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OUTER HOUSE, COURT OF SESSION
[2008] CSOH 140
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CA721/07
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OPINION OF LORD GLENNIE
in the cause
AISLING DEVELOPMENTS LIMITED
Pursuers;
against
(FIRST) PERSIMMON
HOMES LIMITED and (SECOND) PERSIMMON HOMES (WEST SCOTLAND) LIMITED
Defenders:
________________
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Pursuers: J. D. Campbell Q.C., Carruthers; Andersons Solicitors
LLP
Defenders: Docherty Q.C.; Morisons
24 September
2008
Introduction
[1] The pursuers, Aisling Developments
Limited ("Aisling"), are a property development and services company. The directors are John Corbett and John Miller,
who each own half of the shares. They
both gave evidence and I found them to be impressive witnesses. Aisling is a small company which operates
from a small office in Glasgow. It has no other employees. The business of the company is, in essence,
one of identifying sites suitable for development and purchasing them through
single purchase vehicle companies (SPVs) to which Aisling will thereafter
provide services by way of seeking planning permission and instructing the
necessary reports and investigations.
Typically, once planning permission has been obtained, the SPV will
either sell the site to a developer or develop the site in partnership with
another company.
[2] The
first defenders are Persimmon Homes Limited, a well known firm of house
builders. The second defenders are
Persimmon Homes (West Scotland) Limited. John Cassie,
who gave evidence, was at the time when he was most closely involved in the
matters giving rise to this dispute, managing director of Persimmon Homes (East
Scotland) Limited and acted, as I understood it, as agent for Persimmon Homes
Limited in Scotland. At the material
time, Allan Miller, who also gave evidence, was the Land Director of
Persimmon Homes (East Scotland) Limited. As
appears later, I formed a less favourable view of their evidence. Except where it is necessary to draw a
distinction between the Persimmon companies, I shall refer to them generally as
"Persimmon".
[3] The
action concerns an alleged oral agreement for the purchase and sale of about 35 acres
of land at Old Craighall, Musselburgh, East Lothian which, according to the
pursuers, has development potential. The
defenders contend that no enforceable agreement for purchase and sale was
concluded.
[4] In the
first conclusion to the summons the pursuers conclude for declarator in the
following terms:
"For declarator that the
pursuer and the first defender are bound by an enforceable verbal (sic) contract of sale in respect of the
heritable subjects extending to 35 acres or thereby at Old Craighall,
Musselburgh, East Lothian being the red hatched area bounded generally to the
south west by the A1, to the west and north by the railway line and
generally to the east by the Old Craighall to Musselburgh unclassified public
road all as outlined in Appendix I ("the subjects"), said contract having
been concluded between the parties on or around 5 March 2002, whereby in
terms thereof the first defender agreed to sell the subjects to the pursuers
upon payment of the sum of [£4,550,000] but always subject to outline planning
permission being granted for Business Use in respect of the subjects; and that
the pursuer has acted in reliance upon the said contract of sale of the
subjects, and as a result of acting in reliance upon the said contract the
pursuer has been affected to a material extent, and that accordingly the first
defender is not permitted to withdraw from the verbal contract of sale of the
subjects as said withdrawal will further affect the pursuers to a material
extent."
In their second conclusion the pursuers seek implement
of that contract, which failing payment of £35,000,000 together with
interest. There is a third conclusion
for interdict. At the procedural
hearing, parties were allowed a proof before answer limited to the first and
second conclusions. At the beginning of
the proof, however, it was agreed that, since outline planning permission had
not yet been granted, the proof should be limited to the first conclusion. It proceeded on that basis.
[5] At the
proof witnesses gave their evidence by reference to witness statements lodged
in process some weeks beforehand pursuant to an earlier interlocutor. This enabled witnesses in their oral evidence
to concentrate and be cross-examined on the main issues in dispute and enables
me to dispense with reciting at length the evidence given by each witness.
[6] In
addition to the directors of the pursuers and defenders to whom I have
referred, I heard evidence from a number of other witnesses for the
pursuers. These were, in the order in
which they gave evidence, Douglas Riddell, Rosalyn Marshall,
William Hay, Alasdair MacConnell and Forbes Leslie. Where it is necessary to refer in detail to
their evidence, I shall refer to it when discussing the particular issues to
which it relates. No witnesses were
called by the defenders other than Mr Cassie and Allan Miller.
The facts
[7] There was little dispute about the main
narrative of events. The main disputes
related to what happened at the meeting of 5 March
2002
and to the circumstances in which relations between the pursuers and Persimmon
came to an end. Much of the rest can be
taken from the witness statement of Mr Corbett, as supplemented by his
oral evidence. In relation to the disputed
events surrounding the meeting of 5 March 2002, he was assisted by being
able to refer to a contemporaneous notebook in which he noted discussions and
meetings. I found him to be honest and
generally reliable. I have, of course,
taken account of the other evidence. The
narrative given below sets out my findings in light of all the evidence.
The early stages of the
project
[8] In the first half of 2001, the
pursuers became aware that Queen Margaret University College ("QMUC"), which was then
based at a site at Clermiston in Edinburgh ("the Clermiston site"),
was looking for another site to which to relocate its campus. The buildings at the Clermiston site were no
longer suitable for the purposes of University accommodation and there was only
limited space for expansion and development.
It had been interested in a site at Gogarburn but had lost out to a
major bank and was becoming frustrated by its lack of progress in finding a new
site. One of the pursuers' SPVs had an
interest in some land near to Old Craighall in Edinburgh. Through discussions with RMJM Ltd, a firm of
architects acting for QMUC, they enquired whether QMUC were interested in
moving to that site, but QMUC indicated that the site was not suitable for its
purposes, though the area around Craighall was of interest. At some stage it became clear that QMUC were
looking for a site of about 35 acres.
[9] The
pursuers were aware that Persimmon owned about 130 acres of land at Old
Craighall ("the Old Craighall site") immediately to the west of the land in
which they had an interest. That site
was bounded generally to the north and west by a railway line, to the west by
houses around Newcraighall Road, to the south and west by the A1 Musselburgh
by-pass, and to the east by the Old Craighall to Musselburgh unclassified road. The Old Craighall site is shown on a map of
the area attached to the summons as Appendix 1, divided into three
parcels, marked (from approximately east to west) "A", "B" and "C". The three parcels are sometimes referred to
as Areas 1, 2 and 3 respectively.
Areas 1 and 2 were each about 35 acres in size, while
Area 3 was somewhat larger.
[10] The
whole of the Old Craighall site was in the Edinburgh Green Belt and, whilst it
remained in the Green Belt, had limited development value. In the ordinary course it was unlikely that
the land would be released from the Green Belt for many years. However, the pursuers thought that
educational institutional development might be allowed within the site; and,
further, that if QMUC were to move there, it might open the way for a change to
the Local Plan and consequent opportunities for redevelopment of the
surrounding land. The pursuers saw a
valuable commercial opportunity involving the relocation of QMUC to part of the
Old Craighall site. Their thinking at
this early stage is summarised by Mr Corbett in para.9 of his witness
statement:
"The relocation of QMUC to
Craighall potentially unlocked green belt land around the campus which
otherwise could not be developed for at least the next twenty years. Aisling were keen to exploit this opportunity
to its advantage but recognised that Persimmon were in a position to make all
of the gains from this opportunity as they owned the relevant land. If we were simply to inform Persimmon of
QMUC's intentions and requirements that opportunity would be lost to us as
Persimmon would then simply deal with QMUC and we would be excluded. Put simply, Persimmon had the land but we,
for the moment at least, had the commercially significant information and
expertise denied to Persimmon. We took
the view that we had to find a mechanism which would achieve this objective."
This thinking is key to the discussions and agreements
which ensued.
[11] Following
this through, the pursuers put a proposal to Persimmon along these lines: that
they would purchase some 70 acres of the Old Craighall site (within the
Edinburgh Green Belt) from Persimmon; and in return Persimmon would get the
opportunity to purchase, at open market value, some 25 acres of land in Edinburgh suitable for housing
development. This 25 acre site was
the existing QMUC campus at Clermiston, though at this stage Persimmon were not
told what site it was or who the owners were.
Of the 70 acres which the pursuers hoped to acquire, their intention
was to give 35 acres to QMUC for a nil consideration, in return for QMUC
making its Clermiston site available for sale to Persimmon (though QMUC were
not told the identity of the intended purchasers at this stage). The idea was that QMUC's move into the 35 acres
given to them by the pursuers would unlock the development potential in the
remainder of the 70 acres which the pursuers purchased from
Persimmon. The proposal was of
sufficient interest to Persimmon to lead to them concluding an Exclusivity Agreement
with Aisling in September 2001.
