OUTER HOUSE, COURT OF SESSION

 

[2009] CSOH 128

 

CA63/08

 

 

 

 

 

 

 

 

 

 

 

OPINION OF LORD HODGE

 

in the cause

 

R & D CONSTRUCTION GROUP LIMITED

 

Pursuer;

 

against

 

HALLAM LAND MANAGEMENT LIMITED

 

Defender:

 

 

________________

 

 

 

Act: Clark QC; Maclay Murray & Spens LLP

Alt: Borland; Harper MacLeod LLP

 

16 September 2009

 

[1] The pursuers are the assignees of Robison & Davidson Limited ("R&D"),who were a party to the land purchase contract which is the subject matter of this action. The defenders are Hallam Land Management Limited ("Hallam"), who were the other party to the contract. The parties agreed to a proof of all matters raised on record other than articles 10 and 11 of condescendence and the corresponding answers in the defences, which dealt with causation and damages.

 

Background

[2] In November 1999 Hallam entered into an option agreement with a landowner, Mrs Barbara Kerr ("Mrs Kerr") in which Hallam were given an option to purchase up to 21.1 acres of land at Wester Windyedge Farm, Cleland, Lanarkshire, at a price to be agreed. In 2003 R&D entered into a contract with Hallam by which R&D contracted to buy 4.685 acres of the option subjects ("the purchase subjects") from Hallam at a price of 571,314. The purchase contract, which comprised an offer dated 29 January 2003, a qualified acceptance dated 24 September 2003 and a letter concluding the bargain dated 1 October 2003, was subject to conditions precedent. One of conditions precedent, which is at centre of the dispute in this action, is clause 4.1.10 which provided:

"The Missives shall be essentially conditional upon:

....

4.1.10 the Seller [Hallam] agreeing a purchase price for the Subjects with the current proprietor in terms wholly acceptable to the Seller (the Seller being required to use all reasonable endeavours in this regard)"

[3] Two principal issues arose in the proof; one was legal, the other was primarily factual and partly legal. The first was whether the obligation to use all reasonable endeavours in the provision which I have quoted was enforceable; the second was whether, if the provision was capable of enforcement, Hallam were in breach of contract.

 

The contractual context

[4] Hallam trade in land. As part of their business they negotiate option agreements with landowners and also back to back agreements with developers. When doing so they seek to make a satisfactory profit on the differential in price between the two contracts. Someone other than the landowner bears the cost of attempting to obtain planning permission to develop the land and the landowner under the option agreement is entitled to a purchase price fixed by reference to a percentage of the resulting market value.

[5] I summarise below the material provisions of the two contracts in this case.

 

(a)               The option agreement between Hallam and Mrs Kerr

[6] In return for an option fee of 7,000, Mrs Kerr gave Hallam the option, which was exercisable for five years after the delivery of the option agreement, to purchase all or parts of the option subjects after Hallam had obtained a planning permission with which they were satisfied. Hallam undertook to use all reasonable endeavours to obtain a satisfactory planning permission as soon as reasonably practicable. Once the planning permission was in place, Hallam were empowered by clause 6.2.1 to serve a provisional notice in writing on Mrs Kerr stating that they were considering exercising the option and specifying the extent of the relevant land. The service of the provisional notice obliged the landowner to negotiate the amount of the purchase price of that land.

[7] Clause 6.2.3 of the option agreement required Hallam and Mrs Kerr to use all reasonable endeavours to agree the amount of the purchase price as soon as reasonably practicable. If agreement was not reached within twenty days after Hallam served the provisional notice, either party could give notice in writing referring the fixing of the purchase price to the decision of an expert. Clause 6.2.4 provided that Hallam were entitled to exercise the option within one calendar month after the agreement of the price or its determination by the expert by serving a written option notice. Clause 7 provided that service of the option notice constituted the sale of the subjects of the option and clause 8 set out the terms of the sale.

[8] The purchase price of the option subjects was defined in the second schedule to the option agreement as the higher of (i) seventy five per cent of the open market value of the relevant land at the date of the service of the provisional notice or (ii) the sum of 75,000. Thus on service of the provisional notice the parties were to agree or the expert was to fix an open market value and thereby ascertain the purchase price. In the market for land as it existed in 2003 and 2004 the fall back sum of 75,000 was irrelevant. Parties therefore had to address the agreement of an open market value as at the date of service of the provisional notice. Mrs Kerr would receive seventy five per cent of that value and Hallam would retain the balance.

 

(b)               The purchase agreement between R&D and Hallam

[9] Clause 4 of the purchase agreement between R&D and Hallam contained a number of suspensive conditions in addition to that which I have set out in paragraph [2] above. As a result R&D were not bound to purchase unless, among other things, they had received a detailed planning permission in relation to the purchase subjects in terms which were wholly acceptable to them. Other relevant suspensive conditions provided that such things as a road construction consent (clause 4.1.3), other statutory consents (clause 4.1.4), a site survey, ground conditions report and an environmental assessment of the subjects (Clause 4.1.5) and a report on the title deeds (clause 4.1.9) were to be wholly acceptable to R&D.

[10] Clause 10 of Hallam's qualified acceptance dated 24 September 2003 introduced a long-stop date. It provided that Hallam had seven months to complete the purchase of the subjects from the current owner after their solicitors had received a written notice from R&D's solicitors purifying or waiving condition 4.1.5. Thereafter Hallam were entitled to resile from the purchase agreement without penalty.

 

The sequence of events

[11] After Hallam had entered into the option agreement with Mrs Kerr in 1999 some time passed before they sought to market the development opportunity. They obtained outline planning permission for residential development of the purchase subjects in September 2000. Hallam initiated a marketing exercise which involved erecting a "For Sale" sign on the site in February 2001 and placing advertisements in "The Scotsman" and "Herald" newspapers and in a trade publication on various dates in February and March 2001. R&D in December 2002 informed Hallam that they calculated the value of the land for a thirty five unit development at 571,314 and submitted an offer in that sum dated 29 January 2003 but the bargain was not concluded until 1 October 2003. Shortly thereafter, on 6 October 2003, R&D's solicitors, Burness LLP, notified Hallam's solicitors, MacRoberts, of the purification of clause 4.1.5 of the purchase missives. This started the clock on the long-stop date to which I referred in paragraph [10] above which would entitle Hallam to resile from the missives without penalty.

[12] Hallam's solicitors intimated the missives to Mrs Kerr's solicitors, Dale & Marshall, and in early November 2003 Mr Gary Smith, a land buyer employed by Hallam, met Mrs Kerr and her advisers. He reported that Mrs Kerr appeared to be content in principle with 571,314 as the open market value, provided that Hallam produced evidence to satisfy her that they had properly marketed the option subjects. Hallam provided evidence of the marketing exercise and on 20 November 2003 Mrs Kerr's solicitor, Mr John Dale, wrote to her accountant acknowledging that Hallam had made an effort to market the subjects. There was also an issue over the proposed layout of the purchase subjects as Mrs Kerr wished to reserve a substantial strip of ground from development in order to obtain vehicular access to the remainder of her land to permit future residential development.

