Scottish Sheriff Court Decisions

(A143/10)

JUDGMENT OF

SHERIFF PRINCIPAL EDWARD F BOWEN QC

in the appeal

in the cause

AMA (NEW TOWN) LIMITED

Pursuers and Respondents

against

PAUL McKENNA

Act: Reid, QC instructed by Burness LLP

Alt: Macmillan, Solicitor, Stuart & Stuart

EDINBURGH, 28 February 2011

The Sheriff Principal, having resumed consideration of the cause sustains the appeal; recalls the sheriff's interlocutor complained of dated 19 August 2010 and the interlocutor of 6 September 2010; sustains the second plea-in-law for the defender and dismisses the action; finds the pursuers and respondents liable to the defender and appellant in the expenses of the action and remits the account thereof, when lodged to the Auditor of Court to tax and to report thereon; certifies the cause as suitable for the employment of junior counsel for the purposes of the appeal.

(signed) E Bowen

Note:

1. The defender and appellant in this action entered into Missives with the pursuers in terms of which he agreed to purchase a property in McEwan Square, Edinburgh. The price was agreed to be £149,000, part of which was payable, and was paid, on conclusion of the Missives. The Missives contained a mechanism for establishing the date of entry; this was determined in due course to be 23 December 2009.

2. It is a matter of admission that the defender was "not in a position" to proceed with the purchase of the property. Although the pleadings are not precise on the matter, it is reasonable to conclude that this was made known to the pursuers no later than 23 December 2009. At all events the pursuers have responded to the situation by intimating that the defender "remains bound by the Missives". They have raised the present action which contains two craves for payment. The first crave is for decree of payment of £141,850 being the balance of price said to be due. The second crave is for £639.88, being accrued interest on the price at the contractual rate of 5% over base lending rate up to 22 July 2010.

3. So much is straightforward. The question which arises in this appeal, which I perceive to be both controversial and one of general importance, is whether someone in the position of the pursuers - that is to say the seller of heritable property who is told that the purchaser does not intend to proceed with the bargain - has the right to obtain decree for the price in unqualified terms. The defender in this action contends that he is not. It is maintained on his behalf that decree for payment for the full contract price is not competent when the pursuer has not performed his part of the contract (ie delivered a good title) but merely offers to perform.

4. The learned Sheriff rejected this argument and granted decree. As a starting point he referred to the statement of Lord Reid in White & Carter (Councils) Limited v McGregor 1962 SC (HL) 1 at 11: "The general rule cannot be in doubt. It was settled in Scotland at least as early as 1848, and it has been authoritatively stated time and again in both Scotland and England. If one party to a contract repudiates it in the sense of making it clear to the other party that he refuses or will refuse to carry out his part of the contract, the other party, the innocent party, has an option. He may accept that repudiation and sue for breach of contract, whether or not the time for performance has come; or he may, if he chooses, disregard or refuse to accept it and then the contract remains in full effect". The Sheriff observed that it was the pursuers' right not to accept the defender's repudiation and not to sue for damages.

5. The Sheriff made a number of observations about the difference between the right to implement and an order for a specific implement. He considered the case of Salaried Staff London Loan Company v Swears and Wells Limited 1985 SC 189 in which it was held to be competent for landlords to sue for payment of rent due after the date upon which the defenders had purported to renounce the lease. The Sheriff observed that the case made it clear that an innocent party to a breach of contract may not be entitled to seek implement of a particular right arising from the contract if there were exceptional circumstances advanced on the part of the party in breach. He said: "it may also be the case that the rules relating to the remedy of specific implement provide that a particular remedy is not open to the innocent party...however that does not detract from the innocent party's right, in principle, to seek implement of the bargain".

6. The Sheriff took the view that the pursuers in the present case were simply seeking to implement the bargain. He said; "If the defender makes payment of the price he is entitled to a disposition and entry. I do not understand there to be any dispute that payment of the price is an obligation incumbent on the defender pursuant to the Missives. In that respect all that the pursuers seek is to implement of an obligation to pay".

