Scottish Court of Session Decisions

You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Middlebank Ltd v. The University Of Dundee & Anor [2006] ScotCS CSOH_202 (28 December 2006)
URL: http://www.bailii.org/scot/cases/ScotCS/2006/CSOH_202.html
Cite as: [2006] ScotCS CSOH_202, [2006] CSOH 202

[New search] [Help]

OUTER HOUSE, COURT OF SESSION

[2006] CSOH 202

CA40/06

OPINION OF LORD DRUMMOND YOUNG

in the cause

MIDDLEBANK LIMITED

Pursuers;

against

(FIRST) THE UNIVERSITY OF DUNDEE AND (SECOND) THE KEEPER OF THE REGISTERS OF SCOTLAND

Defenders:

________________

Pursuers: MacColl; Warners

Defenders: Reid, QC, Bartos; Biggart Baillie

28 December 2006

The Property

[1] The present action relates to a tenement property in Perth Road, Dundee. The tenement in question is very typical, of a kind found in every Scottish town. The ground floor and basement premises consist of shops and a storage area; it is indicated in the pleadings that the shops were at the material time occupied by the first defenders as office premises, but that is not significant for present purposes. The upper floors consist of flats which, prior to the sale mentioned below, were used by the first defenders to provide student residences. Access to the upper floors is obtained from the street through a common passage and stair. The street numbers are as follows. On the left of the property, looked at from the street, are basement storage premises numbered 2 and above them at ground floor level a shop or office numbered 2A. To the right of no. 2 is another ground floor shop or office, no. 4. To the right of that is the common entry to the upper flats, numbered 6. To the right of the common entry is a further shop or office, numbered 8.

[2 ] Immediately adjacent to the tenement block described above is another block, broadly similar in its layout. In this case the shop premises are numbered 10, 14 and 16 and the upper floors, which again consisted of flats used by the first defenders to provide student residences, are entered through a common entry and stair numbered 12.

[3 ] In 2003 the first defenders were the proprietors of the whole of the tenement block at nos. 2-8 Perth Road and the upper floors of the block at nos. 10-16. They held the property at nos. 2-8 under a disposition by Millpark Limited in their favour dated 31 January 1968 and recorded in the General Register of Sasines for Angus on 9 February 1968. The property transferred by that disposition comprised the whole of the property at nos. 2-8 Perth Road, including the ground floor and basement shops and storage area as well as the flats on the upper floors, and substantial parts of the property at nos. 10-16 Perth Road; the other parts of the latter property were obtained by another disposition which is not material for present purposes. Towards the end of 2003 the first defenders decided to sell the upper floors of both blocks of tenements, which had been used as student residences. The upper floors of the property were accordingly placed on the market, and particulars of sale were prepared, in terms described below at paragraph [23].

Missives

[4 ] The pursuers are associated with two other companies, Century 21 Homes Limited and Importa Limited. On 21 January 2004, Blackadders, the solicitors who acted for all three of those companies, submitted an offer on behalf of Century 21 Homes Limited to the first defenders' solicitors, Thorntons. The offer was to purchase "the Property", which was defined in the following terms:

"The Property is as advertised, as described in the written particulars, if any, or as pointed out to the Purchaser on inspection and comprises first and second floor and attic flats at 6-12 Perth Road, Dundee".

The price offered was £500,000. Substantial conditions were annexed to the offer. On 27 January 2004 Thorntons replied to Blackadders' offer in the following terms:

"On behalf of and as instructed by our clients, The University of Dundee, Perth Road, Dundee we hereby accept your formal Offer dated 21 January 2004 on behalf of your clients, Century 21 Homes Limited, to purchase from our clients the first and second and attic flats at 6-12 Perth Road, Dundee",

on certain terms and conditions. The only one of these that is material for present purposes is condition 8; this is as follows:

"The Property is that described in the Disposition by Millpark Limited in favour of the University of Dundee recorded GRS (Angus) 9 February 1968 and Disposition by Eastbourne Mutual Building Society with the consent of Greenback Property Company (Dundee) Limited and Mrs Amelia Emma Davidson in favour of Co-operative and Permanent Building Society recorded GRS (Angus) 23 December 1955".

