Scottish Court of Session Decisions

FIRST DIVISION, INNER HOUSE, COURT OF SESSION

[2016] CSIH 45

CA177/14

Lord President

Lady Smith

Lord Brodie

OPINION OF THE COURT

delivered by LORD CARLOWAY, the LORD PRESIDENT

in the reclaiming motion

by

DAVID DOUGLAS ERNEST KENWRIGHT

Pursuer and Reclaimer;

against

STEWART MILNE GROUP LTD

Defenders and Respondents:

Act:  Lord Davidson of Glenclova QC, D Thomson; Ledingham Chalmers LLP

Alt:  McBrearty QC, A Sutherland; Burness Paull LLP

17 June 2016

Introduction
[1]        This is a reclaiming motion from an interlocutor of the Lord Ordinary dated 16 July 2015, dismissing the pursuer’s claim for £292,800, to which the pursuer maintained he was entitled in terms of an indemnity granted by the defenders on 17 June 2010.  The case raises a sharp issue of the construction of those terms and their application to the particular circumstances.

Facts
[2]        The pursuer is the owner of Greystone Farm, Alford.  In terms of missives entered into between 14 January and 11 March 2003, he granted to the defenders an option to purchase part of the farm, extending to 104 acres or thereby, or any parts of that “available land”.  The option could be exercised during a 10 year period from 23 January 2003 and could be in respect of different parts of the available land as time went by.  It could only be exercised in respect of such portions of the land as had the benefit of detailed planning permission and all other necessary consents required for residential development.  The parties required to collaborate in securing planning permission.  In terms of Clause 5.1.8, the pursuer was obliged to enter into any agreement, under section 75 of the Town and County Planning (Scotland) Act 1997, as required by the planning authority as a prerequisite of the grant of permission or any of the other consents.  Critically, this clause continued:

“Provided always that the [defenders have] first confirmed in writing that the terms of such agreement are acceptable to the [defenders] and provided that the [defenders provide] an indemnity to the [pursuer] in respect of any obligations contained within any such agreement.”

[3]        The missives contained (schedule, para 1.1) provisions in relation to the calculation of the price of exercising an option.  The price was to be based upon the sum of £225,000 for each acre or part thereof of “Developable Land”; this meaning such part of the area covered by the option as had the benefit of detailed planning permission granted to the defender for residential development.  In respect of non-developable land, the price was to be a sum equivalent to twice the prevailing rate, on the open market at the date of the exercise of the option, for agricultural land.  In determining the price, it was provided (schedule, para 1.4) that the sum would be reduced by the cost to the defenders of, amongst other things:

“1.4.4  any planning gain outwith or within the Option Area including ... the provision of any ... educational or community facilities associated with the Option Area but not necessarily situated thereon subject to a maximum deduction of £25,000 per acre of Developable Land ...”.

[4]        During 2015, the defenders applied to Aberdeenshire Council for planning permission in respect of parts of the farm.  Ultimately, an agreement was reached between them whereby permission would be granted for the development of two different phases (1 and 2).  It was agreed, as a condition of the grant of permission, that the pursuer would convey an area of land to the Council, to be known as the “Community/Education Facility Land” (the CEF land), which lay between the land for Phases 1 and 2.  The agreement was reduced to writing in terms of a formal Minute between Aberdeenshire Council and the pursuer, with consent of the defenders, in terms of section 75 of the 1997 Act.  The Minute was executed on 14 June 2010.  In terms of Clause 11 thereof, the pursuer agreed to “reserve” the CEF land and, on receipt of planning permission for the development of whatever facility was to be built on the CEF land, the pursuer would convey the land to the Council for no consideration.  It is not disputed that the absence of any price being payable was in lieu of there being a requirement for a monetary contribution from the defenders for educational and community facilities in the Alford area, where there was a longstanding need for their provision.  Planning permission was granted in respect of Phases 1 and 2 on 14 July 2010. 

