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OUTER HOUSE, COURT OF SESSION
[2016] CSOH 109
CA191/15
OPINION OF LORD BANNATYNE
In the cause
LANDVEST PCC LIMITED
Pursuers;
against
THE MOST REVEREND LEO WILLIAM CUSHLEY and OTHERS
Defenders:
Pursuers: Sandsion QC et Watt; Maclay Murray & Spens LLP
Defenders: Galoe QC et MacColl; Anderson Strathern LLP
22 July 2016
Introduction
[1] This matter came before me as a preliminary proof. The pursuers sought damages from the defenders for loss and damage which they alleged resulted from the defenders’ breach of promise.
Outline of the factual matrix
[2] The pursuers are a land and property development company. The members of the finance committee of the Archdiocese of St Andrews in Edinburgh hold title to the former St Joseph’s School, Tranent (“the school”) as bare trustees for the defenders (as trustees for the Archdiocese).
[3] The pursuers (through Mr Max Minhas) commenced negotiations with the defenders in relation to the potential purchase of the school. Ryden (through Mr David Fraser) acted as selling agents for the school.
[4] Discussions took place between Ryden and the pursuers between about February 2015 and June 2015 in relation to a potential purchase of the school. The pursuers first put forward in writing a proposal for the purchase of the school on 4 February 2015 (JB2).
[5] Thereafter, in so far as material for the purposes of the present dispute the outline of the discussions between parties is set out in the following emails: on 24 April 2015 at 03.24 Mr Fraser sent an email to Mr Minhas (JB8) which contained the following:
“… we do have a couple of other parties working up their interests, the basic structure of the deal you put forward is of interest to the Archdiocese. We would like to try and firm up a detailed heads of terms agreement over the next week or so to which we would then need to seek the various internal approvals in order to move into legals. Just to be clear, we have not shut the door to other interest at this stage but will be making them aware that an offer is on the table is being seriously considered.
Will be in touch early next week with our proposed terms.”
Mr Minhas responded by email saying he was keen to establish if a deal could be done.
[6] Mr Fraser responded to this on 24 April at 06.53 (JB10) the material terms of this email were:
“Just so that you are aware of the process involved, the Archdiocese property committee meet on 5 May at which point we hope to be in a position to get a deal approved in principle.
They would then seek trustees approval thereafter. With the best will in the world we are probably three weeks or so from having clients sign off the move into legals.
Are these timescales ok?”
Following the meeting of the committee of the Archdiocese on 5 May 2015, Mr Fraser further emailed the pursuers on 6 May 2015 at 16.47 (JB13), stating:
“The property committee met yesterday and would like to try and agree heads of terms with Landvest for a sale.
Paul Randall is seeking input into my draft terms from their lawyer, just to make sure we are not putting forward something that can’t be delivered legally. I hope to get instructions to issue these in next couple of days, although these will still be subject to final trustees’ approval. The next trustees meeting is on 22 May although it might be possible to get approval prior to this date.”
The pursuers sought progress and by email dated 15 May 2015, 09.31 (JB16) from David Fraser to Mr Minhas the pursuers were advised:
“I hope to get something out to you early next week which will still be subject to trustee approval. I am learning myself about the slightly complicated internal approval process.”
Draft heads of terms were issued by Mr Fraser to Mr Minhas by email on 19 May 2015 (JB19) with the following explanation:
“Please see attached ‘draft’ terms as promised. As explained, these are still subject to trustee approval but Paul and I are keen to try and flush out the basic structure with you before the trustee meeting.
For info, the trustees meeting on Friday has now been pushed back to Monday 25th.”
Said document was marked draft and was unsigned. The preamble said this:
“I write with reference to our letter dated 17th April 2015 and our subsequent email exchanges. I confirm I have now had the chance to discuss this with Paul Randall and outlined below are the draft terms based upon we would be willing to recommend proceeding with the transaction:
…
5. Suspensive Conditions
The offer is subject to the following:
- the purchaser being satisfied with the title prior to conclusion of missives.
- the purchaser making a planning application for conversion of the listed building to residential and new build residential within the grounds within 12 months of conclusion of missives.
- the purchaser will be obliged to appeal the planning application is the event of a refusal or non-determination.
- -vendor trustee approval.”
The final two clauses provided:
“We trust the above proposal meets with your approval and look forward to receiving confirmation of such in order that we can seek the relevant internal approvals from the vendor.
This letter is not and is not intended to form part of a legally binding contract and the correspondence of which it is part is expressly subject to completion of formal legal missives in accordance with Scots law.”
On 26 May Ryden informed the pursuers of interest from another buyer and the pursuers submitted a revised proposal by email on 26 May 2015 at 19.33 (JB35) in the following terms:
“I write further to our telephone conversation.
Naturally I am disappointed to learn at the eleventh hour, that you are also in negotiations with another party for the sale of the property.
We are not interested in getting into a race with a party that may or may not be able to complete the transaction. However to show good faith we are prepared to revise our offer as follows …
This revised offer is valid until 12.00pm on Thursday 28 May 2015.”
