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OUTER HOUSE, COURT OF SESSION

[2007] CSOH 75

A276/02

OPINION OF LORD MENZIES

in the cause

LACHLAN McFARLANE (A.P.)

Pursuer;

against

ERIC McFARLANE (A.P.)

Defender:

________________

Pursuer: M.J. Bell; Drummond Miller LLP

Defender: Bowen; Anderson Strathern

20 April 2007

Introduction
[1] The parties are brothers. They have been in dispute with each other over several matters for many years. At present there are three actions involving the parties which are in dependence before the courts. There is an action at the instance of the present defender (hereinafter "Eric") against the present pursuer (hereinafter "Lachlan") in Hamilton Sheriff Court for recovery of possession of heritable subjects at 204 Alexander Street, Wishaw, which action was raised in 1998. There is an action at the instance of Lachlan against Eric which was raised in 2002 in the Court of Session ("the first Court of Session action"). This action also relates to the heritable subjects at 204 Alexander Street, Wishaw; in this action Lachlan seeks inter alia decree of specific implement ordaining Eric to implement an alleged agreement between the parties of 11 June 1996 by executing and delivering a valid disposition of these subjects to Lachlan. There is another action in the Court of Session ("the second Court of Session action") which relates to an undertaking allegedly given by Eric to Lachlan relating to payment following the sale of a property in Bellshill.

[2 ] The dispute which came before me at proof before answer is focused in a Minute and Answers lodged within the process of the first Court of Session action. Stated shortly, in the Minute (No.21 of process), as amended at the bar, Lachlan seeks declarator that correspondence passing between agents for Lachlan and Eric between 25 April and 25 August 2005 and a telephone conversation of 15 June 2005 constitutes a binding contract for the extrajudicial settlement of the first Court of Session action. Consequent upon this, Lachlan seeks a sist to allow settlement to be implemented in terms of the binding contract entered into by the parties, or alternatively decree for specific implement of that contract. Alternatively, Lachlan seeks declarator that by contract entered into by the parties themselves by word of mouth in October 2005 the parties reached agreement in the compromise of the first Court of Session action. Again, consequent upon this declarator Lachlan seeks a sist to allow settlement to be implemented, or alternatively decree for specific implement of that contract. Eric's position in answer is simply that there has been no binding contract between agents or between parties themselves for the settlement of the first Court of Session action; therefore, that action not having been settled by compromise, the Minute should be dismissed and the action should be allowed to proceed to its conclusion.

The evidence
[3 ] Five witnesses gave evidence. First, Mr Kenneth Lang, who was aged 41 and had been a practising solicitor since about 1989. He specialised in civil litigation, and had been an employee of Mellicks, Solicitors from about 1989 until about 1998, when he became a partner of that firm. In about 1998 he was instructed to act on behalf of Lachlan, in both the Sheriff Court action and the first Court of Session action. He also acted on behalf of Lachlan in the second Court of Session action. He withdrew from acting after the dispute arose which is focused in the present Minute. Second, Lachlan himself, who was aged 50 and the brother of Eric. Third, Mr Kenneth Bonnington, aged 51, who was a qualified solicitor and had been a partner of Cartys, Solicitors, Wishaw for the last twenty six years. He was instructed to act on behalf of Lachlan's wife Lila in connection with the Sheriff Court action, and made an application on her behalf in the Sheriff Court process to allow her to be joined as a third party minuter. Fourth, Derek Livingston, who was aged 48 and had been a partner in Naftalin Duncan, Solicitors since 1981. He was instructed by Eric to act on his behalf in the first and second Court of Session actions, but was not instructed in the Sheriff Court action. The final witness was Eric, who was aged 58 and not employed.

Evidence relating to an alleged agreement between agents, which is the subject of the first crave of the Minute
[4 ] Mr Lang stated that he was the author of the letter dated 25 April 2005 (No.6/4 of process). This letter was written following some correspondence between Mr Lang and Golds, Solicitors who acted on behalf of Eric in the Sheriff Court action. In this letter, addressed to Mr Livingston, Mr Lang indicated that without instructions from his client he considered that "as responsible agents we really ought to make a further attempt to see if the matter was capable of extrajudicial settlement". In this letter he set out two proposals, in the following terms:

"Firstly, an amount of £110,000 would be paid to Eric McFarlane for his interest in 204 Alexander Street, and in exchange title would be transferred. Furthermore, both the Sheriff Court action and the Court of Session case pertaining to 204 Alexander Street would be dismissed. In other words this proposal would result in the Court of Session undertaking action remaining 'live'. Alternatively, it was suggested that title to 204 Alexander Street would be transferred for no consideration with all court actions between the parties being brought to an end. In addition, Lachlan McFarlane would forego any interest he may have in the estate of the parties' mother."

The letter went on as follows:

"... obviously were the proposals set out in this letter to be unacceptable, it would be of assistance for Eric McFarlane to set out any offer he has to make. Failing extrajudicial settlement it is of course inevitable that all litigations will continue apace. I look forward to hearing from you."

Mr Lang explained in evidence that he was trying to engender discussions by sending this letter.

[5 ] Mr Livingston replied by letter dated 11 May 2005 (No.6/5 of process). In this letter Mr Livingston makes it clear that he writes with the authority of Eric and states that he has "discussed matters with my client at some length here". This letter is at the centre of the claim in the first crave of the Minute, and I therefore set out its terms in full:

"I assume the intention is that my client will transfer his whole title and interest at 204 Alexander Street to your client. My client informs me that, in his opinion, this is worth a minimum of £250,000. I understand that in 1998 the house alone was valued at £110,000 and, in addition, there are parcels of land there. My client would however be prepared to accept £200,000 to resolve the matter. Alternatively, bearing in mind that your client has indicated that his offer is made on the basis of what the property is worth, my client would be willing to enter into an agreement whereby the subjects would be valued at market value by a firm of surveyors and your client would agree to pay whatever that valuation came to and my client would accept it. This would be on the understanding that your firm would provide three firms of surveyors and my client could chose one of them. The costs of the survey would be split equally.

