Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2009] CSOH 122
P24/08	OPINION OF M G THOMSON, QC (Sitting as a Temporary Judge) in the petition of THOMAS PARK AND ANOTHER Petitioners; For Partial Recall of Inhibition ­­­­­­­­­­­­­­­­­________________

Petitioners: Davidson; Wilson Terris & Co

Respondent: Bartos; Balfour + Manson LLP

25 August 2009

Background

[1] The petitioners, who are spouses, are tenants under the long lease of heritable subjects known as "The Grapevine Restaurant", in Bothwell ("the subjects"). The respondent, as pursuer, raised an action against, amongst others, the petitioners, as defenders, in Hamilton Sheriff Court. In that action the respondent sought payment from the defenders jointly and severally of the sum of £204,000. The respondent inhibited the petitioners on the dependence of that action by means of letters of inhibition registered on 18 September 2007 following registration of a notice of inhibition on 31 August 2007.

[2] In the present petition proceedings the petitioners seek recall of that inhibition but insofar only as it relates to the subjects. They do so on the basis first that missives for the sale of the long lease had been concluded before the inhibition became effective, and secondly that if the subjects had been caught by the inhibition they should be released on the ground of oppression. On 2 July 2008 Lady Dorrian heard a debate on the procedure roll on the question of the precise time at which the inhibition became effective. In her Opinion dated 19August 2008 she concluded that the inhibition in question became effective from the conclusion of the day on which the notice of inhibition had been registered, namely 31 August 2007. Thereafter the case was put out for a by order hearing at which time a preliminary proof was allowed.

[3] When the case called before me, parties were agreed that the hearing should be confined to the question of whether the missives for the sale of the long lease of the subjects had been concluded before midnight on 31 August 2007. If the missives had been concluded by that time, parties were agreed that the inhibition would not have been effective to catch these missives but that if the missives had not been concluded until some time after that time, the subjects would have been caught by the inhibition. At the beginning of the hearing parties tendered a joint Minute of Admissions (No 24 of process) in which the relevant facts were agreed. In these circumstances no evidence was lead by either party and the hearing proceeded as a debate.

The Facts

[4] By letter dated 2 August 2007 Messrs Carr Berman Crichton ("CBC") solicitors for a prospective purchaser, Mr Sattar, sent an offer to purchase from the petitioners an assignation of their tenants' interest in the lease of the subjects together with the business carried on therein and the contents thereof. On 10 August 2007 Messrs Sneddon Morrison ("SM"), the petitioners' solicitors, sent an unexecuted draft qualified acceptance to CBC. Over the next few weeks several drafts of the qualified acceptance were adjusted by the respective solicitors.

[5] On 31 August 2007, at about 14.50 hours, SM faxed to CBC a copy of an executed qualified acceptance still bearing the date 10 August 2007. Later that afternoon and during business hours CBC faxed to SM a copy of an executed final letter accepting the qualified acceptance. Thereafter, and prior to 1700 hours on 31 August 2007, SM and CBC posted the original executed qualified acceptance and original executed final letter to each other by Legal Post. The original executed final letter from CBC reached the offices of SM after midnight on 31 August 2007. The original executed qualified acceptance from SM reached the offices of CBC on Monday 3 September 2007.

Statutory provisions

[6] Section 1(2) of the Requirements of Writing (Scotland) Act 1995 provides inter alia:

"Subject to subsection (3) below, a written document complying with section 2 of this Act shall be required for -

(a) the constitution of -

(i) a contract or unilateral obligation for the creation, transfer, variation or extinction of a real right in land;....".

[7] Section 2 of the 1995 Act provides inter alia:

"(1) No document required by section 1(2) of this Act shall be valid in respect of the formalities of execution unless it is subscribed by the granter of it or, if there is more than one granter, by each granter, but nothing apart from such subscription shall be required for the document to be valid as aforesaid.

(2) A contract mentioned in section 1(2)(a)(i) of this Act may be regarded as constituted or varied (as the case may be) if the offer is contained in one or more documents and the acceptance is contained in another document or other documents, and each document is subscribed by the granter or granters thereof.....".

