Scottish Court of Session Decisions

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

[2016] CSIH 37

P930/14

 

Lady Paton

Lady Clark of Calton

Lord Malcolm

OPINION OF LADY PATON

in the reclaiming motion

by

PETER KENNEDY, NORTH HAMILTON AND EDWARD TULLOCH

Petitioners and Reclaimers;

against

DICKIE & MOORE HOLDINGS LIMITED

Respondents:

Act:  Summers QC, Logan;  Campbell Smith LLP (for Kerr Barrie, Solicitors, Glasgow)

Alt:  Ellis QC, Dunlop;  Gillespie Macandrew LLP

24 May 2016

[1]        For the reasons given in the opinions of Lady Clark and Lord Malcolm, I agree that the reclaiming motion should be allowed, and that any question of expenses should be continued. 

FIRST DIVISION, INNER HOUSE, COURT OF SESSION

[2016] CSIH 37

P930/14

 

Lady Paton

Lady Clark of Calton

Lord Malcolm

OPINION OF LADY CLARK OF CALTON

in the reclaiming motion

by

PETER KENNEDY, NORTH HAMILTON AND EDWARD TULLOCH

Petitioners and Reclaimers;

against

DICKIE & MOORE HOLDINGS LIMITED

Respondents:

Act:  Summers QC, Logan;  Campbell Smith LLP (for Kerr Barrie, Solicitors, Glasgow)

Alt:  Ellis QC, Dunlop;  Gillespie Macandrew LLP

24 May 2016

The parties
[2]        The first named petitioner and reclaimer is an individual and is a trustee, with the other named petitioners and reclaimers (“the reclaimers”), under a deed of trust by Mrs Priscilla Ann Graham or Kennedy dated 21 March and registered in the Books of Council and Session on 19 April 1994.  The reclaimers were the owners of a site of some 6.293 hectares at Doonholm, Alloway, Ayr until about 2014 when said site was sold to a third party, Miller Homes.  The respondents are a company incorporated under the Companies Act (Company number SC 327908) and have an interest in land development. 

 

Summary
[3]        The parties entered into a formal minute of agreement (“the minute of agreement”) executed on 3 June 2011.  Thereafter the respondents served a charge, dated 3 September 2014, on the reclaimers for the sum of £165,716.15 sterling purporting to rely on their right to reimbursement of professional fees in terms of the minute of agreement.  The reclaimers disputed that any sum was due and raised proceedings seeking suspension of the charge and interdict against the respondents.  A proof was heard in the petition for suspension and interdict proceedings.  The Lord Ordinary found in favour of the respondents.  The decision was reclaimed. 

 

The issue in dispute in the reclaiming motion
[4]        The main issue in dispute by the parties related to the proper interpretation of the minute of agreement and in particular whether the reclaimers are bound in terms of the minute of agreement to pay the sum of £165,397.10 sterling to the respondents.

 

The history agreed in the pleadings
[5]        Although there was a proof in this case, the Lord Ordinary in her opinion, reported at [2015] CSOH 103, stated in paragraph [6] “… there was little if any dispute between the parties about the underlying facts …”.  I therefore set out a summary of the history of events leading up to the execution of the minute of agreement.  This is taken from facts agreed in the pleadings in the action for suspension and interdict. 

[6]        On 2 April 2008, the reclaimers (as sellers) and the respondents (as purchasers) concluded missives of sale in respect of a site of 6.293 hectares at Doonholm, Alloway, Ayr (“the site”).  Thereafter, on 7 December 2009, the respondents resiled from the missives, as they were entitled to do, and paid the agreed “abort fee”.  This brought the legal obligations of the parties under the missives to an end.  Prior to 7 December 2009, the respondents had made a substantial investment in trying to obtain planning consent for the site.  They were reluctant to write off the investment that they had made.  At a meeting on 4 March 2010, Mr Dickie, for the respondents, advised the reclaimers that the respondents intended to continue to seek planning consent for the site.  The parties recognised that there was a potential benefit to the reclaimers in obtaining planning consent.  The respondents considered that there was additional and independent benefit to the reclaimers in having the reports available to enable a third party to develop the site, including submission of an application for planning consent.  By letter dated 29 March 2011, the reclaimers advised the respondents that they wished the respondents to continue to seek planning consent for the site.  Discussion and negotiation between the parties continued from March 2010 until the final draft and execution of the minute of agreement on 3 June 2011.  It was admitted by the respondents that after the minute of agreement was executed, they continued negotiations with the local planning authority but that the planning application submitted by the respondents for development of the site was not granted consent.

