Scottish Sheriff Court Decisions

SHERIFFDOM OF LOTHIAN AND BORDERS AT HADDINGTON

 

A147/09

 

INTERLOCUTOR OF

 

SHERIFF O'CARROLL

 

in the cause

 

 

MAURICE MCNEILL IONA LIMITED

PURSUERS

 

 

against

 

BRIAN MCLEAN

FIRST NAMED DEFENDER

and

 

ANNIE KANE

SECOND DEFENDER

 

 

 

HADDINGTON 19 April 2011

 

Act: S Bell, Advocate

Alt: McShane, Advocate

 

 

The Sheriff, having resumed consideration of the cause, Sustains the pursuers' first plea in law to the extent of excluding from probation the following averments of the defenders:

• Answer 3;
• the following averments of the defenders in Answer 4:
• page 9, line 6 "et separatim implied";
• Page 9, line 9 from the words "Further explained and averred..." to the end of line 15 at page 12;
• in page 13, lines 3 to 5, the words "and the material breaches of the express and implied terms of the franchise agreement hereinbefore averred" and "to withhold performance of its obligations et separatim";
• In Answer 5, line 4, the words "3 and"
• the second and third sentences in Answer 6;
• Answer 7;

Grants in terms of section 8(1)(a) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 rectification of the personal guarantee granted by the defenders dated 22 December 2005 by deleting "Century 21 United Kingdom Limited" and substituting therefor "Maurice MacNeill Iona Limited"; Before Answer, allows the parties a proof of their respective remaining averments; Meantime reserves the question of expenses; Orders that a further hearing be fixed at which questions of further procedure and expenses may be decided. landllaneous Provisions) (scbe fixed at which questiosn of further procedure and expenses may be decided.ice MacNeill Iona L

 

 

 

Sheriff O'Carroll

 

 

 

 

 

NOTE

 

Introduction

1.       This debate, at the instance of the pursuers, concerns an action in which the pursuer seeks payment of £25,485.12, being sums said to be due under an estate agency franchise agreement ("the agreement") entered into between the pursuers, (the franchisor) and Future Estate Agents Ltd ("the franchisee"). The defenders are guarantors of the debts of the franchisee. The pursuers also sought rectification of the terms of the guarantee granted by the defenders in terms of section 8(1)(a) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985, as the identity of the beneficiary of that guarantee had been wrongly designed. However, in the debate before me, counsel for the defenders conceded the point and consented to rectification. The interlocutor reflects the consequences of that concession. The defenders are thus liable for any sums proven to be due by the franchisee.

2.       Briefly, the agreement between the pursuers and the franchisee was a five year agreement in which the pursuers contracted with the franchisee to supply certain services in relation to an estate agency to be established by the franchisee. The agreement was for five years. The franchisee contracted to operate the estate agency and make payment of sums fixed by the contract. In the event of premature termination by the franchisee, the agreement fixed the payments due by the franchisee. After a period of about three years, the franchisee terminated the contract claiming that the pursuers were in breach of contract. The pursuers deny any breach and seek payment of sums due under the agreement.

Submissions for the pursuers

3.       The principal contention advanced by the defenders was that the defenders' averments in Answer 4, which concerned three alleged breaches of express terms, and a breach of an alleged implied term, were all irrelevant and fell to be dismissed.

4.      Dealing with the implied term first, that was found expressed at page 12. That term (taking account of the amendment made by counsel for the defenders during the course of the debate) was as follows: "The pursuer should uphold high standards of honesty, integrity, fair dealing and ethical conduct with members of the public, customers and franchisees". It was submitted under reference to Rockcliffe Estates plc v Co-operative Wholesale Society 1994 SLT 592 that the pleadings did not satisfy the test set out therein for the pleading of such a term: see page 594. The existence of the term is simply asserted without any basis justifying such a term. Further, in the circumstances, there was no room for the implication for such a term and the tests for implication for such a term were not met: see McBryde Law of Contract chp 9. Further, the whole agreement clause at 21.14 excluded such implication. Since there were no relevant averments as regards such a term, there could be no breach and the averments anent that proposed term should be excluded from probation.

