A1388/04
JUDGMENT OF SHERIFF PRINCIPAL JAMES A TAYLOR
in the cause
Jack Haroldsen McPhee & Another
RESPONDENTS /PURSUERS
against
Graham John Black & Another
APPELLANTS/DEFENDERS
AYR, 31 July
2006.
The Sheriff Principal, having resumed consideration
of the cause, Puts the case out for a further hearing before the Sheriff
Principal on 4 October 2006
at 10.30 am; Reserves meantime the
question of expenses occasioned by the appeal.
NOTE:-
[1] The respondents and pursuers (hereinafter
"the sellers") sold to the appellants and defenders (hereinafter
"the purchasers") a house known as The Cushats at a price of
£930,000. The missives provided that
entry should be taken by the purchasers on 10 December 2004.
The relevant conditions in the missives are 8, 12 and 25. They are in the following terms:-
Condition 8
"...prior to the date of entry the seller will exhibit
an up to date type "SPH" property search or the local authority
equivalent. In the event of that report
disclosing any matter materially prejudicial to the purchasers' interests then
they will be entitled to resile from the bargain without expense but only by
giving notice of their intention to do so in writing and that within five
working days from the date of receipt by you of the said certificate..."
Condition 12
"The whole Title Deeds relative to the subjects, or
copies thereof, will be exhibited within four weeks from the date of conclusion
of the Missives to follow hereon. In the
event of the Title Deeds disclosing any matter materially prejudicial to the
purchasers' interests then they will be entitled to resile from the bargain
without expense but only by giving notice of the intention to do so in writing
and that within ten working days from the date of receipt by you of the Title
Deeds. In the event of the purchasers'
failure to resile in writing within the stated period then thereafter they will
have no recourse against the seller with regard to any matter disclosed by the
Title Deeds and will not thereafter be entitled to resile".
Condition 25
"Payment of the purchase price in full before 1.00 pm on the date of entry is of the essence
of the contract. In the event of the
purchase price or any part thereof remaining outstanding as at the date of
entry then notwithstanding consignation or the fact that entry has not been
taken by your client your client shall be deemed to be in material breach of
contract and further interest will accrue at the rate of 4 per cent per annum
above Bank of Scotland Base lending rate from time to time until full payment
of the price is made or in the event of our client exercising his option to
rescind the contract they contractual date of entry under any subsequent resale
of the subjects and further interest shall run on any shortfall between the
purchase price hereunder and the resale price until such time as the shortfall
shall have been paid to our client. In
the event that the said purchase price is not paid in full within fourteen days
of the date of entry our clients shall be entitled to treat your client as
being in material breach of contract and to rescind the Missives on giving
prior written notice to that effect to your client without prejudice to any
rights or claims competent to our clients arising from the breach of contract
by your client including out clients' rights to claim all losses, damages and
expenses sustained as a result of your clients' breach of contract including
interest on the price calculated as set out in this clause..."
[2] Following delivery of the title deeds by
the purchasers' solicitors to the sellers' solicitors the latter wrote to the former
on 13 October 2004 narrating a number of concerns with the title and concluding
by stating:-
"My clients strongly believe that these issues
materially prejudice their proper use and enjoyment of the subjects.
You should therefore treat this letter as formal
intimation of my clients' intention to exercise their right to resile from the
contract in accordance with Condition 6 (sic) of your qualified acceptance
dated 21 July 2004 (as subsequently amended)".
[3] The purchasers did not offer to make
payment of the purchase price at the date of entry. Shortly thereafter the sellers raised this
action in Ayr Sheriff Court. The crave was for implement of the
missives. Following receipt of the
defences, in which the purchasers reiterated their position with regard to the
title, the sellers' solicitors wrote by letter dated 27 January 2005 to
the purchasers' solicitors in the following terms:-
"We thank you for your letter of 26 January in
connection with the above and acknowledge safe receipt of the defences. We shall revert to you in relation to these
in due course.
In the meantime however standing the terms of your defences
we would advise that our client will be re-marketing the subjects. We trust that you have no objection."
[4] The sellers aver that they instructed
estate agents to re-sell the subjects on 31 January 2005 and at the end of April 2005
concluded missives for the sale of the subjects at a price of £775,000. Meantime, this court action still contained a
crave seeking implement of the missives with the appellants. On 23
May 2005 a Minute of Amendment was lodged in which the craves were
amended to seek payment of damages arising out of the purchasers' alleged breach
of contract. The Minute of Amendment for
the sellers was intimated on or about 23 May 2005. The case proceeded to debate before the
learned sheriff following which certain averments of the purchasers were
refused probation, certain averments of the sellers were refused probation and quoad ultra a proof before answer was
allowed. Against this decision the purchasers
appealed.