The Exclusivity Agreement
and subsequent discussions
[12] The terms of the Exclusivity Agreement
(6/1 of Process) are of interest. In the
preamble it provided as follows:
"WHEREAS Aisling and
Persimmon have had and will be having discussions in respect of the proposed
sale by Persimmon to Aisling of ALL and WHOLE the subjects at Craighall ...",
i.e. the 70 acres at Craighall forming
parcels A and B of the Old Craighall site, those parcels being
referred to in the Exclusivity Agreement as the "Craighall Subjects",
"... and Persimmon has agreed
to give Aisling exclusivity in relation to negotiating an agreement regarding
the purchase by Aisling of the Craighall Subjects within the Exclusivity Period
as hereinafter defined AND WHEREAS it is agreed and accepted by Aisling and
Persimmon that in exchange for the sale of the Craighall Subjects Persimmon
shall have the right to acquire at a price to be agreed subjects extending to
Twenty five acres or thereby lying in Edinburgh presently owned by the
prospective occupier of the Craighall Subjects, ("the Twenty Five acre site")
which price is agreed to be the market value of the subjects with the benefit
of Planning Permission for residential development and on such other conditions
as the parties hereto and the owner of the Twenty Five acre site (hereinafter
referred to as "the Owner of the Twenty Five Acre Site") agrees AND WHEREAS the
purchase price for the Craighall Subjects is to be SIXTY FIVE THOUSAND POUNDS
(£65,000) STERLING per acre NOW THEREFORE the parties hereby agree as follows:"
It is to be noted, since it is a point that is picked
up later, that the price of the 70 acre site at £65,000 per acre
comes to a total of £4.55 million.
If the deal went ahead as the pursuers hoped it would, they would pay £4.55
million for a 70 acre site of which they would keep only 35 acres.
[13] The
Exclusivity Period was defined as a period of six months from execution of the
Exclusivity Agreement. By Clause 1,
Persimmon undertook that within that period they would not enter into any
discussions, correspondence, agreements, missives or otherwise with any other
person in connection with the sale of the Craighall Subjects. In the event that the parties had not entered
into an Option Agreement in respect of the Craighall Subjects by the end of the
Exclusivity Period, then Persimmon were to be permitted to enter into
negotiations with the Owner of the Twenty Five Acre Site in respect of the
acquisition by Persimmon of the Twenty five acre site. The Owner of the Twenty five Acre site was
identified in Clause 1 as "The Queen Margaret University" (i.e.
QMUC). Clause 3 required both
parties to use reasonable endeavours to progress contracts for the acquisition
of the two sites. It went on to record
the acceptance by the parties that the contracts for the Craighall Subjects
would be subject to the attainment by the pursuers of planning permission and
other consents, satisfactory reports and surveys etc.; and that the contract
for the Twenty five acre site would be conditional upon Persimmon obtaining
planning permission for a housing development, satisfactory reports etc. and
final agreement with both the pursuers and QMUC in connection with the purchase
price. It was stated in that clause that
the acquisition of the Twenty five acre site would be by way of a contract
between the pursuers and QMUC incorporating either a nominee provision or the
right to assign the missives. The
pursuers had to keep Persimmon informed of all aspects of the negotiations with
QMUC and to allow Persimmon to become fully involved in the negotiations. It was agreed that the contracts for the
acquisition of the Twenty five acre site and the Craighall Subjects were to be
suspensively conditional on each other. Clause 8
required both parties to use all reasonable endeavours to have the Option
Agreements for both sites entered into within the six month period (or as might
be extended) with both parties using reasonable endeavours to have inserted
into each Option Agreement a provision that they subsist for a period of about
5 years.
[14] The
Exclusivity Agreement was executed on 4 and 8 September
2001. The Exclusivity Period therefore ran until 8 March 2002. As is
apparent from the terms of the Exclusivity Agreement, the pursuers had had to
reveal the identity of QMUC and allow Persimmon to be involved in the
negotiations with them. However, during
the Exclusivity Period its position was protected. Matters went forward. The pursuers approached East Lothian Council
and in November 2001 obtained from them an expression of support for the
idea of relocating QMUC to the Old Craighall site (i.e. they indicated that it
was likely that the relocation to that site would be regarded as compatible
with Green Belt use) and also some encouragement for the belief that if QMUC
did relocate there the Planning Authority would find it easier to incorporate
the balance of the 70 acre site into the Local Plan as land designated for
Class 4 Business use (which would encompass Business/Research/Knowledge
Park use). They were very supportive of
the proposal which they thought would have a positive economic impact on the
area.
[15] QMUC,
having suffered a disappointment with their intended move to Gogarburn, wanted
confirmation that the pursuers could deliver the site at Craighall. Accordingly, the pursuers procured a letter
(7/5 of Process) from Alan Miller of Persimmon dated 15 November 2001
confirming that Persimmon had a "contractual position with Aisling to sell to
Aisling landholdings at Monktonhall" (meaning the site at Craighall) and
stating that that contract "entails a provision that in return for a sale of
land, Persimmon Homes will be afforded the opportunity to acquire the existing
premises of QMUC."
[16] The
pursuers sent QMUC an outline development proposal for the proposed campus at
Craighall. QMUC were looking at a number
of options. The pursuers made a formal
presentation to QMUC on 26 November 2001. Representatives of East Lothian Council were
present at that occasion to show their support and to say that, from their
discussions with the Scottish Ministers, it was unlikely that a planning
application of this sort would be called in.
Mr Cassie and Alan Miller of Persimmon were there too for part of
the time. Shortly thereafter QMUC told
the pursuers that they had chosen Craighall as their preferred site.
[17] There
were further meetings between the pursuers, QMUC and/or Persimmon in
December 2001 and January and February 2002 concerning a range of
matters, including questions of the layout and costs of roads and services to
and within the site, and the proposed structure of the contracts. It was made clear at some point that the
Council would not sanction any housing on the Craighall site, but was otherwise
behind the proposed relocation and were giving active consideration to
re-zoning the land around the university to suit the pursuers' ambitions for a Business Park. This was consistent with the overall scheme
as proposed by the pursuers.
The meeting of 5 March 2002
[18] Towards the end of February 2002,
QMUC called a meeting of the three parties, namely themselves, the pursuers and
Persimmon. The meeting was arranged for 5 March 2002.
[19] By
letter of 1 March from Rosalyn Marshall, Vice Principal (Strategic
Planning & Development) to Mr Corbett, QMUC set out arrangements for
the "tripartite meeting" of 5 March which was to begin at 1 p.m. at their
campus. The pertinent part of the letter
is in the third paragraph which reads as follows:
"As you are aware, Queen
Margaret's continuing concerns relate to the deliverability of your
proposals. Against that background, we
see the purpose of a tripartite meeting would be to identify whether any scope
existed for a re-structuring of your present arrangement with Persimmon to enable
35 acres of land to transfer directly from Persimmon to QMUC at no cost,
in return for Persimmon having an opportunity to acquire the Corstorphine [i.e.
Clermiston] Campus at the then full open market value."
This question had already been raised with the
pursuers on a number of occasions by Mr Riddell of QMUC. QMUC were nervous about losing the site after
their previous experiences at Gogarburn and other sites, and had suggested that
they be allowed to have a direct link with Persimmon over both the Craighall
and the Clermiston sites. Mr Riddell
had met Mr Cassie and Allan Miller of Persimmon on 25 February 2002 and had ascertained from
them that they would be willing to deal direct with QMUC if the pursuers waived
the Exclusivity Agreement; though they had also told Mr Riddell that they
would be looking for a price of £1 million for the Craighall site.
[20] The
meeting took place at QMUC's offices at Clermiston on 5 March as
arranged. It was attended by Mr Corbett
and Mr John Miller for the pursuers, John Cassie for Persimmon
and Douglas Riddell of QMUC. The meeting
lasted no more than about 40 minutes.
Mr Riddell chaired the meeting.
He was employed by QMUC and acted as their
project manager in respect of the proposed re-location. There was some uncertainty in the evidence as to whether
Rosalyn Marshall, the Vice Principal of QMUC, was there too, but on the
whole I am satisfied that she was not.