[5 ] The description of the property in condition 8 is the source of the dispute that has developed between the parties. The first disposition that is referred to in that description, that by Milllark Limited in favour of the first defenders in 1968, in fact included the whole property at numbers 2-8 Perth Road, including the shops and basement storage area as well as the upper floors. The second disposition that is referred to, that by Greenback (in reality Greenbank) Property Co (Dundee) Limited in favour of the Co-operative Permanent Building Society in 1955, related to certain of the subjects forming part of the tenement at 12 Perth Road.

[6 ] The next letter that passed between the parties' agents was a letter of 3 February 2004 from Blackadders to Thorntons. In this letter the qualifications contained letter of 27 January were accepted subject to certain further qualifications. The third of these, so far as material, read as follows:

"Condition 8 of your said formal letter is held to be deleted. It is understood that the property comprises (1) the subjects described in the Disposition by Millpark Limited in favour of The University of Dundee recorded GRS (Angus) on 9 February 1968 under exception of the shop and basement premises Number 10 Perth Road described in [a disposition of 1989 by the defenders] and the shop premises known as Numbers 14 and 16 Perth Road, Dundee so far as not already excepted described in [a disposition by the defenders in 1984] and (2) the westmost second and third floor property at 12 Perth Road, Dundee described in [the disposition of 1955 by Greenbank Property Co (Dundee) Limited in favour of Co-operative Permanent Building Society]".

The reference to the shop and basement premises at 10 Perth Road was corrected to 12 Perth Road in a subsequent letter.

[7 ] Further missive letters passed between the parties' agents on 9 February, 17 February and 2 March. Thorntons' letter of 9 February, in its initial paragraph, referred to the purchase of "the first, second and attic flats at 6-12 Perth Road, Dundee". Blackadders' letters of 17 February and 2 March referred to "the subjects at 6-12 Perth Road, Dundee". Certain qualifications were made to the terms of the missives in those letters, but those qualifications are not material for present purposes. Those letters were followed by a further letter from Blackadders dated 10 March. According to the standard analysis of offers and qualified acceptances in missives (Wolf and Wolf v Forfar Potato Co, 1984 SLT 100), each qualified acceptance is strictly speaking a fresh offer, and it is the final qualified acceptance that constitutes the offer that is ultimately accepted. Blackadders' letter of 10 March is the final qualified acceptance, and is thus the offer that was accepted by Thorntons. It is this letter, accordingly, that must be regarded as the starting point in determining what was agreed between the parties' agents. The letter of 10 March 2004, so far as material, is in the following terms:

"On the behalf of and as instructed by our clients, Century 21 (Homes) Limited, Importa Limited, ... and Middlebank Limited, ..., the said Importa Limited and Middlebank Limited having been nominated by Century 21 (Homes) Limited as the Purchasers, we hereby delete the whole terms of our formal letter, dated 2 March 2004, and Offer on behalf of the said Importa Limited and Middlebank Limited to amend the terms of our formal letter, dated 17 February 2004, relative to your formal letter, dated 9 February 2004, on behalf of your clients, The University of Dundee, relative to our formal letter, dated 3 February 2004, relative to your formal letter, dated 27 January 2004, being a Qualified Acceptance of our Offer, dated 21 January 2004, on behalf of Century 21 (Homes) Limited or their Nominees to purchase from your said clients the subjects at 6-12 Perth Road, Dundee, at the price of FIVE HUNDRED THOUSAND POUNDS (£500,000) STERLING and on the other terms and conditions stated in said Missives, as follows, and make the following further qualifications:-

...

(4) The Purchasers will be Importa Limited, ..., who will purchase the property at 12 Perth Road at the price of TWO HUNDRED AND FIFTY THOUSAND (£250,000) STERLING and Middlebank Limited, ..., who will purchase property at 6 Perth Road at the price of TWO HUNDRED AND FIFTY THOUSAND (£250,000) STERLING".

[8 ] That letter was accepted by Thorntons by a letter of 11 March 2004. In that letter the subjects were described as "the subjects at 6-12 Perth Road, Dundee". The result is that missives were concluded between the parties for the sale of certain subjects. The critical question is what those subjects were.