[7]        In 2014 the reclaimers concluded unconditional missives with a third party for the sale of said site.  It was not disputed that the third party obtained planning permission for a housing development on the site prior to completion of said missives.  This sale led the respondents to seek to enforce payment from the reclaimers in terms of the minute of agreement.

 

The terms of the minute of agreement
[8]        The minute of agreement states:

“Whereas in pursuance of Missives concluded between DMH and the Sellers dated Twenty Fifth March Two Thousand and Eight and subsequent dates in connection with the purchase from the Sellers by DMH of 6.293 hectares (15.55 acres) of ground at Doonholm, Alloway, Ayr, DMH expended the sum of ONE  HUNDRED AND SIXTY FIVE THOUSAND THREE HUNDRED AND NINETY SEVEN POUNDS TEN PENCE (£165,397.10) STERLING in professional fees as detailed in the Schedule annexed and subscribed as relative hereto AND WHEREAS it has been agreed between the parties that in the event of the Sellers concluding unconditional (that is not subject or no longer subject to a suspensive condition) missives with a third party for the sale of the said subjects extending to 6.293 hectares or a substantial part thereof during the shorter of the period when the Planning Consent obtained or to be obtained by DMH for the development of the said subjects remains extant and the period of five years from the date of these presents, as the case shall be, the Sellers will reimburse DMH the full amount of the said professional fees together with any further vouched professional fees (up to a maximum of TEN THOUSAND POUNDS (£10,000) STERLING) incurred by DMH in obtaining such Planning Consent which reimbursement will take place within ten days of the Sellers receiving payment of the price or the first instalment thereof in respect of the said subjects of part thereof;  The parties consent to the registration of these presents in the Books of Council and Session for preservation and execution.”

 

The reference to “DMH” refers to the respondents.  The reference to the “sellers” refers to the reclaimers.

 

[9]        The minute of agreement refers to the professional fees as detailed in the schedule annexed.  The schedule of fees listed totals £165,397.10 sterling.

 

Submissions by counsel for the reclaimers
[10]      Counsel for the reclaimers invited the court to grant the reclaiming motion and grant the prayer of the petition which sought suspension of the charge and interdict.  He made a short submission predicated on the approach approved by Lord Neuberger of Abbotsferry PSC, in Arnold v Britton [2015] AC 1619.  Lord Neuberger stated:

“17.  First, the reliance placed in some cases on commercial common sense and surrounding circumstances (eg in Chartbrook, [2009] AC 1101, paras 16-26) should not be invoked to undervalue the importance of the language of the provision which is to be construed.  The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision.  Unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. And, again save perhaps in a very unusual case, the parties must have been specifically focussing on the issue covered by the provision when agreeing the wording of that provision.”