Submissions for the Petitioners

[8] Counsel for the petitioners submitted that missives for the sale of the subjects had been concluded in the course of 31 August 2007, that the transaction had not been caught by the inhibition and accordingly that it should be partially recalled in terms of the prayer of the petition. There were two strands to his submission; first, the postal acceptance rule, and secondly, the existing authorities on writings transmitted by fax. He relied on both strands equally.

[9 Counsel referred to Lord Hodge's explanation of the postal acceptance rule in Carmarthen Developments Limited v Pennington [2008] CSOH 139. At paragraph 12 Lord Hodge explained:

"The postal acceptance rule is an established part of the law of contract in both Scots law and English law. But it is an exception to the general rule that the acceptance of a contractual offer has no effect until it is communicated to the offeror. See McBryde, para.6.901 and Chitty, para.2.043. The postal acceptance rule has its place in both legal systems as the court in those systems ascertains objectively when parties have reached consensus in idem and thereby entered into a contract. This ascertainment occurs in the context that once the offeror has made his offer he may withdraw the offer only by communicating that withdrawal to the offeree. The offer may also fall through the lapse of a reasonable time or a time limit in the offer. Until the occurrence of one of those events, the offeree may accept the offer. Where an offeror by his actions is taken to have contemplated that the offeree might use the post to send his letter of acceptance, the posting of that letter brings the contract into existence before the offeror is aware that his offer has been accepted. This is clear from the Opinion of the Lord President (McNeill) in Thomson v James as p.11 he stated:

'By putting the letter of acceptance into the post office, the offeree did just what he had been invited to do, and all that it was incumbent on him or possible for him to do by way of acceptance, by the mode of communication which he was authorised, if not invited by the offeror to adopt.'

Lord Deas approached the matter similarly at p.25 in that case".

Lord Hodge also observed (at paragraph 13) that counsel had been unable to point to any authority in Scots law in which the postal acceptance rule had been applied to communications other than the acceptance of a contractual offer.

[10] Counsel for the petitioners also referred to Stamfield's Creditors v Scott (1696) Br.Supp.IV 344. That case concerned the assignation of a share of a cloth-manufactory erected at Newmilns. The assignation was executed by the granter the day before he was murdered. Shortly before his death the granter had met the assignee and had told him that the assignation had been "subscribed and directed for him, and lying on his table". The morning after the death of the granter the assignation was found lying on his table with a direction for the assignee. The assignee argued that the circumstances were the equivalent to a delivery or a clause dispensing. The creditors of the deceased granter contended that the assignation was not effective. It was revocable and alterable at the will of the granter because it remained in his possession. The Court preferred the creditors apparently on the basis that the assignation remained undelivered at the date of the granter's death.

[11] Reference was also made to Cusine & Rennie on Missives, 2^nd ed., at para.3.14 for a modern statement of the postal acceptance rule. It was submitted that the postal rule applied to the third of the three letters comprising the missives in the present case.

[12] Counsel for the petitioners then turned to three cases on the status of communication by fax. The most directly analogous was the decision of Sheriff Sir Stephen Young in McIntosh v Alam 1998 SLT (Sh.Ct.) 19. That case concerned an attempt to enforce missives for the sale of heritable property. Those missives consisted of an offer and a qualified acceptance, both of which had been sent by post, and an unconditional acceptance which had been transmitted by fax only. The question was whether there was a binding contract. The sheriff held that the faxed copy of the acceptance letter did not itself constitute a duly subscribed written document within the terms of section 2 of the Requirements of Writing (Scotland) Act 1995, but that the fax was evidence of the existence of a subscribed acceptance which could be communicated by fax. The sheriff rejected the submission that delivery of the final acceptance was required (at 21F-I):