[13] On about 26 November 2003 R&D's solicitors wrote to Hallam's solicitors confirming that the planning authority had granted detailed planning permission and encouraging them to make progress with the transaction. In fact the planning authority on 19 November 3003 had only resolved to grant planning permission for R&D's proposed development of thirty five housing units as R&D had yet to agree the financial contribution which it would make to an off-site play area. On 12 December 2003 Hallam served on Mrs. Kerr a provisional notice under clause 6.2.1 of the option agreement, declaring that they were considering purchasing the 4.685 acre site which they had agreed to sell to R&D. This notice was important as it established the valuation date.

[14] Two issues emerged to prolong the negotiations between Hallam and Mrs Kerr. First, against the background of a rising land market, Mrs Kerr remained concerned that the price which R&D had offered and which Hallam were advancing as the market value of the purchase subjects did not reflect the open market value of the subjects as at 12 December 2003. As early as October 2003 Mrs Kerr expressed scepticism about the thoroughness of Hallam's marketing exercise. Aftondale Ltd ("Aftondale") had submitted offers for the purchase subjects, including an offer of 578,000 in August 2003, and she believed that Hallam had turned away developers who had visited her and had proposed higher offers. Secondly, a dispute arose between Hallam and Mrs Kerr over the extent of the land which she was entitled to reserve as an access route. Hallam wished to confine the reservation to agricultural access and thus gain control of the development of the retained land. Mr Dale informed Mrs Kerr of this by letter dated 22 January 2004. That would not have contributed to good relations. Unknown to Hallam, Mrs Kerr also had an interest in deferring any contract with them until after 5 April 2004 for tax reasons. As Mr Dale explained in his evidence, Mrs Kerr was very suspicious of Hallam and wished to be free of her contract with them.

[15] On 22 December 2003 Mr Dale asked Hallam to provide copies of the approved layout plans for R&D's development. Mr Ken Hopkins, Hallam's area manager for Scotland, replied on 5 January 2004 and explained that no planning permission had yet been granted pending the resolution of the amount of R&D's capital contribution towards the cost of an off-site play area. On the following day Mr Hopkins sent Mr Dale a copy of the layout plan which was the subject of the resolution to grant and referred to the provision of a 3.5 metre agricultural access on the southern boundary between the purchase subjects and the land which Mrs Kerr retained. On 7 January 2004 Mr Dale wrote to Hallam stating that Mrs Kerr's valuation of the purchase subjects was 630,000.

[16] Hallam's solicitors responded by fax dated 14 January 2004 asking for a plan showing the access which Mrs Kerr wanted and seeking confirmation that the open market value of 571,314 was acceptable to her. Mr Dale's response on 15 January 2004 was to re-iterate the view that the open market value should be 630,000. He wrote on the same day to Mrs Kerr asking her to solicit a written offer from Aftondale in that amount. R&D learnt of Mrs Kerr's stance at a meeting with Mr Hopkins on 16 January 2004 in Hallam's offices. On 20 January 2004 Messrs Sneddon Morrison, solicitors, submitted Aftondale's offer, which was subject to Aftondale's satisfying themselves as to ground conditions and also obtaining an acceptable planning permission.

[17] R&D's response to Mrs Kerr's assertion of a higher market value was to consider raising the price which they were prepared to offer. On about 19 January 2004 Mr John Hume, R&D's chairman and chief executive, instructed his colleague, Mr Derick Reid, who was their sales and marketing director, to write to Mr Hopkins offering to increase the price to 610,000 and to suggest that Hallam should "take the hit" for the difference between that sum and 630,000. In his oral evidence Mr Hume explained that the offer was to be available for immediate acceptance, failing which the price would revert to the missives price of 571,314. Mr Reid gave evidence that he telephoned Mr Hopkins on the same day and told him of R&D's intention to increase its offer to 610,000 and that Hallam should "take the hit" for the difference between that price and Mrs Kerr's desired valuation of 630,000. He said that Mr Hopkins had told him that Hallam were not prepared to do so. While Mr Hopkins in his evidence did not remember the telephone conversation, he affirmed that Hallam would not have been prepared to accept a payment from R&D which would result in them receiving as income from the deal less than the twenty five per cent differential between the open market value and the option price. Nothing came of R&D's proposal.

[18] In response to the Aftondale offer, Mr Hopkins spoke to Mr Dale on the telephone on 21 January 2004 and wrote to him on 27 January pointing out that that offer required to be reduced by 70,000 to allow for the cost of grouting works and also the capital contribution to the off-site play area, both of which had been absorbed by R&D's fixed price offer. He re-asserted that the open market value was 571,000. This caused Mr Dale to ask Mrs Kerr to investigate whether Aftondale's offer took account of those deductions. Over the next month correspondence between Hallam and Mr Dale concentrated on the location of the mining works which needed to be grouted and Mrs Kerr's demand for the extensive reservation of land for access to the retained land. But on 16 February 2004 Mr. Hopkins again sought confirmation that 571,314 was acceptable as the market value of the purchase subjects.

[19] It is necessary to focus in more detail on events in March 2004 as, while R&D in their written pleadings had asserted that Hallam were in breach of clause 4.1.10 of the purchase agreement before March, they focused their criticisms of Hallam after the proof on the period between 2 March and 17 March 2004. It is clear that in early March each of the three parties changed their position but that, by late March, the principal opportunity to strike a deal which would have been acceptable to all had passed.

[20] On 2 March 2004 Mr Hume spoke on the telephone to Mr Hopkins. Mr Hume did not recall the conversation in detail but was able to reconstruct it with the assistance of a file note dated 3 March 2004 of a meeting between Hallam officials and their solicitors. He inferred from that note that he must have offered to increase the price which R&D would pay to 630,000. Mr Hopkins did not recall the offer but explained that he did not follow it up as he would not have acted without a formal amendment of the price which R&D offered in the missives.

[21] Also on 2 March Mr. Dale wrote to Mr Hopkins seeking agreement of the "purchase price" at 606,000. He confirmed in evidence that the letter should have referred to the open market value rather than the purchase price and parties were agreed that the letter should be so construed.

[22] Mr Hume of R&D also wrote to Mr Hopkins on 2 March after his telephone discussion with him. Mr Hume explained that he had described the telephone discussion to Mr Reid and had asked him to draft a letter for his signature. In that letter he discussed Mrs Kerr's demand to reserve land for access to the retained land and the effect that that had on R&D's proposed layout. One option for R&D was to reduce by two the number of houses which they proposed to build in order to give Mrs Kerr the reserved strip of land which she requested. In that event the letter stated:

"we would be willing to keep our purchase price for the land at the same value i.e. 565,000 even with the loss of 2 units, reducing the overall development from 35 units to 33."

