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FIRST DIVISION, INNER HOUSE, COURT OF SESSION
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Lord President
Lord Kingarth
Lord Penrose
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[2006] CSIH 20
A285/04
OPINION OF THE
COURT
delivered by LORD
PENROSE
in
RECLAIMING
MOTION
in the cause
AERPAC UK
LIMITED (In Administration) and BRYAN ALAN JACKSON
Pursuers and
Respondents;
against
NOI SCOTLAND
LIMITED
Defenders and
Reclaimers:
_______
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Act: Clark; Henderson Boyd Jackson (Pursuers and
Respondents)
Alt: S.
Reid, solicitor advocate; Maclay Murray
& Spens (Defenders and Reclaimers)
5 April 2006
[1] The
pursuers and respondents, Aerpac UK Limited, in administration, and Bryan Alan
Jackson, the company's administrator, raised this commercial action for an
order against the defenders and reclaimers, NOI Scotland Limited requiring them
to instruct their solicitors, Maclay Murray & Spens, to consent to the
release of a sum of £250,000, with accrued interest, held in a specified bank
account with the Bank of Scotland in joint names of that firm and Young &
Partners, solicitors.
[2] Aerpac
UK Limited ('Aerpac UK') was placed in
administration, and Mr Jackson was appointed administrator, on 7 March 2001. The
company had carried on a manufacturing business from premises at Mitchelson
Industrial Estate, Kirkcaldy, which it did not own. The property was owned by an associated
company, Aerpac Investment UK Limited, from whom Aerpac UK leased the property. Mr Jackson placed Aerpac UK's business on the market
as a going concern. NOI GmbH was selected
as the preferred purchaser. That company
nominated NOI Limited, subsequently renamed NOI Scotland Limited ('NOI
Scotland'), to enter into a contract for the acquisition of the business.
[3] NOI
Scotland wished to acquire ownership of the business as a going concern, but
the price it was prepared to pay for it depended on whether it succeeded in
achieving certain rights in the property.
The difference between the two levels of price was £250,000, and that part
of the purchase price was in due course placed on deposit in joint names of the
two firms of solicitors already identified.
The balance of the purchase price for the business, which was payable on
7 June 2001, is not in issue. The dispute relates only to the sum placed on
deposit. The issue in this litigation is
whether, in the circumstances that happened, that sum should be released to
Aerpac UK and Mr Jackson. After debate, the Lord Ordinary decided that
the sum should be so released, and ordained NOI Scotland to instruct Maclay
Murray & Spens to consent to its release by the Bank. Against the Lord Ordinary's interlocutor to
that effect, dated 31 March 2004, NOI Scotland reclaimed.
THE FACTS
[4] The
Lord Ordinary summarized the contractual framework intended to give effect to
the several parties' interests, and the parties' respective positions on
record. There was no material dispute
about the accuracy of his summary, and it is appropriate to adopt it. For consistency, I shall substitute the names
of parties for references to their roles as pursuer and defender. He said:
"[2] Missives for the sale of the business by Aerpac
UK and Mr Jackson to NOI
Scotland were concluded on 8 June 2001. Under those missives ("the business
missives"), NOI Scotland purchased certain of the assets of the business; these
comprised the equipment used in the business, Aerpac UK's goodwill and
intellectual property rights and their stock and records. The
heritable property from which Aerpac UK 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 to Aerpac UK; secondly, the landlord
should enter into missives for the sale of the property to NOI Scotland. 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 NOI
Scotland 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 Mr Jackson and NOI Scotland. 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 Mr Jackson in the event that NOI Scotland 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 NOI Scotland or an associated
company's obtaining such a right, NOI Scotland 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 NOI
Scotland and their associated company 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 NOI Scotland. The
Declaration consisted of a warranty to Aerpac UK 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, Aerpac UK would be entitled to sue
NOI Scotland and the Guarantor for breach of warranty. If no such Declaration was granted within
three months after the end of the one year period, Mr Jackson was to be
entitled to the Deferred Consideration on behalf of Aerpac UK. Clause 5.4 was in the following terms:
'The Deferred
Consideration (together with interest earned thereon) 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 hereof 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 NOI
Scotland, the Guarantor and companies associated with NOI Scotland 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.
2.1.3 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 assets 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, express or tacit, to obtain
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. NOI Scotland had taken occupation of the
heritable property prior to 7 June 2001. As mentioned above, the property missives
were concluded between NOI Scotland 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 NOI Scotland continued to occupy the property and
that the property missives have not been terminated. Against the background, Aerpac UK and Mr Jackson aver that
NOI Scotland's continued occupation is based on the property missives. NOI Scotland, 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 NOI Scotland's continued occupation of the premises. It is said that no agreement was reached, and
specifically that no agreement was reached entitling NOI Scotland to occupy the
premises. Throughout the discussions,
however, NOI Scotland continued to occupy the property with the knowledge and
acquiescence of Aerpac Investment UK Ltd.