7. On behalf of the defender and appellant Mr Macmillan, solicitor, did not demur from the proposition that the pursuers were entitled to seek implement of the bargain; what they were not entitled to do, he maintained, was retain title to the property and at the same time hold a decree for payment of the price. Whyte & Carter (Councils) was a case in which a firm of advertising agents refused to accept repudiation by a garage company of a contract to place advertisements on litter baskets. They proceeded to place their advertisements and sued for the whole price due in terms of the contract. The House of Lords held that they were entitled to do so. Mr Macmillan drew attention to the particular feature of the case which was that the contract could be completed by performance on the part of the pursuers without involvement of the defenders. In commenting on Langford & Co v Dutch 1952 SC 15, a case of a similar nature (which was overruled in Whyte & Carter) Lord Reid said (at page 13): "Of course if it had been necessary for the defender to do or accept anything before the contract could be completed by the pursuers, the pursuers could not and the Court would not have compelled the defender to act, the contract would not have been completed and the pursuers only remedy would have been damages. But the peculiarity in that case, as in the present case, was that the pursuers could completely fulfil the contract without any co-operation of the defender".

8. The Sheriff had erred, Mr Macmillan maintained, in failing to recognise the distinction between a decree for implement and a decree for payment. That distinction had been clearly articulated by Sheriff Principal Caplan QC (as he then was) in Newcastle Building Society v White 1987 SLT (Sh Ct) 81 at 86: "...an order to implement a contract by paying the price against delivery of the disposition is different from a straightforward decree for payment". In that case, in which the sellers of repossessed property sought to enforce a bargain for sale, they did so by a crave seeking to have the defender ordained to implement the Missives by paying the purchase price within 14 days of a date to be determined by the Court "all in exchange for a valid disposition by the pursuers" (see page 82F). The Sheriff in the present case appeared to be under the mistaken impression that the Sheriff Principal upheld the competency of the "crave for decree for payment".

9. The Sheriff had expressed the view that the procedure of obtaining a straightforward decree for payment had been "specifically approved" in the case of Bosco Design Services Limited v Plastic Sealant Services Limited 1979 SC 189; in so doing he, in effect, upheld a submission by counsel for the pursuers and respondents that the decision for the First Division in that case "endorsed" the form of crave in the present. In Bosco the defenders entered into Missives with the pursuers for the purchase of office premises. They took entry on the settlement date and delivered a cheque for the purchase price. The cheque "bounced". The pursuers raised an action in the Court of Session, the first conclusion being for decree for payment of the purchase price. No appearance was entered and decree for in absence in terms of the first conclusion was obtained. The price remained unpaid whilst the defenders remained in occupation of the subjects. The pursuers then sought decree in terms of their alternative conclusion which was for declarator that the defenders were in breach of the Missives, decree of removal, and for damages for £5,000 being their estimated loss on resale. The Lord Ordinary held that this was incompetent, holding that the pursuers were entitled to one remedy or the other, but not both; they could not "simply...set the decree on one side as worthless and treat the contract as repudiated". This was reversed by the First Division, the view being that upon the grant of decree in terms of the second conclusion the pursuers would be personally barred from proceeding with the decree for payment. The remedies were, in consequence, compatible. The Lord President observed that "decree in terms similar to those in Conclusions 1 and 2 of this action are frequently sought and granted, and those conclusions are not essentially dissimilar to those recommended for cases such as this in the Encyclopaedia for Scottish Legal Styles Vol 8 page 122".

10. Mr Macmillan pointed out that the circumstances of Bosco were unusual in that the defenders had actually taken entry to the subjects and had tendered a cheque in settlement of the purchase price which proved to be worthless. It was perhaps unsurprising that the pursuer's first choice of remedy was a straightforward claim for payment. But the decision could hardly be taken as "endorsing the form of crave" in the present case when, in point of fact, the form of conclusion in Vol 8 page 122 of the Encyclopaedia was one for implement of the Missives by payment of the price by 14 days from an order of the court in exchange for a valid disposition - in other words exactly that granted by Sheriff Principal Caplan in Newcastle Building Society v White and, by way of another example, in King v Moore 1992 SLT 1117.

11. The decision in the Salaried Staff case was, Mr Macmillan maintained, consistent with his argument. In that case the pursuers' claim was for unpaid rent for subjects for a period subsequent to a date when the defenders purported to repudiate the lease and vacated the subjects. Applying Whyte & Carter, and earlier authorities, this claim was allowed by the Court on the view that the pursuers were entitled to hold the defenders to the contract and seek recovery of rent due under it. Mr Macmillan submitted that this was simply another example of a situation where the innocent party had fulfilled his part of the bargain and no other action on his part was required.