The sum paid by your client would be in full and final settlement of the existing Court of Session action at the instance of your client relative to 204 Alexander Street and also the Hamilton Sheriff Court action. If your client wishes to persist with the other action in the Court of Session, that will obviously be a matter for him.

I should be grateful if you could revert to me regarding which, if either, of these proposals is acceptable to your client or whether we are going to require to bring the Court of Session action relative to Alexander Street to a conclusion through the litigation process."

[6 ] Mr Lang stated that he understood this to be an offer of two possible methods whereby the extrajudicial settlement of the Hamilton Sheriff Court action and the first Court of Session action might be achieved. On receipt of this letter Mr Lang took Lachlan's instructions, and then there was a telephone conversation between Mr Lang and Mr Livingston on 15 June 2005. Although Mr Lang had looked for a file note setting out the terms of this conversation, he could not find it. However, he remembered the terms of the conversation, during the course of which he explained to Mr Livingston that Lachlan was not prepared to pay £200,000 but he was prepared to accept the alternative proposal that the subjects would be valued at market value by a firm of surveyors chosen by Eric from a list of three firms of surveyors to be provided by Mellicks. Mr Lang had taken instructions from Lachlan before this telephone conversation, and had been instructed by him to accept the alternative proposal. This would result in settlement of the Sheriff Court action and the first Court of Session action, leaving the second Court of Session action to proceed to a conclusion. (There was no discussion about the expenses of the actions, because any question of expenses was academic, Lachlan being in receipt of legal aid in both the Sheriff Court and the Court of Session actions and Eric being legally aided in the Court of Session actions). Mr Livingston asked Mr Lang to revert to him with a list of three possible firms of surveyors. There was no suggestion that there were any other outstanding matters to be dealt with, and Mr Lang's understanding was that at last, after many years of acrimonious litigation, there was an agreement in place to resolve the Sheriff Court action and the first Court of Session action.

[7 ] By letter dated 21 June 2005 Mr Lang wrote to Mr Livingston suggesting three firms of surveyors (No.6/7 of process). (None of the witnesses could shed any light as to the authorship of the handwritten interlineations on the copy letter which is No.6/7 of process). By letter of the following date Mr Livingston replied to Mr Lang (No.6/8 of process) asking him for the avoidance of doubt to confirm that Lachlan was agreeable to the matter being put out to survey on the basis set out in the letter dated 11 May 2005, the cost of the survey to be split equally and Lachlan would then make payment in full and final settlement of the existing court action at the instance of Lachlan relative to 204 Alexander Street and the Hamilton Sheriff Court action at the instance of Eric relative to both properties, and to confirm exactly when Lachlan would propose that he would be in a position to make such settlement. Mr Livingston stated that he had covered all these matters in the telephone conversation of 15 June. In answer to a question from the court, Mr Lang did not remember that the question of date of payment had ever been raised before this letter. There was no suggestion of any pressure of time with regard to payment, and he did not recollect the date of payment being raised as an issue before this date.

[8 ] Mr Lang then went on holiday, and on his return he had a further telephone conversation with Mr Livingston on 16 August 2005 (No.6/6 of process is a copy of the file note). In this conversation Mr Livingston put forward a further proposal, namely that Eric would be prepared to accept £150,000 in payment for the house provided that this was done before the end of August. Mr Lang took Lachlan's instructions on this, and these were that Lachlan "was happy to proceed with the original agreement, namely that the house would get valued and this would be binding".

[9 ] On 25 August 2005 Mr Lang wrote again to Mr Livingston (No.6/9 of process) stating that Lachlan was not prepared to agree a valuation of £150,000, but he was happy to proceed on the basis of a joint valuation of the subjects with parties then being bound by the figure arrived at. This letter appended details of three firms of chartered surveyors (one of which was different from the suggestion in 6/7 of process). Mr Livingston replied by letter dated 7 September 2005 in the following terms:

"We refer to the above and to previous correspondence relative to 204 Alexander Street. Bearing in mind the delays which have already taken place here without any substantive response having been received until very recently our client has now decided that he is dissatisfied with the length of time negotiations are taking and his position is that as far as he is concerned he is not prepared to sell the property for any less than £150,000. In these circumstances he is looking for agreement to be reached regarding this within the course of the next 7 days failing which his position is that he is not prepared to negotiate further regarding the matter. If we hear from you within the course of the next 7 days confirming your client will pay the sum of £150,000 then we should be able to move matters on regarding dates of entry etc. Otherwise it would seem that the present negotiations are at an end."

[10 ] Mr Lang stated in evidence that he was surprised by this letter, because he had considered the matter to be resolved. There were no negotiations ongoing after the telephone conversation of 15 June 2005 - Lachlan had rejected the later suggestion of a fixed price of £150,000, and parties had already agreed both the principle and the mechanism for settlement.

[11 ] In cross-examination Mr Lang explained the background to the Sheriff Court action as follows. Title to the subjects at 204 Alexander Street, Wishaw was in Eric's name. The property was derelict and under threat of demolition. It was agreed between Eric and Lachlan that Lachlan would renovate the house to mortgageable condition, and when Lachlan could obtain a mortgage, Eric would transfer title to the property to Lachlan for the sum of £60,000, with Lachlan foregoing any claim on his mother's estate. This agreement, which was reached in about 1996, formed the basis of Lachlan's defence to the Sheriff Court action. There were four days of proof in that action in March and July 2002, but with further days of proof required, the action was sisted at the instance of Eric and remains sisted. Mr Lang confirmed that he had discussions with Tracy Campbell of Golds as shown in Nos.7/29 and 7/31 of process, but at this time Tracy Campbell did not have Eric's instructions to settle. After the four days of proof, Lila McFarlane, who was Lachlan's wife, entered the Sheriff Court process as a party minuter to assert her rights under the Matrimonial Homes Act. Mr Lang was aware that Lachlan would not be prepared to abandon the second Court of Session action without consideration. He reiterated that the question of the date of payment of the price brought out in the agreed valuation was never discussed; the first time that date of payment was raised was in Mr Livingston's letter dated 22 June 2005, by which time Mr Lang considered that a concluded agreement had been reached. He denied that the file note of the telephone conversation on 16 August 2005 (No.6/6 of process) showed that he was still negotiating with Mr Livingston - this merely indicated that he had instructions from Lachlan to proceed with the agreement on the second option, but Eric was making a new and entirely separate proposal for a fixed price settlement of £150,000 and it was this on which Mr Lang was to take instructions from Lachlan. Mr Lang's response to the letter of 7 September 2005 was contained in a letter of the following day (No.7/21 of process) in which he indicated that he regarded Eric's position as set down in the letter of 7 September 2005 as somewhat disingenuous, and that Lachlan "is prepared to adhere to the agreement reached between parties which would enable this longstanding dispute to be resolved in relatively short compass".