The parties' respective positions following the missives

[9 ] Following the conclusion of missives a disposition was prepared in favour of the pursuers. This referred to the property sold by the first defenders to the pursuers in terms that included the whole of the tenement comprising nos. 2, 2A, 4, 6 and 8 Perth Road, and that disposition was executed by the first defenders. The disposition was then sent to the Keeper of the Registers, but was subsequently lost. I was informed that the first defenders had raised proceedings to rectify the disposition, but the action had been dismissed; no written opinion was given. The pursuers then raised the present action against the present defenders to prove the tenor of the disposition that was lost and for decree ordaining the first defenders to vacate the basement store and shops at 2, 2A, 4 and 8 Perth Road. The action was defended and the first defenders lodged a counterclaim in which they sought a number of remedies. The first conclusion of the counterclaim, which is the only conclusion that is material for the purposes of this opinion, is for declarator that in terms of the missives the first defenders are not obliged to sell or dispone to the pursuers the basement store and ground floor former shop, now office premises, at 2, 2A, 4 and 8 Perth Road. In subsequent conclusions the first defenders seek other declarators based on error, but those were not considered in the debate that gave rise to this opinion.

[10 ] In their counterclaim the first defenders make detailed averments regarding the layout of the property and its use and occupation in 2003; they also make averments relating to the particulars of sale that were prepared, the valuation of the subjects, carried out in January 2004, that was relied upon by the pursuers, and an inspection of the subjects that was carried out by an architect and a heating engineer on the pursuers' behalf in February 2004. The essential point that emerges from the latter averments is that the particulars, the valuation and the inspection related only to the upper floors of the tenements, and not to the storage and shop or office premises on the ground floor and in the basement. The first defenders then aver the history and terms of the missives. On the basis of those averments, it is contended that the pursuers concluded a contract to purchase the subjects at 6 Perth Road. 6 Perth Road, it is said, does not comprise or include the subjects on the ground floor and in the basement at 2, 2A, 4 and 8 Perth Road. The pursuers have tabled a plea to the relevancy of the first defenders' averments in the counterclaim and the first defenders have tabled a plea to the relevancy of the pursuers' answers to the counterclaim. After sundry procedure the action was appointed to a debate on those pleas in law, but confined to the issue of whether the first defenders were entitled to decree of declarator in terms of the first conclusion of the counterclaim. The issue in the debate was accordingly whether, on a proper construction of the missives, the subjects referred to in the missives included the ground floor and basement subjects at 2, 2A, 4 and 8 Perth Road, or whether they were confined to the property on the upper floors at 6 and 12 Perth Road.

[11 ] Counsel for the first defenders submitted that the subjects referred to in the missives did not include the ground floor and basement subjects, and that the first defenders were accordingly entitled to declarator in terms of the first conclusion of the counterclaim. The primary submission was that the matter could be resolved by reference to the language used by the parties in the missive letters themselves and the relevant part of the 1968 disposition in favour of the first defenders. In the alternative, counsel contended that, in construing the missives, it was permissible to have regard to the surrounding circumstances not to put a gloss on the words used but to provide the setting for the contract and in particular its commercial context. Authority for a dual approach of that nature was found in Bank of Scotland v Property Investment Company Limited, 1998 SC 657, at 661G-H per LP Rodger. Counsel submitted that the relevant surrounding circumstances could be determined from the documentary productions. On that basis a proof was unnecessary, and even on the alternative approach I should resolve the issue of construction in the first defenders' favour at debate. Counsel for the pursuers agreed that the primary issue was the construction of the missives themselves; his submitted that on the basis I should decide the question of construction in the pursuers' favour. In relation to the first defenders' alternative approach, counsel submitted that the matter should still be resolved at debate in the pursuers' favour. He accepted that the surrounding context could be determined from the documentary productions, and that there was no need for a proof on the issue of construction. I propose to begin by considering the legal principles that are relevant to the construction of the missives.