[5] There were three grounds of appeal. The first, if allowed, would result in
absolvitor. The second, if allowed,
would result in dismissal. The third, if
allowed, would exclude from probation a number of the sellers' averments.
[6] I will take the purchasers' second
ground of appeal first. The sellers'
position on record is that the failure by the purchasers to make payment of the
purchase price within 14 days following the date of entry, was a material
breach of contract which, by letter dated 27 January 2005, the sellers accepted and thus rescinded
the contract. The purchasers' position
was that the letter of 27 January 2005
was not capable of being interpreted as a rescission of the contract. They submitted that nowhere in the letter is
there reference to an alleged breach of contract by the purchasers. Nowhere is it stated that there has been an
acceptance of the breach. Rescission is
not mentioned. There is no reference to
Condition 25. In regard to this issue
the learned sheriff considered that he would require evidence of the
circumstances surrounding the sending of the letter of 27 January 2005 before he could determine
whether it was capable of being an acceptance of any material breach by the purchasers.
[7] Furthermore, in relation to the
construction of Clause 25, the purchasers submitted that, properly understood,
Condition 25 required the respondents to give "prior written notice"
before rescinding the contract. They had
not done so. Accordingly, the letter of 27 January 2005 could not rescind the
contract as prior notice had not been given.
The learned sheriff came to the view that Condition 25 only required the
sellers to give written notification to the purchasers that they were treating
the purchasers as being in material breach of contract and were rescinding the
contract. The learned sheriff went on to
record that if the contract was interpreted as providing a two stage process
with prior notice being required before rescission, the sellers' solicitors, by
introducing Condition 25, would have weakened their clients' position from
the common law position. At common law
no prior notice is required.
[8] This contract is difficult to follow. Condition 25 provides that payment by 1.00 pm on the date of entry is of the
essence of the contract and that failure to pay by then is a material breach of
contract. It is implicit that the seller would on such an occurrence be entitled to
accept the material breach and rescind the contract. However, rather than allow the common law to
operate, the sellers complicate matters.
Later in Condition 25 they provide that if the purchase price is not
paid within 14 days of the date of entry the sellers can treat the purchasers
as being in material breach of contract and explicitly
provide that the sellers can rescind the contract. Thus it is a material breach if payment is
not made on the date of entry. It is
also a material breach if payment is not made within 14 days of the date
of entry and the sellers are explicitly entitled to rescind the contract. Again, rather than leave matters to
established principles of the law of contract, the sellers go on to prescribe a
mechanism for rescinding the contract after expiry of the 14 day period. They require that the sellers must give
"prior written notice to that effect". The reference to "that effect" can
only be a reference to rescission of the contract. Accordingly it could be said that they have
to give prior written notice of rescission.
Something has to precede rescission.
To interpret the clause otherwise might be to deny any content to the
word "prior". I agree with the
learned sheriff that this is a weaker position than the common law
provides. But on one view that is what Condition
25 says. Having given themselves a
position of strength by the first sentence of the clause the sellers have derogated
from that in relation to what constitutes a material breach and in the notice
provision. A two stage process might be
what is contemplated. That is also
consistent with other provisions in the missives. For example, both Conditions 8 and 12,
conditions conceived for the protection of the purchaser, entitle the purchaser
on certain defined events to "resile" from the bargain "but only
by giving notice of the intention to do so." Presumably after the purchaser has given
notice of his intention he must follow that up by giving effect to his
intention. In other words, a two stage
process is also in contemplation in the operation of Conditions 8 and 12. (I note that the purchasers' solicitors'
letter of 13 October 2004
states only that the purchasers intend
(my italics) to "resile". I
have not had my attention drawn to any act or letter suggesting that they did "resile".
If the purchasers have not "resiled"
then in terms of Condition 12 much of the defence is of questionable relevance
since there is a time limit within which the purchasers can "resile".
No such argument was advanced by the
sellers before the learned sheriff nor before me. I have put the word "resile" in
inverted commas as that is the verb used by the parties in Conditions 8 &
12. Standing the comments made by Lord
Ross in Lloyds Bank plc v. Bamberger
1993 SC 570 and Professor McBryde in The Law of Contract in Scotland (2nd
edition) at para 20.04 such terminology might be considered inappropriate. We are here dealing with a completed contract).