[12 ] Mr Lang accepted that there was no discussion as to who should be parties to a disposition of the subjects, nor any discussion as to the date or method of payment, but he did not consider that these matters were necessary for a concluded agreement for the compromise of these two actions. It was put to him that all that had been agreed was a framework for agreeing the price of the property, but thereafter there was no agreement as to how the sale should be implement, but he disagreed with this and expressed the view that the agreement which had been reached was broader than this and encapsulated settlement of the Sheriff Court action and the first Court of Session action. It was always agreed that the subjects comprised both house and land - there was never any suggestion that any land should be hived off. Mr Livingston never raised the question of the expenses of either action at any stage before Mr Lang withdrew from acting when he realised that he might be a witness in these proceedings. None of the matters referred to at page 11C of the amended Record on the Minute and Answers was the subject of discussion (i.e. the parties to the disposition, the date and method of payment, date of entry, clear title, effect of building warrants, effect of non-payment and a method of carrying out the transaction which satisfied the Requirements of Writing (Scotland) Act 1995.) None of these matters were the sort of things that he would expect to be the subject of an agreement to compromise an action. Mr Lang had been involved professionally in several litigations in which heritable property was involved and in which settlement had been agreed. In none of these litigations had the formal details of conveyancing been discussed, and Mr Lang had not involved himself in the formalities of conveyancing.

[13 ] Lachlan gave evidence that he had seen the documents which were Nos.6/4 - 6/10 inclusive before. Mr Lang had told him of the proposals contained in the letter of 11 May 2005, and Lachlan had instructed him to accept the alternative proposal. He expressly instructed Mr Lang that he would not drop the second Court of Session action as part of any settlement agreement, but subject to this he instructed Mr Lang to revert to Mr Livingston to accept the alternative proposal. He had seen the letter of 21 June 2005 in which Mr Lang suggested three firms of surveyors to value the property, and he was content with this. Although he was not present, he understood that Mr Lang had discussed the alternative proposal with Mr Livingston, and Mr Lang had told him that he had reached a genuine agreement with Mr Livingston whereby whatever surveyor they chose, he would be bound to pay the sum brought out as the valuation of the property, and he was told that "the deal was done". He was not aware of any other matters that had to be dealt with, and he understood that the valuation was to be of both the house and the land. He was subsequently shown the letter of 7 September 2005 (No.6/10), but he described this as "moving the goal posts"; he was definitely of the opinion that an agreement had already been reached, and this letter caused him surprise. He was not prepared to agree to the new proposal contained in this letter. The second file note of 16 August 2005 (No.6/6 of process) was an accurate reflection of his conversation with Mr Lang on that day.

[14 ] Mr Livingston stated that he was instructed by Eric shortly after the first Court of Session action was raised, and although he was aware that there was a Sheriff Court action he had no involvement in it. Before the letter of 25 April 2005 (No.6/4 of process) he had not had any communication with Mr Lang regarding any of the actions, although he was aware that there had been discussions between Mellicks and Golds regarding settlement. Having received the letter of 25 April 2005, he took instructions from Eric and the letter of 11 May 2005 was shown to Eric before it was sent and he confirmed that it accorded with his instructions. Mr Livingston thought that the first option (with a figure of £200,000) would be Eric's suggestion, and the alternative valuation method would be Mr Livingston's.

[15 ] He remembered the telephone conversation between Mr Lang and himself and he accepted that this happened on or about 15 June 2005, although he did not take a note of the conversation. His recollection was that Lachlan would go for the survey option; he thought that the entire telephone conversation was fairly brief. As a result of this conversation he felt that they were getting somewhere, and it appeared that one of the main points of an agreement was coming into place, namely a mechanism for agreeing a price. He acknowledged that he received the letter of 21 June 2005, a copy of which was 6/7 of process, but he had never seen the manuscript additions to that copy and did not recognise the handwriting. He did not have instructions to select one of these firms; he wrote the letter of 22 June 2005 because he regarded Mr Lang's letter of 21 June 2005 as quite inspecific and he did not want to incur the expense of instructing a surveyor and then finding that there was no settlement agreement in place. Mr Lang had not said that he fully accepted the alternative proposal put forward in the letter of 11 May 2005, and there had been no discussion regarding a date of entry or other technicalities which one would expect to see in missives. Although Eric was quite happy to have a surveyor's valuation, Mr Livingston commented that "there were a lot of i's to be dotted and t's to be crossed".

[16 ] Mr Livingston remembered his telephone conversation with Mr Lang on 16 August 2005, and confirmed that Mr Lang's file note (No.6/6 of process) accords with his recollection of this conversation. He observed that they were still negotiating at this time, and he had received no response to the matters set out in his letter of 22 June. He was still looking for a date for payment in his letter of 7 September 2005, and he observed that although he was not a conveyancer, missives are not normally agreed just on the basis of price.