5.       As regards the express terms founded on, counsel for the pursuers grouped the alleged breaches into three. The first alleged breach was found from pages 9 (line 11) to page 11 (line 11): a breach of an obligation to deliver the "System" (as defined by cl 3.1.16) which obligation connoted an obligation to maintain an adequate level of staff, maintain communication and give assistance to the franchisees in the development of their franchises. Counsel submitted that there was no such continuing obligation. None of the three clauses founded upon by the defenders (1.7, 3.1.16 and 4.4.1) imported such an obligation. There was an obligation to deliver at the beginning of the contact, but not a continuing one: see part 6 of the agreement. The pursuers had a discretion to provide certain services after the initial obligations were fulfilled but it was no more than that and was not enforceable.

6.       The second express term founded on by the defender related to the failure to maintain a website (page 11, line 10 et seq.). That line was abandoned by counsel for the defenders during his reply, so I say nothing about that.

7.       The third express term is found expressed at page 12, line 26 et seq., a failure to provide a programme of sales and management training. Counsel submitted that there was no specification at all of that averment and fair notice had not been given. Moreover, it was not averred that that breach was material.

8.       Counsel also submitted that certain other averments in Answer 4 were irrelevant. They are the averments as regards the previous experience of the "owners" of the franchise (page 9, lines 9 to 12).

Reply for the defenders

9.       Counsel for the defenders took me to a number of authorities being McBryde The Law of Contract in Scotland (paragraphs 8-17 to 8-28), Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, Bank of Scotland v Dunedin Property Investments Co Ltd 1998 SC 657, Multi-link Leisure Development Ltd v North Lanarkshire Council 2011 SLT 184, Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988, Morton and Co v Muir Brothers and Co 1907 SC 1211 and Scottish Power plc v Kvaerner Construction (Regions) Ltd 1999 SLT 721.

10.   It is unnecessary here to rehearse the circumstances and rationes decidendi of each of the cases. I have read and considered each authority. I think that it suffices to summarise broadly counsel's submissions as follows. In construing a contract, terms have to be examined in the context not only of the rest of the contract but also the surrounding circumstances. In a commercial contract, the court must be alive to the commercial purpose of the contract and the context within which the contract was made. The court should apply a commercially sensible construction. The old canons of construction are, with one exception, now obsolete (that exception being irrelevant for present purposes). The interpretation of a contract is now to be done in a common sense way applying the reasonable man test. In doing so, one examines not only the everyday meaning of the words used in the contract but the surrounding circumstances. The court should not be driven by semantic niceties to attribute to the parties an improbable and unbusiness-like intention. There is in reality only one true test of construction which is: what does the contract, read as a whole, against the relevant background, be reasonably understood to mean.

11.   As regards the test for an implied term, the dictum of Lord McLaren in Morton (at p 1907) was relied on. Further, pace Lord Macfadyen in Scottish Power plc (at page 725), it is no bar to the implication of an implied term that the contract contains an express term dealing with the same subject matter, so long as there is no conflict between the two terms. Neither is it a bar to implication that the contract is operative without that term: no such requirement is noted in Belize.

12.   Turning to the implied term (as amended) averred by the defenders, as regards the manner in which that was pleaded, his submission was that Rockcliffe was no longer good law and that he did not need to set up, by way of averment, the circumstances in which such a term could be implied. It was sufficient, counsel for the defenders maintained, simply to plead such a term and leave the existence or otherwise of that term to proof and answer. He also submitted that in the circumstances, the necessary requirements for the implication of such a term was met.

13.   Turning to the express terms, he submitted (briefly put) as follows. As regards the averments in Answer 4, from page 9, lines 9 to 12, the averments that the defenders had no previous experience was part of the background circumstances against which construction of the contract had to be carried out and were relevant in that sense. As regards the remainder of the following averments on that page through to page 11, line 11, they concerned express obligations on the pursuers which were, counsel maintained, derived from the terms of the contract referred to therein. In particular, it was maintained that there was an express obligation on the pursuers to "maintain staff with the capacity and ability to effectively promote and assist the franchisee's business and to maintain communication with franchisees" in order to do so. That term was breached in the manner set out therein.