[21] According
to Mr Corbett's note, the meeting may have commenced at 3 p.m. rather than at its allotted
time, but nothing turns on that. In his
evidence, Mr Corbett explained his notes and gave the following account of
the meeting. Mr Riddell summarised
the position as it stood: they were discussing the 70 acres of land which
were the subject of the Exclusivity Agreement (i.e. parcels A and B);
the purchase price was £4.55m, as in the Exclusivity Agreement (70 acres
x £65,000 per acre); the Exclusivity Period was 6 months, with a
maximum extension of 9 months. He
also noted that the parties were happy to discuss changes. Mr Corbett explained that that was a
reference to the earlier discussions they had had - he was aware of QMUC's
concerns and that they were not particularly happy with the tripartite
arrangement and wanted to deal directly with Persimmon. The pursuers were willing to agree to
this. According to John Miller, Mr Corbett
said that it made sense as long as the pursuers had an agreement to purchase
the site. At Persimmon's prompting,
there was some discussion about the need for a co-ordinated approach to the
development of the whole 130 acre site, which would involve a Masterplan
and agreement as to the necessary infrastructure over the whole area as well as
about cost sharing. There was a
suggestion that QMUC might wish to keep 15 acres of their 35 acre
site for research (they later dropped this).
There was discussion about the Local Plan. Persimmon indicated that QMUC could go ahead
and take entry to the site as soon as possible.
According to Mr Corbett's interpretation of his note, Mr Riddell
then proposed that there be two distinct agreements: QMUC should buy their 35 acre
site direct from Persimmon; and the pursuers should continue to deal with
Persimmon as regards the other area (parcel A). The note refers to a price of £130,000 per acre
for the site to be acquired by the pursuers.
That was consistent with the figures in the Exclusivity Agreement. Under that agreement, the pursuers were to
pay £65,000 per acre for the Craighall Subjects (parcels A
and B), in a total sum of £4.55 million, and then transfer half of
that land to QMUC free of charge; whereas under the new proposals they were to
pay the same amount (£4.55 million), but it was treated as the price of
the 35 acres which they were to keep.
The price is noted to be conditional on outline planning permission
being received. According to John Miller,
John Cassie of Persimmon said that he was happy with two agreements and
confirmed that the pursuers could buy the 35 acres for £4.55 million
subject to them getting planning consent for the site. In addition, it was noted that QMUC would pay
Persimmon £1 million for their 35 acre site at Craighall (the sum was
later reduced to £500,000). Finally
there is a note about "timing for deals".
The note reads: "FGL by 15th 2002". That meant 15 March
2002. "FGL" was Forbes Leslie, the pursuers'
solicitor. He was to prepare draft
missives. It was contemplated that the
missives would be concluded by 15 March 2002, within 10 days of the
meeting.
[22] Mr Corbett
says that it was his understanding of the meeting that it was agreed at that
meeting that the 35 acre site at Craighall (parcel A) would be sold
to the pursuers for £4.55 million subject to the necessary planning
consents. The deal was straightforward
and there was little possibility of a misunderstanding. There was no indication that Mr Cassie
needed to get authority from the Persimmon board. Clearly missives had to be concluded
containing numerous points of detail, but the essentials were all agreed and
there was no question of the deal faltering on any such details as might be put
into the missives. John Miller said
that at the conclusion of the meeting he was satisfied that the pursuers had a
new agreement with Persimmon in terms of which the pursuers would buy the 35 acre
site for £4.55 million subject to obtaining planning permission.
[23] Mr Riddell
emphasised that, despite separating the two deals, QMUC were anxious that Aisling should not lose out by reason of the deal
being re-structured. The pursuers had
brought the deal to the table and, quite apart from their desire that they
should be rewarded for that, QMUC were concerned about the possible damage to
their reputation should it look as though they had allowed the pursuers to be
squeezed out. He was re-assured at the
meeting that this would not be the case.
According
to him, the Craighall site was at that time still only one of five sites in
which they were interested. On 20 March 2002, however, the QMUC Governing Body decided to go ahead
with the Craighall site as the selected site to which to relocate.
[24] Mr Cassie's
evidence about the meeting was somewhat different. His take on it was that QMUC wanted the
pursuers out of the picture so far as the Clermiston and Old Craighall sites
were concerned - a difference more of emphasis rather than of
substance - but were concerned that they should be treated fairly. The pursuers were still interested in
acquiring part of the Craighall site.
Persimmon's preference was not to deal with the pursuers any more. They only agreed to explore matters with the
pursuers due to QMUC's concerns. He said
that he made it absolutely clear to the pursuers at this meeting that
Persimmon's willingness to enter into any contract with them would be dependent
on them first finding a financial partner, a big brother, a development partner
who had the expertise and financial worth properly to develop the site -
"they had to satisfy me before any contract was entered into". He said that the pursuers accepted this. He said that he also made it clear that any
contract was dependent upon an infrastructure agreement being concluded. Mr Cassie was supported in his evidence
about Persimmon's lack of enthusiasm by Alan Miller. He said that Persimmon were not particularly
interested in selling the 35 acre to the pursuers. They "were really surplus to requirements at
that time". Further, he said, land
values had increased and the price agreed with the pursuers was not attractive. But he emphasised that it was important that
if it did go ahead the pursuers had to be able to deliver the development.
[25] I do
not doubt that privately Persimmon might have wanted to cut the pursuers
out. After all, they had a potential
deal with QMUC whereby they would buy from QMUC a valuable development site at Clermiston
and would sell them 35 acres at Old Craighall. If this went ahead, it might indeed, as the
pursuers thought, unlock the development potential for the neighbouring land at
Old Craighall, including the other 35 acres that the pursuers wanted to acquire. Mr Cassie's thinking was, I presume,
that Persimmon could reap the rewards rather than let the pursuers buy the 35 acre
site and develop it themselves. But I am
satisfied that he relayed nothing of this to the pursuers at the meeting. Indeed, I did not understand him to suggest
that he had made this clear to the other parties. I accept the evidence of Mr Corbett and John Miller
that they left the meeting believing that the acquisition of the 35 acre
site for £4.55 million would go ahead.
There was nothing to suggest to them that Persimmon was a reluctant
partner.
[26] I also
accept that the question of a big brother was raised at the meeting. It was important to Persimmon that, if the
sale of the 35 acres to the pursuers went ahead, the development was
properly carried out. It would have an
impact on the potential development of their own sites neighbouring that 35 acres. But I am satisfied that it was never
suggested that a big brother had to be found and brought on board before any
agreement, even a conditional agreement, could be concluded between the
pursuers and Persimmon. As it was
explained to me by Mr Corbett in a later passage of his evidence, it was
very difficult for the pursuers to get a big brother to sign up to involvement
in the project without there being a contract to show them. Whereas they might have been prepared to
contemplate an agreement suspensively conditional upon a development partner
being found, they could not have agreed to make that a pre-condition to even
concluding a conditional agreement. I
accept this. I also accept that although
a general infrastructure agreement was needed, covering all the relevant sites,
it was not made a precondition to any agreement being concluded with the
pursuers at that meeting. If Persimmon
did not regard that meeting as having resulted, or been intended to result, in
a concluded agreement, that may provide the explanation.
[27] Mr Cassie
said that at the meeting he went no further with the pursuers than to agree
that Persimmon were willing to explore entering into a contract with them. I reject that. I am clear that he left the pursuers in no
doubt that the proposed deal between Persimmon and the pursuers would go
ahead. He also said that he was amazed
at the pursuers saying that a contract was concluded at this meeting, subject
only to re-zoning of the site. This
raises a different question which I shall have to consider later in this
Opinion.
[28] After
the meeting Mr Cassie handed responsibility for matters to do with the proposed
deals back to Allan Miller.
Events after the meeting of
5 March 2002
[29] Already before the meeting of 5 March
2002 the pursuers, in a letter dated 5 February 2002 from their agents,
Messrs Dallas McMillan, to Messrs Morison Bishop, agents for Persimmon,
put forward draft missives for the purchase of part of the site at
Craighall. The terms of that letter
suggest that, even a month before the meeting of 5 March
2002,
consideration was being given to the pursuers offering to purchase parcel A
only, and at a price of £130,000 per acre. On 7 March
2002,
two days after the meeting, Dallas McMillan again wrote to Morison Bishop
indicating that they were in the course of preparation of an amended offer in
connection with the site at Craighall in light of the meeting of "6 March"
(a mistake for 5 March 2002) "when progress in
connection with the transaction was discussed."
They asked for the Exclusivity Agreement to be extended "until the new
documentation is completed".