[17 ] In cross-examination Mr Livingston confirmed that the first time that the question of the date of payment of the sum brought out by the valuation was raised was in the letter of 22 June 2005. He did not raise this in his letter of 11 May 2005 because there was no point in dealing with other such details as one would expect to see in missives - this was simply an initial negotiation. He did not raise the question of the date of payment because he wanted to get the mechanism for achieving a price agreed before other details which one would expect to see in missives were agreed. He would expect to see a specific price and a date of entry and a specified rate of interest in the event of default, all being spelt out in a joint minute to settle an action. Although he accepted that Mr Lang told him in the telephone conversation of 15 June 2005 that Lachlan found the second proposal in the letter of 11 May 2005 acceptable, he expected Mr Lang to write to him. He did not think that he raised the question of the timing of the payment of the price with Mr Lang. The first time that this was raised was in the letter of 22 June 2005. He accepted that the file note of the telephone conversation on 16 August 2005 was an accurate record of that conversation, but he could not explain why he did not raise the issue of time of payment at that time, except to say that he was looking to Mr Lang to confirm this in writing. He did not believe that there was any agreement at that stage, and his main purpose in telephoning Mr Lang was to put the new proposal for settlement at a fixed price of £150,000 to him. He accepted that he may not have used the word "negotiations" until the letter of 7 September 2005, but he pointed out that he did use the words "without prejudice" and also "proposals". He considered that there was no binding agreement between himself and Mr Lang on behalf of their respective clients for a number of reasons - the lack of a date of entry, the question of time for payment of the price, and the fact that the provisions of the Requirements of Writing Act were not fulfilled. There was therefore no formal binding agreement.

[18 ] In answer to questions from the court, Mr Livingston stated that he would expect to see all the provisions that one would normally see in missives in an agreement for compromise of an action. He distinguished an agreement to compromise an action which did not involve heritable property and one which did involve heritable property. In the latter case, he would expect to see most of what one would see in missives in an agreement to compromise an action. He would expect to see an exchange of formal letters, with express provision as to who the parties were, clear provision as to the date of entry, clear provision as to the price, a clear mechanism as to how the price was to be ascertained, and probably provision for payment of interest (although it could still be "a binding missive" without provision for interest and without provision for risk). He was asked to comment on a situation whereby an action which involved heritable property was settled by two counsel reaching an oral agreement in Parliament Hall; he expressed the view that at the very least he would expect them to reach agreement regarding date of entry and date of payment, and an exchange of formal written letters contained in either a joint minute or an exchange of missives.

[19 ] Eric McFarlane confirmed in his evidence that the letter of 11 May 2005 (No.6/5 of process) was written on his instructions and with his knowledge. The alternative proposal accurately reflected his instructions; once the solicitors had tied up the loose ends, he expected that they would get the property surveyed and Lachlan would pay the price. He remembered making an appointment to see Mr Livingston and asking him why it was taking so long, and Mr Livingston told him that until he got answers, he was not letting him get into a position where they were only half way to a settlement. Eric's concern throughout was where Lachlan was going to find the money to pay the price; Mr Livingston told him that he could not insist on knowing where the money was coming from, but he did need to be convinced that the money was available. Eventually Eric lost patience with the delay, and the letter of 7 September 2005 was in accordance with his instructions. After he was shown Mr Lang's letter of 8 September 2005 (No.7/21 of process) he determined that he would authorise no further negotiations through Mr Livingston.

[20 ] In cross-examination Eric could not remember Mr Livingston telling him that he had talked to Mr Lang on the telephone. He could not remember when he had the meeting with Mr Livingston in which he queried the delay and Mr Livingston told him that he would not let him get into a position whereby there was no date for payment agreed, although he guessed that this would be in June 2005 and it was certainly later than 11 May 2005. He was asked whether the question of when the money would be paid had ever been raised, but he could not remember dates. He was, however, aware that three surveyors had been suggested by Mr Lang in the letter of 21 June 2005.

Evidence relating to an alleged oral agreement between the parties themselves in October 2005 which is the subject of the fourth crave of the Minute
[21] Lachlan stated that after the correspondence in September 2005 he wanted to see if any further steps could be taken to settle the actions. A diet of proof was fixed in the first Court of Session action for a date in November 2005. In early October 2005 he telephoned Eric one evening, at about 7.00pm or 8.00pm. Heated words were exchanged, but by the end of the telephone conversation they had reached a verbal agreement to bring matters to an end without the need for solicitors. They agreed that Lachlan would instruct his solicitors in the next day or two to make a formal offer to pay the sum of £135,000 to Eric in return for title to the subjects at 204 Alexander Street, Wishaw, and the first Court of Session action and the Sheriff Court action would proceed no further. There was no specific discussion about where the money would come from, and Eric did not indicate that he required the money to come from a specific source. At the end of this telephone conversation Lachlan was in no doubt that an agreement had definitely been concluded between him and Eric on these terms. There was another person in Lachlan's house when he made this telephone call, but Lachlan asked him to remove himself during the call; at the end of the call Lachlan told this person that he had at last reached agreement with his brother. (This person was not called as a witness at the proof). Lachlan also told his wife that he had reached agreement with Eric on these terms.

[22 ] In cross-examination, Lachlan accepted that this telephone conversation probably occurred on 5 October 2005, and that he and his brother had a heated conversation. It was put to him that he had mentioned the sum of £135,000 but that Eric had replied that he would not accept this, and in any event that any offer would have to be made in writing; Lachlan denied this and said that Eric had told him that he was going to do him a favour. The agreement was for the sum of £135,000 to be paid to Eric, and for the Sheriff Court action and the first Court of Session action to proceed no further: the agreement did not extend to the second Court of Session action. Shortly after this telephone conversation Lachlan spoke to Mr Lang and it was agreed that Lachlan's wife's solicitor would make an offer to Eric's solicitor. Lachlan remembered Mr Lang telling him that Eric was insisting on both Court of Session actions being dropped, but this would never have been acceptable to Lachlan.