[9] This may all seem rather burdensome on
the parties to the contract. However it
is their contract. It seems to me that in
interpreting the contract, assistance can be derived from the speech of
Lord Hope in Melanesian Trust Board
v Australian Mutual Provident Society (1997) 2 EGLR 128 where at page
129E-F his Lordship states:-
"The approach which must be taken to the
construction of a clause in a formal document of this kind is well
settled. The intention of the parties is
to be discovered from the words used in the document. Where ordinary words have been used they must
be taken to have been used according to the ordinary meaning of these
words. If their meaning is clear and
unambiguous, effect must be given to them because that is what the parties are
taken to have agreed to by their contract.
Various rules may be invoked to assist interpretation in the event that
there is an ambiguity. But it is not the
function of the court, when construing a document, to search for an
ambiguity. Nor should the rules which
exist to resolve ambiguities be invoked in order to create an ambiguity which,
according to the ordinary meaning of the words, is not there. So the starting point is to examine the words
used in order to see whether they are clear and unambiguous. It is of course legitimate to look at the
document as a whole and to examine the context in which these words have been
used, as the context may affect the meaning of the words. But unless the context shows that the
ordinary meaning cannot be given to them or that there is an ambiguity, the
ordinary meaning of the words which have been used in the document must
prevail."
Lord Clarke in City Wall Properties (Scotland) Ltd v Pearl Assurance plc 2004 SC 214 said
at page 229:-
"(a) Recent
developments in the re-statement of the principles to be applied in the
construction of terms in commercial contracts have not, in my opinion, in any
way departed from what I have always understood to be one of the cardinal
principles of contract law, namely, that it is not the function, far less the
duty, of the court to make the parties' contracts for them. (b) as a corollary to that principle it is
not the function, far less the duty of the court, to rescue a party (or his
advisors) from what, on his view of matters, at least, might be regarded as a
bad bargain. (c) since the parties are,
as it were, their own legislators, as to the words chosen to be used to express
their contractual intentions, the court will not substitute for the words used,
words which might have been chosen instead and which, as a result, might have
produced, on one view of things, at least, a more equally balanced bargain,
where the words themselves, in their ordinary meaning, do not produce such a
result. (d) in carrying out its
function, in construing the words chosen by the parties to express their
contractual intentions, "the enquiry will start and usually finish by
asking what is the ordinary meaning of the words used". See Charter
Re-insurance Company Ltd v Fagan (per Lord Mustill, page 384B-C). (e) it remains the law that it is
illegitimate for the court to construe the words actually chosen, by reference
to previous negotiations of the parties and their expressions of subjective
intent. (f) when, as in the present
case, the agreement is embodied in a formal document, which is the product of
professional draughtsmen, and is the result of negotiations and a process of
revisal, it has to be presumed, at least, that the words ultimately chosen were
deliberately, and not carelessly, chosen, and that where there is no room for
them being given some special technical meaning, they were intended to be
understood in accordance with their normal sense in the English language."
[10] However much I might be attracted to the
foregoing approach to the meaning and effect to be given to the word
"prior" it is an approach which is perhaps not open to me. Neither counsel referred me to the case of Charisma Properties Ltd v Grayling (1994)
Ltd 1996 SC 556 which is a decision of an Extra Division. The missives in that case provided "In
the event that the said purchase price is not paid in full within 21 days of
the date of entry, our clients shall be entitled to treat your clients as being
in material breach of contract and to rescind the missives on giving prior
written notice to that effect to your clients...". Lord Sutherland in his opinion on page 561
stated:-
"The only question that then arises is what meaning and effect is to
be given to the word 'prior' where it appears in the clause. In my opinion it is capable of being
construed as meaning that the notice of rescission given by the sellers cannot
be a notice indicating that the contract has been rescinded by them at some
date prior to the date of the notice.
This may not have much meaning in the precise circumstances of the
present case where the notice of rescission was given on the first available
day when it could have been given. Cases
could arise however where a period elapsed from the expiry of the 21 days
before a notice of rescission was given.
In such a case the precise date of rescission may be of materiality and
the use of the word 'prior' shows that the rescission can only take place as
from the date of the notice. I do not
consider that the word 'prior' can be used to convert what is stated in the
clause to be a written notice to the effect that the sellers have rescinded the
missives into a written notice to the effect that the sellers have in mind to
rescind the missives at some unspecified date in the future leaving open the question
of what period is to elapse before the rescission is to take effect and also
requiring in effect a further notice to be given indicating that the sellers
have in fact decided to rescind the contract."