Thereafter a number of emails were exchanged between Mr Minhas and Mr Fraser the material terms of which were: by emails on 28 May 2015 Mr Fraser sought, and Mr Minhas provided, clarification about the treatment of the initial cash payment which formed part of the pursuers offer (JB37). On 31 May 2015 Mr Fraser sent an email to Mr Minhas at 09.55 (JB42) in the following terms:
“Thanks for the clarification.
Paul Randall confirmed instructions on Friday that the Archdiocese wish to proceed with your proposal as outlined below.
I have revised the terms which are with Paul for approval. I am away until Thursday so Paul may issue the terms to you directly.
Hopefully we can progress quickly into legals and a concluded contract.”
Paul Randall at the material time was employed by the defenders as Head of Fabric and Planning. He had certain input into the negotiations with the pursuers. By email of 3 June 2015 at 16.17 (JB46) Mr Randall sent Mr Minhas draft heads of terms for “acceptance”. Said heads of terms were marked draft and unsigned. The preamble to said document was in the following terms:
“I write with reference to our letter dated 17th April 2015 and our subsequent email exchanges. I have now had the chance to discuss this with Paul Randall and outlined below are the terms based upon we would be willing to proceed with the transaction;
…”
Clause 5 provided:
“5. Suspensive Conditions
The offer is subject to the following:
- the purchaser being satisfied with the title prior to conclusion of missives.
- the purchaser making a planning application for conversion of the listed building to residential and new build residential within the grounds within 12 months of conclusion of missives.
- the purchaser will be obliged to appeal the planning application in the event of a refusal or non-determination.
- -vendor trustee approval.”
The last two paragraphs provided:
“We trust the above proposal meets with your approval and look forward to receiving confirmation of such in order that we can seek the relevant internal approvals from the vendor.
This letter is not and is not intended to form part of a legally binding contract and the correspondence of which it is part is expressly subject to completion of formal legal missives in accordance with Scots Law.”
On 4 June 2015 at 03.22 (JB47) Mr Minhas responded with certain revisions to the draft heads of terms. In particular, as revised by Mr Minhas, the draft heads of terms stated inter alia:
“… 14. The vendor agrees to provide an exclusivity period to the purchaser in order to provide a reasonable period to execute a contract and conclusion of missives.
We trust the above proposal meets with your approval and look forward to receiving confirmation of such in order that we can seek the relevant internal approvals from the vendor.”
In the said covering email Mr Minhas stated inter alia:
“…
5. We would want an exclusivity period until the end of July to conclude this matter as this will involve considerable time and cost to conclude the missives.
6. It’s now been several months since we first thought we had an agreement, we would like to stipulate a deadline of Monday June 8th for final acceptance of our offer after which date please consider it withdrawn.
We would be grateful if you could please ask your clients to sign and return the Heads of Terms before the deadline date above if they wish to proceed.”
Mr Fraser responded by email at 10.07 that day (JB49) stating inter alia:
“I have am just back from a few days away and Paul is now away for the rest of the week. Accordingly, it is unlikely that Paul and I will be able to respond by your deadline of Monday with a detailed response on these points. Landvest are very much the preferred bidder for St Joseph’s, but we will need to make sure we have the detailed terms agreed before we instruct the solicitors.
Can you confirm that we will have a bit more time early next week to respond?”
By email at 12.21 on 4 June 2015 (JB50) Mr Minhas replied:
“… My board are not impressed at the moment. Therefore we are not really prepared to wait beyond the deadline only to find that we have once again been used as bait - that’s not the way we do business. You need to make up your mind and recommend whichever party you chose to.”
At 12.36 (JB53) Mr Fraser responded:
“…We are not negotiating with anyone else, you are not being used as ‘bait’ and we have made our recommendation to the Archdiocese which they have confirmed their instructions to us on. There is no question of anyones mind not being made.
I think you are misreading the terminology used here. In the Scottish market, when you are the ‘preferred bidder’ you are the party chosen by the vendor to move forward with.
I will do what I can to get instructions for Monday on these points.”
On 9 June at 17.29 (JB73) Mr Fraser emailed Mr Minhas in the following terms:
“Please see attached terms which from our perspective reflects the various emails and discussions over the last few days.
One point to highlight is the timing of payment and transfer of title. Your email of 8th May confirmed that … would be payable on conclusion of missives and title would transfer with VP on payment of the final … in Feb 2016, Your amendment to the letter changed proposal to transfer of title in August 2015 The Archdiocese cannot transfer title until they have VP and the attached letter reflects this.
Look forward to hearing from you.”
The heads of terms was not marked draft and was signed by Mr Fraser. The preamble said this:
“I write with reference to ongoing discussion and email exchanges regarding the above. I have now had the chance to discuss the latest clarifications with Paul Randall and outlined below are the terms based upon which we would be willing to proceed with the transaction:
…”
Clause 7 said this:
“7. Suspensive Conditions
The offer is subject to the following:
- the purchaser being satisfied with the title prior to conclusion of missives.