[23 ] Mr Lang stated that on 6 October 2005 he received a telephone call from Lachlan to the effect that he had discussed matters with Eric, that Eric had reiterated that he wanted payment of £150,000, but that after discussion over the telephone the brothers had agreed that the price should be £135,000. Thereafter Mr Lang spoke to Mr Livingston, and told him that he understood that the brothers had agreed that the Sheriff Court action and the first Court of Session action would settle in return for payment of £135,000 and a transfer of clear title to the subjects. Mr Livingston eventually replied indicating that Eric's understanding was that the figure of £135,000 would be paid in return for settlement of all three cases (including the second Court of Session action). Mr Lang took Lachlan's instructions on this, and Lachlan told him that this was not the agreement, and that he would not have agreed to include the second Court of Session action. Nothing further happened, and Mr Lang withdrew from acting on behalf of Lachlan when it became clear that he might require to be a witness in these proceedings. His understanding of the agreement which had been reached between the brothers was that the price to be paid for the subjects was a fixed price of £135,000.

[24 ] Eric stated that before the telephone conversation on 5 October 2005 he had not spoken to Lachlan, either face to face or over the phone, for many years. He gave a tearful explanation of Lachlan having put a gun to his head when he was in his mother's house in 1997, and that relations between the two brothers had broken down after this. He stated that on 5 October 2005 he was asleep and was awakened by the telephone ringing. The caller was Lachlan who was abusive towards him and swore at him. Lachlan offered to pay him £110,000 and he would drop the two Court of Session actions in return for title to the whole subjects. After about ten minutes conversation, Lachlan increased his offer to £115,000, and then to £120,000. Eric stated that his response was that any offer would have to be put in writing, but that the figures suggested were not acceptable. The conversation ended with Lachlan offering £125,000, with a possible further £5,000 in cash, and dropping both Court of Session actions, in return for title to the subjects. Eric was quite certain that there was never any mention of the Sheriff Court action being dropped. Eric was adamant that Lachlan never offered him £135,000. When his wife returned later that evening he told her what had happened. (Eric's wife was not called as a witness at the proof.) On the following day Eric telephoned Mr Livingston, who was out; when Mr Livingston returned his call, Eric told him the terms of the conversation. Despite the terms of Mr Livingston's file note of 7 October 2005 (No.7/23 of process) Eric was adamant that the figure of £135,000 was never mentioned. With regard to the letter from Mr Livingston to him dated 12 October 2005 (No.7/25 of process) Eric was prepared to accept the first two items (although these were not the subject of discussions with Lachlan); items 3 and 5 had never been discussed, item 4 was what Lachlan proposed, and item 6 was drafted by Mr Livingston. Eric denied under cross-examination that his recollection of the telephone conversation with Lachlan on 5 October 2005 was vague - he observed that it burned into him, and there was no possibility that his recollection was wrong, nor that there had been any misunderstanding.

[25 ] Mr Livingston remembered Eric telephoning him and telling him about a telephone conversation which he had had with Eric on about 5 October 2005. Eric had told him that Lachlan had given him a certain amount of abuse, and had offered to pay him £135,000 and to drop both Court of Session actions in return for title to the property. Mr Livingston confirmed that Nos.7/23 and 7/24 of process were file notes of telephone conversations which he had with Mr Lang. He confirmed that he had written the letter dated 12 October 2005 to Eric (No.7/25 of process) which set out his understanding of Eric's instructions. He then became aware of Carty's letter to Golds dated 10 October 2005 (part of No.7/26 of process), and became concerned as to who would be paying the price for the subjects, Lachlan or his wife Lila. Although Mr Livingston had discussions with Mr Lang, these came to nothing because Mr Lang's instructions were that the second Court of Session action would be continuing, whereas Eric's understanding of what was being offered was that both Court of Session actions would be dropped.

[26 ] Kenneth Bonnington of Carty's acted on behalf of Lila McFarlane; his instructions were confined to protecting her rights under the Matrimonial Homes Act to the subjects. He first became involved in about 2003 or possibly 2004, when the Sheriff Court action was sisted after the four days of proof which had been heard in 2002. He lodged a Minute on behalf of Lila McFarlane in the Sheriff Court action. He wrote the letter dated 10 October 2005 to Golds (part of No.7/26 of process). Lila McFarlane instructed him to write this letter because the level of animosity between the two brothers was such that an offer from Lila was more likely to be accepted than an offer from Lachlan. Lila McFarlane told him that the sum of £135,000 was likely to be acceptable. Mr Bonnington had no first hand knowledge of any discussions between Lachlan and Eric. It was Lila McFarlane, not Lachlan, that instructed him to write this letter, and his knowledge of the various disputes between the parties was confined to Lila's involvement in the Sheriff Court action. He did not really know any details about the two Court of Session actions.

Submissions for Lachlan
[27 ] Counsel for Lachlan moved me to sustain his first plea-in-law and grant decree as first and second craved, and to repel the defender's first and second pleas-in-law. In the event that I was not prepared to grant the second crave, he sought decree in terms of the first and third craves. In the event that I was not prepared to accede to either of these motions, he moved me to sustain the second plea-in-law for the pursuer and to grant decree in terms of the fourth and fifth craves; and in the event that I was not prepared to grant decree as fifth craved, he moved me to grant decree as fourth and sixth craved.

[28 ] Counsel submitted that the correspondence and the evidence of Mr Lang and Mr Livingston clearly showed that the letters and the telephone conversation of 15 June 2005 constituted a concluded binding contract on behalf of the pursuer and the defender by their agents for the compromise of this action by way of a transfer of the heritable property at 204 Alexander Street, Wishaw at a price to be fixed by an independent surveyor to be appointed at the instance of the defender, with the result that the first Court of Session action and the Sheriff Court action would be disposed of by way of absolvitor with no expenses due to or by either party. He submitted that it was not necessary for such a contract to be set out in a joint minute, nor to have the authority of the court interponed thereto; any form of binding agreement was sufficient to compromise an action. In support of this he referred to Gloag on Contract at pps.43/44, and Murphy v Smith 1920 S.C. 104. An informal exchange of letters, or a combination of informal writings and verbal agreement, was sufficient - see Love v Marshall (1872) 10 M. 795; Anderson v Dick (1901) 4 F. 68. This remains the case even where the action, or the settlement thereof, involves transfer of heritable property - Gloag on Contract at p.164; Torbat v Torbat's Trustees 1906 14 S.L.T. 830. The details set forth in the defender's pleadings at Answer 5, such as the date and method of payment, date of entry, clear title, effect of building warrants, and a method of carrying out the transaction which satisfied the Requirements of Writing (Scotland) Act 1995 were irrelevant.