[23] On 3 March 2004 Mr Hopkins and Hallam's in-house solicitor, Mr Chris King, attended a meeting in MacRoberts' offices with Hallam's solicitor, Ms Anne Fergusson. Unfortunately, the court did not hear the evidence of Mr King or Ms Fergusson and Mr Hopkins's recollection of the meeting was sketchy. The file note of the meeting, which Ms Fergusson prepared, recorded that Mr Dale accepted an open market value of 606,000 and that his client would receive 75% of that sum. It noted that R&D were willing to go up to 630,000 but it was agreed that Hallam "would just turn the deal at 606K." It recorded that Mr Hopkins advised that R&D would accept the access rights which Mrs Kerr demanded and that it was agreed that he would fax Ms Fergusson the correspondence and plans so that she could write to Burness to confirm how the deal was to be structured. Finally, it recorded that, once that deal had been struck, Hallam would not seek to purchase the rest of the option subjects.

[24] I am prepared to accept the file note, which was not challenged, as an accurate statement of Hallam's position on 3 March 2004. But there was no evidence as to what were the arrangements which Ms Fergusson was to agree with Burness in order to structure the deal. There was no evidence that Mr Hume's letter of 2 March had reached Hallam in time to be considered at that meeting and I infer from the terms of the file note that it had not. There is also no evidence that R&D were aware at this time of Hallam's proposal to take 630,000 from them while paying seventy five per cent of only 606,000 to Mrs Kerr. On the contrary, Mr Hume's evidence was that he had not agreed to a deal on that basis at that time. In the following weeks, however, he changed his position.

[25] On 24 March 2004 Mr Hume and Mr Reid met Mr Hopkins and agreed a deal along the lines envisaged by Hallam at the 3 March meeting. R&D agreed to pay Hallam 630,000 for the purchase subjects. It was also agreed that Hallam would pay Mrs Kerr a price based on a valuation of 606,000 and that Hallam could retain the differential as a "finder's fee." R&D would pay Hallam 606,000 by 30 April 2004 and they would pay a further 25,000 in May 2004. The purpose of the staggered payments was to allow parties to amend the missives to show the price of 606,000 so that they would not have to disclose the further payment to Mrs Kerr if she demanded sight of the revised missives.

[26] Both Mr Hume and Mr Reid spoke to this deal and I accept their evidence. They understood at the time that Hallam had already agreed a price of 606,000 with Mrs Kerr and that they had reached a deal with Hallam which the lawyers could formalise. Mr Hopkins's position was that he did not recall the detail but that the proposal of the payment of 606,000 and a further 25,000 may have been made and he may have agreed to consider it and put it to his board. I do not accept the suggestion that he told R&D that he did not have authority to agree the deal and that only the board of Hallam could do so. No such case was pleaded. I therefore accept that a deal in principle between R&D and Hallam was reached on 24 March 2004. Unfortunately for R&D, by then it was too late as Mrs Kerr's aspirations had been enhanced.

[27] On 17 March 2004 Laverty & Co, solicitors, wrote to Mr Dale on behalf of Homepark Builders Limited ("Homepark") offering to buy the purchase subjects for 675,000. On 24 March Mr Dale wrote to Mr Hopkins enclosing Homepark's offer and stating that the offer was made without deductions. Ms Fergusson responded on Hallam's behalf by letter dated 26 March 2004, noting that the valuation date under the option agreement was 12 December 2003 and that the Homepark offer was therefore irrelevant to the determination of the open market value on that date.

[28] On 30 March 2004 R&D's solicitors wrote to Ms Fergusson intimating purification of several suspensive conditions in the missives. On the same day Ms Fergusson sent Mr Dale a fax in which she referred to his letter of 2 March and sought confirmation that Mrs Kerr had accepted the open market value of 606,000.

[29] As the chance of a deal at this price had gone by this time, I can summarise the events which followed quite briefly. On 1 April 2004 R&D improved their informal offer to Hallam by suggesting that they would pay no more than 631,000 and also the amount by which grouting costs were less than the 70,000 for which they had budgeted. Thereafter Mrs Kerr's expectations were again raised. Mr Hopkins arranged a meeting with Mr Dale for 7 April 2004 but the meeting never took place. On 6 April 2004 Mr Dale wrote to Ms Fergusson to announce that Mrs Kerr had had an approach from another developer who had offered a higher figure for the purchase subjects and had stated that that valuation would have applied at 12 December 2003. R&D appear to have lost patience at this stage and, on the instructions of R&D's board, Mr Reid visited Mrs Kerr at her home on 15 April to discuss the deal. He stated in his evidence, which I accept, that at that meeting he had confirmed that she was aware of R&D's offer of 606,000 but he had not mentioned other sums, such as 630,000. On the following day Mr Dale wrote a letter to Ms Fergusson in which he referred to the offer which Mrs Kerr had received from another party and expressed the view that Hallam had conducted a closed sale. He referred to the meeting between Mr Reid and his client and stated that the open market value should be 750,000, with a price of 562,500 being due to his client. On 21 April Mr Hume wrote to Mr Hopkins to state that R&D were prepared to extend their contract with Hallam if Hallam wished to refer the price to an expert under the option agreement. Hallam did not take up that offer. Mr Hopkins was annoyed that R&D had interfered in the negotiation with Mrs Kerr and expressed his disappointment in a fax dated 21 April 2004. This elicited an apology from Mr Reid in a fax dated 22 April in which he stated that he had explained that R&D's offer of 606,000, of which Mrs Kerr was aware, was after deduction of grouting costs, so that there was a top line value of about 680,000. He confirmed that R&D "would be standing by" the figure which they had recently quoted. That appears to be a reference to their improved oral offer of 1 April.

[30] On 4 May 2004 R&D's solicitors wrote to Hallam's solicitors and offered to extend the existing missives if MacRoberts would extend the long-stop date. They did not offer to increase the price included in those missives. Not long thereafter Hallam decided to end their agreement with R&D: on 26 May 2004 MacRoberts wrote to Burness intimating that Hallam resiled from the purchase agreement as they had not been able to complete the purchase of the subjects within the seven month period of the long-stop provision.