- the purchaser making a planning application for conversion of the listed building to residential and new build residential within the grounds within 12 months of vacant possession of the whole premises.
- The purchaser will be obliged to appeal the planning application in the event of a refusal or non-determination if the purchaser believes it has a reasonable chance of success.In the event that the purchaser chooses not to appeal, the top-up payment will continue to apply the next planning application made.”
Clause 11 said this:
“11. Exclusivity Period
The vendor agrees to provide an exclusivity period to the purchaser in until 31st July 2015 in order to execute a contract and conclude of missives.”
The last two paragraphs provided as follows:
“We trust the above proposal meets with your approval and look forward to receiving confirmation of such in order that we can seek the relevant internal approvals from the vendor.
This letter is not and is not intended to form part of a legally binding contract and the correspondence of which it is part is expressly subject to completion of formal legal missives in accordance with Scots Law.”
The issue
[7] Against that background it was the pursuers’ contention that the defenders had undertaken a promissory obligation in terms of clause 11 of the heads of terms to allow the pursuers the exclusive right to negotiate for the purchase of the school until 31 July 2015. There was no dispute between parties that during the contended period of exclusivity the defenders had sold the school to a party other than the pursuers. The defenders’ position was that no such promissory obligation had been undertaken by the defenders in terms of the said document.
[8] The question for determination by the court accordingly became this:
On a proper construction of the heads of terms document dated 9 June 2015 issued by Ryden to the pursuers had the defenders undertaken a promissory obligation to allow the pursuers the exclusive right to negotiate the purchase of the subjects until 31 July 2015?
Submissions on behalf of the pursuers
[9] Senior counsel, Mr Sandison, began by addressing the issue of what constituted a promissory obligation in the law of Scotland. He took as his starting point the opinion of the Lord President in Regus (Maxim) Ltd v Bank of Scotland PLC 2013 SC 331 between paragraphs 33 and 35 and 37 and 38. He submitted that the following propositions could be extracted from the opinion:
(a) A promissory obligation in the law of Scotland is a unilateral juristic act, which acquires its binding force by reason of the declarant’s expression of will to be bound (para. 33).
(b) If a promise is made subject to a condition (which may be nothing more than an indication of willingness on the part of the promisee to accept the promise), the fulfilment of the condition does not convert the promise into a contract ex post facto (para. 35).
(c) An obligation of this kind can be constituted only by words which clearly (but not necessarily expressly or specifically) disclose an intention on the part of the promisor to be bound. In particular in this regard, the task of the court is to consider objectively whether the words of the promisor, in the context of the background in which they were uttered, would have indicated to a reasonable recipient of them that the promisor intended to be bound (para. 37).
(d) At least in a commercial context, the words of the alleged promise should be assessed in the same way as the existence and meaning of any other alleged commercial obligation, in particular contractual obligations (para.38).
Support for these propositions could also be found in Ballast PLC v Laurieston Properties Limited (in liquidation) and others 2005 CSOH 16, per Lady Paton at paragraphs 141 to 143 and 155 to 159; T B Smith “Pollicitatio - Promise and Offer” 1958 Acta Juridica 141, at 145, 147 to 148 and 151 to 152 and Stair Memorial Encyclopaedia, Volume 15, paragraphs 612 to 618.
[10] I did not understand the defenders to seek to dispute any of the above propositions. Against that legal background the position developed by Mr Sandison both in his written submissions and initially in his oral submissions was this: the reasonable recipient of the heads of terms would have understood clause 11 of the heads of terms of 9 June 2015 to be a hybrid unilateral promise of the exclusive right to negotiate the purchase of the school conditional only on the promisee (the pursuers) indicating a willingness to agree.
[11] Mr Sandison submitted that in approaching the task of construction the court should put itself in the position of the reasonable recipient. The reasonable recipient did not merely have the heads of terms of 9 June before him but also had all of the background information before him. In reaching a sound construction the court must have regard to the salient background circumstances as known to the reasonable recipient of the said heads of terms document. He submitted that such a person would know the following:
(a) Landvest had made an initial offer in February (JB2, p.5).
(b) Landvest had been told by Fraser as far back as 24 April that the basic structure of that offer was “of interest to the Archdiocese” and that it was desired to “firm up a detailed heads of terms agreement over the next week or so to which would then be sought the various internal approvals in order to move into “legals” (JB8, p.13).
(c) Landvest had been told that the property committee of the Archdiocese had met on 5 May and would like to try and agree heads of terms with Landvest for a sale, which terms would be subject to “final trustee approval” (JB13, p.18).
(d) A draft heads of terms document had been issued by Fraser to Minhas on 19 May (JB19, p. 24):
- The accompanying email stated that the document was “still subject to trustee approval” at a meeting scheduled for May 25.
- The heads of terms document was watermarked “DRAFT”.
- The heads of terms document, although in the form of a letter from Ryden to Landvest, was unsigned.
- The heads of terms document was described in its first paragraph as “the draft terms based upon [which] we would be willing to recommend proceeding with the transaction”.