NOI Scotland 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 NOI Scotland from
the premises. It is averred that Aerpac
Investment UK Ltd and their heritable creditor have merely tolerated NOI
Scotland's continued occupation of the premises, and that such tolerance was in
the commercial interests of both of those parties. On that basis, NOI Scotland 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."
THE RECLAIMERS' SUBMISSIONS
[5] For
NOI Scotland, Mr Reid accepted that, generally, the Lord Ordinary had correctly
set out the facts in this summary. Against
that background, he proceeded with general submissions on the provisions of the
contracts. He submitted that the lodging
of the sum in question, as required by clause 5.3 of the business missives, was
a procedural mechanism: it provided a form of security for payment. But it was a time-limited deposit, as
appeared from clause 5.4. There was a
crucial difference between the first and second sentences of the latter clause. The first sentence was the operative
provision. It defined the event on the
occurrence of which the deferred consideration was payable, that is the event
of NOI Scotland becoming entitled to occupy the property in the capacity there
stated. The definition of the capacity
was the function of the first sentence of clause 5.4. There was no time limit on the occurrence of
that event. The second sentence differed
in three ways: (a) it did not refer solely to entitlement to occupy, but also to
an agreement to obtain such right; (b) it expressly contained a time limit of
one year; and (c) the function of the sentence was different from the first. The third sentence was a matter of procedure
rather than substance.
[6] It
was implicit in his interpretation that there could be circumstances in which
the obligation to pay might arise, notwithstanding that the sum on deposit had
already required to be released to NOI Scotland. The release was anticipated in clause 5.5
which provided the mechanism for the release of the deposit in favour of NOI
Scotland. But it did not extinguish the
obligation to make payment if an event within the first sentence of clause 5.4
did occur thereafter, that is, if NOI Scotland became entitled to occupy in one
of the stated capacities.
[7] Mr
Reid's primary submission was that the reclaiming motion should be allowed, and
the action dismissed because Aerpac UK had not made any
relevant averment of the occurrence of occupation in a stated capacity. Aerpac UK's position was that an
arrangement had been entered into with the heritable creditor with the
knowledge of the proprietor of the property.
But those averments were not sufficient for probation. There was insufficient notice in the
references to documents incorporated into the pleadings for those to support
proof. If the court did not accept those
submissions, there should be proof before answer. NOI Scotland were not said to occupy as
heritable proprietor or tenant. Clause
5.4 could therefore be triggered only by occupation "in such other capacity as
is stated in the Declaration".
[8] The
relevant provisions of the Declaration were set out in sub-paragraphs 1.3 to
1.5, supplemented in relation to agreement by sub-paragraph 1.6, of paragraph 2. The first sentence of clause 5.4 encompassed
the capacities set out in those provisions other than 2.1.6, which was relevant
only to the second sentence of clause 5.4.
Mr Reid accepted that 'entitled to occupy' could not be interpreted in
the traditional sense of that expression.
The expanded definition covered situations envisaged by the parties that
they wished expressly to cover. The
words 'or otherwise' in sub-paragraph 2.1.3.
should not be construed so widely as to cover every form of actual
occupation other than under a disputed precarious capacity. It was confined to occupation under a right,
derived from the owner which might be personal.
No such right was relied on.
[9] The
property missives could not confer a relevant right because they were concluded
before the business missives. The Lord
Ordinary erred in concluding that the property missives themselves constituted
an 'agreement' in terms of clause 5.4 of the business missives and of the
Declaration. Such an agreement had to be
entered into within one year 'from the Completion Date'. The 'Completion Date' was defined as meaning
'close of business on 7 June 2001'. The property missives were concluded on 7
June, before that time. It followed that
the Lord Ordinary was also in error in concluding that the Declaration was
false.
[10] The principal reasons for the Lord Ordinary's
error were (a) his view that the property missives entitled NOI Scotland to
occupy from 27 July (discussed in Mr Reid's second submission); and (b) his
failure to give the term 'Completion Date' the precise meaning it had in the
business missives, leading to the view that the property missives were an
agreement entered into within the specified year. The two strands of error appeared from
paragraph [20] of the Lord Ordinary's opinion.
The Lord Ordinary sought support for his view in the wording of the
Declaration, and in particular preamble (iii).
But the Declaration was properly regarded as a procedural device: it was
merely a notice. Its status was
identified in causes 5.4 and 5.5 of the property missives. The preamble was no more than a gloss. It was adequate for the limited purpose it
was intended to serve: to provide notice of the release of the deposited money. It was an error to treat it as an aid to the
construction of the period. While it was
not illegitimate to refer to the provision, undue reliance on it had led the
Lord Ordinary into error.
[11] On
examination, it could be seen that the Declaration was riddled with
inaccuracies. Paragraph (i) of the
preamble erred in dating the business missives.
Paragraph (iii) appeared to assume that the purchaser would be released
from the obligation to pay the deferred consideration if no right to occupy the
property arose within the one year period.