[29 ] The only matters which required to be agreed for a binding contract to be concluded were the parties, the price and the property. In the present case, the parties were clearly Lachlan and Eric - Carty's letter of 10 October was not relevant. The property was clearly 204 Alexander Street, Wishaw, and it was clear that everyone was agreed that this meant both the house and land at that address. So far as the price was concerned, a clear agreement was reached as to a specific method of ascertaining the price, as set out in the letter of 11 May 2005, the telephone conversation of 15 June 2005 and subsequent correspondence. The mechanism for reaching the price was quite clear. Counsel referred to Cusine and Rennie on Missives at paras.4.06 and 4.09, and NJ and J MacFarlane (Developments) Limited v MacSween's Trustees 1999 S.L.T. 619. Mr Livingston appeared to focus on the absence of a specific agreement as to date of payment and date of entry, but these are not essential elements even in a contract for the sale of heritage, let alone a contract for the compromise of a court action: Rodger (Builders) Limited v Fawdry 1950 SC 483; Gordon District Council v Wimpey Homes Holdings Limited 1988 S.L.T. 481. If the court was satisfied that there was consensus, this could be achieved by informal writings and telephone conversations, and all the requirements for the sale of heritage were present.

[30] With regard to the telephone conversation on 5 October 2005, the same submissions applied. If the court was satisfied that there was consensus, there was sufficient to constitute a binding agreement to compromise the action. Both parties understood by this time that any method of disposal of the action by the earlier agreement was not going to happen, and reached agreement on new terms verbally.

[31 ] Counsel submitted that all the witnesses gave evidence to the best of their ability. There was no dispute in the evidence that the averments in statement 5 of the Minute were accurate - the only dispute was that Mr Lang believed that this constituted a binding agreement, whereas Mr Livingston believed that there was never any binding agreement. The subjective beliefs of these witnesses are irrelevant, because the court must look at the matter objectively. Looked at in this light, a concluded agreement was reached.

[32 ] If it was necessary to look to the telephone conversation in October 2005, counsel invited me to prefer the evidence of Lachlan to that of Eric. Lachlan's account received some support from Mr Livingston's letter of 12 October 2005 (No.7/25 of process). Where there was a conflict between the two brothers, the court should prefer Lachlan's evidence. Eric was very emotional in giving his evidence; his recollection was vague on many points and clearly affected by emotion.

Submissions for Eric
[33 ] Counsel for Eric invited me to repel the minuter's first, second and third pleas-in-law, to sustain the respondent's first and second pleas-in-law and to dismiss the Minute. He made three submissions, as follows:

(i) The pursuer's case based on the first agreement was fundamentally irrelevant, because it was superseded by the second agreement.

(ii) The minuter has failed to establish with regard to the first agreement that the parties had made a binding contract of compromise by means of the letter of 11 May 2005 and the telephone conversation of 16 June 2005.

(iii) The minuter has failed to establish that he concluded a contract of compromise with the respondent by telephone conversation on about 5 October 2005.

[34 ] Counsel accepted that in a contract for the compromise of court proceedings there was no need for any particular formalities, and that the requirements of Writing (Scotland) Act 1995 did not apply to such a contract, nor were there the requirements which one would need in order to constitute a valid exchange of missives. The critical issue in the present case is whether, viewed objectively, a concluded agreement was reached by means of the letter of 11 May 2005 and the telephone conversation of 15 June 2005, or by the telephone conversation of 5 October 2005. A contract must be construed objectively, according to the standards of a reasonable man who is aware of the commercial context, and 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 to which the contract refers and its commercial purposes, objectively considered: Middlebank Limited v The University of Dundee and Another [2006] CSOH 202.

[35] As a matter of law, where a pursuer avers two alternative cases, counsel submitted that the implication of the second alternative is that there has been supersession of the first agreement. In the present Minute, Lachlan is offering to prove the second agreement, and therefore as a matter of law he is not relying on the first agreement, and he must stand or fall on the alternative case.

[36 ] In any event, the minuter has failed to establish that a binding contract of compromise was concluded between Mr Lang and Mr Livingston. Mr Lang's position was that what was set out in the letter of 11 May 2005 was sufficient to constitute a binding offer which he was entitled to accept by his telephone call of 15 June, and thereafter there was no obligation on him to agree any further terms and in particular no obligation to agree the date of the payment of the price for the subjects.

[37 ] Counsel submitted that Mr Lang could not be relied upon in this regard, particularly when regard is had to the surrounding circumstances. There were four aspects of these circumstances to which counsel pointed:

(i) There had been considerable pre-existing correspondence between Golds (acting on behalf of Eric in the Sheriff Court Action) and Mellicks between about 29 March and 11 April 2005, which had not resulted in settlement (Nos 7/29 to 7/31 of process).

(ii) By comparison, the discussions between Mr Lang and Mr Livingston which are alleged to have resulted in settlement were surprisingly brief, being the letters of 25 April and 11 May and the telephone conversation of 15 June 2005.

(iii) In the letter of 22 June 2005, Mr Livingston appears to be continuing with the pre-existing negotiations; he seeks confirmation of the basis on which the matter was to be put out to survey, and confirmation of the date of payment.

(iv) After the telephone conversation in October 2005 Lachlan told Mr Lang about the conversation and Mr Lang told him to get on with it. This was consistent with there having been no concluded contract, and the parties still being engaged in a course of negotiations.

[38 ] Counsel submitted that the averments in statement 5 of the minute were not borne out by Mr Lang's evidence - Mr Lang did not use the words "settlement" when referring to the letter of 11 May 2005. However, he conceded that not all of the averments in answer 5 had been borne out by the evidence, and that on the evidence the transfer of the property would have been from the respondent to the minuter. Looking to the terms of the third crave, the minuter was still not seeking declarator as to when payment would be made; an interlocutor pronouncing decree in terms of the third crave would therefore be incomplete, and counsel sought to draw the inference that there was not a concluded and binding contract by the end of the telephone conversation of 15 June. Moreover, the third crave goes too far in seeking a valid marketable title to the subjects - even if there was a contract, all that the minuter would be entitled to would be the defender's whole right title and interest in the subjects.

