Scottish Court of Session Decisions

Pursuers: Young, QC; Lindsays

Defenders: Martin QC; McIlvryde; Gillespie Macandrew LLP

3 April 2012

[1] This opinion is the sequel to an earlier opinion issued in the same action on 9 September 2011. The action arises out of a contract for the sale of a site for residential development by the defenders to the pursuers. That site was situated at Broomhouse, on the outskirts of Glasgow. In the event that the site at Broomhouse was not available within a specified time, the defenders were obliged to offer an alternative site meeting certain criteria, namely a residential development site within Central Scotland of comparable size and value to the site originally offered. The Broomhouse site was not available within the time specified in the contract, and an alternative site in Airdrie was put forward by the defenders. The pursuers rejected that site as not meeting the criteria in the parties' contract. They took steps to rescind the contract in circumstances that are more fully described in this opinion. Thereafter they raised the present action for damages for breach of contract. The defenders contended that the Airdrie site met the criteria in the parties' contract and had been duly offered to the pursuers as required by that contract. On that basis they contended that they were not in breach of contract. A proof before answer was allowed on the question of whether the defenders were liable for breach of contract. The opinion of 9 September 2011 was issued following that proof.

[2] In the opinion I concluded that the Airdrie site was not of comparable value to the Broomhouse site and that the defenders were accordingly in breach of contract. To that extent the pursuers were successful in the proof, but my findings of fact were not fully in accordance with the position that they had taken in their submissions. I accordingly had the case put out by order in order that parties might address me on the consequences of my findings. When that was done, the defenders requested that the case should be appointed to debate in order that parties could discuss fully the implications of my opinion. I agreed to that proposal, and the present opinion is issued following that debate.

[3] The parties' contract took the form of missives dated 18 April and 26 May 2006 in terms of which the parties agreed to the sale of an area of land at Broomhouse, Glasgow by the defenders to the pursuers. The details of the transaction and its factual background are set out in my earlier opinion; in short, the pursuers had sold another area of land to the defenders, and the land at Broomhouse was offered in return. Nevertheless, the contract for the sale of the Broomhouse land was a freestanding contract. The area of land at Broomhouse extended to an area of 6.6 acres or thereby, and was sold at a price of £4,160,000, subject to deduction of certain costs necessary to remedy abnormal ground conditions. The contract made provision for certain works to be carried out by the defenders prior to the sale of the subjects. Those works, described as the Seller's Works, were defined as the installation of roads, footpaths and other services, the upgrading and realignment of a nearby road, Boghall Road, and the construction of a roundabout at the junction of Boghall Road and Baillieston Road. The road works were necessary to obtain access to the subjects in a manner acceptable to the local authority. Condition 10 of the missives, dealing with the Seller's Works, provided as follows:

"The Seller shall be obliged to Complete the Seller's Works... by the Long Stop Date, and that generally in accordance with the Consents for the Seller's Works and to such standard as will allow the Purchasers to develop the Subjects with the view to completing and selling residential units thereon...".

The Long Stop Date was defined as 15 December 2007; provision was made for an extension, but nothing was done in that connection. Condition 12 of the missives provided as follows:

"In the event that the Seller has failed to Complete all of the Seller's Works or the Seller has not fully implemented the Seller's Obligations by the Long Stop Date as such date may be extended... then the Seller will be obliged to offer to sell to the Purchaser another residential development site within Central Scotland of comparable size and value to the Subjects. Upon settlement of the transaction contemplated by the Missives in respect of the said other residential development site the Missives to follow hereon (of which this offer forms part) shall be terminated".

[4] The defenders had difficulty in completing the Seller's Works for reasons that are considered in the earlier opinion. It was known in advance that the works would not be completed by the Long Stop Date, and the alternative site in Airdrie was offered, initially in September 2007 and again in December 2007. Neither of those offers was accepted, and 11 February 2009 the pursuers' agents wrote to the defenders' agents to give notice calling on the defenders "to comply with their contractual obligations to complete the Sellers Works", and to give notice that if the Seller's Works were not completed by 15 May 2009 the pursuers reserved the right to rescind the contract. On 12 June 2009 the pursuers' agents wrote to the defenders' agents in an attempt to rescind the missives on the ground of the defenders' material breach of contract. That letter, so far as material, provided as follows:

"We refer to the missives dated 18^th April and 26^th May 2006 ('the Missives') in respect of the purchase by our clients Persimmon Homes Limited... and your clients Bellway Homes Limited... of the subjects extending to 6.6 acres thereby at Broomhouse, Glasgow.... On behalf of our clients we hereby rescind the Missives as a result of your clients material breach of contract in that they have failed to complete the Seller's Works by the Long Stop Date of 15^th December 2007 as required by Condition 10 of your offer dated 18^th April 2006 and by the date of 15^th May 2009 as specified in a letter to you of 11^th February 2009, reserving to our clients the right to claim damages from your clients arising from their breach of contract".