"There is a clear distinction between, on the one hand, a document which may be required for the constitution of a contract for the transfer of property and, on the other hand, a document which may be required for the transfer itself. It is no doubt true that in many situations a document of transfer will only become binding upon delivery to the grantee. But as Professor McDonald observes at pp.37-38 of his book, certain deeds do not require to be delivered in order to become effective. These include bilateral contracts which become binding once executed by all the parties. In the case of missives for the sale of heritable property, the contract is not complete until a final acceptance by one party's solicitors which meets the requirements of the 1995 Act is communicated to the other party's solicitors. But in my opinion it is incorrect to say that the fact that such an acceptance has been subscribed may only be communicated by delivery of the original document. On the contrary, this may, in my view, equally well be communicated by facsimile transmission. Depending upon the circumstances I can understand that a solicitor might be unwise to advise his client to rely on such a facsimile transmission. But the difficulty, if it arose, would I think be one of proof rather than of principle. And in the present case the difficulty does not arise since it is not in dispute that an acceptance was indeed subscribed by the defenders' solicitors in accordance with the requirements of the 1995 Act and was subsequently transmitted by fax to the pursuers' solicitors."

Counsel accepted that this case was not binding authority but submitted that the reasoning was persuasive and in point.

[13] The second case was Merrick Homes Limited v Duff, (OH) 1996 GWD 9-508; (IH) 1996 SC 497. This was another case involving an attempt to enforce missives for the sale of heritable property. The Lord Ordinary, Lord Gill, held that the defence was unfounded. He considered and rejected a number of arguments which had been advanced on behalf of the defenders. One such argument concerned the suggestion that the missives were not binding because they had both been transmitted by fax. Lord Gill rejected this argument on the basis that there was no record for it. He also rejected it on the basis that hard copies of the missives had subsequently been exchanged in the normal course of post. Accordingly his observations on the effect of the fax transmissions were obiter. After narrating the submission that the missives were not binding because they were both transmitted by fax, Lord Gill stated (at page 64):

"In any event, it would be unfortunate if senior counsel's proposition represented the law. In my opinion it does not. The principle governing an obligatio literis is that solemnly authenticated writing, or its equivalent, is essential to the constitution of the obligation (Bell, Princs, s.18); but no special solemnity affects the means by which the parties communicate their writings to one another. In my opinion, an offer or an acceptance in a case such as this can be communicated as validly by fax as it would be by delivery by hand or by post. Senior counsel did not suggest any practical reason why that should not be the law and I can see none. I can find no support for the argument for the first defender in anything said by Lord Clyde in EAE (RT) Ltd v EAE Property Ltd (supra)."

[14] A subsequent reclaiming motion was refused. With regard to the fax argument the Opinion of the Court was (at 499H-I):

"The second submission advanced to us was that a contract which required to be constituted in writing could not be constituted by the transmission of the missives by fax. It was recognised by the reclaimer that the point was academic in the present case since the actual letters were transmitted to the opposite party as well as fax copies. It is unnecessary in these circumstances to determine the question of principle and we would reserve any opinion about it. We should, however, not be taken to be endorsing the view expressed by the Lord Ordinary where he indicates that an obligatio literis could be constituted by fax. The point is not one for decision in this case."

[15] The third case referred to by counsel for the petitioners was EAE (RT) Limited v EAE Property Limited 1994 SLT 627. That case concerned a rent review clause which required "notice in writing" to be given and the question was whether that requirement had been met by a fax transmission. Lord Clyde found assistance from the case of Hastie and Jenkerson v McMahon [1990] 1 WLR 1575, which concerned the terms of the procedural rules of the English court and compliance with an order for the service on a party of a list of documents. Lord Clyde quoted the reasoning of Woolf LJ to the effect that the purpose of serving a document was to ensure that its contents were available to the recipient and whether the document was served in the conventional way or by fax the result was exactly the same. Lord Clyde concluded:

"In the present case no question of the illegibility of the fax is suggested. After the transmission was complete there was a notice in writing in the hands of the defender on the due date. If, as I hold, there is no necessity for a particular piece of paper constituting the notice to be the piece of writing which passes from the landlord to the tenant and no restrictions are placed on the method used, it seems to me that the fax transmission satisfies the requirements of the lease."