[31] Some time later Mr. Dale approached Burness to see if R&D would offer 750,000. R&D carried out an investment appraisal and decided to do so. On 29 July 2004 Burness submitted a formal offer on R&D's behalf to MacRoberts to buy the purchase subjects for 750,000. This was not accepted. In June 2004 Hallam sought the appointment of an expert to fix the open market value of the purchase subjects. In their submission to the expert Hallam's advisers argued that the market value of the subjects at 12 December 2003 was 650,000. The expert thereafter fixed the open market value at that date at 701,000 and in March 2005 Mrs Kerr sold the purchase subjects to Hallam for 525,750, which was seventy five per cent of the expert's valuation. Hallam resold the subjects to a third party for 875,000 plus VAT.

 

The disputed issues: (a) whether clause 4.1.10 was enforceable

[32] Mr Borland on behalf of the defenders submitted that the action was irrelevant as the reasonable endeavours obligation in clause 4.1.10 of the purchase agreement was unenforceable. He advanced his submission on two grounds. First, he submitted that the clause amounted to an agreement to agree and was therefore unenforceable. He cited several cases in a long line of authority which supports the proposition that the courts cannot enforce such an agreement as there are not objective criteria which they can apply to give the provision sufficient certainty. Secondly, he argued that the object of the agreement, namely a price "wholly acceptable" to Hallam, was also too vague and uncertain to have contractual force. Again, no objective criteria could be applied. The court had no role in saying what should have been wholly acceptable to Hallam; that was a management issue for Hallam's officers to decide and they had an unfettered discretion in so doing. If, contrary to his primary position, the court held that the clause was enforceable, he submitted that Hallam were entitled to take account of their own interests in fulfilling the reasonable endeavours obligation.

 

Discussion

[33] There are many cases in which it has been held that an agreement to agree cannot be enforced as it is too uncertain. In Foley v Classique Coaches Ltd [1934] 2 KB 1 Maugham LJ (at p.13) stated:

"It is indisputable that unless all the material terms of the contract are agreed there is no binding obligation. An agreement to agree in the future is not a contract; nor is there a contract if a material term is neither settled nor implied by law and the document contains no machinery for ascertaining it."

In May and Butcher Ltd v The King [1934] 2 KB 17 Lord Buckmaster (at p.20) stated

"It has long been a well recognised principle of contract law that an agreement between two parties to enter into an agreement in which some critical part of the contract matter is left undetermined is no contract at all."

Viscount Dunedin in the same case (at p.21) said:

"To be a good contract there must be a concluded bargain, and a concluded contract is one which settles everything that is necessary to be settled and leaves nothing to be settled by agreement between the parties. Of course it may leave something which still has to be determined, but then that determination must be a determination which does not depend upon the agreement between the parties. In the system of law in which I was brought up, that was expressed by one of those brocards of which perhaps we have been too fond, but which often express very neatly what is wanted: "Certum est quod certum reddi potest.""

[34] While in recent years some judges have questioned whether the court would now reach the same conclusion on the facts as the House of Lords did in May and Butcher Ltd, the courts have confirmed the proposition that an agreement to agree cannot be enforced. Where terms which the law treats as essential or which parties have agreed are essential for their bargain have not been agreed and cannot objectively be ascertained, the contract is unenforceable. Thus in Little v Courage Ltd (1994) 70 P&CR 469 Millett LJ, in a passage which judges have adopted in later cases, stated (at p.476):

"An undertaking to use one's best endeavours to obtain planning permission or an export licence is sufficiently certain and is capable of being enforced: an undertaking to use one's best endeavours to agree, however, is no different from an undertaking to agree, to try to agree, or to negotiate with a view to reaching agreement; all are equally uncertain and incapable of giving rise to an enforceable legal obligation."

[35] Another case to which judges have often referred in recent years is Walford v Miles [1992] 2 AC 128. In that case the defendants entered into an oral agreement to negotiate exclusively with the plaintiff for sale of a photo processing business. The plaintiff's counsel submitted that there was an implied term that the defendants would continue to negotiate in good faith with the plaintiff so long as the defendants wished to sell the business. He also argued that the defendants could only terminate the negotiations "for a proper reason" but he submitted that the test of whether the reason given for termination was a proper reason was a subjective one: the defendants could be irrational so long as they acted honestly. The House of Lords decided that the agreement was unenforceable. Lord Ackner (at p.138C-G) stated:

"The reason why an agreement to negotiate, like an agreement to agree, is unenforceable, is simply because it lacks the necessary certainty. The same does not apply to an agreement to use best endeavours. This uncertainty is demonstrated in the instant case by the provision which it is said has to be implied in the agreement for the determination of the negotiations. How can a court be expected to decide whether, subjectively, a proper reason existed for termination of negotiations? The answer suggested depends upon whether the negotiations have been determined "in good faith." However the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in negotiations. Each party to the negotiations is entitled to pursue his (or her) own interest, so long as he avoids making misrepresentations. To advance that interest he must be entitled, if he thinks it appropriate, to threaten to withdraw from further negotiations or to withdraw in fact, in the hope that the opposite party may seek to reopen the negotiations by offering him improved terms. .... How is the vendor ever to know that he is entitled to withdraw from further negotiations? How is the court to police such an "agreement?" A duty to negotiate in good faith is as unworkable in practice as it is inherently inconsistent with the position of a negotiating party. It is here that the uncertainty lies. In my judgment, while negotiations are in existence either party is entitled to withdraw from those negotiations, at any time and for any reason. There can be thus no obligation to continue to negotiate until there is a "proper reason" to withdraw. Accordingly a bare agreement to negotiate has no legal content."

[36] The courts have taken a similar approach in P & O Property Holdings Ltd v Norwich Union Life Insurance Society (1994) 68 P & CR 261, Lord Browne-Wilkinson at p.268, East Anglian Electronics Ltd v OIS plc 1996 SLT 808, the Lord President (Lord Hope) at p.812E-F, Phillips Petroleum Co UK Ltd v Enron Europe Ltd [1997] CLC 329, Potter LJ at pp.343-344, London & Regional Investments Ltd v TBI Plc [2002] EWCA Civ 355, Mummery LJ at paras 39 and 40, Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand [2002] 2 NZLR 433, at paras 114-117 and Multiplex Construction (UK) Ltd v Cleveland Bridge UK Ltd [2006] EWHC 1341 (TCC), Jackson J at paras 633-637.

[37] Hallam's first ground of challenge relied on these authorities and categorised clause 4.1.10 as an agreement to agree. Their second ground of challenge also rested principally on the uncertainty of the requirement that the price to be agreed should be "wholly acceptable" to them. Mr Borland submitted that the lack of an objective standard by which to measure the acceptability of the price meant that the clause was unenforceable. He referred to Baird Textiles Holdings Ltd v Marks & Spencer plc [2002] 1 All ER (Comm) 737, Sir Andrew Morritt VC at para 30 and Phillips Petroleum, Potter LJ at pp.343G-344A. He submitted that the court had to construe the clause having regard to the circumstances which existed when the parties entered into the purchase agreement. In support of that contention he referred to Lord Hope's opinion in East Anglian Electronics Ltd at p.813F. Further, he submitted that the court had no power to review Hallam's decision honestly arrived at: Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821, Lord Wilberforce at p.832E-F. I accept that the "wholly acceptable" criterion is subjective and also that Hallam were entitled to take their own interests into account in any negotiations. But, as I explain below, I do not consider that the clause is unenforceable either for that reason or because it is an agreement to agree.