12. Mr Reid QC for the pursuers and respondents submitted that the Sheriff was correct to found on the case of Bosco and to take the view that it approved the procedure which had been adopted in the present case. Sheriff Principal Caplan also appeared to have been of that view in the Newcastle Building Society case (see page 56). Bosco had never been commented on adversely or overruled. It could not be said to be a case in which the innocent party had completed all his obligations as there was no indication that a disposition of the subjects had been delivered. In consequence it could not be distinguished from the present case. It was implicit that the view of the Court was that the first decree obtained was valid and effective. It was expressly noted that the first conclusion was in similar terms to that in the Encyclopaedia of Styles. Use of it was nevertheless "endorsed". The ratio of Bosco was that a seller of heritage was entitled to sue for payment of the price in implement of the Missives if the purchaser failed to pay; he might also sue for damages, but by doing so would be personally barred from seeking to recover the price. The remedy sought by the pursuer in the present case was therefore clearly competent.

13. The Sheriff was correct, said Mr Reid, to note the difference between the right to seek implement, and the remedy of specific implement. It was clear, on the authority of Stewart v Kennedy 1890 17R (HL)1, cited by the Sheriff, that a party in the position of the pursuers had a right to seek implement: "...the breach of a contract for the sale of specific subjects such as landed estate gives the party aggrieved the legal right to sue for implement..." (Lord Watson at page 10). In a situation where the innocent party had fulfilled all his obligations under the contract, the particular remedy might be one of a claim for payment. That also applied when he had not yet performed his part of the contract but was willing to do so: Salaried Staff (supra). If he could not obtain payment, he was entitled to rescind the contract and claim damages: Bosco (supra).

14. It was important to note that the right to elect between implement and damages was a right of the innocent party. If one assumed that, in the present case, the defender had sufficient funds to proceed with the transaction but had simply decided not to do so, there was no reason why the pursuer should not get a decree for payment. If that decree was not satisfied, the contract could be rescinded and damages claimed. The defender's argument seemed to suggest that he controlled the remedy; if the form of decree had to be one for implement by paying the price in return for a disposition, the defender could choose to ignore it and force the pursuer to resort to his claim for damages.

15. Whilst there were indications in White & Carter (at page 15) and Salaried Staff (at page 194) that in certain circumstances the court might, on equitable grounds, decline to give an innocent party the remedy to which he was otherwise entitled, that did not assist the defender in what was essentially a challenge to the competency of the action. This was not an application for an equitable remedy at the hand of the court; the pursuers were seeking to enforce a contractual right to payment, but in any event there were no averments by the defender seeking to invoke an equitable power.

16. Observing that the grounds of appeal and submissions were directed to competency, Mr Reid posed the question, by what authority or principle was the present action incompetent? In reply to that Mr Macmillan pointed to White & Carter. You could only sue for payment of a price when you have fulfilled your obligations. The pursuers in that case had done so by providing the advertising as agreed. There was no such fulfilment in the present case.

DISCUSSION

17. An appropriate starting point may be to examine the basis upon which this action is brought. Mr Reid submitted that it was founded upon a contractual right to payment. I agree with him to the extent that the action bears to be so founded but I am not so sure that such a contractual right exists. Reference to the Missives entered into between the parties which are set out in the Initial Writ makes it clear - as one might expect - that in terms of them the pursuers were obliged to give entry and vacant possession of the premises on payment of the contract price. They aver that they are willing to implement their obligations in that respect, and to grant a valid disposition of the subjects in the defender's favour. But the fact remains that this is an uncompleted contract, and as such it falls within the ambit of Lord Reid's observations in White & Carter as highlighted in Mr Macmillan's submission (see paragraph 7 supra).

18. Lord Reid's observations tend to support the conclusion that, although there is no doubt in Scots law that an innocent party to a repudiated contract has the right to disregard the repudiation and insist on implement, the extent to which he may be able to enforce his "insistence" is restricted. Thus the decisions in White & Carter and in Salaried Staff indicate that, when the obligation sought to be fulfilled is one for payment of money, that may be enforced only where no action on the part of the defender is necessary to complete the contract. It is against that legal background that the normal practice in cases where a purchase price has not been forthcoming in a contract for the sale of heritage is for an action to be raised seeking an order for implement of the contract by payment within a specified period in exchange for a valid disposition of the subjects, with an alternative demand for damages in the event of non-payment.