[39 ] In assessing whether the parties had reached a binding agreement when viewed objectively, it was open to the court to look to subsequent correspondence, including the letter from Mr Livingston to Eric dated 12 October 2005 (No. 7/25 of process). This letter set out the sort of conditions which might be expected between two experienced litigation solicitors. Mr Lang's evidence that this was done simply by the letter of 11 May 2005 and the subsequent telephone conversation was unreliable. Counsel accepted that a date of entry was not necessary for a binding contract of compromise to be concluded, but the date and method of payment were fundamental to such a contract. It should be remembered that both parties were in receipt of legal aid; the question of how any settlement would be funded was bound to be a matter of concern. Looking to the averments in answer 5 to the minute, counsel did not found on the need for agreement as to clear title, the effect of a building warrant or the effect of non-payment, nor did counsel rely on the standard security apparently held by Golds over the subjects, about which no evidence had been led. However, what was required for any agreement to be concluded was agreement that there would be either an exchange of missives or delivery of a disposition. The fact that neither Mr Lang nor Mr Livingston had kept a record of the telephone conversation of 15 June might suggest that this was not the final step in concluding a contract, but merely another stage in negotiations which would require further work before the dispute could be resolved. Objectively construed, the letter of 11 May and the telephone conversation of 15 June amounted to no more than a framework agreement which might become the basis for a binding contract of compromise, but it did not contain provision as to the date of payment of the price, and this was an essential term of the contract. As a matter of law, the date of payment is an essential term in all contracts for compromise of court actions, and is a requirement for finality; without it, there can be no concluded agreement. In any event, even if this submission was wrong, the absence of a term stating the date of payment is a relevant circumstance in construing whether the parties intended to reach a concluded contract of compromise.

[40 ] With regard to the telephone conversation on about 5 October 2005, it was submitted that the minuter had not proved, on the balance of probabilities, that he had reached a binding agreement with the respondent at this time. There was no objective independent corroboration of Lachlan's version of the telephone conversation. What each party told their solicitors is not sufficient corroboration. Nothing advanced by either party would justify the court in preferring the evidence of one brother to that of the other brother. The onus rested on Lachlan to establish this contract, and he cannot do this on the basis of his own evidence alone with no objective method of testing this. Counsel invited me to prefer the evidence of Eric to that of Lachlan, but in any event, there was not sufficient evidence to enable Lachlan to discharge the onus of proof. The letter from Cartys (No 7/26) does not support Lachlan's evidence that he had agreed the figure of £135,000 with Eric, and this letter undermined Lachlan's position.

Discussion

[41 ] Actions which are pending in Scottish Courts are settled routinely by the most informal methods. Frequently actions in this court involving large sums of money (and often involving heritable property) are settled by means of verbal agreement between counsel or between solicitors, or by means of an informal exchange of correspondence. Sometimes the agreement is thereafter set out in more or less formal terms, in a minute of agreement or a joint minute, but this is far from being the universal practice. There is no requirement in our law for a particular formality or method of concluding a contract for the compromise of a court action. It may be that an agreement concluded informally (and particularly verbally) will be more difficult to prove and found upon than a more formally constituted agreement, and may give rise to greater scope for dispute as to its precise terms, but informality or absence of writing is not a necessary requisite for such a contract: Gloag on Contract at pages 44/45; Murphy v Smith; Love v Marshall; Anderson v Dick.

[42 ] It would be neither possible nor fruitful to attempt to provide an exhaustive list of the essential terms of the contract for the compromise of a court action - each case must depend on its own facts and circumstances. However, it is important to bear in mind that what is being considered in the present case is not a contract for the transfer of title to heritable property, nor for the transmission of any real right; this is a contract for the compromise of a court action, conferring only personal rights. An agreement that there will be a transfer of real right in property in the future may be a term of this contract, but it does not follow that terms which might be essential for such a future transfer of property are essential in the present contract. It must also be borne in mind that the court will not make a contract for parties, nor will it create terms in a contract which one or other party might, with the benefit of hindsight, have preferred to have included in the contract. In the present case, the only details which required to be agreed between the parties with regard to a future transfer of title were (a) the property to be transferred (b) the price or other consideration, specified either as a fixed and determinate sum, or to be determined by a clear and unambiguous method, and (c) the parties to the contract.

[43 ] Missives for the purchase of heritable property will normally contain provision for a date of entry and date of payment of the price, and in many cases there will be provision for payment of interest in the event of failure to make payment timeously. However, these are not essential terms in missives, the absence of which would mean that there was no contract. As Lord Sorn observed in Rodger (Builders) Ltd (at page 492):

"In a contract for the sale of heritage, where it is stipulated that the price is to be paid on a particular date, payment of the price on the appointed date is not, in general, an essential condition of the contract, and failure to pay on that date does not entitled the seller to rescind. But payment of the price by a fixed date may be made an essential condition of such contract."

If it is possible to conclude missives without a date for payment of the price, or without payment of the price by a specified date being an essential condition of the contract, a fortiori it is competent to conclude a contract for the compromise of an action without such a provision. It may well be that the party presently with title to the heritable property might wish such a condition to be present, but its presence is not essential for the creation of a contract to compromise the action.

[44 ] It should also be remembered that in well recognised circumstances the courts will be prepared to imply terms into a contract. I was not addressed on this matter by counsel for either party, and it is therefore not appropriate that I should develop this matter any further, beyond observing that it may be possible that a court would imply a term into the present contract that payment of the price should be made within a reasonable time after the valuation by an independent valuer has been obtained.