14.   As regards the alleged breach regarding non-provision of a website or internet contact, counsel departed from that line in the course of debate and the averments anent that alleged breach at page 11, line 11 to the end of that page were conceded to be irrelevant.

15.   As regards the alleged breach of the express term (programme of sales and management training) referred to at page 12, line 24 et seq., counsel for the defenders submitted that there was clearly an express term relating to that obligation found at clauses 3.1.16 and in particular at 6.2.1 of the agreement. That obligation was breached in that no such programme was maintained or offered at all during the lifetime of the agreement. For that reason, the averments anent that term and the alleged breach were short and had little specification. This was not a case where there had been some amount of training etc. offered which the defenders alleged was insufficient to meet contractual obligations. Rather, he said, there was no such programme provided at all. That failure was a material breach of contract.

16.   As regards the defenders' averments regarding quantum, there was, it was submitted, a real dispute as to that matter and those averments relating to quantum should be remitted to probation.

Discussion.

17.   As regards the implied term, I preferred the submissions of the pursuers. I do not accept the proposition of the defenders that it is sufficient simply to aver and assert the existence of an implied term of a particular kind without the need to aver also the circumstances from which a court would be entitled to deduce the existence of an implied term.

18.   I accept, with respect, the statement of the requirements of pleading such a term as explained by Lord Maclean in Rockcliffe Estates at page 594 J, at least in so far as he explains the need to aver and plead not only the content of the implied term but also those aspects of the surrounding circumstances which require to be established in order to entitle the court to hold that a given term is implied. While it may be true as counsel for the defenders submitted, that the test for an implied term is now different from that which applied in 1994, nonetheless, the principle as regards the requirements of pleading enunciated by Lord Maclean is, in my opinion, still good. There has been no attempt made by the pleader for the defenders in this case to set up such a case by means of adequate pleading, whatever the true test is today. For that reason, I hold the whole of the averments anent the alleged existence of the implied term to be irrelevant and are excluded from probation.

19.   Even if I were wrong in so holding, I would not have admitted those averments to probation in any event. The implied term claimed is in my view hopelessly vague. It would be impossible for the parties to determine whether a terms of such generality had ever been breached. It is far too uncertain. I cannot accept that either the parties or the reasonable man could ever had seriously thought that such a term should be implied, whatever test for the implication of an implied term is applied. Moreover, it seems to me that the real basis for that implied terms is an attempt to mirror the express term imposing certain obligations on the defenders in clause 10.3 of the agreement. Where the parties have expressly agreed that a particular obligation is placed on one party, but not on another, it seems to me that the courts should be slow to find that nonetheless, the same or a similar obligation should be implied on the other party.

20.   It may well be a bad bargain (from the point of view of the defenders) that such an obligation is placed on the defenders but not the pursuers, but of course, as Lord Maclean makes clear in Rockcliffe Estates, page 594K, if the parties have made a bad bargain, the court will not imply a term so as to remedy the position.

21.   Furthermore, even if there were good grounds to impose on the pursuers by implication an obligation mirroring that placed on the defenders, the purported implied term does not do that. Whereas the express term in clause 10.3 qualifies the general expression of the duty by a number of detailed and concrete obligations, and a mechanism for enforcement (thus, in my view, preventing that term from being void by reason of uncertainty), the purported implied term is completely silent on such matters. The purported term therefore would be potentially very wide-ranging and its scope uncertain. Again, as I say, I do not accept that whatever test for implication one applies, that such a term could be implied.

22.   As regards the averments at page 9, lines 9 to 12 (no previous experience by defenders/owners), those averments are in my view irrelevant. This is not a case where the defenders allege that terms of the agreement are void by reference to the Unfair Contract Terms Act 1977, where such averments might have had some relevance. Rather, this is a commercial contract, freely entered into by the parties in which, some three years after its commencement, the parties have fallen out and the contract has been terminated by the defenders alleging breach of contract. While I accept as a general principle the proposition that the construction of a contract requires to be done in context (as explained more fully in the authorities referred to above), I could not see what the relevance of these averments could be in carrying out that task. That general principle is not, in my view, authority for the proposition that a party is thereby entitled to aver and prove whatever of the background circumstances that it chooses. The test of relevance must still be passed. Those averments fail the "so what?" test. Counsel for the defenders was unable to say what significance such averments might have to the way in which the agreement was to be construed. Those averments are excluded from probation.