The errors were immaterial provided that one regarded the Declaration as
a piece of procedural machinery. But the
critical fact was that the property missives were entered into before the
business missives, and on that basis could not satisfy the principal
contractual provisions, whatever the terms of the Declaration.
[12] Further,
to regard the property missives as an agreement within the scope of clause 5.4
of the business missives would be inconsistent with the structure of the
transaction as a whole. The distinctive
feature of the transaction was the deferment of the second tranche of the consideration. It was deferred pending the occurrence of an
uncertain event within a specified period of one year from the completion date. The Declaration would be served, or not,
depending on whether or not NOI Scotland became entitled to occupy the property
in a stated capacity, or entered into an agreement to obtain such a right
within that period. If the argument for
Aerpac UK were correct, and the
property missives constituted such an agreement, then as at the completion date
there could be no such uncertain event. It
would be self-evident at the completion date that the Declaration could never
be served. It would be self-evident that
the sum on joint deposit would be released to Aerpac UK on the expiry of a year
and three months.
[13] The
agreement referred to in the second sentence of clause 5.4 was an agreement
other than the property missives themselves because if the sentence included
the property missives the declaration process would be rendered largely
redundant. The deferral of the second
tranche only made sense if an event on which release was triggered remained
uncertain. It only made sense if it
remained uncertain at the completion date whether NOI Scotland would become
entitled to occupy the premises.
[14] Mr
Reid's second submission overlapped the first.
It was in the following terms. The
Lord Ordinary erred in attributing NOI Scotland's occupation of the property to
the property missives, specifically to the so-called 'right to vacant
possession' appearing in clause 3 of the offer letter (that forms part of the property
missives); and again, by extension, in finding the Declaration to be false as a
result. There were three reasons for
this error:
"First, the so-called
'right' of NOI Scotland to vacant possession, under Clause 3 of the Property
Missives is merely the counterpart of NOI Scotland's obligation to pay the
purchase price for the property. Since
the price has never been paid, NOI Scotland can claim no right or entitlement
to the property.
Second, in reaching his
conclusion, the Lord Ordinary failed to give due weight to the word 'entitled'
in Clause 5.4 of the Business Missives. NOI
Scotland was in physical occupation
of the property - but it did not follow that the company was entitled to occupy, still less that it
had any entitlement to do so in one of the stated capacities referred to in
that Clause.
Third, the Lord Ordinary
proceeded merely upon an inference that NOI Scotland's occupation was
attributable to Clause 3 of the Property Missives. That inference was not justified,
particularly in light of the explanation averred in the defences for the
company's de facto occupation. That explanation, if established at proof,
would not entitle Aerpac UK to payment under Clause
5.4."
[15] Mr
Reid stressed the reference to 'entitlement' to occupy. That referred to a right to occupy, and, in
terms of the provision, in a stated capacity.
There had to be an enforceable legal right that NOI Scotland had the
ability to vindicate against challenge. Between
27 July 2001 and the present day, NOI
Scotland could not claim any right or entitlement because they had not
performed their part of the contract. It
was a simple matter of mutuality of contractual obligations. The Lord Ordinary's comments in paragraph
[19] of his opinion were not correct. NOI
Scotland only became entitled to occupy the property when it paid the price. The Lord Ordinary's approach reduced the
issue to one of procedure: something that required to be pled. But the crux of the issue was entitlement. It was instructive that the Lord Ordinary
used the expression 'permitted'
[16] Mr
Reid's third submission was that the Lord Ordinary erred in deriving support
for his construction of Clause 5.4 from the hypothesis that, if it were
otherwise, NOI Scotland could avoid payment of the deferred consideration by
simply delaying implement of the Property Missives until after the expiry of
the one year period from the Completion Date.
That hypothesis was incorrect. On
a proper interpretation of clause 5.4, in that hypothetical circumstance, the
condition in Clause 5.4 would be purified and the Deferred consideration would
be payable. The obligation to pay the
deferred consideration would arise whether the entitlement to occupy arose
within or after the expiry of the twelve month period.
[17] Finally,
Mr Reid submitted that the Lord Ordinary erred in concluding that occupation by
virtue of the averred 'arrangement' between NOI Scotland and the heritable
creditor triggered payment of the Deferred Consideration under Clause 5.4. He advanced three reasons in support of that
submission:
"First, Aerpac UK's averments regarding
the 'arrangement' were fundamentally lacking in specification and should have
been excluded from probation.
Second, even if the
averments gave fair notice of the case against NOI Scotland, they were
irrelevant because Aerpac UK had not averred any
concluded agreement entitling NOI Scotland to occupy.
Third, alternatively, the
Lord Ordinary should have allowed proof before answer on those averments, given
the detailed conflicting averments of NOI Scotland."