Legal principles applicable to interpretation of the missives

[12] In a sense it is impossible to construe missives for the sale of heritable property entirely by themselves, without reference to other facts. The missives inevitably relate to specific subjects, and those subjects must be identified on the ground. This point is recognized in what is perhaps the leading authority in this field of law, Houldsworth v Gordon Cumming, 1910 SC (HL) 49. In that case Lord Kinnear stated (at 54) that, in the case of landed estates, the title deeds do not as a rule define the subject in such a way that it can be identified without the help of extrinsic evidence. In that case such evidence was admitted to indicate the extent of property described in missives of sale as "the estate of Dallas"; the extent of the property sold was determined by reference to a plan that had been referred to during negotiations. The same point, however, applies to almost every kind of property; indeed it may assume considerable importance in tenement property, where a description such as "flat first floor left at 100 High Street" may include cellars and a range of other rights. Nevertheless, the starting point in identifying the subjects sold is always the wording used in the missives. The law is summarized by Lord Kinnear as follows (at 1910 SC (HL) 55):

"It is manifest, therefore, that if a question arises as to the description to be inserted in a disposition, the first thing to be settled is what is the exact subject sold; and that is to be determined, not by the existing titles, but by the contract of sale, interpreted, as every document whatsoever must, more or less, be interpreted, by reference to the surrounding circumstances".

In most cases, however, while a reference to the physical location and extent of the property is necessary, it will be possible to determine the property sold by reference to the wording of the missives, using a common sense approach.

[13 ] The general principles relating to the construction of contracts are well established and were not significantly in dispute between the parties. The principles that appear to me to be particularly relevant for the resolution of the present dispute may be summarized as follows. First, the starting point is normally the wording of the document that contains the parties' agreement: Charter Reinsurance Co Ltd v Fagan, [1997] AC 313 per Lord Mustill at 384B-C. Secondly, where ordinary words are used, they must be given their ordinary meaning: ibid, and Melanesian Mission Trust Board v Australian Mutual Provident Society, [1997] 2 EG 128. "If their meaning is clear and unambiguous, effect must be given to [the words used] because that is what the parties are taken to have agreed to by their contract": Melanesian Mission Trust Board, per Lord Hope of Craighead at 129F. Thirdly, the court must give effect to the parties' bargain; it must not substitute a different bargain from that made by the parties: City Wall Properties (Scotland) Limited v Pearl Assurance PLC, 2004 SC 214. Fourthly, a contract must be construed objectively, according to the standards of a reasonable man who is aware of the commercial context. Fifthly, it is permissible in construing a contract to have regard to the circumstances in which it came to be concluded for the purpose of discovering the facts which the contract refers and its commercial purposes, objectively considered: Prenn v Simmonds, [971] 1 WLR 1381; Reardon Smith Line Ltd v Hansen-Tangen, [1976] 1 WLR 989. Fifthly, the foregoing rule is subject to certain important limitations and qualifications. In the first place, evidence of parties' discussions while a contract is being concluded is admissible "not to put a gloss on the terms of the contract, but rather to establish the parties' knowledge of the circumstances with reference to which they used in words in the contract": Bank of Scotland v Dunedin Property Investment Co Ltd, at 1998 SC 665F-G; Bovis Construction (Scotland) Ltd v Whatlings Construction Ltd, 1994 SC 351, at 357 C-G. In the second place, it is not usually helpful to have regard to evidence as to what was said in the course of the negotiations over the terms of the contract. In the words of Lord Wilberforce in Prenn v Simmonds, at [1971] 1 WLR 1384G-1385A:

"[S]uch evidence is unhelpful. By the nature of things, where negotiations are difficult, the parties' positions, with each passing letter, are changing and until the final agreement, though converging, still divergent. It is only the final document which records a consensus. If the previous documents use different expressions, how does construction of those expressions, itself a doubtful process, help on the construction of the contractual words? If the same expressions are used, nothing is gained by looking back; indeed something may be lost since the relevant surrounding circumstances may be different. And at this stage there is no consensus of the parties to appeal to".

In the third place, words that have been deleted by the parties in the course of the contractual negotiations should not generally be looked at as an aid to construction because they are not part of the agreement: A & J Inglis v Buttery, 1878, 5 R (HL) 87, per Lord Hatherley at 90 and 96-97; Lord O'Hagan at 98-99, and Lord Blackburn at 102; Prenn v Simmonds, per Lord Wilberforce at 1384G-1385 H. This qualification is essentially a development of the previous one, and its rationale is the same. This was expressed by Lord Gifford in the Inner House in Inglis in the following terms, which were quoted with approval by Lord Blackburn in the House of Lords (at 102):

"The only meaning of adjusting a formal contract is that the formal contract shall supersede all loose and preliminary negotiations, that there shall be no room for misunderstandings, which may often arise, and which do constantly arise, in the course of long, and it may be desultory, conversations, or of correspondence or negotiations, in the course of which the parties are often widely at issue as to what they will insist on and what they will concede. The very purpose of a formal contract is to put an end to the disputes which would inevitably arise if the matter were left upon verbal negotiations or upon mixed communings partly consisting of letters and partly of conversations. The written contract is that which is to be appealed to by both parties, however different it may be from their previous demands or stipulations, whether contained in letters or in verbal conversation".