[45 ] There was not much dispute about the facts relating to an alleged agreement between agents in the present case. Although Mr Lang was of the opinion that there was a concluded agreement reached at the end of the telephone conversation of 15 June 2005, and Mr Livingston was of the opinion that no concluded agreement had been reached because of the absence of any agreement as to date of entry and date of payment, and the other formalities referred to at paragraph [18] hereof, there was no real dispute as to the terms of the correspondence and discussion between the two agents. Moreover, both counsel in their submissions before me accepted that the question whether a contract was or was not concluded was to be answered objectively, and did not depend on the subjective view of either agent. I am satisfied on the basis of the evidence led before me that a contract for the compromise of the first Court of Session action and the Sheriff Court action was concluded by means of the letter dated 11 May 2005 (No. 6/5 of process) and the telephone conversation between Mr Lang and Mr Livingston on 15 June 2005. By the end of that telephone conversation there was agreement as to the parties, the method of achieving the price, and the property itself. Mr Livingston may have expected there to have been further terms agreed, along the lines set out in his evidence at paragraph [18] above, but his subjective expectation as to these matters is not relevant to the question of whether a contract was or was not concluded, and I am satisfied that his expectation was based on a misconception as to what was required by way of formalities and essential terms for a contract for the compromise of a court action. The parties were agreed about all the matters which had been discussed at that time. The date of payment had never been raised as an issue, and Mr Livingston accepted that the first time that this was raised was in the letter of 22 June 2005 (No. 6/8 of process). By that date the parties had already reached a concluded agreement, and it was too late (in the absence of a further agreement) to attempt to stipulate a date by which payment of the price must be made. Construing the letter of 11 May and the telephone conversation of 15 June objectively, in their commercial context and against the circumstances of the long history of the dispute between Lachlan and Eric and the commercial purposes of the contract, I am satisfied that the two solicitors concluded a binding contract for the compromise of these actions on 15 June 2005.

[46 ] The first submission made by counsel for Eric was that where a pursuer avers two alternative cases, the implication of the second alternative is that there has been supersession of the first agreement. I do not consider that this submission is well founded. It appears to confuse elements of the law of personal bar with elements of the rule of construction of pleadings relating to a weaker alternative case. There are no averments nor any plea-in-law to support a case of personal bar in the present proceedings, and no doubt it was for this reason that counsel did not submit that Lachlan was personally barred from founding on the contract which I have held to have been concluded on 15 June 2005. It is possible to envisage circumstances in which the evidence might have supported a case of personal bar or waiver. If for example there had been a letter from Mr Lang to Mr Livingston in August or September 2005 acknowledging that Lachlan could not found on any earlier possible agreement to compromise these actions, or waiving his right to do so, one could see that such a line of defence might be stateable. Similarly if Lachlan by his words or actions expressly or impliedly departed from the earlier agreement and acted in such a way that the only inference which could be drawn was that he had departed from his right to enforce that agreement, such a line of defence might be arguable. However, I do not consider that the evidence amounted to this, and in any event as already observed there was no case on paper or argued before me that Lachlan was barred from founding on the earlier agreement. Nothing in the pleadings or in the evidence regarding what happened after 15 June 2005 provides support for counsel's first submission.

[47 ] It follows from the above that I am satisfied that the parties have reached a binding agreement for the compromise of the first Court of Session action and the Sheriff Court action. That is enough for the disposal of this minute and answers. However, as I heard evidence and submissions about the alleged oral agreement between the parties themselves in October 2005, it is appropriate that I should summarise briefly my opinion as to this aspect of the case. I begin by observing that I found Lachlan to be a much more impressive witness than Eric. Generally I found Lachlan to be a reasonably credible and reliable witness. He gave his evidence quietly and with a calm demeanour, and he appeared to have a clear recollection of events and was not prone to exaggeration. By contrast, Eric was emotional and on occasions tearful when giving his evidence; his recollection differed from that of his solicitor, and he was surprisingly vague on many matters.

[48 ] Notwithstanding my observations about the credibility and reliability of the two parties as witnesses, the onus of establishing that there was a concluded verbal agreement reached between the parties in the telephone conversation on 5 October 2005 rests with Lachlan. I am not satisfied that he has discharged that onus. Lachlan was adamant in his evidence that he would not have been prepared to drop the second Court of Session action as part of a deal involving the sum of £135,000 being paid to Eric. Eric, on the other hand, maintained that the sum of £135,000 was never offered by Lachlan, and that in any event, Eric would only have been prepared to agree to a deal involving both Court of Session actions being dropped. I am prepared to accept (despite Eric's denial on this point) that in the course of this telephone conversation Lachlan offered the sum of £135,000. This accords with Lachlan's discussions with Mr Lang shortly afterwards, and Mr Lang's file note (7/23 of process), and also Mr Livingston's letter to Eric dated 12 October 2005 (7/25 of process). However, I am not satisfied that there was truly consensus between the brothers as to what should happen with the second Court of Session action. Lachlan maintains that this was excluded from the agreement, whereas Eric maintains that it was included in the agreement. Eric's position is supported by what he discussed with Mr Livingston, which is recorded in the letter of 12 October 2005 (7/25 of process). Cartys' letter to Golds dated 10 October 2005 (part of 7/26 of process) provides no support for Lachlan's position, referring as it does only to settlement of the Sheriff Court action (although Mr Bonnington was only instructed on behalf of Lila MacFarlane in respect of that action). Neither the person who was present in Lachlan's house when the telephone conversation occurred, nor Lachlan's wife Lila were called as witnesses to support Lachlan's version of events. In summary therefore, I am not persuaded that Lachlan has discharged the onus which rests on him of proving, on the balance of probabilities, that the two brothers reached consensus as to the terms of an agreement in the course of the telephone conversation on 5 October 2005.

[49 ] I shall therefore sustain the first and third pleas-in-law for the pursuer and minuter, repel the pleas-in-law for the defender and respondent, and grant decree in terms of the first crave of the minute. I shall sist the cause to enable the subjects to be valued in accordance with the mechanism agreed between the parties, and further to enable the necessary conveyancing details to be concluded, and a disposition of the subjects to be executed by the defender and respondent in favour of the pursuer and minuter (or his nominee) and delivered in return for payment of the price. The case will be put out By Order on Wednesday 11 July 2007.