[38] There is not in this case any real question whether the parties intended their words to have contractual effect. When parties agree orally, or in relatively informal correspondence, as for example, in Courtney & Fairbairn Ltd v Tolaini Brothers (Hotels) Ltd [1975] 1 WLR 297, or enter into heads of agreement, as in Fletcher Challenge Energy Ltd, such a question may arise. In cases where there is uncertainty as to whether the parties intended to create contractual relations the court is neutral on the issue of contract formation: Fletcher Challenge Energy Ltd, at para 58. Dicta from such cases need to be read in their context.

[39] While the courts require legal certainty and do not enforce an agreement if parties have not sufficiently formulated an intention, judges have repeatedly stated the position that where they are satisfied that parties intended to enter into binding obligations they should attempt, so far as is consistent with essential principle and binding precedent, to give effect to the agreement and not be the destroyer of bargains: Hillas and Co Ltd v Arcos Ltd [1932] 147 LT 503, and G Scammell and Nephew Ltd v HC and JG Ouston [1941] AC 251, Lord Wright at p.268. In R & J Dempster Ltd v Motherwell Bridge and Engineering Co Ltd 1964 SC 308, in a passage which appears relevant to the present case, Lord Guthrie (at p.332) stated:

"The object of our law of contract is to facilitate the transactions of commercial men, and not to create obstacles in the way of solving practical problems arising out of the circumstances confronting them, or to expose them to unnecessary pitfalls. I know of no rule of law which prevents men from entering into special agreements to meet the requirements of special circumstances."

More recently Lord Steyn has stressed that, when considering contractual problems, the courts should seek to uphold the reasonable expectations of honest men: G Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyd's Rep 25 at p.27, First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] 2 Lloyd's Rep 194 at p.196 and his article, "Contract law: fulfilling the reasonable expectations of honest men" (1997) 113 LQR 433. The yardstick in a commercial contract is the reasonable expectations of sensible businessmen.

[40] The task of the court of attempting to uphold such expectations will vary depending on the nature of the alleged contract. Where the contract provides an objective criterion, such as the current open market price, and states that the parties are to agree the price, the court can determine the price if the parties fail to do so: Scottish Wholefoods Collective Warehouse Ltd v Raye Investments Ltd 1994 SC 65, Didymi Corporation v Atlantic Lines and Navigation Co Inc [1987] 2 Lloyd's Rep 166, [1988] 2 Lloyd's Rep 108. In such circumstances the requirement to agree may be seen as inessential to the operation of the clause and the court itself may apply the objective criterion or standard. Thus, where the court is able to identify the objective criterion, it may provide the machinery for ascertaining the price where the contractual machinery has broken down: Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444, Lord Fraser of Tullybelton at p.484C. As Lord Hope stated in Total Gas Marketing Ltd v Arco British Ltd [1998] 2 Lloyd's Rep 209 (at p.223), "commercial contracts should so far as possible be upheld".

[41] In this case the disputed clause is in formal missives drafted by skilled solicitors. There can be no doubt that the clause is part of a document which the parties intended to have contractual effect. It was clear from the evidence that both parties at the time acted on the basis that clause 4.1.10 imposed a legal obligation on Hallam. In particular Mr Hopkins saw Hallam as so bound. I recognise that when commercial lawyers negotiate binding deals on behalf of their clients they often have to act within significant time constraints. They sometimes are not able to tie up all loose ends and that reasonable endeavours clauses may be the result. But in this case the clause was not a result of any inability of R&D and Hallam to agree; it was a mechanism which was important to the parties in the context of the back to back agreements. Hallam had the option to purchase from Mrs Kerr but before concluding the purchase agreement with R&D had not, for understandable commercial reasons, served a provisional notice on Mrs Kerr nor agreed a price with her under clauses 6.2.1 and 6.2.3 of the option agreement. Thus Hallam needed to make their agreement with Mrs Kerr of the price which was wholly acceptable to them a condition precedent of R&D's purchase. And R&D, who by this stage would have spent significant sums on obtaining detailed planning permission and satisfying themselves in relation to the other conditions precedent in their contract with Hallam, would have wanted to bind Hallam to attempt to agree the price with Mrs Kerr. I can see no reason why Hallam's solicitors, acting honestly, would have included in the condition precedent a protection for R&D which was merely a statement of aspiration. In this context the court should hold the clause to be unenforceable only if the law compels it to do so. Where is that compulsitor?

[42] The compulsitor is not because the clause can be categorised as an agreement to agree nor is it significant that it spoke of all reasonable endeavours and not best endeavours. In the cases where the court has held to be unenforceable a "reasonable endeavours to agree" clause, which was contained in a document which was clearly intended to have contractual effect, the court has been compelled to do so because of uncertainty as to either or both of the object of the endeavours and the means by which the object could be realised. See Lord Ackner's explanation in Walford v Miles which I have quoted in paragraph [35] above. Similarly, in Phillips Petroleum Co Ltd Potter LJ (at p.343C-D) stated:

"The unwillingness of the courts to give binding force to an obligation to use 'reasonable endeavours' to agree seems to me to be sensibly based on the difficulty of policing such an obligation, in the sense of drawing the line between what is to be regarded as reasonable or unreasonable in an area where the parties may legitimately have differing views or interests, but have not provided for any criteria on the basis of which a third party can assess or adjudicate the matter in the event of a dispute."

[43] In Fletcher Challenge Energy Ltd the majority of the Court of Appeal of New Zealand also discussed this difficulty in the following passage (at para [115]):

"The end in view (the full agreement) is insufficiently precise for the Court to be able to spell out what the parties must do in exercising their reasonable endeavours. Where the objective and the steps needing to be taken to attain it are able to be prescribed by the Court, a best endeavours or reasonable endeavours obligation will be enforceable. That may be possible in relation to some contractual negotiations of relative simplicity and predictability (Coal Cliff Collieries). But a negotiation of complex contractual terms is such a variable matter, both in process and in result, and so dependent on the individual positions which each party may reasonably take from time to time during the bargaining, that it is impossible for a Court to define for them what they ought to have done in order to reach agreement. The Court neither knows the result nor is able to say how each offer should have been made, nor whether it should have been accepted."

(The reference is to Coal Cliff Collieries v Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1.)