[5]        In terms of further missives, dated 15 and 16 July 2010, the parties “varied” the original 2003 missives.  The variation consisted of an option being exercised over the Phase 1 land for a fixed price of £2,053,519 “notwithstanding terms of the Missives”.  The variation continued by referring to the section 75 agreement and stating that:

“... the parties agree that the following provision shall apply to the Community/Educational Facility Land;-

5.1       The purchase price payable by the [defenders to the pursuer] for the Community/Educational Facility Land shall be the sum equivalent to twice the prevailing open market value of the Community/Educational Facility Land for agricultural use at the date of exercise of the option;

5.2       The Purchaser shall only exercise the Option over the Community/Educational Facility Land for the purposes of implementing the s 75 Agreement but may exercise the option at any time to do so.”

Meantime, by letter dated 17 June 2010, the defenders had granted an indemnity to the pursuer.  It referred specifically to the section 75 agreement, as follows:

“4.       And whereas [the defenders] have agreed to indemnify [the pursuer] in respect of any obligations incumbent on [the pursuer] in terms of, or as a result of the Agreement;

5.         Now therefore on behalf of and as instructed by [the defenders] we undertake ... to implement and perform or procure the implementation and performance of the whole obligations of [the pursuer] under the Agreement to the satisfaction of the Council in relation to the development site and to free, relieve and indemnify [the pursuer] from and against all and any loss, liability, obligations, damage, claims, proceedings, cost or expenses of whatever nature which may result from, or which they may incur, suffer or sustain under the terms of the Agreement as the proprietor of the development site ...”.

[6]        The defenders proceeded to develop Phase 1 and paid the price for it in terms of the varied minutes.  They did not exercise the option in respect of any other part of the farm, including the CEF land.  On 23 January 2013 the option period expired.  Meantime, it would appear that planning permission was granted for educational facilities on the CEF land, although the nature of that permission was not known.  On 15 August 2013, Aberdeenshire Council asked the pursuer to convey the CEF land to them in terms of the section 75 agreement.  The pursuer did so on 27 September 2013.  The conveyancing costs of the Council amounted to £7,837.20.  It is not disputed that the defenders must indemnify the pursuer in respect of these costs.  The pursuer, however, maintains that he is entitled to be indemnified in respect of the value of the land conveyed for no consideration.  He claims that the figure to be paid is that contained in the variation missives, being twice the open market value on the basis of agricultural use.  It is not disputed that the sum sued for represents that value together with the conveyancing costs. 

The Lord Ordinary’s decision
[7]        The Lord Ordinary took the view that the letter of indemnity dated 17 June 2010 imposed two distinct obligations upon the defenders.  The first related to performance and the second to indemnity.  The defenders could achieve performance of the section 75 obligation by exercising the option referred to in the variation missives of 15 July 2010.  There was, however, an alternative and that was to procure the implementation and performance of the obligation by the pursuer conveying the land directly to the Council.  That performance was secured when the pursuer conveyed the land to the Council.  In short, the Lord Ordinary held that the option contained in the variation missives had not been exercised and therefore the price referred to therein was not payable.  Instead, where the pursuer had conveyed the land to the Council, there was no provision for payment; ie the indemnity did not bite.  He added that, if the pursuer had not agreed to convey the land, the consequence would have been either that (a) the Council would have refused to grant planning permission or (b) it would have levied a monetary contribution which would have reduced the purchase price that the defenders would have been willing to pay.  In respect that the pursuer already had the value of the CEF land by virtue of the sum agreed for Phase 1, there was no obligation to indemnify the pursuer since he had suffered no loss.