[30] Morison
Bishop replied on behalf of Persimmon by letter of 11 March
2002. Having, as they said, taken their clients'
instructions, they confirmed the attendance of John Cassie at the meeting
on 6 March (again a mistaken reference to the meeting of 5 March 2002). They
continued:
"Our clients' understanding
following the meeting was that your clients are now agreed that QMU no longer
wish to proceed on the basis of the proposals outlined in the Exclusivity
Agreement entered into between our respective clients. Our clients have advised that agreement has
now been reached between our respective clients to enter into an alternative
agreement formalising the terms set out in the draft Heads of Terms
annexed. We understand that the said
agreement will relate to part of the subjects covered by the existing agreement
and that QMU are to enter into a separate contract with our clients regarding
the subjects at Craighall.
They went on to say that "in light of the foregoing
and our clients' commitment to enter into a new contract with your clients"
there was no basis for extending the Exclusivity Agreement which, they said,
was accordingly no longer in force.
The draft Heads of Terms
[31] The draft Heads of Terms attached to that
letter of 11 March 2002 set out terms in 10 numbered
paragraphs as follows:
"1. Subjects to extend to 35 acres or thereby as outlined on
attached plan.
2. Contract is to be conditional upon
Aisling receiving an outline planning consent for the subjects.
3. Price to be £130,000 per acre
payable 14 days following East Lothian Planning Committee decision to
grant outline consent (minimum land value £4,550,000).
4. No right of appeal.
5. Aisling to secure within 2 months
of signing this heads of terms, a commercial developer as a partner with whom
there will be a clear contractual link.
This commercial developer will have a significant track record and must
be able to satisfy Persimmon (acting reasonably) that they can provide the
appropriate commercial guarantees to secure payment to Persimmon.
6. Contract is to be conditional upon
Persimmon entering into a contract with Queen Margaret University for the adjacent 35 acres.
7. Contract to oblige Aisling to
contribute an appropriate proportion of infrastructure costs for servicing the
full 70 acres.
8. All planning applications to be
approved by Persimmon and to be to the full satisfaction of Persimmon to ensure
that they accord with Persimmon's overall Masterplan for whole land holding
(130 acres or thereby).
9. Outline planning application to be
submitted within an agreed specified timescale.
10. This heads of terms will remain on force
for 2 months from the date of signing."
[31] According
to Mr Corbett, clauses 1-3 accurately reflected the agreement reached
orally at the meeting of 5 March 2002. Although a big brother was discussed, there
was no discussion at the meeting about timing.
The need for an infrastructure agreement had been noted, but it had not
been mentioned that Persimmon wanted agreement on this to be an essential part
of the same contract. To this extent clauses
5 and 7 went further than had been agreed. There was no problem with clause 6. The other terms in the draft Heads of Terms
were not discussed at the meeting.
[32] John Cassie
said in evidence that the Heads of Terms should not have been issued. They were not authorised by him. He said that once he came to know about them,
he stopped the progress of the Heads of Terms "in its tracks". He said that they came about because Allan Miller
was basically bullied into trying to formulate in writing what Persimmon had
said they would do. But, he said,
Persimmon were not going to do anything until the pursuers could demonstrate
that they could come up with a big brother - prior to concluding a contract. I reject this part of his evidence in so far
as it relates to the genesis of the Heads of Terms. He had attended the meeting on 5 March
and agreed certain matters face to face with Mr Corbett and John Miller. There was no reason why a document should not
have been issued after the meeting setting out Persimmon's understanding of
what had been agreed. I am in no doubt
that the Heads of Terms were drafted and sent on the instructions of Mr Cassie
or of Allan Miller. If it happened
on the instructions of Allan Miller, it was no doubt on the basis of what Mr Cassie
told him had been discussed. The most
charitable explanation I can offer for Mr Cassie's evidence on this is
that he was attempting to distance himself from the discussions at the meeting
and the Heads of Agreement, and to minimise their importance, in case it should
be held, on the basis of what actually happened, that an agreement was
concluded there.
[33] Dallas McMillan
responded to the Heads of Terms on 13 March. They said that they understood the parties
were trying to have the agreement "in place by Thursday of this week", i.e. by
the next day, and sent certain comments on the Heads of Terms. It is unnecessary to go through all in detail. They did not agree to clause 4 (no right
of appeal). They suggested that
agreement with the commercial developer (big brother) should be left until
after the master plan had been completed.
They suggested that the contract should not be conditional on that
between Persimmon and QMUC. They
asserted that it had been agreed at the meeting that the pursuers would be given
the right to acquire site C at 80% of open market value. There were some other points. Of perhaps the most interest for present
purposes is that they envisaged both the need for a new Exclusivity Agreement and
also that the Heads of Terms (presumably when agreed) should remain in force
for six months "to ensure that all matters can be agreed".
Subsequent events
[34] Further discussion led to Dallas McMillan
writing on 19 March 2002 enclosing a draft
Exclusivity Agreement (to replace the previous one) incorporating what they
understood to be agreed Heads of Terms.
I need not quote extensively from the draft Exclusivity Agreement. It appears to have been based to some extent
on the previous version. The preamble is
instructive:
"WHEREAS ... Persimmon has
agreed to give Aisling exclusivity in relation to negotiating and concluding
missives regarding the purchase by Aisling of the Craighall Subjects within the
Exclusivity Period as hereinafter defined AND WHEREAS the purchase price for
the Craighall Subjects is to be ONE HUNDRED AND THIRTY THOUSAND POUNDS
(£130,000) STERLING per acre (with the minimum price of Four million Five
hundred and fifty thousand pounds provided that the area extends to at least
Thirty five acres), NOW THEREFORE the parties hereby agree as follows ..."
Clause 1 provided that for a period of six months
(the "Exclusivity Period") Persimmon would not deal with others in respect of
the sale of the Craighall site. Clause 3
provided for both parties to use their reasonable endeavours to progress the
contract for the acquisition of the Craighall Subjects. There was a reference also to the option over
site C which had allegedly been agreed at the meeting.
[35] The
Exclusivity Agreement underwent a process of substantial revision by solicitors
alongside discussions between John Miller of the pursuers and Allan Miller
on behalf of Persimmon. The process
continued into July 2002. It does
not appear that a final version was ever agreed.
[36] Instead,
the parties turned their attention to attempting to reach agreement on missives
for the purchase and sale of the site. A
number of draft offers were sent and revised.
The burden of preparing the missives was undertaken initially by Dallas McMillan. It appeared at one point that missives would
be concluded in a matter of days. Mr Corbett
recalled (and an entry in his notebook confirms this) that he was told soon
after 13 March 2002 that QMUC and Persimmon
would be concluding missives "tomorrow".
This led him to believe that missives between Aisling and Persimmon
would be concluded shortly thereafter and that the development would proceed
quickly. In fact QMUC and Persimmon did
not conclude missives until, I think, December 2005. Nonetheless, as QMUC were committed to the
site - "they had no Plan B" as Mr Corbett put it - and were
investing resources into the development of the site, including attending
Masterplan and infrastructure meetings, instructing site investigations,
instructing architects in relation to the design of the campus, etc., and
Persimmon and QMUC were also pursuing a planning application in relation to the
Clermiston site, it seemed to Mr Corbett that everything was going ahead;
and for a while the pursuers were not concerned that the process of concluding
missives was taking some time. Progress
was made with finding commercial developers who were interested in coming in as
a big brother to the pursuers to carry the development forward. Work was continuing in developing a
Masterplan for the whole site. The
pursuers were heavily involved in this.
They attended Masterplan meetings at which they would discuss questions
with Persimmon, e.g. about the choice of a commercial partner and about the
progress of agreeing missives. Aisling
explained how the lack of concluded missives was hampering their efforts to
secure a commercial partner. There were
also regular tripartite meetings.
[37] At a
meeting of 6 June 2002, according to Mr Corbett's
notebook, Persimmon said that missives would be concluded "by Tuesday evening". I accept this. It is consistent with the position they
adopted on these matters over a long period.
At a meeting of 7 September 2002, again according to Mr Corbett's
notebook (which I accept for the same reason), Allan Miller of Persimmon,
their main point of contact at the time, said there were no "show stoppers" in
the way of concluding the missives. At a
Masterplan meeting of 23 September 2002 Allan Miller confirmed
that there were "no insurmountable obstacles" standing in the way of conclusion
of the missives. Similarly, at the next
Masterplan meeting of 7 October 2002, Allan Miller said
that there appeared to be "no show stoppers".
These points are confirmed in the minutes of the meetings.
