Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2010] CSOH 136
CA4/10	OPINION OF LORD GLENNIE in the cause ABDUL AZIZ Pursuer; against GILLIAN LESLIE WHANNEL Defender: ­­­­­­­­­­­­­­­­­

Pursuer: Robertson; Wilson Terris & Co SSC

Defender: MacColl; Aitken Nairn

1 October 2010

Introduction

[1] This is a debate at the instance of the defender on her plea to the relevancy of the claim. The issue between the parties focuses on the terms of clause 10 of the missive letter of 28 July 2004.

The 2004 Missives

[2] By missive letters in July and August 2004 ("the 2004 Missives"), Whitburn Trade Centre Ltd ("Whitburn") agreed to purchase from the pursuer property known as The Bathville Inn, 2 Station Road, West Lothian ("the subjects"). The consideration included a payment by Whitburn of £200,000. The transaction was subject to certain suspensive conditions relative to planning and an environmental report. The Date of Entry was specified as the working day occurring 28 days after the date on which the suspensive conditions were purified or waived.

[3] The 2004 Missives provided by clause 4(a) that, on the Date of Entry, the purchaser, Whitburn, would make payment to the pursuer of the purchase price of £200,000 and would

"enter into a Minute of Agreement with the Seller in terms of a draft thereof annexed and signed as relative hereto ..."

Clause 10 of the 2004 Missives is in the following terms:

"The Missives shall remain in full force and effect until implemented notwithstanding the delivery of a Disposition in favour of the Purchaser ... but that for a maximum period of two years or such longer period as may be necessary if founded upon in any proceedings raised prior to the expiry of the said two year period. A clause to this effect shall be inserted in the Disposition if required by the Purchaser, or letters will be exchanged at the Date of Entry to give effect to the terms of this Clause."

The Minute of Agreement referred to in clause 4 ("the 2004 Minute of Agreement") provided that, as a further part of the consideration for the purchase, the purchaser would, on completion of the development and at no further cost to the pursuer, provide the pursuer with a flat in the development.

The 2005 Missives

[4] The 2004 Missives were amended by further missive letters exchanged in November 2005 ("the 2005 Missives"). The material parts can be taken from the letter of 23 November 2005 from the solicitors acting for Whitburn. In that letter, on behalf of their clients, they offer to amend the 2004 Missives "to the following extent". Only paragraph 1 of that letter is directly material. It provides as follows:

"With regard to the Minute of Agreement annexed to the [2004 Missives] this shall be delete in its entirety and there shall be substituted therefor the Agreement annexed hereto."

Paragraphs 2 and 3 of that letter had the effect of deleting or amending certain clauses of the earlier Missives. Paragraph 4 altered the date of entry and the date of payment of the price so that it became a date three working days following conclusion of the contract of which the letter formed part.

[5] The Minute of Agreement annexed to the 2005 Missives ("the 2005 Minute of Agreement") provided inter alia that Mr James Whannel would replace Whitburn in respect of the development and in respect of its undertakings to the pursuer. The terms of the 2005 Minute of Agreement, so far as material, included the following:

"WHEREAS by missives entered into between [the pursuer] and [Whitburn] ... ("the missives") [the pursuer] and [Whitburn] contracted for the sale of the subjects ... by [the pursuer] to [Whitburn] and for the development by [Whitburn] of [the subjects] belonging to [Whitburn] as one project (hereinafter referred to as "the development"), and Whereas it has now been agreed between [Whitburn) and Mr Whannel with the consent of [the pursuer] that Mr Whannel shall take the place of [Whitburn] in relation to the development and undertake the development personally in his own name and in particular shall undertake the obligations of [Whitburn] to [the pursuer] in terms of the missives as the same shall be varied in terms hereof, and Whereas the suspensive conditions of the missives have now been satisfied or waived and the parties are about to proceed with the development, and Whereas certain further changes to the terms and conditions of the original agreement have become necessary or appropriate and it is right and proper that the terms on which the parties have now agreed be formally recorded THEREFORE the parties have agreed and do hereby AGREE as follows:

1 [the pursuer] shall sell and Mr Whannel shall purchase ALL and WHOLE [the premises] at the price of TWO HUNDRED THOUSAND POUNDS (£200,000) Sterling ("the initial price") and in addition thereto the further consideration and benefits due by Mr Whannel to [the pursuer] hereinafter specified with settlement on the date one week after the date or later date of execution hereof ("the date of settlement").

