Scottish Court of Session Decisions

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

[2015] CSIH 60

XA169/14

Lady Paton

Lady Smith

Lady Dorrian

OPINION OF THE COURT

delivered by LADY SMITH

in the appeal

by

(FIRST) EWEN JOHN MACPHERSON;  and (SECOND) LORRAINE MARY ANNE MACAULAY

Defenders and Appellants;

against

(FIRST) RICHARD COLIN MACQUEEN;  (SECOND) MICHAEL IAIN MACQUEEN;  and (THIRD) YVONNE JANETTE MACQUEEN

Pursuers and Respondents:

Defenders and Appellants:  McIlvride QC;  TLT LLP

Pursuers and Respondents:  A Stewart QC;  DAC Beachcroft

7 August 2015

Introduction
[1]        This is an appeal from an interlocutor of the sheriff at Oban, dated 13 November 2014.  It concerns a contractual obligation to convey one strip of land and grant a servitude right of access over another strip of land.  The sheriff rejected the defenders’ submission that the pursuer’s right to insist on performance of that obligation was time barred.  They contend that, in so doing, he erred in law.

Background
[2]        The pursuers owned a house, garden and adjacent land lying to the west of the house, at North Connel, By Oban.  The house and garden is known as “Aisling- Chailein”.  They decided to sell the house and garden but retain the adjacent land with a view to building a pair of semi-detached houses there.  The defenders owned and own a house and garden to the north east of the adjacent land; its address is 35 Lora View, North Connel, By Oban.

[3]        The defenders, by missives dated 8 March, 6 April, 12, 17, 18 and 19 May 2010, agreed to purchase Aisling  Chailein and its garden, from the pursuers.  The price to be paid at settlement was £245,000, the date of entry was to be 28 May 2010 and the Combined Standard Clauses (2009 Edition) (“the 2009 Conditions”) were incorporated into the missives.  Further, the parties, in terms of the missive letters of 6 April and 12 May, agreed:

“The following conditions will be inserted as burdens over the subjects of sale for the benefit of the subjects being retained by (the pursuers) :

(A)       (The defenders) and their successors, as owners of the subjects of sale, will not be allowed to lodge any objections to the new houses which (the pursuers) propose to build in the ground being retained by them. Similarly, (the defenders) and their successors will not be allowed to object should (the pursuers) or their successors wish to extend the said new houses. (The pursuer’s solicitors) will produce with your acceptance to follow hereon plans and specifications of the proposed new dwellinghouses by (the pursuers) and, subject to (the defenders’) approval thereof, they would not object to the erection of the new dwellinghouses in terms of such plans and specifications.  (B) The reference to such new houses will be taken to refer to the proposed new houses in terms of plans and specifications referred to in the foregoing Condition (a) hereof. (B)(sic) (The defenders) and their successors, as owners of the subjects of sale, are prohibited from extending the subjects of sale on the south side or from erecting anything on the south side of the dwellinghouse which could interfere with the outlook from the new houses proposed by (the pursuers) on the ground being retained by them. The reference to such new houses will be taken to refer to the proposed new houses in terms of the plans and specifications referred to in the foregoing Condition (A) hereof.  (C) (sic) Any decking constructed by (the defenders) and their successors will not extend beyond three metres form the wall of the dwellinghouse Aisliing Chailein (D)(sic)  No boundary fence, wall, hedge or dyke separating the subjects of sale from the subjects being retained by our clients will not exceed six feet in height.”

And, in terms of the missive letter of 12 May 2010, they also agreed:

“7. Subject to the approval of (the defenders’) mortgage lender, they will  convey to (the pursuers) the strip of ground shown coloured yellow on the Title Plan and grant a servitude right of access in favour of (the pursuers) over the strip shown coloured green on the plan, which two strips of ground form part of the subjects owned by (the defenders) at 35, Lora View, North Connel, By Oban, however, this is a separate matter and it is not a condition of the Missives that it be completed prior to the date of entry.”

The yellow strip has not been conveyed to the pursuers nor has any servitude right of access over the green strip been granted by the defenders.

[4]        It was not disputed that the reason the pursuers wished to acquire the yellow strip was that it was, at the time, considered that it would facilitate the incorporation of windows into the north facing aspect of one of the houses that the pursuers wished to build;  the proposed positioning of the windows would, it seems, otherwise have been likely to be regarded by the planning authority as too close to the boundary between it and 35 Lora View.  Also, the pursuers wanted the retained land – or some part of it - to have the benefit of a right of access over the green strip so as to enable the owners of the new houses to have easy access to an area of open ground lying approximately to the east of 35 Lora View and from there to a private road leading to the foreshore, ownership of the foreshore being included in the title to the retained land.  A servitude right of access over the green strip would also have facilitated access to the local public house situated at the foot of the private road, near the foreshore. 