Submissions
[8]        The pursuer maintained that the Lord Ordinary had erred in concluding that the overall effect of the contractual arrangements was that the defenders had a choice as to whether or not to make any payment in respect of the conveyance of the CEF land.  On the Lord Ordinary’s interpretation, it was entirely at the option of the defenders to decide whether to purchase the land by exercising the option, or simply leaving it to the pursuer to convey the land in terms of the section 75 agreement.  The Lord Ordinary had erred in considering that the latter procedure would involve no cost to the defenders.  Such an arrangement made no commercial sense and could not, in the absence of the clearest possible language, be taken as representing the intention of the parties.  The starting point in construing the contractual documents was the language used (Arnold v Britton [2015] AC 1619; Aberdeen City Council v Stewart Milne Group [2012] SC (UKSC) 240; and Grove Investments v Cape Building Products [2014] Hous LR 35).  The indemnity provision contained very broad language whereby, in effect, the defenders were to hold the pursuer harmless in respect of the section 75 agreement obligations, including the conveyance of the CEF land to the Council.  The pursuer was entitled to be indemnified for the loss which he had suffered by virtue of that conveyance; otherwise he was effectively gifting the land, which was not something to be presumed in commercial dealings.  The appropriate sum to be paid in terms of the indemnity was the price which was actually agreed in the variation missives as being the value of the land. 

[9]        The respondents maintained that the Lord Ordinary’s decision had been correct.  However, the primary contention before him had been that the pursuer had suffered no loss by virtue of the conveyance of the land because the price agreed for the Phase 1 land had taken into account the obligation to convey the CEF land as a substitute for payment of a monetary contribution.  The issue was therefore not one of interpretation at all.  The pursuer relied upon the existence of an option contained in the variation missives as a free-standing one in respect of the CEF land.  The obligation to convey the CEF land only became enforceable once planning permission, for whatever facility was to be put on the land, was granted.  It was plain from the wording that the variation missives contained an option.  It had simply not been exercised.  The price referred to in that option clause was therefore not applicable to the present situation.  It may simply be that the pursuer had entered into a bad bargain. 

Decision
[10]      It is important to bear in mind that the basis for the pursuer’s claim is not the option provisions in the missive of 15 July 2010 (Clauses 5.1 and 5.2), which provided for a price to be paid for the CEF land in the event of the defenders exercising an option over it.  The defenders are correct in stating that no option was ever exercised in respect of the CEF land and that therefore the provisions in the letter simply do not apply.  The case is about the terms of the indemnity, provided by the defenders, in the letter of 17 June 2010. 

[11]      The terms of the indemnity are, amongst other things, related to the obligations on the pursuer under the section 75 agreement.  They make it clear that the defenders are to indemnify the pursuer from, and against, any loss, of whatever nature, which may result from that agreement.  The short point is that the pursuer did suffer a loss, by virtue of his compliance with that part of the section 75 agreement which required him to convey the CEF land to the Council for no consideration.  The difficulty which exists with the argument, that the price agreed in the variation missives for Phase 1 included the value of the CEF land, is that the missives do not say so.  There is no averment to that effect either.  The missives simply agreed a price for the Phase 1 land alone.  They superseded the need for a calculation in terms of the original missives, which would have seen a deduction from the gross calculation as a result of any planning gain (eg the CEF land) to the Council.  In these circumstances, the pursuer is entitled to be indemnified in respect of his loss of the CEF land. 

[12]      In relation to the quantum of that loss, the sum contained in the variation missives would seem to be the only appropriate one to apply, notwithstanding that it relates to an option which was not exercised.  The reality is that the parties clearly agreed that the value of the land was best calculated by taking twice the agricultural value.  That resolved any uncertainty in relation to how the land would be valued, given that it was not to be used for agricultural, but for educational and community, purposes.  In the absence of any submission to the contrary, it can reasonably be taken to represent the value of the land and hence the quantum of loss.  The alternative of a proof on value is inappropriate in these circumstances.

[13]      It follows from the above that the interlocutor of the Lord Ordinary, dated 16 July 2015, should be recalled, the pursuer’s first and second pleas-in-law sustained, the defenders’ pleas-in-law repelled and decree granted de plano for the sum sued for.