[18] Mr
Reid argued that the wholesale incorporation of the terms of documents
comprising part 10 of the Appendix provided inadequate specification of the
case NOI Scotland had to meet, even in commercial litigation. There were 92 pages of material. Without specification of the case made, it
was impossible to understand the position adopted by Aerpac UK. Even if that objection were overcome, the
averments were fundamentally lacking in specification because there was no
indication of an agreement entitling NOI Scotland to occupy the property. None of the procedures referred to could
amount to providing an entitlement to occupy.
THE RESPONDENTS' SUBMISSIONS
[19] Mr
Clarke invited the court to refuse the reclaiming motion. He argued that the argument that had been
developed failed fundamentally to take account of the Lord Ordinary's reasoning. In particular, there had been a failure to
appreciate that the Lord Ordinary presented two bases for his decision: (a)
that after 27 July 2001, Clause 3 of the property missives entitled NOI
Scotland to occupy the property, satisfying paragraph 2.1.3 of the Declaration;
and in the alternative (b) that the property missives amounted to an agreement
to obtain rights of occupation in the sense of paragraph 2.1.6 of the
Declaration. Entitlement to occupy under
the property missives did not arise until the expiry of the licence on 27 July. Until that date there was, in the property missives,
an agreement that entry and vacant possession would take place on that date,
and in the event that entitlement subsisted on 27 July. Each provision was satisfied. It was also important to note that the Lord
Ordinary dealt with the issue whether the actual Declaration granted was false. The grounds of appeal that had been argued
had to be considered against this background.
[20] Mr
Clarke argued that Mr Reid's first submission failed to deal with the Lord
Ordinary's interpretation of the expression 'from the Completion Date' as set out
in paragraph [15] of his opinion. There
the Lord Ordinary had concluded:
"The second sentence of
clause 5.4 referred to the expiry of 'a period of one year from the
Completion Date' ... 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."
[21] On
that basis, the Property Missives were indeed executed within the contractual
period. If Mr Reid were correct in
requiring specific points of time to be acknowledged, Aerpac UK were not entitled to the
remedy they sought. However, the
alternative interpretation of the expression was more commercially sensible. The definition of the completion date did no
more than identify the date on which certain events were to take place. It did not point to any specific point of
time during that day.
[22] In
any event, the parties plainly departed from the time frame that may have been
envisaged at an earlier stage in negotiations.
There was slippage in the programme.
If that had not happened, the business missives would have been executed
at a time when it was not inevitable that the execution of the property
missives would have followed. There
would have been no concluded contact without the property missives, but that
did not mean that the execution of those missives was inevitable. The interpretation for which he contended was
not so manifestly absurd that one should avoid giving the plain language of the
business missives their ordinary meaning.
He suggested that one way in which the inevitability for which Mr Reid
contended could have been avoided would be waiver by NOI Scotland of the
requirement for occupation. He could not
suggest any sound commercial reason why that requirement should be waived. But that did not lead to absurdity.
[23] Mr
Clarke later returned to this branch of the discussion. He noted that Mr Reid's argument dealt only
with the ground of decision under paragraph 2.1.6 of the Declaration. It did not deal with the ground of decision
under paragraph 2.1.3. It was never
inevitable that a right of occupation would arise in fact after execution of
the property missives. During the term
of the licence that preceded the date of entry, there was scope for a decision
to rescind the Property Missives in the event of non-payment of the price. NOI Scotland's right to take entry was
conditional on the seller deciding not to exercise the right to rescind. There was no inevitability about that. In the event, it was clear that the parties
contemplated a situation in which on the date of entry NOI Scotland became
entitled to vacant possession whether or not the price had been paid. But if the seller were to decide to rescind
for non-payment, no right of occupation would arise on the date of entry.
[24] Turning
to Mr Reid's second submission, Mr Clarke began by observing that there was no
suggestion anywhere, in pleadings or documents, that the mutuality point had
been taken by the seller of the property.
The seller could have taken the point.
It was in his interests to do so if there was any wish to avoid the property
missives. But that had not happened. The effect of the submission for NOI Scotland
was that that company's rights were, in some way, in suspension. The actings of both parties were consistent
with the terms of the property missives.
Far from seeking to suspend NOI Scotland's access to the property, the
parties were acting in such a way as to provide that access. It was not open to Mr Reid to take the
mutuality point against Aerpac UK.
[25] Dealing
with the first branch of Mr Reid's second submission, as set out in paragraph
[14] above, Mr Clarke observed that, far from relying on failure to pay to deny
NOI Scotland occupation, the seller was enforcing one of the contractual
remedies available, and taking interest at 4% above base rate on the price. The Lord Ordinary dealt with the matter
correctly in paragraph [19] of his opinion.
The seller had a choice, and had chosen to exercise it.
[26] In
respect of the second branch of Mr Reid's second submission, as set out in
paragraph [14] above, Mr Clarke drew attention to the Lord Ordinary's reliance
on clause 3 of the Property Missives:
"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 shall be mutually agreed."