[5]        Clause 22 of the 2009 Conditions is in the following terms:

“The Missives shall cease to be enforceable after a period of two years from the Date of Entry except insofar as (i) they are founded upon in any court proceedings which have commenced within the said period or (ii) this provision is excluded in terms of any other condition of the Missives.”

[6]        In clause 26 of the 2009 Conditions, “Missives” is defined as meaning:

“…the contract of purchase and sale concluded between the Purchaser and the Seller of which the Offer incorporating reference to these Clauses forms part.”

The transaction settled on 28 May 2010.  The pursuers have, since then, built houses on their retained land in accordance, it seems, with plans that did not require them to have ownership of the yellow strip.  Their position is that it would, however, be beneficial to them to have ownership of it and to have the benefit of a servitude right of access over the green strip for the reasons explained above. 

The present action
[7]        In this action, the pursuers seek an order for specific implement of the obligations in paragraph 7 of the missive letter dated 12 May 2010, namely the obligations relating to the yellow and green strips of land.  Alternatively, they seek damages of £200,000.  The crave for damages is explained in article 9 of Condescendence in the following terms:

“…Work on the development is far advanced. To allow the development to be completed and to allow access to be secured to and from the development in the garden ground, there is an urgent need for the defenders to perform the obligations that form the subject matter of the present action. Unless the defenders perform their contractual duties, the pursuers will suffer loss and damage. The sum third sued for in the alternative is reasonable.”

Matters have, however, moved on and Mr Stewart, for the pursuers, wisely accepted that, whatever the outcome of the appeal, he could not suggest that the averments in support of the crave for damages were relevant.

[8]        This action was raised on 16 August 2013, more than three years later than the date of entry.  No court proceedings were raised at any earlier date.

[9]        The defenders’ position is, essentially, that the action is time barred for the reasons explained below and, also, that there are no relevant averments to support the claim for damages.  For time bar, they rely on clause 22 of the 2009 Conditions.  For their relevancy argument, they rely on the fact that the houses have been constructed without the pursuers having required to own the yellow strip or a servitude right of access having been granted over the green strip and on the paucity of averments in support of the pursuer’s claim that they have suffered loss and damage to the tune of £200,000.

[10]      The pursuers’ position is that clause 22 does not apply to the obligations in paragraph 7 of the missive letter of 12 May, for the reasons discussed below and, accordingly, since less than five years – the relevant prescriptive period (Prescription and Limitation (Scotland) Act 1973, section 6, Schedule 1) – elapsed between the date of entry and the raising of the action, it is not time barred.  Regarding the relevancy argument, their position is that the primary remedy sought is that of specific implement and it is not material that there are no detailed averments in support of the crave for damages.

The sheriff’s decision
[11]      Before the sheriff, the defender’s contention was that (a) the obligation in paragraph 7 of the letter of 12 May 2010 was part of the missives, which failing, (b) it was collateral to the missives and therefore, properly construed, it formed part of them and, in either event, clause 22 applied and the action was time barred. 

[12]      The sheriff does not appear to deal with (a) but he does refer to (b).  He rejects it on the basis that it is possible for parties to missives to enter into a separate contract, possible for that contract to be recorded on the same document, that the paragraph 7 obligations did not involve any sale of land (whereas “Missives” is defined in the 2009 Conditions as referring to an offer in a contract of purchase and sale) and if parties had intended the paragraph 7 obligations to be collateral to the missives then they required to use precise words or words from which such an intention could be inferred whereas they provided “this is a separate matter and not a condition of the missives”, which was the opposite.

[13]      The sheriff’s quotation from paragraph 7 is incomplete.  Also, he erroneously quotes paragraph 22 of the explanatory notes to the 2009 Conditions as though it were clause 22 itself.  In these respects, he has misdirected himself on relevant and material facts.

[14]      The sheriff adds to his considerations that there is authority to the effect that where a contract involves collateral obligations which add to or vary the terms of a contract, they require to be construed strictly, relying on certain dicta in Heilbut Symons & Co v Buckleton [1913] AC 30;  Odjfell Seacham A/S Continentale Des Petroles D’Investissements [2005] 1 Ll L R 279;  and Suisse Atlantique Societe D’Armaments Maritime SA v AV Rotterdamche Kolen Centrale [1967] 1 AC 361.  Applying a strict construction to the parties’ communings, he concludes that any intention that the defenders’ paragraph 7 obligations were to be collateral to their principal obligation was not made clear nor could such intention be inferred.