[44] In some cases the courts will enforce what can properly be called an agreement to agree. Thus in The Queensland Electricity Generating Board v New Hope Collieries Pty Ltd [1989] 1 Lloyd's Rep 205 (PC), the Privy Council considered that an implied obligation to make reasonable endeavours to agree the terms of supply and failing which to do everything reasonably necessary to procure the appointment of an arbitrator could be enforced as it was implicit in the agreement that the terms of the price structure would be fair and reasonable and the agreement laid down broad guidelines as to how a fair and reasonable price was to be ascertained. Much depends upon the terms of the particular contract and whether judges can construe, or imply terms into, the contract so as to give it ascertainable criteria.

[45] In this case the reasonable endeavours are directed towards a particular object. It is not the negotiation of a complete agreement of some complexity. Clause 4.1.10 spoke of the "terms" being wholly acceptable. That referred to the terms of the purchase price such as the amount and the date or dates of payment. The object of the endeavours was therefore only the agreement of a price in the context of a contractual mechanism in the option agreement between Hallam and Mrs Kerr which governed the other terms of the proposed sale. Further, there is no conflict between Hallam's duty to R&D to use all reasonable endeavours and Hallam's self interest in the negotiation of the price with Mrs Kerr. That is because the object of the endeavours was to be a price wholly acceptable to Hallam.

[46] If the courts are prepared to police an obligation to use reasonable endeavours to obtain a planning permission or an export licence, as Lord Ackner suggested in Walford v Miles, or to use all reasonable endeavours to secure a planning agreement with a local authority (Yewbelle Ltd v London Green Developments Ltd [2008] 1 P & CR 17 (CA)), the court should be able to police the negotiation of a price so long as the object of the negotiations can be objectively ascertained. See also IBM United Kingdom Ltd v Rockware Glass Ltd (1980) FSR 335. In Total Gas Marketing Ltd the House of Lords did not comment adversely on an obligation to use reasonable endeavours to become a party to an allocation agreement where it was provided that the obligor did not have to accept unreasonable terms: see Lord Hope at p.224. In The Queensland Electricity Generating Board, the Privy Council implied into the contract an obligation to make reasonable endeavours to agree a price. In this case the object is a price "wholly acceptable" to Hallam.

[47] I accept that by agreeing that the price had to be "wholly acceptable" to Hallam, the parties excluded any question of the reasonableness of what Hallam found acceptable or not acceptable. Thus where R&D's written pleadings asserted that there was a price which "ought to have been wholly acceptable" to Hallam that assertion was irrelevant. Mr Clark QC for R&D did not argue otherwise. R&D cannot seek to imply into the contract an objective standard such as a reasonable price or a fair and reasonable or equitable price which the court could address. Such a term would be inconsistent with Hallam's stipulation that the price had to be wholly acceptable to them. Mr Borland submitted that, if the clause were enforceable, Hallam, in using all reasonable endeavours to agree the purchase price on terms which they found wholly acceptable, were entitled to take into account their own commercial interests: UBH (Mechanical Services) v Standard Life Assurance Co The Times 13 November 1986, Terrell v Mabie Todd & Co Ltd [1952] RPC 234 and Rackham v Peek Foods [1990] BCLC 895. I agree.

[48] There is thus no conflict between Hallam's own interests in the negotiation of the price and their obligation to use all reasonable endeavours to agree the wholly acceptable price. There is not the "inherent repugnancy" which concerned Lord Ackner. Nor is there the problem, to which Potter LJ referred in Phillips Petroleum, of drawing a line between reasonable and unreasonable behaviour where a party had to balance an obligation to endeavour to agree with his self interest in the negotiations. That is because the clause required Hallam to use all reasonable endeavours to get Mrs Kerr to accept a price which they were prepared to pay.

[49] I therefore do not see any insuperable obstacle which would prevent the courts from reaching a view as to the means of achieving that object and deciding whether Hallam had used all reasonable endeavours to agree the price. The question then becomes: can the court ascertain the object of the endeavour?

[50] It is correct, as Mr Borland submitted, that the "wholly acceptable" price is a subjective criterion but that does not mean that the court cannot ascertain it if there is evidence from which it may be inferred. Judges in criminal courts regularly direct juries that they are entitled to infer a person's state of mind from the circumstances and in particular from what he said or did. So also can a judge in a civil case. I do not think that the subjective nature of the object of the endeavours creates legal uncertainty. It is a question of fact. The parties to the purchase agreement could not tell when they made that agreement what price would be acceptable to Hallam; but that does not make the agreement ineffective for uncertainty as that fact might become ascertainable and ascertained in the future. See Chitty on Contracts (30th ed.) para 2.133, in which it is stated:

"An agreement is not ineffective for uncertainty merely because the facts on which its operation is to depend are not known when it is made. The requirement of certainty will be satisfied if those facts become ascertainable and are ascertained, without the need for further negotiation, after the making of the agreement."

See also Welsh Development Agency v Export Finance Ltd [1992] BCLC 148, Dillon LJ at p.159. Nevertheless, the "wholly acceptable" criterion created an evidential difficulty for R&D. As long as Hallam acted in good faith, they had a wide discretion as to what price was acceptable in the circumstances as the court would not be concerned with the reasonableness of their view. The price which Hallam had to agree with Mrs Kerr was defined in the option agreement as seventy five per cent of the open market value. There was thus an objective standard about which Hallam and Mrs Kerr had to negotiate. But the acceptability of that price to Hallam could depend on what they were entitled to receive from R&D. There might come a point, if Hallam had acted perversely, at which the court would infer that they had been acting in bad faith. Absent bad faith, it was for Hallam to determine the acceptability of the price to which Mrs Kerr would agree.

[51] I therefore consider that R&D have a claim under the clause if they can demonstrate (a) that there was for a sufficient period of time a price to which Mrs Kerr would have agreed and which was wholly acceptable to Hallam in the circumstances that then existed and (b) that during that window of opportunity Hallam did not use all reasonable endeavours to agree that price with her.

[52] Mr Borland suggested, further, that in the missives with R&D there was no obligation on Hallam to exercise the option in their contract with Mrs Kerr and that this was an additional element of uncertainty. He did not develop the argument to any extent but I am not satisfied that the argument has any substance. While in the contract with Mrs Kerr Hallam were not bound to exercise the option and in the missives with R&D there was a condition precedent that Hallam complete the purchase from Mrs Kerr (clause 4.1.11), I consider there is a strong argument for implying a term into the contract with R&D requiring Hallam to exercise the option if an acceptable price had been agreed which had been matched by R&D's offer and the purchase contract was otherwise unconditional. The condition precedent in clause 4.1.11 protected Hallam from any failure on Mrs Kerr's part to implement her bargain with them; it did not give them a licence to decide not to complete their contract with her after agreeing a wholly acceptable price.

[53] Hallam's legal challenge therefore fails.