[5] It can be seen that the ground on which the pursuers purported to rescind the Missives was a breach of condition 10 of the missives. That is the provision that obliges the defenders to complete the Seller's Works by the Long Stop Date. In the event, however, I held in my earlier opinion that the defenders' failure to implement the obligation in condition 10 timeously did not give rise to an actionable breach of contract sounding in damages; it rather subjected the defenders to the obligation in condition 12, that being the remedy expressly provided by the contract. Thus the breach of contract that I ultimately found proved involved a combination of the failure to implement the obligation in condition 10 and the failure to offer an alternative site that complied with condition 12.

[6] The defenders now contend that on a proper construction of the parties' contract they were not limited to merely one opportunity of identifying a site that satisfied condition 12. If the defenders offered a site that did not meet the requirements of that condition, they should not be treated as being in material breach of contract, and they were entitled to offer an alternative site that did comply with condition 12. On that basis, the defenders submitted that the pursuers had failed relevantly to aver any breach of contract by the defenders. Time is not normally of the essence of a contract for the sale of heritage unless it is made so by use of the ultimatum procedure. In the present case the ultimatum procedure had not been used, and accordingly the defenders were still entitled to offer an alternative site that met the requirements of condition 12. Consequently, the critical question was whether the missives had been properly rescinded by the pursuers' agents' letter of 12 June 2009. That letter had been based solely on breach of condition 10, and no reference was made to condition 12. In view of that omission it could not be said that the contract had been rescinded.

[7] The pursuers' reply is in two parts. First, they submit that it would be inequitable to permit further argument on matters relating to liability following the earlier proof before answer; all such matters ought to have been dealt with in the course of that proof. The question of whether the defenders were in breach of contract had been raised squarely at the proof, and the defenders' present arguments ought to have been presented then. Secondly, the pursuers submit that a notice of rescission does not require to be in any particular form or to state a specific reason, or even the correct reason, for rescission. The critical question was what a reasonable recipient would understand by the notice, on a commercially sensible construction. The notice sent by the pursuers' agents clearly advised the defenders that the missives were being rescinded. It stated correctly that there had been a failure to comply with condition 10, and the absence of a reference to condition 12 was irrelevant. Moreover, the defenders were aware that the pursuers did not consider that an appropriate alternative had been offered under condition 12. The failure to satisfy both condition 10 and condition 12 was a valid reason for rescission of the missives. The failure to make use of the ultimatum procedure was irrelevant, because the defenders expressly averred that they did not have any comparable site in their land bank during the period from 15 December 2007 to 12 June 2009. Commercial difficulties of this nature were irrelevant in considering the reasonableness of the time within which a contractual obligation had to be satisfied. Because of the lack of any suitable alternative site the defenders would be unable to establish that giving extra time to satisfy condition 12 would have made any difference.

[8] For reasons discussed below, I am of opinion that the pursuers' second argument is correct, and that the contract has been validly rescinded. On that basis it is unnecessary for me to consider their first argument. Had it been necessary for me to do so, however, I would have held, with some hesitation, that the question of whether the contract had been validly rescinded was a matter that remained open for debate. At the proof, the pursuers' primary contention was that the defenders were liable to pay damages merely as a result of a breach of condition 10. I rejected that contention, holding instead that the actionable breach arose from the failure to comply with both condition 10 and condition 12. It is clear that that possibility was within the contemplation of the parties, because detailed evidence was led as to the comparable size and value of the Broomhouse and Airdrie sites. That evidence was only relevant in the event that condition 12 became operative. Nevertheless, the actionable breach of contract that I found to exist was not the same as the pursuers' primary contention, and I had the case put out by order in order that the parties could address me on the consequences of my findings. I consider that the question of what had happened following on the breach of contract that was found to exist was a matter that had not been fully explored by either side in the course of their submissions following the proof. Consequently it appears to me to be a matter that can properly be debated at this stage.