[15]      The sheriff pronounced a confusing interlocutor, repelling the defenders’ plea of time bar but also sustaining the pursuers’ third, fourth and fifth pleas in law and allowing a proof.  The pursuers’ third plea in law is:

“Alternatively, the pursuers having suffered loss and damage through the breach of contract as condescended upon and the defenders being liable therefore (sic), the pursuers are entitled to reparation therefore(sic) from the defenders in the sum third craved.”

Their fourth and fifth pleas in law are pleas to the relevancy of the defenders’ averments in support of their plea of time bar.  It is not clear what, having sustained the pursuers’ plea in support of their crave for specific implement and their alternative crave for damages of £200,000, the sheriff thought could or would be explored at the proof which he allowed.  Equally, the sheriff does not explain how it could be appropriate – or, indeed, competent – to grant both the principal crave for specific implement and the alternative crave for damages, at the same time.  We also note, in passing, that the sheriff failed to take account of the fact that, as drafted, the crave for specific implement seeks an order that the defenders grant a servitude right of access “to the pursuers”.  That would not, of course, be competent since a servitude, being a real right, depends, for its creation, not on identification of individual benefitted proprietors but on the specification of a dominant (and servient) tenement.  Whilst the plan referred to adequately identifies the servient tenement, it does not identify the dominant tenement.

The appeal
[16]      For the defenders, Mr McIlvride contended that, applying the natural and ordinary meaning of the words used in paragraph 7 of the letter of 12 May, it was clear that the obligations in relation to the yellow and green strips were part of the missives; they were plainly part of the overall consideration.  The obligations were not separate.  Paragraph 7 did not state that those obligations were not part of the missives.  If that had been the intention, there would have been no need to state that they did not require to be fulfilled prior to the date of entry.  The defenders were well aware, from the terms of the missives, of the pursuers’ intention to build houses on the retained land and the obligations in paragraph 7 were clearly linked to that intention.  This contract fell somewhere between the classic case where the only consideration passing between parties was to be a sum of money and a straightforward contract of excambion where the only consideration was to be a conveyance of land.  That did not mean that the paragraph 7 obligations were separate and distinct.

[17]      Mr McIlvride’s principal submission was that there was no need to consider whether the paragraph 7 obligations were collateral and therefore also covered by the time bar in clause 22; it was clear that they were an intrinsic part of the contract.  If, however, one had to consider whether they were collateral obligations, what mattered was not the label given to them by parties but their essence:  Smith v Lindsay & Kirk 2000 SC 200; Winston v Patrick 1980 SC 246.  Whilst he did not accept that they were other than an essential part of the parties’ contract, they could, at the very least, be regarded as collateral obligations of some clarity, in which event, the action was still time barred.

[18]      That the paragraph 7 obligations were not separate from the missives was, in Mr McIlvride’s submission, readily demonstrated if one were to ask what would happen if the sale  and purchase of Aisling Chailein to and by the defenders fell through?  If the sheriff’s construction was correct then the defenders would still be obliged to convey the yellow strip and grant a servitude right of access over the green strip despite the fact that they would be receiving nothing in return; and it would be an open ended obligation.  That seemed nonsensical.

[19]      For the pursuers, Mr Stewart submitted that the most important words in paragraph 7 were “this is a separate matter”.  As for what it was separate from, it was separate from the purchase and sale of Aisling Chailein.  The reference to there being no requirement for the obligations in relation to the yellow and green strips to be fulfilled prior to the date of entry made no difference; it was simply stated by way of “belt and braces”.  Whilst it had to be accepted that the sheriff had misquoted the clause, that did not matter.  He was right to adopt a strict approach to construction because paragraph 7 was being advanced as containing collateral obligations but, equally, consideration of the authorities on collateral obligations would be of no assistance if the defenders did not succeed on their main argument.  

[20]      Regarding the references in the missives to the pursuers’ plans to develop the retained land, they were included because of the need to create real burdens and did not prevent the paragraph 7 obligations being a separate matter.

[21]      Accordingly, it became plain that the real issue between the parties was whether or not the obligations relating to the yellow and green strips in paragraph 7 of the letter of 12 May 2010 were part of “the contract of purchase and sale”^[1] between the parties?  If they were then the action was time barred.