...

4.1 In addition to the said initial price [the pursuer] shall be granted by Mr Whannel one complete flatted dwellinghouse of the development at no further cost to [the pursuer] ("the free flat") and shall have the option to purchase from Mr Whannel two further flatted dwelling houses of the development at the combined or cumulo price of FIFTY THOUSAND POUNDS (£50,000) Sterling for both flats ("the option flats"). ...

...

4.3 Provided that [the pursuer] shall have given written notice to Mr Whannel of the flat selected by him as the free flat not later than three calendar months before the date of practical completion of the first flat within the development to be passed by the local authority as fit for habitation (the date of practical completion being the earliest date on which the said flat was or was capable of being so passed) settlement of the free flat shall be no later than one calendar month after the date of practical completion of the said first flat. ...

4.4 On the date of settlement of the free flat and/or the option flats Mr Whannel shall deliver to [the pursuer] (in the case of the option flats in exchange for payment of the said price ...) a validly executed Disposition by Mr Whannel in favour of [the pursuer] of the relevant flat or flats with delivery or exhibition of a good and marketable title thereto ... . In addition Mr Whannel will furnish to [the pursuer] such documents and evidence including a plan as the Keeper may require to issue a Land Certificate ... and containing no exclusion of indemnity in terms of Section 12(2) of the Land Registration (Scotland) Act 1979. The Land Certificate to be issued to [the pursuer] shall disclose no deed, entry or diligence prejudicial to [the pursuer's] interest other than such as are created by or against [the pursuer] or have been disclosed to and accepted by [the pursuer] prior to settlement. Notwithstanding delivery of the said Disposition or Dispositions this Clause shall remain in full force and effect and may be founded on until implemented. ...

...

6 In the event of Mr Whannel being prevented from completing the development by circumstances which may reasonably be regarded as beyond his control so that he shall be unable to grant to [the pursuer] the free flat and/or the option flats as herein provided for Mr Whannel shall be liable to compensate [the pursuer] for the loss and damage which he shall sustain as a result of such failure subject to a maximum amount for such compensation of TWO HUNDRED THOUSAND POUNDS (£200,000) Sterling, provided however that ..."

Finally, clause 9 provided that in the event of any variation or inconsistency between the terms of the missives and the terms of the Minute of Agreement, the terms of the Minute of Agreement should prevail.

The 2006 Minute of Agreement

[6] On 24 October 2006 the pursuer and Mr Whannel executed a further Minute of Agreement ("the 2006 Minute of Agreement"). In the recital thereto it was stated:

"WHEREAS the parties hereto have previously completed an agreement whereby [the pursuer] sold and disponed to Mr Whannel [the subjects], and whereas in terms of the said agreement [the pursuer] has right (a) to one flat within the development to be carried out by Mr Whannel at the said subjects at no further cost to [the pursuer] and (b) the option to acquire two further flats within the said development for the cumulo price of £50,000, and whereas the parties have now agreed to vary the said agreement THEREFORE the parties do hereby agree as follows:"

There then followed three clauses which provided a mechanism by which, at Mr Whannel's option, the pursuer could be required to renounce his right to those flats in exchange for a payment by Mr Whannel to him of £150,000. In the event of Mr Whannel not having exercised his option on or before 30 April 2007, the pursuer had the right to give four weeks notice in writing of the withdrawal of that option.

The issue

[7] The option was not exercised by Mr Whannel. The pursuer, as he was entitled to do, gave notice withdrawing the option.