 

[11]      Counsel for the reclaimers submitted that the minute of agreement, which bound the reclaimers to pay the respondents the agreed sum in the event of a sale to a third party purchaser, expressed the parties’ intention about when the right to payment would emerge in these critical words:

“during the shorter of the period when the planning consent obtained or to be obtained by DMH for the development of the said subjects remains extant and the period of five years from the date of these presents, as the case shall be, …”

 

He submitted that the word “shorter” used by the parties is a comparative adjective and involves a comparison between the two time periods specified in the minute of agreement to ascertain which is the shorter.  The first time period runs from the date when the planning consent is obtained.  The second time period runs from the period of five years from the date of execution of the minute of agreement, that is to 3 June 2016.  The right to payment can emerge only when both time periods run and a comparison can be made.  In the present case, the respondents never obtained planning consent and the first period never commenced.  In such circumstances, it cannot be said that the five year period is the shorter of the two periods.  The five year period was intended to act as a long stop to prevent a situation whereby years might pass before any planning consent was obtained and/or a situation where planning consent was obtained and remained extant for many years.  The interpretation relied on by the reclaimers gives natural meaning to all the words in the minute of agreement and in particular to the word “shorter” which involves a comparative exercise looking at more than one period;  and the words “during” and “period” both of which pre‑suppose a period of time running.  It should be noted that the minute of agreement is not drafted on an either/or basis in respect of the two time periods.

[12]      It was further submitted that looking at the terms of the minute of agreement in their full context, it is plain that the minute is drafted on the assumption that the respondents are going to go ahead and obtain planning consent.  There is reference to the additional fees “... in obtaining such planning consent ...”.  The meaning intended by the parties is clear from the language used and is bound up with the respondents obtaining planning consent.

[13]      Counsel was critical of the reasoning of the Lord Ordinary in paragraphs [79] to [81] of her opinion.  The fact that the minute could have been drafted in a different way was irrelevant.  The phrase “as the case shall be” does not necessarily imply that there are two scenarios, one in which planning permission is granted and one in which it is not.  The Lord Ordinary placed too much reliance on a single phrase which does not carry the meaning given by the Lord Ordinary.  The Lord Ordinary appeared to speculate that the respondents are unlikely to have agreed a condition which the other party could prevent them from fulfilling.  That speculation was not part of the interpretative process, and in any event, the circumstances in this case were that both parties were only too willing and eager to obtain planning consent for the site.  Criticism was also made of the conclusion in paragraph [81] where the Lord Ordinary stated:

“I’ve decided that the minute of agreement must be construed as submitted by the respondent.  Payment is due in the event the site is sold to a third party within five years of the agreement.  I do so on the basis that the agreement is capable of more than one interpretation.  That construction is in accordance with the words used.  I have considered the evidence and have decided that on the basis of the information available to both parties, there is nothing which would show that the construction contended for by the petitioners should be preferred”

 

There was a lack of clarity in this reasoning and some suggestion that the Lord Ordinary relied on onus which is irrelevant to issues of construction.

 

Submission by counsel for the respondents
[14]      Counsel invited the court to refuse the reclaiming motion and adhere to the interlocutor of the Lord Ordinary.  He adopted the written note of argument for the respondents.  His primary submission was that the words in the minute of agreement and the language used by the parties were critical and, on that basis alone, the respondents’ interpretation should be accepted.  The Lord Ordinary was correct to accept the interpretation put forward by the respondents.  The Lord Ordinary construed the agreement in this way as set out in paragraph [77]:

“[77]    Bearing in mind that I required to construe the words used in the agreement, in the context of the reasonable person, reasonably well‑informed, I am unable to construe that agreement as stating that the respondents will be paid only if they obtained planning permission.  The difficulty in so doing is caused by a lack of clarity in the wording itself.  Counsel for the petitioners argued that the construction advocated by the respondents ignored the words “the shorter of”.  I do not accept that argument.  It is possible to read the agreement as stating that if a sale is achieved, payment will be due to the respondents in two situations.  The first is if planning consent has been granted and is still extant, so long as five years have not passed since the agreement was executed.  The second is if no planning consent has been granted, and five years have not passed since the agreement was executed.  Thus if planning consent was granted on 1 July 2011 and was extant for three years, liability to pay would cease on 1 July 2014.  If no planning consent was granted, a sale would trigger liability during the five year period following execution of the agreement.”