[16] Counsel for the petitioners also referred to various commentaries on the fax issue and on the first two of these cases; Professor Cusine and Professor Rennie on Missives (cit supra), two articles by Professor Rennie at 2000 SLPQ 346 and in Green's Property Law Bulletin - Issue 32, 1998 p.2, and Professor Gretton and Professor Reid on Conveyancing, 3^rd edition, at pp.46-47. In their work on Missives, Professors Cusine and Rennie note the decisions in Merrick Homes Limited v Duff and McIntosh v Alam and conclude:

"Notwithstanding the decision [in McIntosh v Alam] it is clearly safer to follow up faxed missives by hard copy duly subscribed."

Professors Gretton and Reid in Conveyancing, 3^rd edition, come to a different conclusion (at page 47):

"We tentatively suggest that when the law requires that a contract be in writing that means that a piece of paper produced to the other party, and that an unsigned copy of such a document is insufficient. If that is right then missives cannot be concluded by fax."

Counsel for the petitioners invited me to follow the reasoning of Sheriff Sir Stephen Young and Lord Gill and to hold that missives had been concluded on 31 August 2007.

Submissions for the Respondent

[17] Counsel for the respondent drew attention to the terms of sections 1(2)(a)(i) and 2(1) and (2) of the 1995 Act. He submitted that in contracts for the transfer of heritable property there was a requirement for writing both before and after the 1995 Act and that that Act had not changed the need for delivery of missives. He then addressed the two specific submissions on behalf of the petitioners. With regard to the postal acceptance rule, he submitted that it applied only to the third missive letter and not to the qualified acceptance. He submitted this limitation in the application of the rule arose from the invitation in the offer to accept by post. In the present case the qualified acceptance amounted to a counter-offer so that it was the source of the invitation to accept it by post. He accepted that the rule applied to the third missive letter but submitted that it did not apply to the second one, the qualified acceptance. He referred to the reasoning of Lord President McNeill at pages 15-16 and Lord Deas at page 24 in Thomson v James (1855) 18 D 1.

[18] With regard to the fax issue counsel for the respondent submitted that there could not be constructive delivery of a deed or writing by means of transmission of a copy. Under reference to the decision in Stamfield's Creditors v Scott, he submitted that the law in Scotland has always been hostile to the notion of delivery of anything other than the principal writ itself. He submitted that that case illustrated the proposition that intention alone was not sufficient. There had to be delivery. He also made reference to the opinions in Thomson v James. On the specific need for delivery, counsel cited Erskine's Institutes, Book 3, Title 2, paragraph 43:

"A writing while it is in the granter's own custody is not obligatory; for as long as it is in his own power he cannot be said to have come to a final resolution of obliging himself by it."

[19] Counsel for the respondent then addressed the cases of Merrick Homes Limited v Duff and McIntosh v Alam. He submitted that the authorities on delivery did not appear to have been considered in either case and that there were strong practical reasons for requiring delivery of the principal writ rather than transmission by fax. He submitted that delivery was required in the interests of certainty and justice and for the prevention of fraud. Only delivery, and not transmission by fax, showed a clear intention by the signatory to be bound. Counsel also drew attention to the apparent consequence of the reasoning of Sheriff Sir Stephen Young and Lord Gill that missives could be concluded simply by an exchange of faxes with both the offeror and the accepter retaining his own offer and acceptance respectively. That appeared to fly in the face of the delivery requirement.

[20] Counsel for the respondent submitted that if I found that missives had not been concluded on 31 August 2007, further procedure would be required to address the oppression argument.

Discussion

[21] In my opinion the postal acceptance rule does not assist the petitioners in this case because both the qualified acceptance and the final acceptance were posted on 31 August 2007. The qualified acceptance constituted a counter-offer which was then open for acceptance. The qualified acceptance had to contain the implied invitation to respond by post but there was no authority for the postal acceptance rule to apply to anything other than the final acceptance. Logically the postal acceptance rule could only assist the petitioners if their second argument relating to the fax transmission of the qualified acceptance was successful. I do not consider therefore that the postal acceptance rule can assist the petitioners unless they have first been successful in their second argument.

