental according to an invoice. Please your reply".

On 1 February 2002 agents acting for Aerpac Investment UK Ltd wrote to the agents acting for the present defenders in the following terms:

"I am instructed by my client that agreement has been reached between my client and NOI that the purchase of the premises is to proceed on the basis of the price being paid in 3 instalments. The first instalment of £100,000 will be immediately payable and a further £100,000 in April. The balance is payable in September. Title is to pass on the payment of the final instalment.

I understand that interest has been paid up to the end of December. I also understand your client is also to make a monthly payment for occupation of the premises which is to be of sufficient amount to pay monthly interest and charges to Triodos Bank. It will therefore vary with the interest rate".

Counsel made reference to certain further correspondence, but it was dated more than one year after the completion date under the business missives. While it tended to support the inferences that might be drawn from the earlier documents, it appeared to me to be of lesser relevance in establishing that an arrangement had been concluded during that one year period.

[24] In my opinion it is possible on the basis of the foregoing averments and documents to draw the inference that an arrangement has been entered into between the defenders or an associated company on one hand and Aerpac Investment UK Ltd and Triodos Bank on the other hand whereby the defenders were permitted to remain in occupation of the property in exchange for making certain payments to one or both of the latter companies. Such an arrangement is in my opinion capable of falling within either clause 2.1.3 or clause 2.1.6 of the Declaration. It might confer a right to occupy the property "as tenant under a lease or otherwise", in terms of the former clause. Alternatively, it might amount to an "agreement, written or unwritten, express or tacit" to obtain a right to occupy the property, thereby falling under clause 2.1.6. Counsel for the pursuer conceded that a proof before answer would be required to establish the existence of such an arrangement, and to determine whether it fell under one or both of the foregoing clauses. In my opinion that the pursuers' averments on this matter are sufficient to entitle them to such a proof. In the event, however, it will not be necessary to proceed in that manner because I consider that the pursuers are entitled to decree de plano on the basis of their first argument.

Conclusion
[25] For the foregoing reasons I will repel the defenders' first plea in law, which is to the relevancy of the pursuers' averments, and sustain the pursuers' first plea in law, which is to the relevancy of the defences. I will accordingly pronounce decree de plano in terms of the first conclusion of the summons.