 

[15]      Counsel submitted that although the first period was linked to planning consent, the second period of five years was not so linked in any way.  The two periods were entirely independent and only the first period was related to planning consent.  His final position appeared to be that the first period started to run from the date planning consent was obtained.  But in earlier parts of his submission we understood his position to be that the first and second periods both commenced at the date of execution of the minute of agreement. 

[16]      Counsel pointed out that the terms of the minute of agreement nowhere state that the reimbursement of the professional fees is dependent upon the respondents obtaining planning consent.  That was not what the parties agreed.  If that had been the agreement, one would expect to see some detailed provisions about that.  The agreement is an agreement with two alternatives.  The principle purpose of the agreement is to regulate what happens on the sale of the site to a third party and such a sale is clearly envisaged by parties.  Payment is plainly conditional on such a sale but it is not made conditional on the respondents obtaining planning consent.  Counsel also submitted that the words “in obtaining such planning consent” can be read as giving a right to payment in pursuing such planning consent or in attempting to obtain such consent.

[17]      In his final chapter of submissions, counsel sought to support the approach of the Lord Ordinary.  He submitted that she had recorded the proper legal test in paragraph [73] of her opinion where she stated:

“I accept the submissions made by both counsel to the effect that the task of the court is to consider what the reasonable person, armed with the information that the parties reasonably had at the time of entering into the contract, would consider was meant by the words of the contract.  I accept that the construction should, if there is a choice, favour a commercially sensible outcome.  I am bound by the case of Grove Investments to proceed in that fashion.  The words of the contract are to be read as a whole, and if possible meaning given to all of them.  I am not concerned to find out what the parties intend to agree, but rather what the context of the facts agreed or proved, their words show that they did agree.  I have reached my view by considering all of the circumstances known to both parties.  I have not relied on internal communications known to only one of them.”

 

Counsel accepted that the evidence presented at proof, in particular the detailed evidence about the drafting of the minute of agreement, went far beyond what was permissible to take into account as a guide to interpretation.  He expressed some sympathy for the task of the Lord Ordinary when confronted with such evidence.  The Lord Ordinary made findings about the commercial context in paragraphs [74], [75], [78] and [80] which clearly supported the respondents’ interpretation as the correct interpretation.  Armed with such background information, a reasonable reader would conclude the interpretation put forward by the respondents was correct.

 

Decision and reasoning
[18]      The primary position of counsel for both parties was that the terms of the minute of agreement were capable of construction by this court by reference to the language used by the parties in the minute of agreement.  I consider that this is the correct approach.  I note however that the position of the parties does not appear to have been so clearly represented to the Lord Ordinary.  I do not understand what the parties hoped to achieve by the nature of the proof conducted by the Lord Ordinary.  Substantial parts of the proof appeared to have been taken up with evidence about the drafting of the minute of agreement which counsel for both parties accepted could not properly assist the Lord Ordinary.  I consider that this is a case in which the contentious legal issues could with advantage have been resolved at procedure roll debate. 

[19]      I now turn to consider the terms of the minute of agreement.  I note that the professional fees, set out in the schedule, had already been incurred by the respondents.  These fees were to be paid by the reclaimers only in circumstances specified in the minute of agreement.  I accept that the sale to a third party is a trigger event for payment but it is not unqualified.  Parties plainly linked such a sale to the time periods specified in some detail in the context of an agreement in which the respondents were to obtain planning consent over the site.  I consider that there is substantial force in the submissions by counsel for the reclaimers that the terms of the minute of agreement involved a comparison between two time periods to ascertain which is the shorter.  In this case as the respondents never obtained planning consent, and the planning consent never became extant, there was nothing to compare.  I do not read the wording as permitting the respondents a right to payment merely because there had been a sale to a third party purchaser and that sale was within a period of five years from the date of the commencement of the minute of agreement.  Counsel for the respondents placed some weight on the wording “as the case shall be” and persuaded the Lord Ordinary that this wording supported the construction averred by the respondents.  I do not accept that.  I consider the phrase is essentially neutral but recognised that the parties, at the time of signing the minute of agreement, accepted that there was no certainty about the eventual outcome. 