[38] The
process of revising the draft missives continued over the next three years or
so. Continually, Persimmon stated that
there were no significant difficulties to be overcome. In June 2003 the form of the proposed
missives changed. Instead of an offer to
purchase by the pursuers, it became an offer to sell by Persimmon. But there was no alteration of substance. By late 2003 the pursuers were
expressing some concern about the delay in concluding missives, in particular
in view of the effect this was having on their attempts to conclude a deal with
a big brother. The message that came
through from Persimmon was still that there were no outstanding issues of
substance. By the end of 2003
agreement was reached on the split between QMUC, the pursuers and Persimmon in
the proportion 40%, 40% and 20% respectively. The pursuers re-iterated their agreement to
this in June 2004. Throughout 2004
there were further discussions about the missives, with Dallas McMillan
continually pressing for them to be concluded.
During week ending 12 June 2004, Allan Miller agreed
with Mr Corbett and John Miller that missives would be concluded by
the end of the following week. This was
not achieved. According to Mr Corbett,
and I accept this, the final terms of the proposed missives were agreed between
him and Allan Miller on 26 July 2004. But they were still not signed. In August 2004 Morisons confirmed that
they would get back to Dallas McMillan shortly on the missives - the
main issue related to RPI. On 24 March 2005 Alan Minty of Morisons sent an e-mail attaching
the most up to date version of the Services Agreement which was to be
incorporated into the missives. He
commented: "There are a few amendments still to be made but nothing I
understand of a major nature."
[39] In
July 2005 Allan Miller left Persimmon to join Wimpey Homes and was
replaced by Stewart Adams as the contact at Persimmon. Matters were by then moving towards a
conclusion. In September 2005
planning consent was granted for the old QMUC campus at Clermiston. Things began to go wrong from about October 2005
when Mr Adams said that Persimmon wanted a commercial partner in place
before the missives were signed, not within 6 months after as the pursuers had
previously understood. By e-mail of 7 October 2005 the pursuers queried the need for this change. On 13 October
2005
Mr Adams e-mailed to apologise for the current version of the missives
having been in circulation for some time but insisted that the pursuers'
proposal that they obtain a commercial partner within six months of concluding
missives was unacceptable to Persimmon.
He said that Persimmon wanted to contract with a "strong financial
covenant" which would "require Aisling to contract with a funder/ backer in
place." He added that "an alternative
may be a bank guarantee." The pursuers
took steps to obtain from the Bank of Scotland confirmation that they would, if
required, provide a bank guarantee. The
idea of a bank guarantee was then rejected by Persimmon who reverted to their
insistence on a "suitable partner" being in place "prior to entering a
conditional contract." The pursuers
reluctantly acceded to this. In
February 2006 they put forward Gladedale as a prospective commercial
partner. By e-mail of 3 April 2006 Persimmon accepted Gladedale as suitable. The draft missives were revised to include
recognition of this. In July 2006
an Infrastructure Agreement was entered into between QMUC and Persimmon, and a
copy was sent to the pursuers to form the basis of an equivalent agreement
between the pursuers and Persimmon. An
adjusted draft of the Infrastructure Agreement between the pursuers and
Persimmon was sent by Dallas McMillan to Morisons on 24 August 2006.
[40] Despite
this apparent, albeit painfully slow, progress, Persimmon at this point decided
to bring the process to an end. On
25 August 2006, Stewart Adams, writing on "Charles Church" headed paper
but on behalf of Persimmon, notified the pursuers of this decision in this way:
"Dear John and John
Craighall
Further to my telephone
discussion with John Millar on Wednesday 23 August I write to confirm
Persimmon are withdrawing from negotiations to sell the above site to Aisling
Developments. It was made clear more
than six months ago that Persimmon require a suitable partner for Aisling Developments
providing a strong financial covenant and proven track record of delivering
development.
Unfortunately you have not
been able to deliver such a partner and this leaves Persimmon with no option
other than to withdraw from negotiations."
The pursuers replied by letter from John Miller
dated 6 September 2006. Amongst other things, he said this:
"I think I should make it
clear from the outset of this letter that John and I regard there being a
binding Agreement between the parties in terms of the adjusted documentation
and verbal discussions between the parties and the actings of the parties
following on the Agreement. We do not
accept that Persimmon are therefore entitled to "withdraw from negotiations".
He made the point that a commercial partner could not
enter into a binding commitment without having all the necessary
information. They had kept asking for a
copy of the executed Infrastructure Agreement and building contract costs etc.,
but that was only executed in July 2006 and given to the pursuers in
August 2006. He pointed out that
the pursuers had not delayed. He said
that "in terms of the Agreement" they had a period of six months from the date
of the Services Agreement to finalise a partner. This was to no avail. By letter of 30 October
2006,
Morisons informed Dallas McMillan that the Exclusivity Agreement had
expired and that the parties were no longer in negotiation.
[41] In
summarising the sequence of events after the meeting of 5 March 2002 in
this way I have not sought to follow through particular strands of the
negotiations to see what was in issue and whether and, if so, when those
matters were resolved. This is because
the pursuers do not base their case on agreement having been reached on all
essentials in the course of the post-meeting correspondence and discussions. Their case has been focused exclusively upon
final agreement having been reached at the meeting of 5 March
2002. On this basis, the relevance of what happened
later is twofold: first, to cast some evidential light on what did happen at
the meeting; and, second, to look to subsequent conduct for the purposes of section 1(3)
and (4) of the Requirements of Writing (Scotland) Act 1995. For both of these purposes the above summary
is adequate.
[42] I
should add that evidence was put before me of the expenses incurred by the
pursuers in their work on the project for the period from 5 March 2002 until Persimmon "withdrew from negotiations" in
August 2006. I am satisfied that
the pursuers spent well in excess of £500,000 on the project during this
period in the belief that they were involved and would remain involved.
The parties'
contentions in outline
[43] The pursuers' case, put simply, is that at
the meeting of 5 March 2002 they concluded a contract of purchase and sale
with the first defenders, Persimmon Homes Limited, in terms of which the
defenders agreed to sell to them 35 acres or thereby of land at Craighall
for a price of £4.55 million, that sale being contingent upon the grant of
outline planning permission for the site.
They recognise that ordinarily a contract for the sale of heritage
requires to be in writing: see section 1(2)(a)(i) Requirements of Writing
(Scotland) Act 1995. But they contend that in this case
sub-sections (3) and (4) of that section are satisfied, with the
result that the defenders are not entitled to withdraw from the contract and
the contract is not to be regarded as invalid.
The defenders let the matter drag on for over four years, knowing that
the pursuers were incurring expense in reliance on the contract; and they are
not now entitled to say that the contract is not enforceable.
[44] Looking
in rather more detail at the conclusion of the contract at that meeting, Mr Campbell
QC submitted, on the pursuers' behalf, that there were three matters which were
fundamental to any agreement: the subjects; the parties; and the price. Those were all agreed at the meeting. The subjects were well known to the
parties - they were the 35 acre site marked "A" on some plans
and "1" on others. There was no
difficulty about identifying the parties, the pursuers and the first
defenders. And the price was agreed at £4.55
million - this was sometimes expressed as a lump sum and sometimes as £130,000
per acre, but that did not matter.
That was all that was needed. It
was clear that when the parties left the meeting they had agreed all the
necessary terms and they both considered that a binding agreement had been
reached. Whatever their private
reservations, looking at the matter objectively from what the parties said and
did, a concluded agreement had been reached.
[45] For the
defenders, Mr Docherty QC submitted that no agreement was reached at the
meeting of 5 March 2002. Neither party intended to reach a concluded
agreement at that meeting. The point of
the meeting was to break the news to the pursuers that the deal with them was
to be separated from that between Persimmon and QMUC. At the meeting Mr Cassie never said
anything which could have led the pursuers to believe that they had a firm
agreement. In any event, agreement was
not reached on all matters essential to the conclusion of a contract. Whilst the site was known, its precise extent
had not been agreed and therefore the price was not fixed. Further, there were other matters which had
not been agreed which were, or were regarded by the parties as, essential
terms, i.e. terms absent agreement on which no contract could be
concluded. These included an agreement
about sharing infrastructure costs; and identification and approval of the commercial
partner who was to come in as a big brother to the pursuers.
Discussion
[46] When considering the evidence and the
arguments advanced by the parties, it is important to emphasise, as I have
already, that the pursuers peril their case on a contract having been concluded
at the meeting of 5 March 2002.