[8] The development has not been completed. Mr Whannel died on 16 June 2007. His death terminated his ability to complete the development and to grant the pursuer the free flat or the option flats. The pursuer contends that on that date his right to claim under clause 6 of the 2005 Minute of Agreement crystallised. He contends that, in terms of that clause, he is entitled to compensation for Mr Whannel's failure to grant him those flats up to a maximum amount of £200,000. He contends, and there appears to be no dispute about this, that the value of the free flat and the option flats is in excess of £250,000 in aggregate. Taking account of the £50,000 payment which the pursuer would have had to make for the option flats, the net value to him had he had the three flats transferred to him would have been in excess of £200,000. This is the sum sued for.

[9] The defender is the executrix nominate of the late Mr Whannel. She does not, as I understand it, challenge the quantum of the claim. Her point is simple. She argues that the missives, upon which the pursuer's case is founded, are subject to a two year contractual time bar which, on any view, expired prior to the commencement of these proceedings. Whatever rights the pursuer may have had, therefore, cannot now be enforced. Accordingly, the action should be dismissed.

Discussion

[10] The issue between the parties turns on a question of construction of the missives and the Minutes of Agreement. There is no dispute about the principles applicable to construing these documents. I do not propose, therefore, to refer to the authorities cited to me on this aspect. As with any contractual term, the court strives to ascertain objectively the intention of the parties in agreeing the particular term or terms. It does so by looking at the words the parties have used in the context of the contract as a whole, giving those words their plain meaning where possible, but having regard also to the background facts and circumstances which the parties knew or must be taken to have had in mind when entering into the agreement. Where there is more than one possible meaning, the court will tend to prefer that which appears to make the most commercial sense, not according to some abstract notion but rather in accordance with what commercial parties in the position of these parties would more likely have intended.

[11] Mr MacColl, who appeared for the defender, took me sequentially through the various documents to which I have referred. So did Mr Robertson for the pursuer. I propose to follow that course too

[12] The contractual time bar, as it is characterized by the defender, appears in clause 10 of the 2004 Missives. Those missives did not have attached to them any concluded Minute of Agreement. What was attached to the 2004 Missives was an agreed draft of the Minute of Agreement which was to be entered into between the parties on the Date of Entry: see clause 4(a). The 2004 Missives were concluded on 6 August 2004. The defender asserts that two year time bar in clause 10 operated from that date. If matters had proceeded in accordance with the 2004 Missives in their original form, on the Date of Entry the purchaser would have been required to pay the purchase price of £200,000 and, at the same time, would have been required to enter into a Minute of Agreement in terms of the agreed draft. Until the parties had entered into a Minute of Agreement in terms of that agreed draft, its terms would have had no legal effect. The relations between the parties would have been governed solely by the 2004 Missives, even after the delivery of a Disposition in favour of the purchaser. Had the purchaser not paid the purchase price, the claim for that price would have been a claim under the 2004 Missives and would have been subject to the two year time bar in clause 10. Similarly, had the purchaser failed to enter into the Minute of Agreement in the agreed terms, the pursuer would have had a claim for implement or damages. That claim would have been a claim under or for breach of the 2004 Missives and would again have been subject to the two year time bar in clause 10.

[13] It is, however, worth observing that clause 10 only applies to claims under the Missives. It is formulated in terms that the Missives remain in force until implemented but only for a maximum period of two years; unless, of course, proceedings are commenced, in which case they continue in force for such period as is necessary for the conclusion of those proceedings. If the parties had proceeded in terms of the 2004 Missives in their unamended form, and on the Date of Entry had entered into a Minute of Agreement in terms of the agreed draft annexed thereto, they would have become bound by the terms of that Minute of Agreement and enforcement of those terms, as opposed to the terms of the missives, would not have been subject to the provisions of clause 10 of the 2004 Missives.

[14] In 2005 an offer to amend the 2004 Missives was accepted. However, the amendment process was not as straightforward as it might have been. The missive letters themselves make certain necessary changes to the 2004 Missives. The suspensive conditions in clause 1 are deleted. The date of entry is deleted and replaced by a new date of entry three working days from conclusion of the new 2005 Missives. And the requirement for a third party guarantee contained in clause 11 was also removed.