23.   As regards the first express term, breach of which is alleged by the defenders (duty to deliver "System", effectively promote and assist the franchisee's business etc.) from page 9, line 12 to page 11, line 11, I find the whole of those averments irrelevant. Quite simply, I remained unpersuaded that the duties said to be expressly incumbent on the pursuers in favour of the defenders existed. The approach of the defenders appeared to be to point to parts of certain clauses of the agreement and then assert that certain obligations on the pursuers were thereby established (which were then said to have been breached). The problem for the defenders is simply that when one refers to each of the particular clauses prayed in aid, one finds that the clauses do not say what the defenders say that they say.

24.   Rather, what one sees is that the agreement (which appears to be the pursuer's standard form agreement) carefully eschews for the most part any express continuing obligations of the part of the pursuers to the defenders, while at the same time imposing a large number of express continuing and onerous obligations on the defenders in favour of the pursuers. The agreement is largely weighted in favour of the pursuers, rather than the defenders. It may well have been a bad bargain from the defenders' point of view. But, as I have noted, in general terms, it is not for the courts to rescue a party from the consequences of a bad bargain (at least, not unless a party is in a position to take advantage of legislation designed to enable the courts to do so, if asked).

25.   However, it seems to me that this is exactly what the defenders are seeking to do. So, despite the absence, for the most part, of express terms imposing concrete continuing obligations on the part of the pursuers to the defenders, and despite the fact that even those terms that appeared to impose an obligation on the defenders were, for the most part heavily qualified, I was invited to find that on a proper construction of the contract, the pursuers had continuing and onerous obligations to the defenders which obligations were not fulfilled. In doing so, in my view, I was being asked to find in effect (though it was not put this way in debate) that the defenders were entitled to a construction of the agreement which amounted to a re-write of that agreement which would result in a generally fairer and more equal distribution of rights and duties.

26.   This I cannot do. In my view, the obligations said to be incumbent on the pursuers referred to from page 9, line 12 to page 11, line 11 are not obligations found in the agreement. When one examines each of the clauses referred to in those averments, the content does not reflect the interpretation placed on them on Record. Rather, those averred duties are really, it seemed to me, expressions of how the defenders would have liked the agreement to have been framed. They are therefore irrelevant and I have excluded them from probation.

27.   As regards the sales and management training obligation (page 12, line 24 et seq.) I was assured by counsel for the defenders that the defenders' position was simply and baldly that no such programme had been provided. That was what the defenders offered to prove. That was the breach of contract and it was material. That simple position explained why there was no specification. None was needed and none further need to be provided.

28.   In my view, the obligation incumbent on the pursuers in terms of clauses 3.1.16 and 6.2.1 is sufficiently clear an obligation on the pursuers. Further, I accept, without deciding the matter, that breach of such an obligation might well be material. The averments are therefore relevant. I accept also, standing what was submitted by counsel, that the averments anent the alleged breach are just sufficient for probation. I understood that counsel for the pursuers accepted that was so, again on the basis of the submission made by counsel for the defenders.

29.   As regards the averments concerning quantum, I accepted counsel for the defenders' submissions that there was a live issue as regards quantum and that matter must go to proof.

30.   Having said that, considering the clear terms of the agreement concerning damages, it does not seem to me that the dispute, in the event that the defenders were to be found liable, should not be capable of agreement. I would expect the parties to co-operate in that regard as regards agreement of the level of quantum, in the event of liability being established in favour of the pursuers. That is especially so since it seemed to be common ground between the parties, on this issue being discussed before me, that the difference between the parties was small.

31.   Finally, as regards the rectification issue, as I have noted, counsel for the defenders advised the court at the commencement of the debate that the defenders now accepted that the guarantee should be rectified so that the present defenders guarantee the debts of the franchisee to the pursuers. I so order. Consequently, the defenders' averments anent rectification are excluded from probation.

32.   The parties were agreed that I should reserve the question of expenses and put the case out "By Order". Accordingly, a further hearing will be fixed at which questions of further procedure and expenses may be decided.

 

 

Sheriff O'Carroll

 

19 April 2011