Missives for the sale of heritable property are of course a type of formal contract.

[14] Two matters in particular assumed importance in the present case. The first is the rule just mentioned, that no regard can be had to words that have been deleted during negotiations. It can be difficult to apply this rule to missives for the sale of heritage because of the traditional practice, exemplified in the present case, of referring in each successive letter to all previous correspondence that can be considered to form part of the negotiations. In this respect there is much to be said for the more modern practice of conducting negotiations in correspondence that does not form part of the missives and then, following the negotiations, confining the missives to a single offer followed by an acceptance. When the older practice is followed, however, I am of opinion that the rules regarding negotiations and deleted wording must be applied with their full force. Consequently the terms of the parties' contract must be sought in the final qualified acceptance that is itself accepted by the other party; it is that qualified acceptance that is the effective offer. If any provision in earlier correspondence is to be included in the missives, there must be sufficiently clear reference to it in that final qualified acceptance.

[15 ] The second matter that assumed importance is the use of surrounding circumstances in construing a contract; this was the foundation of the first defenders' alternative argument. This is exemplified by the facts of Houldsworth v Gordon Cumming, discussed at paragraph [12] above. The critical evidence that was admitted in that case to determine the extent of the subjects sold by missives was a plan that had been used by the parties in the course of their negotiations; the significance of the plan is summarized by LC Loreburn at 1910 SC (HL) 51-52, where it is pointed out that the plan was provided to the buyer's agent during negotiations to indicate the extent of the property offered for sale. The use of the plan in that case is in my opinion paralleled almost exactly by the property particulars that were prepared in the present case on the first defenders' behalf and issued to prospective purchasers and their agents, including the agents who acted for the pursuers and certain associated companies: see paragraph [23] below. I should also mention certain further remarks of Lord Kinnear in that case. He stated (at 1910 SC (HL) 54-55):

"I agree with the respondent's counsel that a contract to sell the lands contained in a certain title is perfectly possible, and would give the purchaser right to everything which the seller and his predecessors had in fact possessed under that title.... But, if there be any question whether the subject sold is less or more than the whole estate possessed, that cannot be solved by the title, unless the contract has been made with express reference to the title".

It was in that context that Lord Kinnear went on to hold, in the words quoted at paragraph [12] above, that the subjects sold must be determined by the contract of sale, interpreted according to the surrounding circumstances. In the present case the issue between the parties came, ultimately, to be how the subjects sold had been defined in the missives. The pursuers contended that they had been defined by reference to the first defenders' prior title; the first defenders contended that they had been defined by reference to a postal address, taken along with the layout of the tenement in which the subjects are situated. That issue must in my opinion be determined according to the approach stated by Lord Kinnear. I will accordingly begin by considering the construction of the wording used in the missives, interpreted in the light of the physical configuration of the tenement property and the system of postal addresses used at that property. Thereafter, in the alternative, I will consider the other circumstances that surrounded the conclusion of missives, and whether those circumstances have a bearing on the construction of the wording used in the missives.

Construction of wording in missives

[16 ] In construing the missives, the first task is to determine the operative documents. In this connection, as indicated above, it is essential to bear in mind the rule, laid down in A & J Inglis v Buttery & Co, supra, and reiterated in Prenn v Simmonds, supra, that no regard should be had to wording that has been deleted in the course of negotiations over the terms of a contract. In the present case, the starting point must be the letter from Blackadders to Thorntons dated 10 March 2004 whose terms are set out in paragraph [7] above; that letter is the offer whose terms were accepted. In the letter two references are made to the subjects of sale. The first and more significant of these is found in the main paragraph of the letter, which contains an offer to purchase from the first defenders "the subjects at 6-12 Perth Road, Dundee". The second reference is found in qualification 4 of the letter, in which clause it is stated that Importa Ltd will purchase "the property at 12 Perth Road" and the pursuers will purchase "the property at 6 Perth Road". The first question must accordingly be the meaning of those expressions.