[15] However, the most significant change was the replacement of the 2004 draft Minute of Agreement by a new Minute of Agreement (the 2005 Minute of Agreement) between the pursuer and Mr Whannel. Mr Whannel was not said to be a party to the 2005 Missives themselves - he appeared only in the 2005 Minute of Agreement. As Mr MacColl pointed out, the 2005 Minute of Agreement was not executed. In the missive letter of 23 November 2005, the deletion of the 2004 Minute of Agreement and its replacement by the 2005 Minute of Agreement is dealt with as part of the amendment of the missives. If that were taken at face value, it would appear to mean that the 2005 Minute of Agreement took affect as the new set of agreed terms to be entered into on the new Date of Entry, replacing the 2004 Minute of Agreement. Clause 4(a) of the 2004 Missives was unamended. Reading clause 4(a) in the context of the missives of which it formed part, as amended by the 2005 Missives, the obligation on the purchaser on the Date of Entry would be to make payment of the purchase price and to enter into an agreement in terms of the 2005 Minute of Agreement. Until then the 2005 Minute of Agreement would have no legal effect - it would simply be a draft of an agreement to be entered into. That, as I understood it, was Mr MacColl's principal submission. He emphasised that the only binding agreement between the parties was the 2004 Missives, as amended in 2005, and that despite the amendments clause 10 remained in full force.

[16] The problem with this construction is that the 2005 Minute of Agreement, although not executed, contains terms which are clearly intended to have immediate effect. The substitution of Mr Whannel for Whitburn is effected by the 2005 Minute of Agreement, not by any other part of the amendment to the missives. Is is only in terms of the 2005 Minute of Agreement that Mr Whannel comes under any obligation to purchase the subjects. Accordingly, it seems likely that the parties to the 2005 Missives intended the 2005 Minute of Agreement to be binding immediately, even though it had not been executed.

[17] The Preamble to the 2006 Minute of Agreement assumes, indeed states in terms, that the parties "have previously completed an agreement" whereby the pursuer sold to Mr Whannel the subjects and in terms of which the pursuer had a right to the free flat and the two option flats. That must be a reference to the 2005 Minute of Agreement. The three numbered clauses following the preamble only make sense on the basis that the pursuer has a right to the flats, because they give Mr Whannel an option, exercisable by notice in writing, to require the pursuer to give up that right.

[18] Mr MacColl recognised this. His primary response, as I understood it, was that if the parties thought that they had already entered into such an agreement, they were wrong. The 2005 Minute of Agreement had not been executed. The only obligation on the parties was that contained in the Missives. Insofar as the 2006 Minute of Agreement purported to vary the 2005 Minute of Agreement, it was doing no more than varying the terms of a draft Minute of Agreement which the parties were obliged, in terms of the amended missives, to enter into on the Date of Entry. Until the parties did in fact enter into a Minute of Agreement in the agreed (revised) terms, relations between them were governed and governed only by the terms of the missives, i.e. the 2004 Missives as amended by the 2005 Missives.

[19] Mr MacColl's alternative argument was that if, contrary to his primary case, the 2005 Minute of Agreement, albeit not executed, had some contractual effect, it had that effect as part of the amendment of the 2004 Missives. In other words, it was to be read as part of the missives and along with the other terms thereof. Accordingly, the obligations on the parties in terms of the 2005 Minute of Agreement were subject to the same two year time bar as were the other provisions in the missives. The 2006 Minute of Agreement varied the terms of the 2005 Minute of Agreement and those terms as varied were to be treated as part of the missives and also subject to the two year time bar.

[20] Mr Robertson, for the pursuer, argued that, on a proper reading of the 2005 Missives, the parties had accepted and agreed to the terms of the 2005 Minute of Agreement. Although there was no formal amendment to clause 4(a) of the 2004 Missives, the clear intention of the parties must have been that they were then and there agreeing to be bound by the 2005 Minute of Agreement. Otherwise the amendment agreed by the parties in 2005 would have been largely ineffective. The main purpose of that amendment appeared to have been to change the identity of the purchaser from Whitburn to Mr Whannel. The obligations in respect of the purchase price and the flats were obligations imposed on Mr Whannel. If the 2005 Minute of Agreement was to be regarded as no more than a draft agreement to be entered into on the Date of Entry, in the same way as the 2004 Minute of Agreement, this part of the changes which the parties intended to make in 2005 would not in fact have been made. But that made no commercial sense. By the time of the 2006 Minute of Agreement, the parties appear to have recognised that an agreement had been concluded in terms of the 2005 Minute of Agreement, and in particular that the purchaser was now Mr Whannel and that Mr Whannel had agreed to grant the pursuer one free flat and two option flats. That only made sense if in 2005 the parties, i.e. the new parties, the pursuer and Mr Whannel, had intended there and then to be bound by the terms of the 2005 Minute of Agreement.