- Paragraph 5 of the heads of terms document described one of the suspensive conditions of “the offer” as being “vendor trustee approval”.
- The penultimate paragraph of the heads of terms document was “We trust the above proposal meets with your approval and look forward to receiving confirmation of such in order that we can seek the relevant internal approvals from the vendor”.
- The last paragraph of the heads of terms document was “This letter is not and is not intended to form part of a legally binding contract and the correspondence of which it forms part is expressly subject to completion of formal legal missives in accordance with Scots Law”.
(e) Between 19 and 26 May Landvest had clarified the terms of its overage payment offer (JBs 21 - 26, pp. 29 - 35), provided proof of its funding for the transaction (JB21, p. 30), and confirmed that it was happy with the remaining terms of the draft heads of terms document (JB27, p. 39 and JB 28, p. 40).
(f) On 26 May, Landvest had been told by Fraser that there was another bidder and that Landvest might want to improve its own offer (JB33, p. 49).
(g) Landvest had on the same day expressed disappointment about being informed of the existence of negotiations with another party “at the eleventh hour”, but had improved its offer “to show good faith” (JB35, p. 51).
(h) On 31 May Landvest had been told that the Archdiocese wished to proceed with its proposal, that revised heads of terms were with Randall for approval, and that it was hoped to make quick progress into legals and a concluded contract (JB42, p. 61).
(i) On 3 June Randall has issued to Landvest a second draft heads of terms document (JB46, p.66):
- The accompanying email asked for Landvest’s “acceptance”
- The heads of terms document continued to be watermarked “DRAFT”.
- The heads of terms document, although still in the form of a letter from Ryden to Landvest, remained unsigned.
- The heads of terms document was no longer described in its first paragraph as “the draft terms based upon [which] we would be willing to recommend proceeding with the transaction”, but rather “the terms based upon [which] we would be willing to proceed with the transaction”.
- Paragraph 5 of the heads of terms document continued to describe one of the suspensive conditions of “the offer” as being “vendor trustee approval”.
- The penultimate paragraph of the heads of terms document continued to be “we trust the above proposal meets with your approval and look forward to receiving confirmation of such in order that we can seek the relevant internal approvals from the vendor”.
- The last paragraph of the heads of terms document also continued to be “This letter is not and is not intended to form part of a legally binding contract and the correspondence of which it is part is expressly subject to completion of formal legal missives in accordance with Scots law”.
(j) On 4 June Landvest had responded to the second draft heads of terms document with six “clarifications”, one of which was “We would want an exclusivity period until the end of July to conclude this matter as this will involve considerable time and cost to conclude the missives” (JB47, p. 70). The accompanying version of the second draft heads of terms document was revised by Minhas so as to include a provision that “the vendor agrees to provide an exclusivity period to the purchaser in order to provide a reasonable period to execute a contract and conclusion of missives” (JB47, p.73).
(k) On 4 June Fraser had told Landvest that it was “very much the preferred bidder for St Joseph’s” (JB49, p. 78); the concept of being the “preferred” bidder had suggested to Landvest that negotiations with others were still ongoing and that it was being used as “bait” or “leverage” (JB50, p. 79); and Fraser had told Landvest that there were no negotiations with anyone else, it was not being used as “bait”, the Archdiocese had confirmed instructions, so that there was “no question of anyone’s mind not being made [up]”; Landvest was “the party chosen by the vendor to move forward with” (JB53, p. 84).
(l) Between 4 and 9 June (JB52, p. 83; JB54, p. 85; JB56, p. 87; JB58, p. 91; JB60 - 69, pp.93 - 105) Fraser, Randall and Minhas had reached a consensus on the various issues raised by Minhas’s revisions of the second draft heads of terms document.
He then submitted that with the knowledge of this background the reasonable recipient of the heads of terms of 9 June would have considered of significance the following seven points:
(i) Ryden considered that the heads of terms document attached reflected the upshot of the communications between themselves and Landvest over the period since the second draft of the heads of terms had been issued;
(ii) The heads of terms document was no longer watermarked as a draft;
(iii) It took the form of a signed, rather than unsigned letter, from Ryden;
(iv) Its first paragraph described the document as “the terms based upon which we would be willing to proceed with the transaction”;
(v) The clause dealing with suspensive conditions to the offer (previously numbered 7, now 5 no longer referred to “vendor trustee approval” as such a condition;
(vi) The exclusivity clause drafted by Minhas had been revised and appeared as clause 11 in the final document in the following terms:
“11. Exclusivity Period
The vendor agrees to provide an exclusivity period to the purchaser in until 31st July 2015 in order to execute a contract and conclude of missives”
(vii) The penultimate and final paragraphs of the document remained in the same terms as had appeared in the corresponding parts of the two drafts.