[20]      If properly construed in the context of the minute of agreement, I do not consider that there is any lack of clarity in the wording.  I consider that this is an agreement whereby the respondents agreed that they will continue to seek planning consent and that in the limited circumstances set out in the minute of agreement, may become entitled to payment of professional fees already incurred prior to the minute of agreement.  I do not consider that the parties agreed to a situation whereby the respondents could do and achieve nothing in respect of planning consent but provided that there was a sale within five years of the date of the minute of agreement, the respondents would be entitled to payment of the professional fees already incurred. 

[21]      I deal briefly with the subsidiary submission by counsel for the respondents.  He submitted that if the minute of agreement could not be properly construed from the

language used by the parties, the Lord Ordinary was plainly correct in her views about the commercial context of the minute of agreement.  The Lord Ordinary was correct to take a wider view and conclude that the interpretation proposed by the respondents must be correct. 

[22]      I have set out the background to the minute of agreement in paragraph 5.  It was never disputed that the reclaimers, prior to the minute of agreement, had no obligation to pay the fees incurred by the respondents in unsuccessfully seeking planning consent.  There is a recognition in the minute of agreement that the respondents should continue their efforts in relation to obtaining planning consent.  It is very difficult to understand why it would make any commercial common sense for the reclaimers to pay substantial fees, for which they were not liable, in circumstances where the respondents were not obliged to achieve anything in relation to future planning consent but became entitled to repayment merely in the event of a sale to a third party within five years of the minute of agreement.  In my opinion, praying in aid commercial common sense does not assist the respondents or support the interpretation which they advance.

[23]      For these reasons, therefore, I would grant the reclaiming motion reserving all issues about expenses. 

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

[2016] CSIH 37

P930/14

 

Lady Paton

Lady Clark of Calton

Lord Malcolm

OPINION OF LORD MALCOLM

in the reclaiming motion

by

PETER KENNEDY, NORTH HAMILTON AND EDWARD TULLOCH

Petitioners and Reclaimers;

against

DICKIE & MOORE HOLDINGS LIMITED

Respondents:

Act:  Summers QC, Logan;  Campbell Smith LLP (for Kerr Barrie, Solicitors, Glasgow)

Alt:  Ellis QC, Dunlop;  Gillespie Macandrew LLP

 

24 May 2016

[24]      I am grateful to Lady Clark of Calton for setting out the terms of the agreement, the nature of the dispute, and the parties’ submissions.  I agree with her Ladyship that the reclaiming motion should be allowed.  My reasons are as follows.

[25]      The starting point is the wording used in the agreement when read in its context.  If the words can be given a sensible meaning, which is free from ambiguity, and reflects the commercial sense which the parties are expected to possess, then, absent some compelling countervailing factor, that meaning should be employed to resolve the dispute.

[26]      It is clear that the fees referred to in the schedule to the agreement were incurred by the respondents in the course of seeking planning consent for development at the site – see the terms of the schedule and the letter referred to at paragraph [33] of the Lord Ordinary’s opinion.  The trigger for a payment obligation is an unconditional sale to a third party (which in the context means that planning consent will have been obtained, otherwise missives would be subject to a suspensive condition), so long as the sale occurs while the planning consent “obtained or to be obtained by DMH” remains extant, subject to a longstop date of 3 June 2016 (emphasis added).  In other words, the intention was that a sale after 3 June 2016 would not create a liability even if the planning consent remained alive.