[22] It is clear in my view that as a general rule delivery of missives is required. The rule, and the reason for it, are succinctly stated by Erskine in his Institutes at 3.2.43. At paragraph 44 he set out a number of exceptions to the general rule. The sixth of those exceptions is that mutual obligations or contracts signed by two or more parties for their different interests require no delivery "because every such deed, the moment it is executed, becomes a common right to all the contractors." Missive letters do not, in my opinion, fall into this category. This is a distinction reflected in section 2(2) of the 1995 Act.

[23] The principal reason for the delivery rule was that as long as a writing remained in the granter's own custody, he was free to change his mind and to destroy it or at least not to deliver it. The postal acceptance rule is consistent with this reasoning because at the moment of posting, the granter puts the writing beyond his control. The position with regard to a fax is different. The granter of the writing retains the custody of the writing but a copy of it is created electronically in the hands of the recipient. It appears to me that the question is whether the fact of the recipient having received that copy is sufficient to prevent the granter from being able to destroy it. Is the granter barred from doing so by the fact of the fax transmission, or has he done no more than demonstrate to the recipient of the fax the existence of the principal which is still in the hands of the granter? In my opinion the answer to that question depends upon the intention of the parties which may be derived either from a general practice among solicitors or from a specific agreement between the particular solicitors exchanging the particular missives. In the present case there was no suggestion of such a particular agreement either from the terms of the original offer or any ancillary agreement between the solicitors. Neither was there any suggestion of a general practice among members of the profession. Quite the contrary. The advice from Professors Cusine and Rennie is that, notwithstanding the decisions in Merrick Homes v Duff and McIntosh v Alam, "it is clearly safer to follow up faxed missives by hard copy duly subscribed." That advice would be unnecessary if there was a general practice of treating delivery of a faxed copy as precluding the granter from departing from the terms of the missive. Such a practice might involve a solicitor who has sent a missive by fax, thereafter holding the signed principal on behalf of the receiving solicitor. The views of Professor Gretton and Professor Reid are even less suggestive of the existence of such a general practice:

"We tentatively suggest that when the law requires that a contract be in writing that means a piece of paper produced to the other party, and that an unsigned copy of such a document is insufficient. If that is right missives cannot be concluded by fax."

It would equally be open to the sender of any missive by fax to state thereon that from the time of transmission of the fax the sending solicitor would thereafter hold the missive which had been transmitted on behalf of the receiving solicitor, thereby achieving constructive delivery.

[24] I have considered the reasoning of both Sheriff Sir Stephen Young and Lord Gill in their two respective cases, but I do not find that either has addressed the authorities on delivery of writings to which my attention has been drawn. For example, Lord Gill expressed the opinion that an offer or an acceptance could be communicated as validly by fax as it would be by delivery by hand or by post. He stated that senior counsel did not suggest any practical reason why that should not be the law and he could see none. In my view the practical difference is that in delivery by hand or by post the granter has put the writing beyond his control whereas a transmission by fax leaves the principal in the hands of the granter. In that state of affairs it is not self evident that the granter has come to a final resolution to oblige himself by the terms of the writing in question.

[25] In my opinion the decision of Lord Clyde in EAE (RT) Limited v EAE Property Limited does not provide direct assistance in the present case. He was concerned with the interpretation of a potential provision requiring "notice in writing" in a lease. It appears to me from his reasoning that he regarded the content of the notice as being more important than its form. In those circumstances there was little difficulty in treating a fax transmission as satisfying that particular contractual requirement, as Woolf LJ had found in Hastie & Jenkerson v McMahon in relation to compliance with the terms of a particular procedural rule of the English Court.

Decision

[26] For these reasons I conclude that the fax transmissions of the qualified acceptance and the final acceptance on 31 August 2007 were insufficient for the conclusion of missives on that date and that the postal acceptance rule did not apply to the qualified acceptance. Accordingly I find that missives were not concluded on that date.

[27] In these circumstances the oppression argument requires to be considered and I shall put the case out by order for discussion on further procedure.