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Cite as: [2006] CSOH 71, [2006] ScotCS CSOH_71

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OUTER HOUSE, COURT OF SESSION

[2006] CSOH 71

OPINION OF LORD CARLOWAY

in the Petition of

LEWIS ALEXANDER JOHNSTONE and another

Petitioners;

against

PAUL JOHNSTONE and another

Respondents:

________________

Petitioners: Howie QC: Balfour & Manson, W.S.

First Respondent: Clancy QC: Burness LLP

5 May 2006

[1] The petitioners and the first respondent were formerly in partnership together as manufacturers and distributors of biscuits under the name "Johnstone's Just Desserts". Following upon the appointment of a judicial factor, they negotiated an agreement whereby the petitioners bought the first respondent's interest in the partnership. The terms of that agreement were reduced to writing in a Minute of Agreement dated 21 December 2005 and registered in the Books of Council and Session for preservation and execution on 29 December 2005. The price for the first respondent's share was £750,000. A "first tranche" of £450,000 was payable by the petitioners on the day of completion. This sum was paid. The Minute (no. 6/1 of process) continues:

"5.4 [The petitioners] shall jointly and severally procure payment to [the first respondent] of the Balance Amount in 36 monthly instalments of £8,333.33 (to be paid by CHAPS transfer to [the first respondent's] bank account...) commencing on 10 January 2006 and each 10^th of the month thereafter...PROVIDED THAT [the petitioners] shall be entitled, but not obliged, to effect repayment of all or any part...of the Balance Amount at such earlier date(s) as they may determine in their discretion without penalty.

5.5. In the event that any two consecutive instalments of the Balance Amount or any three instalments of the Balance Amount in any period of 12 months are not paid by [the petitioners] on the due date for payment, the [the first respondent] shall be entitled by notice in writing to [the petitioners] to declare them to be in default of their obligations under Clause 5.5 ("a Default Notice") and to require the whole amount of the Balance Amount then outstanding to be instantly and immediately due and payable to him..."

The CHAPS system provides for transfers of funds from one bank account to another on the same day, as distinct from the situation where a cheque is presented with a view to payment into another's bank account but three days or thereby elapses before the cleared funds reach that account.

[2 ] On 10 January 2006, the petitioners arranged for payment of £8,350 by CHAPS transfer into the first petitioner's account. The reason for the higher figure is that a fee of £20 is payable by the transferor on such a transaction. As a result £8,330 reached the first respondent's account on the due date (see no. 7/2). This was, of course, £3.33 short. On 10 February, the CHAPS system was not used. Rather, the petitioners appear to have set up a standing order whereby £8,330 was to be transferred from their account to the first petitioner's account on that date. Although this arrangement meant that the petitioners' account was debited on 10 February (no. 6/4), the first petitioner's account was not credited with any cleared funds until 14 February (no. 7/3). On 10 March, the standing order does not seem to have operated but the petitioners began the process of transfer of only £7,218.42 to the first respondent's account. This was said to be due to a "misunderstanding" on the petitioners' part since they deducted certain sums which they considered were due to them by the first respondent. Because the CHAPS system was again not used, the sum was only credited to the first respondent's account on 14 March (no. 7/4).

[3 ] By letter dated 13 March, the first respondent pointed out that the February amount had been late and that he had not received payment of the March amount. On that basis, he invoked the terms of clause 5.5 and the letter also contained a default notice requiring payment of the whole balance of £283,333.34 (no. 7/1). That sum was not paid and on 16 March, the first respondent served a charge for payment for that sum together with interest of £11,678.75 (nos. 6/2 and 3). It is agreed that it was not appropriate to include that interest in the charge. On 27 March, the petitioners lodged a petition craving suspension of the charge. In that petition, no mention was made of the content of the default notice letter dated 13 March or, perhaps consequently, of the lateness of the February and March payments. It was averred that payment had been made of the sums mentioned above on the due dates for payment and thus there had been no default. On 28 March, on the ex parte application of the petitioners, no caveat having been lodged, the Lord Ordinary granted interim suspension and interdict.

[4 ] The case called on 19 April on the first respondent's motion for recall of the interim suspension and interdict. He argued that the terms of payment in clause 5.4 were mandatory and the petitioners had failed to comply with them in terms of both underpayment and lateness. He was therefore entitled to issue the notice of default as provided for in the contract (see generally McBryde: Contract (2^nd ed.) para 24.21) and proceed to charge for payment. The petitioners responded by maintaining that the default in respect of the £3.33 was de minimis and should be ignored. So far as the timing of payment was concerned, the petitioners had taken steps to pay the first respondent on the due date. As with the tendering of the cheque, this was timeous payment. The terms of the clause did not specify that the sum had to be credited to the first respondent's account on the date specified. Any delay in that regard was caused by the banking system and not the petitioners. There was at least a prima facie case in that regard and the balance of convenience favoured the petitioners.

[5 ] Clause 5.4 provides that the petitioners shall procure payment to the first respondent's bank account on a particular day by using the clearing banks' same day payment system. The obligation is not simply to tender payment on that date or to commence the system of transfer from their own accounts on that date. It is to procure payment into the account on the due date. The petitioners did not do that. Presumably advisedly, they did not use the same day transfer system and their payments into the account in February and March were inevitably late; four days late on each occasion. The sanction for failure to make timeous payment of two consecutive instalments is specifically provided for in the contract. It is that the first respondent can demand the whole amount. That is what he is entitled to do under the express terms of the Minute of Agreement and that is what he has done. It follows that there is no prima facie case for suspending the charges served on each petitioner or for interdicting the implement of any consequent diligence, other than in relation to the interest element. Furthermore, the petitioners have also on three occasions failed to pay the sum specified in the contract. It is true that on the first two occasions the amounts were very small, in relative terms. However, the fact that they were small cannot effect the remedy for failure to pay an amount specified down to the smallest penny in the contract (i.e. £8,333.33). The court is not exercising a jurisdiction in which it might ignore trifling sums but considering the implement of parties' express contractual terms. Once again, therefore, the petitioners' failures to pay the correct amounts trigger the default provisions of clause 5.5 and entitle the first respondent to issue the default notice.

[6 ] I will according recall the interlocutor of 28 March 2006 and of new, ad interim, suspend the charges served on the petitioners but only in so far as they relate to the sum of £11,678.75 and, also ad interim, interdict the respondents from enforcing the charges but only in so far as they relate to that sum of £11,678.75.