If a timeous sale occurs, the amount to be paid covers the professional fees set out in the schedule “together with any further vouched professional fees (up to a maximum of £10,000) incurred by DMH in obtaining such planning consent.” (emphasis added)

[27]      The whole context and purpose of the agreement was to reimburse DMH for the costs incurred by them, and any to be incurred (up to £10,000), in obtaining a planning consent over the site which the petitioners could then exploit by a sale to another developer.  The background was that DMH had entered into a conditional agreement to purchase the site for development and had spent a considerable sum of money in pursuing an application for planning consent. However, before the application was resolved DMH had to withdraw from the purchase agreement because of problems in financing the development.  The commercial purpose of the subsequent 2011 agreement was (a) to give DMH an opportunity to recover their otherwise wasted costs, and (b) to increase the prospects of a sale to another developer by giving DMH an incentive to pursue their planning application to a successful conclusion.  It was this latter aspect which explains the petitioners’ willingness to enter into the new bargain.  It would make no sense for the petitioners to undertake to reimburse the fees in the schedule, let alone any further costs, unless they resulted in the grant of planning permission for development of the site.

[28]      In the event a sale took place to another developer on the basis of unconditional missives after a planning consent had been granted not to DMH, but to the new buyer.  In these circumstances my view is that DMH are not entitled to payment.  The whole structure and purpose of the agreement is predicated upon DMH successfully pursuing their outstanding planning application.  As I read the agreement, it is that, plus a timeous sale to a third party, which entitles them to a payment from the petitioners.

[29]      The Lord Ordinary construed the bargain as providing for payment if there was a sale within 5 years of the agreement, and this even if no planning consent had been obtained (paragraph 77).  (One difficulty with this approach is that, absent a planning consent, it is unlikely that a developer would enter into the required unconditional missives.)  Her Ladyship mentioned a “lack of clarity” in the wording, and her difficulty in ascertaining the petitioners’ commercial objective.  However she did acknowledge that, though prior to the 2011 agreement the petitioners were under no obligation to DMH, one way of protecting their asset was to have the benefit of a full planning permission.  No new purchaser was on the horizon, and, had DMH walked away, the housing allocation might be lost (paragraph 78). 

[30]      In these circumstances it is reasonable to conclude that the commercial motive for the petitioners was to give the respondents an incentive to complete the planning process.  That is reflected in the first sentence of paragraph [79] of the Lord Ordinary’s opinion.  However her Ladyship immediately observed that the agreement does not provide for payment only if DMH obtain a planning consent.  “If that had been the intention then it would not have been drafted as it has been drafted”.  The contrary view is that the drafting does reveal such an intention – see above.  When the agreement is considered as a whole, including the preamble, if DMH wanted reimbursement whatever happened in relation to their planning application, in my view they would have required to insist on an additional term to that effect. 

[31]      Emphasis is placed by the Lord Ordinary on the phrase “as the case shall be”, which is said to be either neutral or “destructive” of the petitioners’ argument.  In my respectful view, it is not destructive – it is neutral on the point at issue, pointing neither one way nor the other.  It is simply referring to the outcome of the exercise of deciding whether the sale has occurred within the “shorter” of the periods mentioned earlier – though the phraseology used in the agreement at this passage is unhappy.  The clear intention was to require the sale to occur while the planning consent was extant, subject to the five year cut off.  It is not really a question of comparing the duration of two periods of time.  It is more a matter of which expires first.

[32]      The Lord Ordinary stated that it is hard to ascertain the aim of DMH.  The insertion by Mr Dickie of the extra payment of £10,000 for obtaining a consent “muddied the waters” (paragraph 80).  It could suggest that his aim had changed and it was accepted that planning consent was a pre-requisite.  However, the Lord Ordinary thought this unlikely since the petitioners could stop the planning consent by refusing to hand over a section 75 agreement.  Given the clear incentive for the petitioners to obtain a marketable planning permission, in my opinion this factor does not bear the weight placed upon it.

[33]      Agreeing with the Lord Ordinary that the correct construction should be “in accordance with the words used”, I am of the opinion that they point to a requirement that, before any payment based on a sale to a third party could be demanded, DMH required to have obtained the planning consent which was in the pipeline at the time of the agreement.  In the event the necessary planning permission was obtained by the third party purchaser.  It follows that the reclaiming motion should be allowed.