Counsel argued that the reasonable recipient would have taken from the identified features the following:
(a) That, because this document was no longer a draft, but a signed formal letter setting out the terms based upon which the sender was willing to proceed with the transaction, that what it was being presented with was the expression of a formal resolution on the part of the defenders;
(b) That - because of the removal of “vendor trustee approval” as a suspensive condition of the offer - the stage had been reached at which such approval was no longer required;
(c) That it was being offered, in the present tense, and subject only to the pursuers’ indication that they wished to proceed on the basis set out in the document: an exclusivity period so as to enable it to incur the legal costs of settling the terms of, and executing, missives, free of the concern that in the meantime the defenders would continue to take steps designed to lead to the sale of the property to some other party.
(d) That, particularly given points (a) and (b) above, the penultimate paragraph was simply indicating that, on receipt of its approval of the “above proposal”, Ryden would communicate that approval to the relevant internal body of the Archdiocese so that it could formally instruct solicitors to commence the process of settling the terms of, and executing, the contemplated missives.
(e) That, although no contractual engagement (i.e. one involving the mutual settlement of rights and obligations) was being undertaken at this stage, there was nothing in the document (or otherwise) to suggest or detract from the immediate unilateral obligation being undertaken not to negotiate or deal with another party for the period identified in the exclusivity clause.
A further factor which senior counsel submitted would have had an effect on the reasonable recipient’s understanding of the heads of terms document of 9 June would be the question of the wider considerations of where the commercial sense of an exclusivity clause lay. It was his position that such considerations supported his construction of the head of terms document of 9 June. In development of this argument he said this: If the granting of the exclusivity period was not to be immediate, but was rather to be subject to some further process of decision‑making or legal drafting, then the very purpose which it was meant to achieve, namely: the protection of the status which Landvest had expressly been told it held, namely that of “the party chosen by the vendor to move forward with” (JB53, p. 84), pending conclusion of the contemplated missives, would have been wholly stultified. Beyond that he argued: the date specifically identified in the clause would need to be altered so as to afford a “clear run” period of the same length as that being offered therein - a point rapidly made by Minhas when the name of the defenders’ solicitors was not immediately made forthcoming after he indicated the pursuers’ Landvest’s approval of the final heads of terms document (JB76, p. 118). On the foregoing analysis he submitted: clause 11 contained a unilateral obligation to grant a period of exclusivity and this became binding on the pursuers indicating that it was prepared to proceed on the basis set out in the heads of terms of June 9, and this was done by the pursuers’ email of 9 June at 18.11. With respect to the proper construction of that email he said this: although it contained the words “as long as we can get good security on the title that will work”, it is plain that none of the parties to the correspondence in fact conceived the slightest notion that those words represented anything other than the “approval” asked for in the heads of terms document. Objectively and as a matter of law, they were correct to take that view; the sentence in question does no more than reiterate a point already made expressly in the heads of terms document itself, namely that it will be for the purchaser to satisfy themselves prior to the conclusion of the contemplated missives that the title being offered is satisfactory; that one aspect of a good and marketable title is that it should be sufficient to form the basis for the grant of heritable security, is trite law; see, e.g., McDonald’s Conveyancing Manual (7th ed.), p.559.
[12] Having made the foregoing submission Mr Sandison’s attention was drawn to the following section of the pleadings on behalf of the pursuers:
“In response to that request for an exclusivity agreement, Mr Fraser included in the signed heads of terms document an express and unconditional undertaking but that the pursuer was to be provided with such exclusivity in order to enable missives to be concluded on the basis of the other terms summarised in the document” (emphasis added) (see: article 8 and page 15).
This section of the pleadings, which was the sole basis of the pursuers’ case as plead, advanced a rather different argument from that which he had developed before the court, namely: that what was contained in the clause was a conditional promise. There appeared to be no pleadings which supported what he had initially put forward. Mr Sandison’s reply was this: his primary position was that there was an unconditional promise and his secondary position was that there was a conditional promise which required approval.
[13] For the foregoing reasons he moved that the court should answer the question in issue in the affirmative.
Reply on behalf of the defenders
[14] Mr Gale at the outset emphasised that the pursuers’ case was entirely predicated upon the breach of a promissory obligation by the defenders. Previously there had been a case based on breach of contract, however, this had been deleted by adjustment and amendment on 23 September 2015.
[15] Mr Gale’s position, in short, in answer to the pursuers’ case was this: properly construed, the heads of terms of 9 June 2015 did not impose any obligations upon the defenders. Clause 11 in particular said this: “We trust the above proposal [defenders’ emphasis] meets with your approval and look forward to receiving confirmation of such [defenders’ emphasis] in order that we can seek the relevant internal approvals from the vendor [defenders’ emphasis]. These provisions are plain in their meaning and fall to be construed on that basis; there is no reason to depart from an application of their ordinary meaning. The heads of terms of 9 June 2015 is, at its highest, a proposal to agree heads of terms - this position appears to have been accepted in evidence by all of the witnesses who gave oral evidence before the court. Further the proposal was expressly subject to two matters that required to be purified: (i) approval of the proposed terms by the pursuers; and (ii) subsequent internal approvals on behalf of the defenders. As such, the heads of terms of 9 June 2015, the sending of which is maintained by the pursuers to have given rise to the purported exclusivity obligation, did not give rise (and could not have given rise) to any obligations binding upon the defenders. It is not a promise to do anything.