Accordingly it
may be said that the sellers do not require to adopt a two stage process in
rescinding the contract. Notwithstanding
my preference for the views expressed by Lord Milligan and by inference
the Lord Ordinary (Lord Penrose) I might be obliged to follow what was said by
his Lordship in the chair. However, I
will allow counsel the opportunity to address me on this and other points
before reaching a concluded view. It is
unfortunate, to say the least, that counsel's own researchers did not identify
the case. I would appreciate submissions
on whether I am obliged to follow a decision of the Inner House when the two
cases deal with interpretation of contracts.
[11] I should also record that it was not
suggested at the appeal hearing that the sellers could avoid the potential
difficulty which they gave themselves by introducing to Condition 25 the
requirement for prior notice of rescission, by maintaining that the material
breach they were accepting by their letter of 27 January 2005 was the failure
to make payment on the date of entry as opposed to the failure to pay within 14
days of the date of entry.
[12] The next issue is whether the sellers have
followed the contractual mechanism which they created when the purchasers
failed to pay the price. In my opinion
they failed in this respect. Leaving
aside the issue of whether there is a two stage process, the letter of 27 January 2005 does not, in my
opinion, achieve what the sellers offer to prove it achieves. In the closed record at lines 393 to 395 they
state "By virtue of the foregoing (the letter of 27 January 2005) the pursuers made it clear that
they had accepted the wrongful repudiation of the contract on the part of the
defenders." In my opinion Mr Hayhow
is correct in submitting that the letter does not rescind the contract. I suspect the learned sheriff came close to
so holding. At paragraph 56 of his Note
he stated:-
"Pace Mr
Henderson's valiant efforts to convince me otherwise I cannot see that the
letter of 27 January 2005
clearly and unequivocally gives such notification. Leaving aside the rather puzzling reference
to it being hoped that the defenders' agents do not object to such a course, it
gives notification that the pursuers will be re-marketing the subjects. But looking at this letter in isolation it
does no more than that."
However he goes on to hold that the letter of 27 January 2005 cannot be properly
construed without evidence of the context in which it was written. The learned sheriff says in his Note that the
context would include the terms of the missives of sale. However these are admitted and no evidence is
necessary to prove them. The sheriff
also considered that the context included the fact that the sellers had made it
clear they did not accept there were problems with the title. In my opinion such evidence would not assist
the court in interpreting the terms of the letter of 27 January 2005. The letter cannot be deemed to be an
acceptance of the purchasers' alleged breach of contract. It does not refer to the contractual condition
nor to the material breach upon which it might be based nor does it say that
the contract is rescinded. At best it
might be said to be giving notice of a future intention to rescind depending
upon the success or otherwise of the marketing of the property. I can well see why a disappointed seller
might wish to market the property but at the same time hold the purchaser to
his bargain. If the purchase price likely
to be obtained on re-marketing exceeds that which the purchaser had offered to
pay then a seller might rescind and do a deal with the higher bidder. Although I was not referred to the passage at para
20.107 in Professor McBryde's said text book it is worth noting the learned
author's sentence:-
"Nevertheless, it is thought that there must be
clear expression or conduct which shows that the contract is regarded as
terminated, and not merely a threat to, or criticism of, the other party."
The letter of 27 January does not, in my opinion, meet
the minimum criteria to bring the contract between the parties to an end.
In
the same paragraph Professor McBryde goes on to make the point that if parties
elect to provide a specific mechanism for rescinding the contract they must
adhere to it. The prudent solicitor might consider that when drafting missives
he or she should "leave the contract silent on the method, or timing, of
rescission." With that view I
respectfully agree.
[13] Given the foregoing I ought to allow the
appeal and sustain the purchasers' fourth plea-in-law. However at the conclusion of his address Mr
Henderson put forward an alternative scenario.
He submitted that when the sellers intimated the Minute of Amendment on 23 May 2005 that was intimation to
the purchasers that the sellers were accepting their material breach of
contract. In my opinion given the terms
of the Minute of Amendment it could be an unequivocal intimation of acceptance
of a material breach constituted by the purchasers' failure to pay the purchase
price. The difficulty for the sellers
might be that (a) they have no record for such an approach and (b) if prior
notice is required in terms of Condition 25 it is missing. However although I have expressed the opinion
that the letter of 27 January 2005 could not be considered an acceptance of a
material breach which rescinded the contract it is possible, and I put it no
higher, that the letter could be characterised as prior notice of an intention
to rescind the contract. If that was the
case then it could be said that the two stages, should they be necessary, had
been achieved.