[54] For completeness I record that Mr Clark referred me also to Lambert v HTV Cymru (Wales) Ltd [1998] EMLR 629 in which Morritt LJ drew a distinction between (i) a contract between A and B in which they included an uncertain term and (ii) a contract between A and B in which B undertook to use all reasonable endeavours to agree a contract with C. He opined that there was scope for the law to enforce the reasonable endeavours clause in the second type of contract, even if the precise rights to be acquired had not been defined, as, if B made no effort at all, A would be entitled at least to nominal damages. I do not have to rely on Morritt LJ's approach in this case because I have decided that the object of the endeavours could become ascertainable and ascertained and thus had sufficient certainty.

[55] In light of the view which I have taken I do not need to discuss the extent to which the law might recognise an obligation to negotiate in good faith. Mr Clark referred to the judgment of Longmore LJ in Petromec Inc v Petroleo Brasiliero SA [2006] 1 Lloyd's Rep 121, at paras 115-121 and to the judgment of Clarke J in Tramtrack Croydon Ltd v London Bus Services Ltd [2007] EWHC 107 (Comm) at para 86 and following. Lord Neill of Bladon has questioned the distinction between an obligation to use reasonable endeavours to agree and an obligation to negotiate in good faith: (1992) 108 LQR 405. See also Sir Anthony Mason in (2000) 116 LQR 66. Lord Steyn, in the article to which I referred in paragraph [39] above, also saw scope for the development of the concept of good faith in contract and hoped that the decision in Walford v Miles might be reviewed in the light of fuller argument. Whether, as Lord Ackner stated in Walford v Miles, an obligation to use reasonable endeavours to agree is properly distinguishable from an obligation to negotiate in good faith may depend on the terms of the particular contract. But that may be a matter for the Supreme Court on another day.

 

The disputed issues: (b) whether Hallam broke their contract with R&D

[56] The second issue is both evidential and legal: have R&D established in evidence that Hallam failed to use all reasonable endeavours to agree a price with Mrs Kerr which was wholly acceptable to them?

[57] Mr Clark's principal submission was that the evidence established that Hallam had, in their negotiations with Mrs Kerr, identified a price which she would accept and which was wholly acceptable to them but had failed to take any step to agree that price with her during a period when such an agreement could have been reached. In particular in March 2004 they failed to agree such a price without delay in the context of a rising land market. In his written submission he also suggested that clause 4.1.10 of the missives imposed on Hallam the obligation to "progress matters" with R&D. This appears to mean that Hallam had to act as broker and to reach, or confirm, a deal with R&D by which R&D increased the price which they offered in the missives in order to make the price which Mrs Kerr would take acceptable to Hallam. These submissions were the core of R&D's case. I consider each submission in turn. Before doing so I deal with two other submissions which were made but which were not so central.

[58] It is clear that in January 2004 Hallam were content to agree an open market value at 571,314 and take as their income from the deal the twenty five per cent of that value which they would retain under their contract with Mrs Kerr. While R&D averred that Hallam were in breach of contract because they had not used all reasonable endeavours in January 2004, Mr Clark did not put any emphasis on that allegation. Both Mr Hume and Mr Reid expressed the view in their evidence that Hallam were entitled to try to reach a deal at 571,314 in January 2004 as the offer from R&D was the only offer which their marketing exercise had elicited. It was reasonable for Hallam to argue that R&D's offer should be treated as best evidence of market value. I agree. It was also reasonable for Hallam to insist upon the valuation date of 12 December 2003 and to question the relevance of later offers in a rising market. That was an important negotiating stance both to deter Mr Dale from relying on later offers and to preserve their position if they later referred the fixing of the price to an expert. Mr Clark in his submissions criticised Hallam for relying on R&D's offer of 571,314, which had been formulated in December 2002 and submitted in January 2003, as the measure of the market value of the purchase subjects almost one year later; but nothing turns on that criticism. That was the price which Hallam were contracted to accept from R&D. But Mrs Kerr was not prepared to accept the valuation of 571,314 in January 2004.

[59] I am also satisfied that there is no substance in Mr Clark's criticism of Hallam for failing to obtain an independent valuation of the purchase subjects. While such a valuation might have alerted Hallam to the fact that R&D's offer was not a good measure of the market value as at 12 December 2003 as a result of increases in land values in 2003, what Hallam was obliged to do was to use all reasonable endeavours to agree a price which they found wholly acceptable. As they were contracted to R&D to sell the purchase subjects for 571,314, it was movement by R&D on that price rather than any independent valuation which would have governed Hallam's approach to agreeing a price with Mrs Kerr. R&D appear to have been aware of that when they made their ephemeral proposal to pay 610,000 in January 2004 and when they made their further proposals in March 2004.

[60] Mr Clark, although critical of Hallam's apparent inactivity towards agreeing a price with Mrs Kerr in February 2004, concentrated his attack on Hallam on the events in March 2004 in the period before Mrs Kerr received the offer of 675,000 from Homepark. This was his principal submission in his oral presentation. Dale & Marshall had proposed an open market value of 606,000 on 2 March 2004 and Mr Dale gave evidence that Mrs Kerr would have accepted that sum until she received the higher offer from Homepark. Mr Clark's case was simple: the evidence established that on 3 March 2004 Hallam found the price of 606,000 wholly acceptable in the light of the comfort provided by Mr Hume's indication in the telephone conversation of 2 March that R&D would pay 630,000 for the purchase subjects. Between 3 March and 17 March Hallam took no steps to secure a deal with Mrs Kerr at that valuation nor did they approach R&D to progress matters. There was thus a significant period of time during the negotiations when Mrs Kerr was prepared to agree a price on terms wholly acceptable to Hallam which they failed to use all reasonable endeavours to secure. Accordingly, Mr Clark submitted, they were in breach of contract.

[61] I note that Mr Dale's letter of 2 March 2004, which proposed the valuation of 606,000, was stated to be "without prejudice." It is not clear whether Hallam would have obtained Mrs Kerr's unequivocal agreement to that valuation before 17 March, when the receipt of the Homepark offer might have encouraged her either to delay any agreement or to seek an expert valuation. But I am not concerned with causation of loss at this stage of the proceedings. The questions therefore are (a) was the valuation of 606,000 wholly acceptable to Hallam during that period and (b) did they fail to use all reasonable endeavours to secure agreement of that valuation?

[62] Mr Hopkins's position was straightforward: there was never an acceptable price on the table because he wanted certainty that R&D would pay Hallam the price they were to pay Mrs Kerr. Hallam would not reach agreement with Mrs Kerr at a price in excess of 571,314 until they had accepted a formal offer from R&D to increase the price which R&D were offering. R&D never made any formal offer to increase the price and Hallam could not expose themselves to the risk of agreeing a valuation with Mrs Kerr without a matching agreement with R&D. Otherwise Hallam would not obtain the income which they sought from the deal.