There was no suggestion of an alternative date. Therefore full vacant possession was given on
27 July 2001, the defined date of
entry. Entry was not conditional on
payment of the price, though the obligation to pay the price, or to pay
interest at the specified rate arose on that date. Until 27
July, 2001, occupation was governed by the licence. On 27 July the property missives superseded
the licence as the basis for occupation became clause 3. All that was required for the purposes of
clause 5.4 of the business missives was that there was an 'entitlement' to
occupy. One did not have to analyse or
explain the actual basis of occupation in the events that had happened. NOI Scotland were entitled to occupy in terms
of clause 3 unless the seller chose to rescind the property missives for
non-payment of the price. That had not
happened, and, on any view, giving the language of the contract its ordinary
meaning, NOI Scotland had a right to occupy on a personal, contractual, basis. That was sufficient, without enquiring
whether there was any act of the seller that could be characterised as 'giving'
entry.
[27] Turning
to the third branch of Mr Reid's second submission, as set out in paragraph
[14] above, Mr Clarke argued that the submission missed the point. What was required was entitlement to occupy. If there was entitlement, it was irrelevant
to enquiry as to the actual basis of occupation. In any event the Lord Ordinary was right in
his analysis of the actual position in paragraph [18] of his opinion. The parties' conduct was consistent with, and
reflected, actings in terms of the contract.
[28] Dealing
with the third submission advanced by Mr Reid, Mr Clarke drew attention to the
reasoning that reached its conclusion in paragraph [20] of the Lord Ordinary's
opinion where he observed:
"I should [add] 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."
That was clearly correct. Clause 5.4 had to be read as a whole, and,
along with clause 5.5, provided for the results of failure to obtain occupation
or an agreement to occupy within the specified period. Clause 5.4 could not be construed as
providing for payment of the deferred consideration after expiry of the
specified period.
[29] The
fourth submission for NOI Scotland dealt with Aerpac UK's second basis for the
remedy sought: that the arrangements into which the other parties had entered
themselves constituted an agreement within paragraph 2.1.6 of the Declaration. The issue was dealt with in paragraph [23] of
the Lord Ordinary's opinion. The Lord
Ordinary had applied the correct test. He
could not rule out the possibility that Aerpac would succeed after proof on
this limb of the case. The documents
relied on were largely agreed. They
comprised correspondence to which NOI Scotland and its associated companies
were parties. They were examined in
detail at debate before the Lord Ordinary.
The pursuers' contention was that they met the test of an agreement
entitling NOI to occupation. There had
been no complaint at any preliminary hearing that there was inadequate
specification of the argument; it was in substance a question of interpretation
of the documents; and there was no lack of specification. If there were additional matters requiring
evidence that was a matter for NOI Scotland.
[30] Mr
Clarke argued that the passages from the correspondence quoted by the Lord
Ordinary at paragraph [23] of his opinion fully justified his view that
Aerpac's alternative case was sufficiently relevant for proof.
DISCUSSION
[31] The
practical context in which the provisions of the complex contractual documents
entered into by the parties have to be considered is of some importance. Aerpac UK carried on a
manufacturing business. It manufactured
wind turbine blades. It carried on that
business in the 'Property', a factory situated at Mitchelson Industrial Estate
in Kirkcaldy. The inventory of
manufacturing plant and equipment owned, leased or held on hire purchase
contracts for the purpose of the manufacturing processes demonstrates that the
activity was asset-intensive. The
business missives contained a number of particular definitions bearing on the
dispute.
[32] Clause
3 of the business missives provided that, subject to certain suspensive
conditions:
"Aerpac acting by the
Administrator shall sell and the Purchaser shall purchase the Business as a
going concern as at the Completion Date and in execution of such the Purchaser
shall purchase the Assets."
Clause 5.1 provided:
"The Consideration shall
be £500,000 ... and shall be apportioned among the Business and Assets as set out
in Part 4 of the Schedule ... "
The term "the Business" was defined as "the
business of manufacture of wind turbine blades carried on by Aerpac from the
property". The term "Assets" was defined
to mean:
"the Equipment, the
Goodwill, the Intellectual Property (to the extent which Aerpac can transfer
valid title thereto), the Stock and the Records but for the avoidance of doubt
shall specifically exclude the Book Debts, the Administrator's Records, the
Leased Items, the Fixtures and Fittings, the Contracts and the Property."
Each of the terms with an upper case initial
letter was further defined.
[33] There
are difficulties in interpreting these provisions. Part 4 allocated the total consideration as
to equipment £499,997, goodwill £1, intellectual property £1 and records
£1. Each of these items is included in
the definition of "Assets", however, and it is not possible to apply clause
5.1` except on the basis that the amount of the consideration apportioned to
"the Business" was nil. Clause 5.1 of
the business missives provided for payment of the consideration in two
tranches, each of £250,000:
" ... The Initial
Consideration shall be payable on the Completion Date by the Purchaser to the
Administrator ... The Deferred Consideration shall become payable as provided in
clause 5.4 hereof. In the event that the
Deferred Consideration is not paid as provided in clause 5.5 hereof, the amount
of the Deferred Consideration shall be deducted from the amount apportioned to
the Equipment as set out in Part 4 of the Schedule".