[16] Mr Gale submitted that looking to the opinion of the Lord President at paragraphs 37 to 39 in Regus (Maxim) there had to be clear words in order to create a unilateral obligation. He submitted that here it could not be said that any such clear intention could be identified.
[17] Mr Gale then turned to look at certain specific points advanced by Mr Sandison. He first submitted that Mr Sandison’s approach was not a correct one in that he sought to obtain the construction which he advanced on the basis of consideration of a single clause in the heads of agreement of 9 June. The proper approach was to look at the whole document and if that approach were adopted Mr Sandison’s contended for construction could not be reached.
[18] Secondly and in any event, the approach of Mr Sandison does not deal with the two conditions contained in clause 11.
[19] Thirdly, if one were to follow Mr Sandison’s conditional promise approach, it still fails to deal with the issue of internal approval from the vendor. Beyond that there was no acceptance on behalf of the defenders. The email of 9 June 2015 from Mr Minhas was not an approval of the proposed terms. On its face that email could not be read as a clean acceptance of the proposal advanced by Ryden.
[20] Mr Gale concluded in this part of his submissions by saying this: it was very telling in looking at the contended for construction of the pursuers to note the material change in the pursuers’ position as presented both in their written and oral submissions to that put forward in their pleadings: in the pleadings there was an argument based on unconditional promise and what was now advanced before the court was one based principally on conditional promise and this underlined the weakness of the pursuers’ position.
[21] Turning to the issue of commercial sense there was nothing in Mr Sandison’s argument that the defenders’ position lacked commercial sense. There would be no difficulty in putting together a heads of terms agreement in a contractual sense, thus no delay.
[22] In any event the issue of commercial sense had to be viewed in the context of the clear wording of the document (see: Arnold v Britton 2015 AC 1619 at paragraphs 14-23 and Sipp Pension Trustees v Insight Travel Services Limited 2015 CSIH at paragraph 17).
[23] For the foregoing reasons Mr Gale moved that I should answer the question posed in the negative.
Discussion
[24] The present case turns upon the proper construction of the heads of terms document of 9 June, that being the document upon which the action is primarily founded.
[25] The pursuers’ position is that properly construed it amounts to a unilateral promise, either conditional or unconditional the terms of which have been earlier set out.
[26] As to the law applicable to unilateral promissory obligations this is as set out in Regis (Maxim) Ltd v Bank of Scotland PLC and is fairly summarised by the four propositions put forward by Mr Sandison.
[27] The defenders’ contend that on a sound construction the head of terms document of 9 June is no more than a proposal to agree heads of terms.
[28] The principles governing construction are reasonably well understood and I believe this can be set out in three propositions:
[29] First, the document falls to be construed by applying the ordinary meaning of the words read in the context of the document as a whole and secondly, against the background knowledge that would have been available to both parties (see: Arnold v Britton, Regus (Maxim) Ltd v Bank of Scotland PLC at 38 and Sipp Pension Trustees v Insight Travel Services Limited). Secondly, the document falls to be construed according to the objective meaning that it would convey. Accordingly the subjective intentions or understandings of the parties are of no relevance (see: Muirhead and Turnbull v Dickson 1905 7 F 686, per Lord Dunedin at 694 and Sirius International Insurance Co v FAI General Insurance Ltd 2004 1 WLR 3251).
[30] Thirdly, in construing the document the conduct of the parties to the supposed obligation after the point of its constitution is irrelevant (see: James Millar & Partners Limited v Whitworth Street Estates (Manchester) Limited 1970 AC 583 per Lord Reid at 603E, Lord Hodson at 606E, Viscount Dilhorne at 611D and Lord Wilberforce at 614H to 615A).
[31] Against the above legal landscape I turn to consider the proper construction of the head of terms document of 9 June.
[32] In my opinion the construction for which counsel for the defenders contends is the sound one.
[33] Mr Sandison, in the course of his submissions developed two broad approaches in his analysis of the head of terms document of 9 June. The first is foreshadowed in his pleadings at article 8 page 15 which I have set out in full earlier in this opinion.
[34] With respect to the foregoing analysis of the document, I am not persuaded that the words in the head of terms document of 9 June are sufficiently clear that the reasonable recipient of the final head of terms document would with his knowledge of the background have interpreted it as an unconditional undertaking.
[35] The document contains in its penultimate paragraph the following:
“We trust the above proposal meets with your approval and look forward to receiving confirmation of such in order that we can seek the relevant internal approval from the vendor.”
The starting point in construing the document is to look at the natural meaning of the words used. The natural meaning of these words is that the document was no more than a “proposal” and that it was first subject to “confirmation” (by the pursuers). The proposal is not subject merely to this single suspensive condition but to a second suspensive condition, namely: internal approval from the vendor (the defenders).