Apart from such value as it might have in shedding light on what
happened at that meeting, evidence of subsequent events, meetings and
correspondence is relied on only for the purpose of considering whether the
criteria set out in s.1(3) and (4) of the 1995 Act are
satisfied? This represents a change of
case for the pursuers. Until
September 2007, a few months before the proof, their case was that a
concluded agreement was reached in the course of the exchanges between the
parties in about August 2004. This
resonated with the terms of John Miller's letter of 6 September 2006 about there being a binding
agreement "in terms of the adjusted documentation and verbal discussions
between the parties". The pursuers do
not now say that anything essential to the conclusion of the contract was
agreed, or is to be treated as having been agreed, during the four years or
more after the meeting of 5 March 2002.
Nor do they rely upon the events during that period as amounting to
waiver of any matters left outstanding at the end of the meeting on 5 March 2002 or as enabling them to say that the defenders are
personally barred from relying upon the absence of agreement on any particular
matter. No doubt there are good reasons
for them adopting this approach. I do
not consider that this change of position reflects adversely on the credibility
of Mr Corbett or John Miller.
It simply reflects a change in the pursuers' legal analysis of the
events to which they spoke. What it
means in legal terms, however, is that the focus of the enquiry as to whether a
concluded agreement was reached is fixed, in the first instance at least, on
the meeting itself. Was there an
intention to conclude a binding contract?
If so, were all the essential terms agreed? If no concluded agreement was reached at that
meeting on the essential terms of the sale, the enquiry need go no
further.
[47] It is
trite law that for there to be a concluded contract, there must be agreement
between the parties on the essentials of that contract. If essential matters are left over to be
agreed later, there is no concluded agreement.
If authority is needed for this proposition, it is to be found in the
speeches of Lord Buckmaster and Viscount Dunedin in May & Butcher v R,
noted at [1934] 2 KB 17. At p.20,
Lord Buckmaster expressed the principle in this way:
"It has long been a well recognized principle of contract law that an
agreement between two parties to enter into an agreement in which some critical
part of the contract matter is left undetermined is no contract at all. It is
of course perfectly possible for two people to contract that they will sign a
document which contains all the relevant terms, but it is not open to them to
agree that they will in the future agree upon a matter which is vital to the
arrangement between them and has not yet been determined."
Lord Dunedin agreed. In a passage p.21 of his speech, he
expressed the same point in his own words:
"To be a good contract there must be a concluded bargain, and a concluded
contract is one which settles everything that is necessary to be settled and
leaves nothing to be settled by agreement between the parties. Of course it may leave something which still
has to be determined, but then that determination must be a determination which
does not depend upon the agreement between the parties. In the system of law in which I was brought
up, that was expressed by one of those brocards of which perhaps we have been
too fond, but which often express very neatly what is wanted: "Certum
est quod certum reddi potest." Therefore,
you may very well agree that a certain part of the contract of sale, such as
price, may be settled by some one else. As
a matter of the general law of contract all the essentials have to be settled. What are the essentials may vary according to
the particular contract under consideration. We are here dealing with sale, and undoubtedly
price is one of the essentials of sale, and if it is left still to be agreed
between the parties, then there is no contract."
Similarly, in Foley v Classique Coaches Ltd. [1934] 2 KB 1, Maugham LJ said, at p.13:
"It is indisputable that unless all the material terms of the contract
are agreed there is no binding obligation. An agreement to agree in the future
is not a contract; nor is there a contract if a material term is neither
settled nor implied by law and the document contains no machinery for
ascertaining it."
The law on this topic
is well settled and beyond contradiction.
[48] At the same time, however, in order to
give effect to the expectations of commercial men, the courts have been astute
to seek to uphold bargains rather than to hold that they are
unenforceable. Thus, in R & J Dempster v Motherwell Bridge and Engineering Co. 1964 SC 308, the Lord President
(Clyde) said, at pp.327-8:
"... when a court of law is asked to construe a commercial arrangement
couched in terms which are prima facie obligatory, and which are acted
on by the parties as obligatory, the court will prefer a construction which
gives the contract binding effect. For
the essence of commerce is making bargains, and unenforceable arrangements are
the exception and not the rule."
Lord Guthrie said,
at p.332:
"The object of our law of contract is to facilitate the
transactions of commercial men, and not to create obstacles in the way of
solving practical problems arising out of the circumstances confronting them,
or to expose them to unnecessary pitfalls. I know of no rule of law which prevents men
from entering into special agreements to meet the requirements of special
circumstances. In particular, if A
and B are dealing with an urgent situation, and they agree that, to meet
the needs of that situation, A shall do something at once, and that, for his
part, B shall do something else, a binding contract is effected although they
also agree that the amount of money to be paid by one to the other shall be
settled at a later date. In the
circumstances in which they are placed, money is not an essential of the
agreement. The essential matter is to
secure immediate or early performance of certain acts. If the parties are at one on that essential
matter, the agreement is, in my opinion, a binding contract, with the usual
consequences of enforceability and of liability in damages for breach.
The matter for decision must
always be whether parties have not got beyond the stage of negotiation, or
whether there is a concluded bargain."
If the parties have got beyond the stage of negotiation and concluded a
bargain, the court will seek to uphold that bargain rather than hold that it
fails by reason of a failure to agree some particular matter. Sometimes the outstanding issues can be dealt
with by implying an appropriate term, for example "within a reasonable
time". But in other cases, even where no
such implication is possible, the court will be reluctant to say that the
failure to agree a particular matter means that they have failed in their clear
aim of concluding a binding agreement.
[49] In the passage cited above
from his speech in May & Butcher v R, Lord Dunedin emphasised that what
is or is not essential may vary according to the particular contract under
consideration. It may be that in some
types of contract certain matters will always, or almost always, be regarded as
essential; in others, the same matters may not be so regarded. Even within the range of contracts of a
particular type, the answer to the question whether agreement on a particular
matter is essential will depend on the particular facts of the case. As the case law has developed, it has become
clear that the test of what is or is not "essential", in the sense of needing
to be agreed before the parties will be held to have concluded a bargain, is
subjective, not objective. The court
does not categorise a term as essential, and then require agreement to have
been reached on it, if the parties have made it clear that they intend to be
bound regardless of not having agreed it.
In other words it is up to the parties to decide, expressly or by
implication, which terms are essential for these purposes and which are not.
[50] A number of cases were cited
to me in support of this proposition.
The case of R & J Dempster v Motherwell Bridge and Engineering Co
well illustrates the point. It was there
held that there was a binding contract concluded by exchange of letters even
though no price had been fixed. The Lord President
(Clyde) said this (at p.326):
"In the existing market conditions prices were of minor
importance to both sides, and the bargain left the prices to be adjusted after
orders were placed."
The system of "open orders" which this bargain reflected was common
practice in the steel industry. I have
already quoted the relevant passage from the opinion of Lord Guthrie in
which he says that if parties do not regard the question of price as essential,
there is no reason why they cannot make a binding contract on terms that that
the price will be agreed later. But the point works both ways. A matter which objectively might not appear
to be one of the essentials of the contract may be regarded by the parties
themselves as something which they require to agree before they are to be
bound.
[51] In Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd's
Rep. 601 at 619, Lloyd LJ put the matter succinctly in this way:
"(6) It is
sometimes said that the parties must agree on the essential terms and that it
is only matters of detail which can be left over. This may be misleading, since the word
'essential' in that context is ambiguous.
If by "essential" one means a term without which the contract cannot be
enforced, then the statement is true: the law cannot enforce an incomplete
contract. If by 'essential' one means a
term which the parties have agreed to be essential for the formation of a
binding contract, then the statement is tautologous. If by "essential" one means only a term which
the Court regards as important as opposed to a term which the Court regards as
less important or amatter of detail, the statement is untrue. It is for the parties to decide whether they wish
to be bound and, if so, by what terms, whether important or unimportant. It is the parties who are, in the menorable
phrase coined by the Judge, 'the masters of their contractual fate'. Of course the more important the term is the
less likely it is that the parties will have left it for future decision. But there is no legal obstacle which stands
in the way of the parties agreeing to be bound now while deferring important
matters to be agreed later. It happens every
day when parties enter into so-called "heads of agreement"."
[52] If
the categorisation of terms as essential or inessential in this sense is a
matter for the parties, the question of whether agreement has been reached on
all the essential terms necessary for there to be a concluded agreement
overlaps considerably with the logically prior question of whether or not the
parties had the intention there and then to enter into a binding agreement.