It appears that the plant and equipment had a
value independently of whether the deferred consideration became payable. But that value was agreed to be £249,997
only.
[34] It
appears to have been agreed between the parties that goodwill, intellectual
property and Aerpac's own records should have the same value irrespective of
whether NOI Scotland became entitled to occupy the property in terms of clause
5.4, but that the value of the equipment, as apportioned in terms of the
missives, would be reduced by the amount of the deferred consideration if NOI
Scotland did not become so entitled.
Apart from the failure to provide for the apportionment of part of the
consideration to "the Business", despite the terms of clause 5.1, there is a
readily discernible purpose in these provisions. The ability to continue manufacturing
operations, using Aerpac UK's equipment in
situ without the disruption necessarily involved in relocation, must have
had an obvious value to NOI Scotland and it is understandable that that should
be recognised in a contract that, in the circumstances, could not of itself
provide for occupation of the factory premises.
From the point of view of Aerpac UK and its administrator,
however, it must have been a matter of indifference by what mechanism that
occupation was procured. If NOI Scotland
achieved access to and practical control of the property and the ability to
carry on the manufacturing processes envisaged, one would expect the
administrator to take the view that the condition was satisfied, and one would
expect to negotiate for the widest of stipulations as to what constituted
occupation for this purpose.
[35] Clause
5.3 provided for the deposit of the deferred consideration 'until either
payment to the Administrator or return to the Purchaser of the Deferred
Consideration in accordance with clauses 5.4 and 5.5 hereof'. In each of Clauses 5.1 and 5.3 Clauses 5.4
and 5.5 are referred to in one context as the contractual provisions for
disposing of the deferred consideration.
Each of those provisions referred to the 'Declaration', as the document
set out in Part 5 of the Schedule to the business missives. It is necessary to define the functions of
the Declaration, and to take note of the time limits on its use. In Clause 5.4, in the first place, the
Declaration is used as a source from which to incorporate the definition of the
third branch of the contentious expression 'becomes entitled, as heritable
proprietor or tenant or in such other capacity as is stated in the Declaration,
to occupy'. In Clause 5.5, delivery of
the Declaration duly executed, and in time, and subject to its truth, is the
trigger for release of the deferred consideration to the purchaser. It is further provided that if the
declaration is not delivered within three months of the expiry of the specified
period, the deferred consideration is to be retained by the administrator. The functions of the Declaration in Part 5
are therefore different in kind as between the two provisions.
[36] Mr
Reid's third submission envisaged a construction of Clause 5.4 that obliged NOI
Scotland to pay the deferred consideration whenever that company obtained
occupation of the property, and in particular irrespective of whether that
event happened within or after expiry of the specified period. In our opinion that view of the provision is
not sustainable given the structure of the provisions referred to. Clause 5.1 provides exhaustively for payment
of the consideration, the first tranche to the administrator in unqualified
terms, and the second tranche in terms of Clause 5.4. Clause 5.4 is the measure of the obligation
to pay the second tranche. And it
incorporates the Declaration as part of the mechanism. Further, Clause 5.5 provides for the release
of the deferred consideration if three months should elapse from the end of the
period of one year period without delivery of the Declaration, "as if the
Purchaser had obtained right to occupy the property in accordance with clause
5.4 hereof". It appears clearly to have
been envisaged that the two clauses should operate within a tightly defined
time frame. That would be inconsistent
with an indefinite continuing conditional obligation of the kind envisaged by
Mr Reid.
[37] The
preamble of the Declaration is perplexing in some respects. There is a mis-match between the capacities
narrated in the preamble and in the body of the document. There is an odd reference to the purchaser
being 'entitled to forego payment' of the deferred consideration. The third paragraph of the preamble states:
"In terms of clauses 5.4
and 5.5 of the Missives, the Purchaser is entitled to forego payment of the
Deferred Consideration in the event that the Purchaser has obtained no rights
of ownership to or tenancy of the Property during the period from 7 June 2001
to 6 June 2002 ("the Period"), and the Purchaser has delivered this Declaration
executed by the Purchaser and the guarantor to Aerpac by 6 September 2002."
This part of the schedule was an integral part of
the business missives: it was in no sense an ancillary document. Clause 5.4 could not be construed without
reference to its terms. However casually
it may have been prepared, it reflects the parties' contemporary understanding. And that is consistent with the view that
Clause 5.4 is the measure of the obligation to pay the second tranche. If the sum is not payable in terms of that
clause, payment is not due. The
paragraph only makes sense if construed as a reference to the release of the obligation
to pay.
[38] In
our opinion, it is not possible to interpret Clause 5.4 as incorporating a time
limit on the operation of Clause 5.5 leaving the first sentence as imposing an
obligation, unlimited in time apart from any applicable rule or principle of
general law, to pay upon obtaining occupation.