[36] Looking to these words I am satisfied that no unconditional promise is intended and that no reasonable recipient could interpret it in such a way. Rather on the basis of the natural meaning of these words, the document is as argued by the defenders at its highest, in proposal to agree heads of terms.
[37] A second principle of construction is that a document is construed in the context of the whole terms of the document. It is an essential part of Mr Sandison’s argument that clause 11 should be looked at separately from the rest of the document. It was his position that that was the appropriate approach given that the rest of the terms of the document dealt with the basis upon which the defenders were willing to enter missives with the pursuers. Clause 11 on the other hand was a freestanding promise in that its subject matter was different from the subject matter of the rest of the document. I am not persuaded that, on the basis of this argument, this single clause can be looked at separately from the whole terms of the document. As put forward, by Mr Gale, the document contains a parcel of terms which it was proposed would form the final heads of terms document. A single clause, in a document of this type, cannot be taken out of the document and construed as if it stood alone. The proper approach I believe is to look at the document as a whole and construe it in that way. Approached in that way clause 11 is not an unconditional promise for an exclusivity period. Such a construction would not fit in with the terms of penultimate paragraph and the suspensive conditions contained therein. I do not accept the basis upon which Mr Sandison argued that this clause should be looked at on its own.
[38] Thirdly, in construing the document consideration must be given to the whole admissible surrounding circumstances. The core of Mr Sandison’s argument was that having regard to the background circumstances to the sending of the document the sound construction of the document was that for which he contended.
[39] The first factor relied on by Mr Sandison is this: in the first paragraph of the heads of terms document of 9 June 2015 the following is stated:
“I write with reference to ongoing discussion and email exchanges regarding the above. I have now had the chance to discuss the latest clarifications with Paul Randall and outlined below are the terms based upon which we would be willing to proceed with this transaction:”
I am not persuaded that anything can be taken from this which supports the pursuers’ position.
[40] That statement fits, I believe, with the contended for position of the defenders, that the document was a proposal to agree heads of terms subject to certain suspensive conditions. It shows no more than this: in the course of an ongoing process of trying to finalise a heads of terms document the defenders had sought to take on board discussions which had taken place with the pursuers, since the last heads of terms document had been sent to the pursuers.
[41] The second specific matter founded upon by Mr Sandison was that the document was no longer marked draft and was signed. Once more I believe these factors do not support the pursuers’ contended for interpretation. The change from a draft and the fact that the document is now signed do not I believe sound with respect to the issue of the proper interpretation of the document. The significance of these changes is I believe only this: the ongoing process of seeking to agree a final head of terms document has moved on from the stage of a draft document being put forward. However, I do not believe that this change supports the pursuers’ construction. The fact that it is no longer a draft is consistent with the defenders’ position that the document is a proposal to agree heads of terms, which can be confirmed as acceptable by the pursuers and then is subject to internal approval by the defenders.
[42] The defenders’ construction fits in with an ongoing process to seek to agree a final head of terms document. Two drafts are sent out and then a signed proposal is sent out.
[43] Thirdly Mr Sandison relied on the first paragraph of the document saying this:
“… outlined below are the terms based upon which we would be willing to proceed with the transaction.”
I observe that this phrase also appeared in the second draft heads of agreement and there is thus no change in the wording. Secondly, it is not expressed in the present tense rather the word “would” is used and it is thus expressed in the past tense. This appears in my view to reflect a conditional element. Thus on a fair reading what is said is this: here are the terms we would be willing to proceed with subject to the conditions set out in the penultimate paragraph. This I believe fits in with the defenders’ rather than the pursuers’ interpretation.
[44] The next factor relied on was the removal of vendor trustee approval from the clause headed suspensive conditions.
[45] The removal of this from the suspensive conditions clause has, I am satisfied, to be read in the context of the penultimate paragraph where the proposal is said to be subject to relevant internal vendor approval. The document has to be looked at as a whole and given the existence of the penultimate paragraph I believe that no real weight in support of the pursuers’ contended for position can be attached to the removal of vendor approval from the suspensive conditions. The reasonable recipient I am persuaded given the existence of the terms of the penultimate paragraph could not hold that vendor trustee approval was no longer required. To hold such would be to ignore the terms of the penultimate paragraph or to treat the terms of the penultimate paragraph as having no meaning. This is not an approach which the reasonable recipient would take. The drafting of the document is perhaps a little poor in this respect. However, looking to the document as a whole it cannot be argued that this produces the required clarity to hold that properly construed the document contains a unilateral obligation relative to the exclusivity period.
[46] Mr Sandison’s construction of the penultimate paragraph in the light of said deletion in the suspensive conditions clause and the document no longer being in draft form, as set out in his written submissions, was this:
“Ryden would communicate that approval to the relevant internal body of the Archdiocese so that it could formally instruct solicitors to commence the process of settling the terms of, and executing, the contemplated missives.”
I believe that to be a very odd reading of the penultimate paragraph. The effect of this construction is to render the phrase, “seek the relevant internal approvals”, without meaning, as according to this construction no such approval would require to be sought. I cannot identify how the penultimate paragraph could be read in the above manner. I am persuaded that this is not a sound construction of the penultimate paragraph.