19. Sheriff Principal Caplan explained the procedure in Newcastle Building Society v White in these terms; "...where implement is to consist only of payment of a sum of money a court order for such implement does not sit very happily in a system of law which will not punish for mere non-payment of money. Accordingly, in such cases the if the initial order for payment is not implemented the court will not punish the defender but will usually move on to award damages against him - assuming that is (as is usually the case) that some amount of damage is established or not contested". That statement does not, of course, directly address the question of what must take place when the contract is uncompleted and the pursuer's right to payment is linked to an obligation on the part of the defender - for example, to take delivery of a disposition.

20. As noted the decree which was pronounced and upheld in the Newcastle Building Society case was one for implement, not payment, and the significant question in the instant case is whether the decision of the Inner House in Bosco truly approves the procedure of obtaining a decree for payment in unqualified terms. On one reading of Sheriff Principal Caplan's remarks it does. However, I think it is necessary to consider the circumstances of Bosco, and the context in which the Lord President's observations were made, with some care.

21. In Bosco the defenders had taken entry to the subjects and tendered a cheque which was dishonoured. Mr Reid produced a copy of the summons in that case. He said it was fair to assume that no title to the subjects had been delivered, but in point of fact no mention is made of delivery of a Disposition, and given that a cheque had been sent by the defender's solicitors I am not wholly convinced that any such assumption can be made. Be that as it may, the action was not defended. Decree in terms of the first conclusion, which was for a straightforward claim for payment of the purchase price, was granted without any discussion as to whether the pursuers were entitled to such decree in unqualified terms.

22. When the matter came before the Inner House the question for the Court was whether the pursuers, having sought in effect to uphold the contract by obtaining decree for payment, could, after failing to recover, set aside the contract and proceed with remedies appropriate to non-performance. The Court held, that in the particular circumstances of the case they were entitled to do so. Again the matter was undefended and was disposed of without a contradictor but taking the decision as a correct one - which I am bound to do - it does not appear to me to be authority for more than the proposition that the pursuers were entitled to proceed to the alternative remedies when they had failed to recover the purchase price. Whatever may have been said about the practice of obtaining decree in terms "similar" to the First Conclusion I do not consider the case to be authority for the proposition that one can sue for the contract price on the basis of an uncompleted contract. "Judicial authority belongs not to the exact words used in this or that judgment, nor even to all the reasons given, but only to the principles accepted and applied as necessary to the grounds of the decision..." per Lord Denning in Close v Steel Company of Wales Limited 1962 AC 367 at 388.

23. Mr Reid made the perfectly legitimate point that it seemed odd, and indeed unfair, for the pursuers to be unable to obtain and enforce a decree for payment if the defender had sufficient means to pay the purchase price. While I accept that there is unfairness in that, I doubt whether it is correct to seek to identify the existence of a remedy by reference to fairness, or to the desirability or practicalities of enforcement. But if one does, it is not difficult to envisage the complications which would arise if the decree was enforced to the point of sequestration and the defender turned out to have insufficient means to satisfy it. Mr Reid's position was that the pursuers would simply disregard the decree, hold the bargain as repudiated, and formulate a claim for damages. That strikes me as a somewhat odd result; it would mean that diligence had been carried out on the basis of decree for a debt which the pursuers could subsequently treat as non-existent. If anything, it reinforces the view that a claim for payment must only proceed on the basis of an established debt.

24. In the whole circumstances, whilst acknowledging the remarks of the Lord President in Bosco are not to be lightly disregarded I am of the view that it is not open to the pursuers to seek a straightforward decree for payment in circumstances such as the present. In reaching the view that the sheriff's decree should be recalled and the action dismissed I do entertain some reservations as to whether the issue raised is properly one of competency or relevancy. Although the matter was presented to me on the basis that the pursuers' claim was not competent I am rather inclined to the view that the issue is more properly one of relevancy. My conclusion is that the pursuers have not relevantly averred a contractual debt upon which they are entitled to obtain a decree for payment. As it happens the defender's plea-in-law covers both competency and relevancy. I accordingly sustain it and dismiss the action.