[53] This
is the analysis adopted in a persuasive judgment of the majority of the New
Zealand Court of Appeal in Fletcher Challenge Energy Ltd v
Electricity Corporation of New Zealand Ltd [2002] NZLR 433 delivered
by Blanchard J. It is unnecessary
to recite the facts. The "correct legal
approach" to the question of whether and when parties enter into a binding
contract is discussed in a lengthy section of the judgment from para.[50] to
para.[67]. I quote certain passages:
"[50] The question whether negotiating parties intended the product of
their negotiation to be immediately binding upon them, either conditionally or
unconditionally, cannot sensibly be divorced from a consideration of the terms
expressed or implicit in that product.
They may have embarked upon their negotiation with every intention on
both sides that a contract will result, yet have failed to attain that
objective because of an inability to agree on particular terms and on the
bargain as a whole. In other cases,
which are much less common, the intention may remain but somehow the parties
fail to reach agreement on a term or terms without which there is insufficient
structure to create a binding contract. ...
It is comparatively rare that, having an
intention to contract immediately, not only do they fail to deal expressly with
an essential or fundamental term but it also proves impossible for the Court to
determine the contractual intent in that regard by implication of a term or by
reference to what was reasonable in the particular circumstances or to some
other objective standard.
[51] A contract is not legally incomplete merely because
consequential matters have been omitted ...
[52] But even where the parties are ad idem concerning all terms
essential to the formation of a contract - the basic structure of a
contract of the type under negotiation is found to have been present in the
terms which have been agreed - they still may not have achieved formation
of a contract if there are other unagreed matters which the parties themselves
regard as a prerequisite to any agreement and in respect of which they have
reserved to themselves alone the power of agreement. In such cases, what is missing at the end of
the negotiation is the intention to contract, not a legally essential element
of a bargain. ...
[53] The prerequisites to formation of a contract are therefore:
(a) An intention to be immediately bound (at
the point when the bargain is said to have been agreed); and
(b) An agreement, express or found by
implication, or the means of achieving agreement (e.g. an arbitration clause),
on every term which:
(i) was legally essential to the formation
of such a bargain; or
(ii) was regarded by the parties themselves
as essential to their particular bargain.
A term is to be regarded by the parties as essential if
one party maintains the position that there must be agreement upon it and
manifests accordingly to the other party.
[54] Whether
the parties intended to enter into a contract or whether they have succeeded in
doing so are questions to be determined objectively. ...
[55] [The rule
that negotiations and statements of subjective intention must be diregarded] is
inapplicable when the issue is, instead, one of contract formation. ... [It
is therefore] permissible to prove that one party told the other that the
otherwise apparently binding contract was not in fact to be binding ..."
After making certain other observations about the importance of looking at
subsequent conduct and having regard to the dynamics of the negotiation
process, the judgment continued at para.[58] as follows:
"[58] The Court
has an entirely neutral approach when determining whether the parties intended
to enter into a contract. Having decided
that they had that intention, however, the Court's attitude will change. It will then do its best to give effect to
their intention and, if at all possible, to uphold the contract despite any
omissions or ambiguities. ..."
At paras.[60]-[61] the majority expressed the opinion that May & Butcher v R should not be regarded as binding authoriy for the proposition
that there is no binding agreement if something essential is left to be agreed
upon at a later date; and doubted whether that case would be decided in the
same way today. At para.[65] it quoted
with approval the remarks to Lloyd LJ in Pagnan
SpA v Feed Products Ltd to which
I have referred.
[54] It seems to me that the
judgment of the Court of Appeal in that case helpfully sets out how the
apparently separate considerations of intention to contract and sufficiency of
terms bear upon one another. I propose
to follow it as a correct summary of the principles to be applied.
[55] One question which can be
highlighted as relevant, though no more than that, to an assessment of whether
parties intended there and then to be bound by an oral agreement is whether
they intended thereafter to enter into a written contract encapsulating its
terms. That there is no presumption
against an intention to reach a concluded agreement orally, even though it is
contemplated that the oral agreement will later be reduced to writing, is made
clear by Viscount Haldane in Gordon's
Exrs v Gordon 1918 SLT 407
at 411:
"In a case such as the present it would of course have
been open to those concerned to reach a definite and concluded agreement in
conversation or by correspondence. Such
an agreement is not the less a real one if the parties have, as part of its
terms, stipulated that there is to be a further agreement embodying its
substance and also other terms which they are subsequently to settle. In such a case the later agreement, when
concluded and executed, will supersede the earlier one.
Sometimes the words "subject to contract" are used, though more frequently
in the context of a series of written exchanges. In such a case it will be a relevant factor
that the parties have so qualified their exchanges, but even then the adoption
of such an expression does not necessarily import that the parties have not
reached a concluded agreement: see e.g. Stobo
Ltd v Morrisons (Gowns) Ltd 1949
SC 184 and Comex Houlder Diving Ltd v Colne Fishing Co. Ltd 1987 SC
(HL) 85 per Lord Mackay of Clashfern (in a passage not arising for
discussion in the House of Lords) at pp.99-100.
The whole of the exchanges, whether orally or in writing, have be looked
at in light of the circumstances surrounding them.
[56] Having set out the applicable principles
at some length in deference to the careful arguments presented to me, however,
I consider that this case can be decided on the short question of whether the
parties intended to reach a concluded agreement on 5 March 2002. If they did, and they left the meeting
thinking that they had done so - or at least that if that is the
interpretation reasonably to be placed upon what happened at the meeting -
then no question of sufficiency of terms is likely to arise. This is because if they have reached what
they considered to be a concluded contract, they must have reached agreement on
all the matters which they regarded as essential to that contract. Parties may or may not, in such a position,
regard agreement on infrastructure, or approval of a commercial partner, as
essential pre-requisites to the making of a concluded agreement, even a
concluded agreement conditional suspensively on other matters such as planning
consent. There may be practical
considerations pulling in different directions.
But if they meet and reach agreement, metaphorically shake hands on a
deal, intending then and there to be bound, without mentioning such matters, or
(having mentioned them) agreeing to put them to one side to be sorted out
later, the court will be reluctant to say, contrary to their expressed (or
implied) intent, that they have agreed insufficient terms to give rise to an
agreement capable of being enforced.
Accordingly, I do not accept Mr Docherty's submission that there
were a number of essentials still requiring agreement and that this prevents
the court finding that a concluded agreement was reached for the sale and
purchase of the land. This seems to me
to beg the prior question: did the parties reach a stage at the meeting at
which they intended to be (and regarded themselves) as bound - or at
least, since their conduct must be viewed objectively and private reservations
are irrelevant, did they so conduct themselves as to lead the other reasonably
to conclude that they had made such an agreement?
[57] On this question, having considered all
the evidence, I am left in no real doubt that the pursuers have failed by some
margin to prove that a concluded agreement was reached on 5 March
2002. I cannot find on the evidence that
there was any intent on either side to be bound at that meeting or that,
looking at the matter objectively, anyone would reasonably come to the
conclusion that there was such an intent.
I am satisfied that neither party went in to that meeting intending then
and there to reach a binding agreement; and I am also satisfied that when the
parties left that meeting only some 40 minutes or so later, neither
believed that a concluded agreement had been reached. Despite the evidence of Mr Corbett and John Miller -
which I am satisfied was honestly given but which I consider was coloured by a
mixture of hindsight and reconstruction - that seems to me to be the only
inference, and an irresistible inference at that, to be drawn from the overall context,
from the events leading up to the meeting and from the events immediately
following it.
[58] The context includes the following. The parties were discussing an agreement for
the sale and purchase of land. It is
well known to everyone engaged in the property and development business, and it
is not suggested that it would not have been well known to Mr Corbett and John Miller
as well as to Mr Cassie, that an agreement for the purchase and sale of
land requires to be in writing. Unless
it is in writing it is not binding. It
may thereafter become binding on the parties, by reason of their subsequent
actings, under section 1(3) of the Requirements of Writing Act 1995. But until then it is neither valid nor
enforceable. In the ordinary case,
parties who are intending to buy or sell land would expect to do so by
exchanging written missives, drafted and negotiated by solicitors. This is not, of course, essential; less
formal writing will suffice if there is the requisite intent to be bound. But in such a case one would expect to see
some indication from the parties, from their words or conduct, that they did in
fact intend to be bound notwithstanding the informality of their writings. The position is a fortiori where there is nothing in writing at all. Indeed, there is apparent contradicition in
asking whether commercial parties, who know that an oral agreement for the sale
of land is not valid because it requires to be in writing, intended to enter
into a binding oral agreement. That
apparent contradiction arises from the use of the word "invalid" in
section 1(3) of the Act. There is
no problem if attention is directed away from validity to enforceability. The question is: did they intend to enter
into a concluded agreement knowing that the agreement they made was, without
more, unenforceable? In answering this
question the fact that they knew that the agreement would have to be reduced to
writing assumes less importance, but it cannot be dismissed altogether. There is a clear distinction in this sense
between an oral agreement for the sale and purchase of land and an oral
agreement for the sale and purchase of goods, the one requiring writing and the
other not, which must reflect to some extent upon the inferences to be drawn
about the intentions of the parties.