[9] Nevertheless, I am of opinion that the pursuers are correct in submitting that the contract was validly rescinded by their agents' letter of 12 June 2009. This point is crucial, because if the missives had not been rescinded the defenders would have been entitled to offer a further alternative site. Condition 12 is not limited to a single offer of an alternative site, and consequently when the first site was rejected a second might have been offered. Indeed, the pursuers conceded that prior to rescission a series of alternative sites might be offered.

[10] In considering the effectiveness of the letter of 12 June 2009, three principles are important. First, provided that the intention to rescind is clear, the fact that no reason or the wrong reason is given is not normally significant. The classic statement of the law is found in the opinion of Devlin J in Universal Cargo Carriers Corporation v Citati, [1957] 2 QB 401, at 443:

"[C]an the rescinder, having rescinded for the wrong reason, perhaps because he misinterpreted the conduct of the other side, justify his action by relying on facts which come to his knowledge thereafter and with the aid of which he can prove inability [to perform]? It is now well settled that a rescission or repudiation, if given for a wrong reason or for no reason at all, can be supported if there are at the time facts in existence which would have provided a good reason".

That statement of the law was approved in Denmark Productions Ltd v Boscobel Productions Ltd, [1961] 1 QB 699 at 722, per Salmon LJ. There is no direct Scottish authority, but the case is cited in McBryde, The Law of Contract in Scotland, at paragraph 20-107, and in my opinion it clearly represents Scots law. It follows that the fact that the letter of 12 June 2009 referred to condition 10 and not to condition 12 is immaterial; it may still amount to a valid notice of rescission.

[11] The second important principle relates to the effect of failure to make use of an ultimatum procedure in a contract where time is not of the essence. This issue was also considered by Devlin J in Universal Cargo Carriers Corporation v Citati, where he stated (at [1957] 2 QB 448):

"If a party rescinds without giving reasonable notice thereby making time of the essence, he is in the same position as one who acts before a reasonable time has expired. In Thorpe v Fasey, [1949] Ch 649,... Wynn-Parry J said: 'It is true that in the present case the plaintiff did not, as he could have done, make time of the essence of the contract. That is not fatal to his case, if he can demonstrate that the evidence discloses that the defendant is unable or unwilling, whatever time is given, to perform his contract'".

Consequently, if no notice is given, the party rescinding the contract runs the risk that he will not be able to prove that if reasonable notice had been given the other side could not have complied with it. If, however, that burden is discharged, the lack of notice is of no moment: ibid, and Etablissements Chainbaux S.A.R.L. v Harbormaster Ltd, [1955] 1 Lloyd's Rep 303.

[12] The third principle that is significant in considering the effects of the letter of 12 June 2009 is that, if a party to a contract is unable to perform his obligations, the reason for that failure is irrelevant. In particular, it is immaterial that he is unable to perform because he cannot obtain requisite funds: British and Commonwealth Holdings PLC v Quadrex Holdings Inc, [1989] 1 QB 842, at 859. In that case a party who had undertaken to purchase shares was unable to comply with an ultimatum notice because it had been unable, through the fault of a third party, to obtain the requisite funds from its bankers. It was held that this was irrelevant; the purchaser's obligation was to be ready with the purchase money on completion, and in serving a notice to complete the seller was not required to have regard to any difficulty that the purchaser might have in raising the purchase price. While that case relates to the position of a purchaser, exactly the same must be true of a seller. Thus if a party who has undertaken to sell an area of land is unable to obtain the land, the reason for the inability is irrelevant; there is still an inability to comply with the ultimatum notice. This can be regarded as an example of the fundamental principle that contractual obligations normally involve strict liability.

[13] As indicated above, the first of these principles means that the failure of the rescission letter of 12 June 2009 to refer to condition 12, or the combined effect of conditions 10 and 12, is immaterial provided that the pursuers had good grounds for rescission. The ultimate finding in my opinion of 9 September 2011 was that, despite offering the Airdrie site, the defenders were in breach of clauses 10 and 12 taken together, in that they had not offered a site of comparable value to the Broomhouse site. The letter of 12 June 2009 was sent nearly 18 months after the Long Stop Date set in the parties' contract. By then, therefore, the pursuers would clearly have been entitled to take steps to rescind the contract.