This obligation, on Mr Reid's approach, would arise, in particular, even
after delivery of a Declaration in specified form and within the specified time
limits that occupation was not achieved in a relevant capacity within the
period. In effect the deposit of the
second tranche would be reduced to a temporary deposit of the money, providing
a limited form of security for a year for payment of that tranche which would
otherwise be unsecured. The Declaration
operated, inter alia, as a form of
notice of the non-occurrence of critical events triggering the right to release
of the deferred consideration. If a
Declaration was delivered in terms of the contract, the sum fell to be released
to NOI Scotland. After that event, if it
should happen, the business missives contained no provisions for notice of a
change of circumstances in which NOI Scotland became entitled in the relevant
sense to occupy the property. The
deferred consideration might become payable, on Mr Reid's approach, on an
uncertain event of which the administrator would be unlikely to have
independent knowledge, and the whole contractual structure aimed at providing
notice would have been exhausted. In a
contract otherwise characterised by over-elaboration the omission of provision
for such an eventuality would be, at least, surprising.
[39] Reading
Clauses 5.4 and 5.5 together, the clear scheme of the contract is that the
second tranche of the consideration should be payable if occupation in the
relevant sense is achieved within the year specified. In terms of Clause 5.5, if occupation is not
achieved within the period, NOI Scotland became entitled to return of the
deposit and interest on it, on completion of the contractual formalities. There is no other obligation to pay. The interpretation of Clause 5.4 in Mr Reid's
third submission should be rejected accordingly.
[40] On
this approach, the next issue that arises is whether, on a proper
interpretation of Clause 5.4, NOI became 'entitled, as heritable proprietor or
tenant or in such other capacity as is stated in the Declaration, to occupy the
Property...as stated in the Declaration' on the date of entry under the property
missives, that is, on 27 July 2001. In our
view, Mr Clarke was correct in submitting that this issue does not depend on
the interpretation of the period focused in Mr Reid's first submission. On any view, 27
July 2001 would be within the reference period if NOI Scotland became
entitled to occupy the property in a specified capacity.
[41] The
choice of language in Clause 5.4 is peculiar.
It would appear not to be sufficient for NOI Scotland to become the
heritable proprietor of the property. An
arrangement that excluded the company from occupation, notwithstanding its
acquisition of title, would avoid the obligation. No doubt that would have been one factor that
influenced the drafting of the definition of 'Purchaser' in clause 1.1 of the Declaration,
and the extended provisions in clause 1.2.
Indirect means of dealing with the property interests, such as might
have been involved in a complex corporate structure, would have been dealt with
under those provisions. More positively,
the treatment of heritable right gives added emphasis to the focus on
occupation as the trigger for payment of the deferred consideration. The same factor emerges from the inclusion of
tenancy in the principal provision. It
is necessary to refer to the Declaration for the third element.
[42] In
the light of the Declaration, that third element may have to be construed as
comprising a range of possible interests.
It is not easy to make sense of the provisions overall. Ownership is introduced afresh in paragraph
2.1.1 in apparently absolute terms that do not refer to occupation. Rights in security are introduced in
paragraph 2.1.2. But for immediate
purposes, it is sufficient to deal with paragraph 2.1.3. It requires a warranty that
"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."
Mr Reid, rightly, accepted that a personal right
to occupy the property would suffice. The
exclusion of the contractual licence to occupy until 27
July 2001 is consistent with the intention that the provision should
operate in that way..
[43] There
is again a lack of consistency of language.
Clause 5.4 refers to entitlement to occupy. The warranty required by the Declaration is
that the purchaser has had no right to occupy.
But the meaning is clear, given the acceptance by Mr Reid that a
personal right would suffice. Leaving
aside ownership, the capacities envisaged are those of tenant and any other
person on whom a right of occupation has been conferred by the owner of the
property, including a licensee other than under the licence specified in the business
missives.
[44] In
terms of the property missives, and in the absence of notice of rescission by
the seller, NOI Scotland became entitled to entry and vacant possession,
subject to immaterial qualifications, on 27 July
2001. Payment of the price on
that day was not an essential condition of the contract. Payment did become due on the date of entry. But clause 2.2 expressly envisaged and
provided for the event of non-payment. It
provides:
"In relation to interest
on the Purchase Price the following provisions shall apply:-
2.2.1. If the Purchase Price is not paid in full on
the Date of Entry, interest on the Purchase Price or any unpaid part thereof
will run at 4% above the base lending rate from time to time of the Bank of
Scotland from the Date of Entry until actual payment ("the Default Period") regardless
of consignation or of the fact that entry may not have been taken.
2.2.2 Failure to pay the Purchase Price on the
Date of Entry will constitute a material breach of contract entitling the
Seller to terminate the Missives by written notice to the Purchaser..."
Clause 2.2.2.
was never engaged: no notice was ever served.