[59] The build up to the meeting of 5 March
2002 is of importance to understanding what took place at it. Until that point the proposal had been for a
tripartite agreement (or linked agreements), with the pursuers purchasing some
70 acres from Persimmon, 35 acres of which they would then transfer
to QMUC free of charge, and QMUC selling the Clermiston site to Persimmon. QMUC called the meeting because they were
concerned about the "deliverability" of the pursuers' proposals. They wanted to discuss separating out the
agreements, so that they would deal direct with Persimmon about the Clermiston
site and the 35 acres at Old Craighall to which they wanted to relocate,
and the pursuers would deal direct with Persimmon about the 35 acre site
which they were to acquire from Persimmon.
This was what the meeting was about.
I do not accept Mr Cassie's gloss on the meeting, namely that it
was called to give the pursuers the "bad news".
The pursuers were already aware of QMUC's concerns and as to the
possibility of them wanting to separate out the deals. Nor, provided that they were not excluded,
was this separation of the deals "bad news" for them. At the meeting it was agreed that the deals
would be separated in this way. There is
no doubt in my mind that, at the meeting, the pursuers were led to believe that
the proposed deal with Persimmon for the 35 acres in which they were
interested would proceed. In so far as Mr Cassie
sought to suggest that no commitment was given by him at the meeting, I do not
accept that as correct. The pursuers
would not have been prepared to de-couple the different strands of the original
proposal had they not felt confident, from what they were told, that the
de-coupling would not lead to them being squeezed out. But that does not mean that a concluded
agreement was reached at that time. A
commitment, or an assurance, is one thing, a concluded agreement quite
another. The meeting only lasted about
40 minutes. During this time, the
discussions were about how to proceed. I
accept that at the end of the meeting there was agreement between the pursuers
and Persimmon as to the price (£4.55 million) as well as the site and the
parties. But that had, in substance,
been the position since well before the meeting. The only difference was that instead of
getting 70 acres for their £4.55 million, of which 35 acres
would be passed free of cost to QMUC, the pursuers were going to get 35 acres
for that price, and QMUC were to deal with Persimmon direct about the 35 acres
which they would otherwise have received from the pursuers. The change was as to the structure of the
deal - there was no change of substance.
Nor was there any development in terms of finalising the
arrangements. If anything, the change of
structure makes it less likely that a concluded agreement was intended to be reached
at the meeting.
[60] A number of other matters were discussed
briefly at the meeting. Mr Corbett
accepted that there was discussion both as to the need for an infrastructure
agreement and about the need for the pursuers to bring a "big brother" on board
to help with the development of the site which they were to acquire. An infrastructure agreement was obviously
required. The pursuers were happy to go
along with the proposal for a big brother.
However, I do not accept that they were raised at the meeting in such a
way that agreement on these matters was identified as being a pre-condition to
an agreement being entered into. Had
there been the intent to contract at the meeting, these other matters could
have been dealt with later.
[61] I have concluded that there was not that
intent. The most telling observation about
the meeting came from Mr Riddell. When
he was asked in cross-examination what his reaction would have been if, after
the meeting, someone had said that there was a concluded contract between the
pursuers and Persimmon, he replied that he would have checked the date, to see whether
it was 1 April. Mr Riddell is
now employed by a company within the Persimmon group and therefore cannot be
regarded as wholly disinterested in the outcome of the litigation. Nonetheless, he struck me as an honest and reliable
witness. He was essentially an observer
of what was going on between the pursuers and Persimmon at the meeting, and it
seems to me that this comment speaks volumes about the type of meeting it was
and the likelihood of anyone leaving the meeting thinking that a concluded
agreement had been reached.
[62] The follow up to the meeting is also
clearly indicative of no concluded agreement having been reached there. It was clearly intended at the meeting that a
written agreement would be concluded.
The correspondence immediately after the meeting led to Heads of Terms
being proposed. In the letter of 7 March
2002, Dallas McMillan talked of "progress in connection with the transaction" having
been discussed Neither that letter, nor
Morison Bishop's response of 11 March 2002, was in terms which indicated
that either of the parties had told them that a concluded deal had been
done. Draft Heads of Terms were
exchanged. At this stage it appears to
have been the expectation of the parties that a written agreement would be in
place within a matter of days or weeks.
There was no need, therefore, to address the question of whether this
written agreement was to put into writing a deal which had already been struck,
or was to be the means of concluding a deal.
But both parties, through their solicitors, seem to me to have
approached the matter on the latter basis.
The expectation of a quick written agreement was to be disappointed. It was followed by years of negotiation. I interpret the long drawn out negotiations
which followed as part of a process of concluding an agreement rather than
simply reducing to writing and "fleshing out" the agreement that had already
been reached. It is questionable whether
Persimmon took part in this process with the same degree of commitment as was
shown by the pursuers. And certainly it
seems to me that, having strung the pursuers along, they were prepared to bring
an end to the negotiations on a pretext once the agreement with QMUC was
concluded and it was no longer in their interest to continue to deal with the
pursuers. But the court is a court of
law, not of business morality. The fact
that Persimmon behaved in this way does not point me towards a conclusion that
a concluded deal had been arrived at back in March 2002. The whole tenor of the negotiations is
opposed to that conclusion. It is
notable that at no stage during these negotiations, or even in their immediate
response to Persimmon's letter withdrawing from them, did the pursuers insist
that a contract had already been concluded at the meeting of 5 March 2002 and all that was required was to reduce that
agreement into writing.
[63] Having
reached this conclusion it is unnecessary for me to go further and deal with
the submission made by the pursuer that the agreement reached orally at the
meeting became binding and enforceable by reason of the parties' subsequent
actings in terms of section 1(3) and (4) of the 1995 Act. However, in case the matter should go
further, I shall briefly set out the conclusion to which I would have come on
this point.
[64] Section 1(3) and (4) provide as follows:
"(3) Where a
contract, obligation or trust mentioned in subsection (2)(a) above is not
constituted in a written document complying with section 2 of this Act,
but one of the parties to the contract, a creditor in the obligation or a
beneficiary under the trust ("the first person") has acted or refrained from
acting in reliance on the contract, obligation or trust with the knowledge and
acquiescence of the other party to the contract, the debtor in the obligation
or the truster ("the second person") -
(a) the
second person shall not be entitled to withdraw from the contract, obligation
or trust; and
(b) the
contract, obligation or trust shall not be regarded as invalid, on the ground
that it is not so constituted,
if the condition set out in
subsection (4) below is satisfied.
(4) The condition referred to in subsection (3) above is
that the position of the first person -
(a) as a
result of acting or refraining from acting as mentioned in that subsection has
been affected to a material extent; and
(b) as a
result of such a withdrawal as is mentioned in that subsection
would be adversely affected
to a material extent".
Those rules replace the common law rules of rei
interventus and homologation.
[65] The
difficulty with attempting this exercise on a hypothetical basis is that,
although I accept that, at some point much later than 2002, the pursuers
came to believe that they had always had a concluded agreement since 5 March
2002, I have not found that Persimmon ever had such a belief. I could not find, therefore, that Persimmon
had acquiesced in the pursuers' actings with knowledge that they were referable
to or in reliance on a contract having been concluded. If, however, I assume that the parties did
intend to enter into a concluded contract at the meeting in March 2002, it
is no large step to find the provisions of section 1(3) satisfied. On that hypothesis, the pursuers will have acted in reliance on the contract in attending meetings
and incurring expenditure, and they will have done so with the knowledge and
acquiescence of Persimmon. In those
circumstances, had I found that the parties had entered into a concluded oral
agreement at the meeting, I would have found for them on this aspect and
granted declarator as concluded for.
Disposal
[66] For the reasons given, however,
I shall repel the first and second pleas in law for the pursuers, sustain the
second plea in law for the defenders and grant decree of absolvitor.