[14] They did not, however, make use of the ultimatum procedure. It is trite law that time of performance is not usually of the essence in contracts for the sale of land, and accordingly the ultimatum procedure must normally be used prior to rescission: Rodger (Builders) Ltd v Fawdrey, 1950 SC 483. For present purposes I assume that the normal rule applies to condition 12; a contrary argument was advanced on behalf of the pursuers, which I consider subsequently. A failure to make use of the ultimatum procedure is subject to the exception referred to above whereby, if the party rescinding succeeds in establishing that the other side could not have complied with reasonable notice, the rescission will nevertheless be effective. In my opinion this is such a case. In the first place, the defenders' averments indicate that they could not have complied with their obligation under condition 12 prior to 12 June 2009. They aver that, in the event that the Airdrie site was not of comparable size and value, they were entitled to a reasonable period within which to perform their obligation under condition 12; and that between 15 December 2007 (the Long Stop Date) and 12 June 2009 they did not have in their land bank a further alternative site in central Scotland of comparable size and value to Broomhouse. For the reasons stated in British and Commonwealth Holdings, the lack of alternative land is immaterial in determining whether or not the defenders would have been able to comply with any ultimatum notice. It follows that, if the pursuers had served an ultimatum notice at some point prior to 12 June 2009, the defenders according to their own averments would have been unable to comply with it. On that basis, the pursuers' rescission of the contract is effective despite their failure to serve an ultimatum notice.

[15] In the second place, until the outcome of the proof was known, the defenders consistently maintained the position that their offer of the Airdrie site fulfilled the requirements of condition 12 and that they were accordingly not in breach of contract. It follows that, if an ultimatum notice had been served, the defenders' response must have been that there was no breach of contract because of the offer of the Airdrie site. I have held that position to be wrong on a proper construction of condition 12. It therefore appears clear that the defenders would not have complied with any ultimatum notice by offering a site other than Airdrie. On this basis, too, the service of an ultimatum notice would have achieved nothing.

[16] I accordingly conclude that the pursuers have discharged the burden of establishing that, even if an ultimatum notice had been given, the defenders would not have complied with it, and indeed could not have done so. That satisfies the test stated in Universal Cargo Carriers Corporation v Citati, supra, and has the result that the failure to serve an ultimatum notice is immaterial.

[17] I should note a further argument presented for the pursuers. This was that, even in a contract for the sale of heritage, it was not correct to say that time of performance is never of the essence of the contract. The question was always whether the particular obligation that was not fulfilled went to the root of the contract: Lindley Catering Investments Ltd v Hibernian Football Club Ltd, 1975 SLT (Notes) 56. In some cases the time of performance might go to the root of the contract. This, it was said, was such a case, in that house builders, according to the evidence led at the proof, require a continual supply of sites in order to deploy their resources efficiently. Furthermore, condition 12 does not impose an obligation to convey land, but rather an obligation to offer to sell an area of land meeting certain criteria. On that basis condition 12, requiring the provision of an alternative site to Broomhouse, went to the root of the contract, and time of performance was critical. On the defenders' arguments, the contract would have limped along for four years without fulfilling its crucial purpose, namely to provide the pursuers with an alternative site for development.

[18] It is not necessary for me to consider this argument. Nevertheless, I am not persuaded that it is correct. I agree that condition 12 was intended to provide a site that would enable the pursuers to deploy their resources properly, and that time is accordingly of some importance. Despite this, I consider that this condition does not impose a rigid and inflexible time limit; it provides that, if the Seller (the defenders) has failed to perform certain obligations by the Long Stop Date, it is obliged to offer to sell another residential development site complying with certain criteria. Thus the obligation to offer an alternative is triggered by the Long Stop Date, but it is not stated that the alternative must be offered by that date or within a set period thereafter. The point can be tested by considering an offer of a site that was clearly of comparable size and value to Broomhouse made within a few weeks of the Long Stop Date. If the pursuers are correct, they would have been entitled to reject such an offer out of hand. That does not appear an obviously reasonable result, especially in view of the fact that the pursuers were prepared to allow matters to continue for nearly 18 months before they rescinded the contract. I am accordingly of opinion that time is not of the essence in relation to the obligation contained in condition 12, and that normally an ultimatum procedure would be required to allow the pursuers to rescind. In the event, however, I have held that an ultimatum would have achieved nothing, and that accordingly the rescission is valid.

[19] For the foregoing reasons, I will repel the defenders' third plea in law, which is to the effect that, because they are not in breach of contract, they should be assoilzied from the conclusions of the summons. I will sustain the pursuers' first and third pleas in law, to the effect that the pursuers are entitled to damages for breach of contract and that any further proof should be restricted to the assessment of such damages. On that basis I will order that the action should proceed to a proof before answer on the issue of quantum.