[14] When advancing his first ground of appeal
Mr Hayhow said that the sheriff had misunderstood the basis of the submission
made before him. The learned sheriff had
approached the question of amendment from a procedural standpoint. Properly understood Mr Hayhow's submission
was substantive in nature. After some
considerable time I understood the submission to be that when the appellants
continued to maintain the action of implement, notwithstanding that they had
purported to rescind the contract and were actively re-marketing the property,
they were, in so doing, in breach of the original contract. The breach occurred when missives were
concluded with the new purchasers. This
course of conduct precluded the respondents from obtaining damages from the
appellants. "If they send mixed
messages they can't get damages" was the submission. In support of it I was referred to White and Carter (Councils) Ltd v McGregor
1962 SC (HL) 1 and in particular to the speech of Lord Reid at the foot of
page 11 to the top of page 12, Burns v
Garscadden 1900 8 SLT 321, Rodger
(Builders) Ltd v Fawdry 1950 SC 483 and Volume VI of the Stair Memorial Encyclopaedia
at paragraph 575. Mr Henderson
pointed out that the passage in the Encyclopaedia upon which Mr Hayhow relied
had not survived when the text had been updated. Mr Hayhow submitted that when a contract
continued in existence both parties had ongoing rights and obligations. With that submission it is difficult to
disagree. It was also submitted that if
a contract for sale remained in existence the seller was not entitled to sell
the subjects to a third party and claim damages from the original
purchaser. However it does seem to me
that this submission begged a question viz "Were the missives between the
appellants and respondents rescinded?"
I have already looked at this from the position of the sellers. In my opinion there might have been
rescission when the Minute of Amendment was intimated albeit at a time after
the sellers had re‑sold the property.
[15] The third ground of appeal turned on what
was meant by "disclosing" where the word appears in Conditions 8 and
12 of the missives. Put shortly the
purchasers maintained that upon an examination of the titles a number of
matters arose which caused them concern.
Such was their concern that they instructed their solicitors to intimate
an intention to resile from the contract.
On the material before me the intention to resile never crystallised in
the purchasers actually resiling. The
sellers' position was that the matters which the purchasers said were revealed
by an examination of the titles and which caused concern were matters of which
the purchasers were wholly aware prior to the missives being concluded. The sellers offered to prove the
circumstances and how, they say, various matters were brought to the attention
to the purchasers prior to the bargain being concluded. In his submission Mr Hayhow relied upon
Section 1 of the Contract (Scotland)
Act 1997. Mr Hayhow submitted that to
run their argument the sellers would need to say that the contract was not
wholly contained within the terms of the missives. In reply Mr Henderson said that the contract
was not being re-written and therefore one did not engage the terms of the
Contract (Scotland)
Act 1997. Disclose meant that something "was
opened up, revealed or discovered".
The onus was on the purchasers to say that they did not know of a
particular aspect before missives were entered into. In my opinion the learned sheriff was
entirely correct in the approach which he adopted to this issue. Collins English Dictionary gives as a meaning
for disclose "to make (information) known". It seems to me therefore that if the
purchasers were aware of certain issues with regard to the titles before the
titles were delivered it could not be an examination of the titles which made
this information "known" to the purchasers. Thus they cannot now rely upon such matters
to get out of their bargain. I do not
see this being in the territory of the Contract (Scotland)
Act 1997. We are simply interpreting the
contract the parties have made for themselves.
[16] I will put the case out for a further
hearing in order that I might be addressed on (a) whether I must follow what
was said in Charisma Properties v
Grayling; (b) whether the letter of 27 January 2005 could be prior written
notice of rescission should such be required; (c) whether intimation of the
Minute of Amendment for the sellers could be construed as acceptance of the
purchasers' material breach of contract.
Parties may also wish to discuss whether the purchasers "resiled"
from the missives and, should they not have done so, what the consequences
might be. It may be that in order to
advance some of the foregoing arguments some amendment of the pleadings will be
required. I note that both parties have
instructed counsel and that the purchasers' solicitors are based in Glasgow. The sellers' solicitors are not based in Ayr. It may thus be convenient, at least for the
appeal hearing, if parties prorogated the jurisdiction of Glasgow
Sheriff Court.
However, that is a matter for them.