Discussion and decision
[22]      In addressing the issue in this appeal, we consider it important to have regard to the following particular aspects of the contractual arrangements agreed between the parties.  First, the defenders agreed to pay £245,000 in exchange for a valid disposition of Aisling Chailein and the garden ground attached, on the date of entry^[2].  Secondly, the defenders agreed that that disposition would contain the burdens specified in clause 6 of the missive letter 6 April 2010^[3] thereby implicitly accepting that they would become real burdens on registration of their title to the property.  Thirdly, the nature of those burdens was such as would benefit the sellers and their successors in title and they were being imposed in relation to the sellers’ then current intention to develop the retained land.  Fourthly, the defenders agreed that they would convey the yellow strip and grant a servitude right of access over the green strip^[4] and it was implicit in their agreeing to do, particularly given the detail in clause 6, that it was to facilitate the sellers’ known intentions in relation to the retained land;  whilst it was the pursuers’ position that these obligations were a separate matter, it has never been suggested that they related to anything other than the pursuers’ plans to build on the retained land.  Fifthly, parties agreed that any obligation in the contract of sale and purchase that was outstanding at the date of entry would be enforceable for only two years thereafter^[5].

[23]      In these circumstances, it cannot, we consider, be doubted that the missives demonstrate a clear nexus or link between the paragraph 7 obligations and the other obligations in the missives.

[24]      Against that background, we turn to the wording of paragraph 7.  When the whole of the phrase:  “...however, this is a separate matter and it is not a condition of the Missives that it be completed prior to the date of entry” is considered and is considered in context, we conclude that the obligations can only be construed as being an intrinsic part of the parties’ bargain.  It was clearly part of their ‘deal’ that the defenders were not only to pay £245,000 to the pursuers but also were to confer the benefits of ownership of the yellow strip and the creation of a servitude right of access over the green strip; we accept Mr McIlvride’s characterisation of the paragraph 7 obligations as being part of the consideration that was to be afforded to the pursuers by the defenders in return for the conveyance to the defenders of Aisling Chailein.  This was, we agree, a contract in terms of which payment of the price of £245,000 was not the whole consideration. 

[25]      As for the reference to something not being a condition of the missives, we readily conclude that it is not the obligations themselves that are not a condition of the missives. Rather, what is not a condition is that they required to be performed prior to the date of entry.  There is an obvious reason for that; as stated at the outset of paragraph 7, the pursuers accepted that the defenders could not perform the obligations without “the approval of (the defenders’) mortgage lender” in circumstances where the date of entry was looming and it plainly might have been going to take longer than the time available before entry to secure that approval. 

[26]      We consider Mr McIlvride’s observation that, on the sheriff’s construction, as from the date that missives were concluded^[6], the defenders would have bound themselves to perform the paragraph 7 obligations for no consideration at all, irrespective of whether or not the sale to them of Aisling Chailein went ahead, was a pertinent one.  On that construction, the paragraph 7 obligations would be gratuitous obligations, enforceable before the date of entry i.e as from 19 May, and at any time during the five years thereafter, irrespective of whether or not the defenders had received a valid disposition of Aisling Chailein and even if the missives had been rescinded.  That seems so unlikely, if not absurd, an outcome that we consider it strongly supports the construction urged on us by the defenders.

[27]      Had the terms of paragraph 7 been as (mis)quoted by the sheriff, perhaps there may have been room for a different conclusion, but they were not.  When account is taken of the sheriff’s error in that regard, of his erroneously referring to paragraph 22 of the explanatory notes to the 2009 Conditions as being clause 22 and of the confusions arising from the terms of his interlocutor as referred to above, we find ourselves unable to agree with his conclusions.

[28]      The only conclusion which we consider was open to the sheriff was that the paragraph 7 obligations were an intrinsic part of the contract for the sale and purchase of Aisling Chailein and that meant that clause 22 of the 2009 Conditions applied.  It not being suggested that the paragraph 7 obligations had been founded on in any earlier court proceedings or that clause 22 was excluded by any other provision of parties’ contract, he required then to conclude that these proceedings were time barred.

Disposal
[29]      In these circumstances, we will allow the appeal, recall the sheriff’s interlocutor of 13 November 2014, sustain the defenders’ second plea in law (as amended) and pronounce decree of absolvitor.

[1] The definition of “missives” in clause 26 of the 2009 Conditions.

[2] Missive letter dated 8 March 2010.

[3] Missive letter of 6^th April and missive letter of 12^th May, 2010.

[4] Paragraph 7 of missive letter dated 12^th May 2010.

[5] Clause 22 of the 2009 Conditions.

[6] 19^th May 2010.