[45] There
was some debate about the construction and effect of the reference to taking
entry. The provision, like others in
this series of contractual documents, causes some difficulty. Clause 9 of the property missives contained
an agreement that NOI Scotland would accept the contractual licence "with an
effective date of entry thereunder of the date of conclusion of the Missives
notwithstanding the date hereof." As clearly envisaged, NOI Scotland's interest
was to enter into occupation and carry on the manufacturing activity using the
assets and, in particular, the equipment in
situ. The financial stipulations, in
clause 5 of the licence, commenced from conclusion of the missives, and the
purchaser became entitled, in virtue of the licence, to 'exclusive occupation
of' the property, again subject to an inconsequential qualification. The licence did envisage one situation in
which occupation might be interrupted: clause 3 provided that the licensee
should vacate the subjects in the event that the licence was terminated and the
purchase of the property did not complete forthwith. Given the range of options available,
non-payment would not automatically have prevented occupation under the
property missives. It would have been
open to the seller under the property missives to give notice that, failing
payment of the purchase price on the due date, the property missives would be
held to be rescinded. Similarly the
purchaser could have intimated that it did not intend to pay on the due date,
giving the seller the right to treat the intimation as anticipatory breach of
contract. In either event, NOI Scotland
would have had no right of occupation under the property missives after 27 July 2001. However,
unless some such event occurred, entry under the licence gave occupation to NOI
Scotland, and the arrival of the date of entry under the property missives merely
changed the capacity in which occupation was enjoyed.
[46] Whatever
NOI Scotland, its associates, the owner and its associates, the heritable
creditor and others may have contrived in the way of variations from the
sequence of events envisaged in the original contract documents, and absent
notice of rescission by the seller, in our opinion, on 27 July 2001 NOI
Scotland did become entitled to a personal right to continue in occupation of
the property in terms of the property missives, with vacant possession. On that ground alone, this reclaiming motion
should be refused.
[47] The
alternative ground of argument supported by the Lord Ordinary was that the property
missives constituted an agreement to obtain occupation under paragraph 2.1.6. of the Declaration, when read with paragraph
2.1.3 thereof. It would suffice for the
operation of that paragraph that NOI Scotland should enter into an agreement
'during the period' to obtain a personal right to occupy the property from the
expiry of the licence, or a tenancy, or ownership of the property.
[48] There
is again variation in language within the contractual documents. The period was defined in the preamble to the
Declaration as the period from 7 June 2001 to 6 June 2002. In the
Business Missives, Clause 5.4 refers to a 'period of one year from the
Completion Date', and Completion Date is particularly defined as 'close of
business on 7 June 2001'. For the reasons given by the Lord Ordinary in
paragraph [15] of his opinion, we consider that the terms of the Declaration
are consistent with an intention that 7 June
2001 should be within the period.
One cannot read Clause 5.4 in that way without some modification of
language. However, it seems to us that
one must take that course to give practical business sense to the contract as a
whole.
[49] The
Property Missives were concluded on 7 June
2001, after a period of negotiation.
The Business Missives were completed the following day, necessarily
again after a period of negotiation. It
seems clear, from the structure of the Business Missives as a whole, that the
Property Missives were intended to be the vehicle for acquisition of ownership
of the property from the expiry of the licence.
Equally, it is clear from the Declaration that the parties envisaged
that title might well be taken in name of another company or companies and that
NOI Scotland might not in the event take title, nor indeed become tenant of or
derive formal rights of occupancy from any company that did. The interpretation for which Mr Reid
contended would be strange indeed if it deprived Aerpac UK of the ability to
rely on the Property Missives because of the combination of their date and the
post-contractual variations entered into without reference to Aerpac UK and its
Administrator. However, what one must
achieve is a rational interpretation of the terms of the provisions as they are
found.
[50] For
Aerpac UK to succeed on this branch of the case it would be necessary to take
the view that the parties could have intended that merely entering into the property
missives involved the purchaser entering into an agreement to obtain occupation
of the property within the meaning of paragraph 2.1.6 of the Declaration. However, the business missives were expressly
conditional on the owner and purchaser entering into the property missives
before the completion date, subject to possible waiver by the purchaser. As events happened, there was no waiver, and
the property missives were completed on 7 June
2001.
[51] Nowhere
in the business missives is there any indication that the whole elaborate
mechanism for deposit of the deferred consideration, for payment of it to Mr
Jackson or for its release to NOI Scotland, as events might transpire, would be
unnecessary if the property missives were in fact concluded as envisaged and
the whole consideration therefore became payable. It is unlikely that such a matter would not
have been regulated specifically in such an elaborate contract as this. Further, if entering into the property
missives was enough to require payment of the deferred consideration, the
exclusion of occupation under the licence as a triggering event would become
redundant: the licence formed an
integral part of the property missives.
In the circumstances it is not possible to agree with the Lord
Ordinary's opinion on the alternative argument for Aerpac. But the disposal of the reclaiming motion is
not dependant on that.
[52] It
is unnecessary to deal with the remaining submissions for NOI Scotland. On the basis of the conclusion reached in
paragraph [46] above, the reclaiming motion must be refused.