[21] I prefer the submissions for the pursuer. It seems to me to be clear, despite the obvious infelicities of drafting, that in 2005 the parties deliberately entered into a binding agreement in terms of the 2005 Minute of Agreement. This clearly reflected a change from how the 2004 Minute of Agreement was intended to come into effect. The 2004 Minute of Agreement was only to take effect when subscribed by the parties on the Date of Entry. That made sense in the context of the 2004 Missives as they then were being subject to various suspensive conditions such as the grant of planning permission and the obtaining of reports on ground and environmental conditions. No doubt those suspensive conditions would have taken some time to purify, and there must have been a risk that they would not in fact be purified. In those circumstances, it made good sense to stipulate that the agreed terms of the draft Minute of Agreement attached to the 2004 Missives should only come into effect on the Date of Entry, when the suspensive conditions had been purified. By 2005 the position had changed. The amendment in the 2005 Missives removed the suspensive conditions, presumably because they had been purified or possibly because they had been waived. At all events, the Date of Entry was amended. It was to be three days after conclusion of the 2005 Missives. It was not contingent upon anything happening. There was therefore no reason to delay the entering into of the Minute of Agreement on the revised terms. Had the parties consider the matter more carefully, they would have realised that clause 4(a) required to be amended. But the failure to amend it appears to me simply to be an oversight. The 2005 Minute of Agreement contained within it agreement on a number of points, which agreement was essential if the deal was to go ahead with the new purchaser. In those circumstances it cannot have been intended that it should not take effect unless separately entered into on the Date of Entry. The 2006 Minute of Agreement recognised that the parties had made an agreement in those terms.

[22] Clause 10 of the 2004 Missives provides that the missives should continue to remain in full force and effect until implemented, but only for a maximum period of two years. It seems to me to be plain that had matters proceeded in terms of the 2004 Missives, and the purchasers had entered into a Minute of Agreement in terms of the draft annexed to the 2004 Missives, that Minute of Agreement would have constituted a separate agreement from the missives themselves. In those circumstances I find it difficult to see how the two year limitation could have applied to obligations under the Minute of Agreement. In terms it bites only upon the duration of the missives. When, subsequently, the parties reached agreement in terms of the 2005 Minute of Agreement, that too took effect as an agreement separate from the missives themselves. I see no basis upon which it can properly be said that the terms of clause 10 of the 2004 Missives have any impact on the obligations entered into in terms of the 2005 Minute of Agreement. Nor do they have any impact on those obligations as amended by the 2006 Minute of Agreement.

[23] For those reasons I reject the submissions made on behalf of the defender. Given that that was the only substantive defence raised by the defender, it would seem appropriate to grant decree de plano in terms of the Conclusions of the Summons. I was, however, asked to put the matter out By Order in the event that I should be against the defender and I shall do so.

[24] In the course of his submissions, Mr Robinson drew my attention to the case of Lonergan v W&P Food Service Ltd. 2002 SLT 908. On the strength of that decision he argued that clause 10 of the 2004 Missives was in any event unenforceable because it was uncertain in its terms. It did not contain a starting point from which the two year period was to run, nor could one be implied. Standing the conclusion which I have reached on the main point, I do not need to decide this question. For my part, unaided by authority, I would have come to the conclusion that it was implicit in the terms of clause 10 that the period of two years commenced on the conclusion of the missives of which that clause formed part. But I note that Lord Clarke came to a different conclusion and I would, with respect, defer to his view on the matter.

Disposal

[25] I shall put the case out By Order for further consideration