[47] Mr Sandison in addition also relied on what he described as the lack of commercial sense of a clause granting an exclusivity period if it was not to have immediate effect.
[48] I am not persuaded by the foregoing argument. Firstly the document could immediately have been confirmed as acceptable by the pursuers (as according to the pursuers they in fact did) and thereafter so far as internal approval was concerned there was no evidence to suggest internal approval would have been long delayed. It appears to me as submitted by Mr Gale that the exclusivity clause could have been put in place very quickly. Thus I do not believe that the document lacks commercial sense for the reasons advanced by Mr Sandison. I am not persuaded that the result produced on the basis of the defenders’ construction is one removed from commercial reality.
[49] Moreover, I believe there is a second reason why this argument is not a sound one. Lord Neuberger in Arnold v Britton at paragraph 15 distilled the task of the court in seeking to determine what parties meant by language used to six propositions and these are:
“That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provision of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any parties’ intentions.”
Lord Neuberger then turns at paragraphs 16 to 23 to make observations relative to consideration of commercial common sense and I believe that certain of these have relevance to the instant case:
“First the reliance placed in some cases on commercial common sense … should not be invoked to undervalue the importance of the language of the provision which is to be construed.” See: paragraph 17, P 1628.
and further at paragraph 20:
“Fourthly, while commercial common sense is a very important factor to take into account when interpreting a contract, a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed …”
The above observations were expressly endorsed by the court in Sipp Pension Trustees v Insight Travel Services Ltd at paragraph 17.
[50] Applying those observations to the instant case, even if I were persuaded that the document lacked commercial sense as argued by Mr Sandison, his approach would be to wholly undermine the importance of the penultimate clause and in essence to have no regard to the natural meaning of the words thereof. I am accordingly not persuaded that the pursuers’ argument based on wider commercial reality is a sound one.
[51] Lastly I note the emphasis which the Lord President in Regus (Maxim) v Bank of Scotland PLC at paragraphs 37 and 78 placed on the necessity for a “promisor’s own words” to be “clear and unambiguous” before a promise would be binding. I am satisfied that no such clear and unambiguous unconditional promise, with respect to an exclusivity period, arises here even when proper regard is had to the background circumstances.
Conclusion on primary argument
[52] For the foregoing reasons I reject the primary argument put forward by Mr Sandison.
The secondary argument
[53] Mr Sandison’s secondary argument was this: the document was a conditional promise and that the document became binding when the pursuers indicated that they were prepared to proceed on the basis set out in the document. This he said had occurred in terms of the email contained at JB74.
[54] This argument was said to be a development of the argument as set out in the pleadings. It is perhaps noteworthy, however, that this was the argument principally developed in the written and oral submissions before me and it was only when Mr Sandison’s attention was drawn to the pleadings on behalf of the pursuers, that he returned to what was his argument as set out on record, which I set out in full earlier in this opinion. In passing I would say this: the way in which the argument developed before me appeared to suggest the weakness in Mr Sandison’s primary argument based on an unconditional promise.
[55] A promise, can of course, be conditional (see: Regis (Maxim) Ltd v Bank of Scotland PLC at paragraph 34).
[56] However, for all of the reasons I have set out with respect to Mr Sandison’s primary argument I am of the view that the secondary line of argument is not a sound one. I believe all of these points have relevance to this secondary argument. Moreover, I also reject the secondary line of argument in that it does not deal with the second suspensive condition, namely: the internal approval.
[57] Further, document 74 is not in my view a clean confirmation, it says this: “As long as we can get good security on the title that will work” I cannot see how that document would be regarded by the reasonable recipient as a clean acceptance. The natural meaning of the words is that it is conditional on the pursuers being satisfied that they can obtain a good security.
[58] An oddity of this argument is that it accepts one condition to the promise: confirmation by the pursuers but it argues that the promise is not subject to the second condition, namely: internal approval from the vendor. There appears so far as I could see to be no reason or basis for this argument. This reinforced my view that this was not a sound argument. I accordingly for these reasons reject the second line of argument.
[59] I accordingly for all the above reasons reject the pursuers’ contended for construction and hold that it is not a sound one. The sound construction I believe is that put forward on behalf of the defenders.
[60] In the course of my discussion I have not referred to the evidence which was led (Mr Minhas, Mr Fraser, Mr Doran (a legal expert) who were led on behalf of the pursuers and Mr Randall who was led on behalf of the defenders) I have not done so in that: (1) the subjective intention of parties was irrelevant; (2) the conduct of the parties post the constitution of the obligation was irrelevant; and (3) the evidence formed no material part of either side of the bar’s submissions. Overall I do not believe the evidence was of any significance.
Decision
[61] It follows from the above that the question which the parties have asked the court falls to be answered in the negative. In consequence of that: the defenders should be assoilzied from the first conclusion of the summons. I have reserved the position regarding expenses.