[63] Mr Clark invited me not to accept Mr Hopkins's evidence which, he submitted, was contradicted by the documentary evidence. In particular he submitted that the file note on 3 March 2004 showed that Hallam were prepared to accept Mr Dale's offer of a valuation of 606,000, relying merely on the comfort of Mr Hume's oral statement that R&D would pay 630,000 for the purchase subjects. Further, MacRoberts' email of 30 March 2004 seeking confirmation of that valuation supported the view that Hallam remained prepared to agree a price with Mrs Kerr without the certainty of amended missives with R&D.

[64] If Hallam had been obliged to buy the purchase subjects on agreeing the purchase price with Mrs Kerr, they would, as Mr Clark submitted, have been at risk even if they and R&D had formally amended the missives to increase the price which R&D were to pay: the missives were then not unconditional. It was therefore, Mr Clark submitted, unreasonable for Hallam not to act on an oral offer when a formal offer would have given them no more certainty. In reality Hallam were content to act on R&D's informal undertaking. I am not persuaded that that is so. Hallam were not bound to buy from Mrs Kerr immediately after they agreed the price with her. They could have taken steps to ensure that the outstanding conditions in the missives with R&D were purified in the month between agreeing a price with Mrs Kerr and exercising the option.

[65] I am not entirely satisfied by Mr Hopkins's evidence. In particular his recollection of events was very limited and was therefore not reliable. He recalled that on one or two occasions R&D had indicated that they might increase the price which they had offered. He did not appear to have considered carefully the terms of the option agreement with Mrs Kerr. In particular he appeared to have thought that Hallam would be bound to proceed if they agreed a price with Mr Kerr whereas under clause 6.2.4 of the option agreement they would have had one calendar month after agreeing a purchase price to decide whether to exercise the option. It may be that he thought, incorrectly, that Hallam would be bound to buy from Mrs Kerr if their missives with R&D became unconditional, but he did not make his position clear. If Hallam's position was that they required a formal amendment of the price in the missives, it is surprising that there was no evidence that anyone from Hallam ever encouraged R&D to submit such an amendment. Nevertheless, I formed the view that Mr Hopkins was doing his best to recall events and I see no basis for refusing to accept as accurate the broad tenor of his evidence that Hallam were not prepared to settle the price with Mrs Kerr until they had greater certainty than they received that R&D would at least match that price.

[66] The evidence which Mr Clark led on behalf of R&D was of higher quality. Mr Reid was a straightforward and honest witness who gave a clear account of the progress of negotiations. Mr Hume, while less directly involved in the detail of the transaction, was an impressive witness who was able to support his oral evidence by detailed diary entries. He frankly admitted when his recollection was not reliable. He also struck me as a competent and honest businessman. I accept his evidence that he considered himself bound after he had made the oral offer to pay 630,000 on 2 March 2004. He explained that when he made that offer he had not been aware that Mrs Kerr would have settled for a valuation of 606,000 and thus give Hallam a windfall of 24,000. While he was displeased to learn of that, he nevertheless considered himself bound by his offer and agreed a deal on that basis on 24 March. In his view many deals in the property development business were done orally and parties had to act on trust when putting together such arrangements. He saw no reason why Hallam could not have concluded a deal with Mrs Kerr shortly after 3 March 2004.

[67] There was an opportunity for Hallam to reach a deal with Mrs Kerr at the valuation of 606,000. It appears from the file note of the meeting on 3 March 2004 that Hallam were then prepared to reach agreement with Mrs Kerr at that valuation while taking 630,000 from R&D. No explanation was given as to why MacRoberts did not carry out the instructions to write to Burness to structure the deal once Hallam had given them the correspondence and plan relating to the reservation of access. Hallam did not lead the evidence of either Mr King, their in-house solicitor, or Ms Fergusson of MacRoberts. In the absence of their evidence I am not inclined to make inferences favourable to Hallam from the inactivity which followed without clear evidence to support them.

[68] But the question remains: have R&D proved that the valuation of 606,000 offered by Mr Dale on 2 March 2004 was wholly acceptable to Hallam? That acceptability depends on the comfort which Hallam received from R&D. It appears that there may have been a misunderstanding between R&D and Hallam. It is likely that R&D's letter of 2 March 2004 which spoke of sticking at a price of 565,000 will have muddied the waters. While Mr Hume and Mr Reid dismissed that figure as a typographic error, R&D never corrected the error in writing or otherwise. Thus the oral proposal to pay 630,000 was followed by this letter which would have been likely to cause Hallam to be cautious about what to expect from R&D. Nor did R&D ever offer in any writing, formal or informal, to increase the sum in the missives above 571,314. Earlier, R&D had temporarily offered 610,000; later they offered 631,000. Their position changed over time. I infer from that that R&D's actions did not give Hallam any certainty as to their position. It is also clear that as at 3 March 2004 Hallam did not have R&D's assent to implement the deal which had been discussed in MacRoberts' office; at that time Mr Hume knew nothing of Mr Dale's proposed valuation of 606,000. Thus while I got no clear explanation from Hallam as to why they did not follow up the decision reached on 3 March 2004, I consider it likely that R&D's actions created sufficient uncertainty to cause Hallam to hesitate.

[69] The second document on which Mr Clark founded to contradict Mr Hopkins was MacRoberts' fax of 30 March 2004. He suggested that it demonstrated that MacRoberts were prepared to accept a valuation of 606,000 without having obtained an amendment of the missives with R&D as they asked Mr Dale to confirm his letter of 2 March that Mrs Kerr had accepted that that sum was the open market value. That, he submitted, had also been Hallam's position on 3 March 2004. I do not agree: after 24 March MacRoberts knew that Mrs Kerr was seeking a substantially greater sum and was, apparently, no longer prepared to accept that valuation. I do not infer from Hallam's willingness at that time to agree 606,000 as the valuation without the certainty of amended and unconditional missives with R&D that they were prepared to do so in early March. By the end of March R&D and Hallam had agreed a basis for proceeding in the meeting on 24 March. With the arrival of the Homepark offer it appeared that matters were slipping away from them. MacRoberts' fax of 30 March reads like a forlorn-hope in the circumstances.

[70] It was the essence of Mr Clark's case that in fact Hallam had decided on 3 March 2004 to pay Mrs Kerr the price calculated from a market valuation at 606,000, relying only on the comfort which Mr Hume's informal offer of 630,000 gave them. But I do not accept that the file note of 3 March 2004 and MacRoberts' email of 30 March 2004 justify that inference.

[71] I am not satisfied that R&D have established that Mrs Kerr's apparent willingness on 2 March 2004 to accept a market valuation of 606,000 and Hallam's decision at the meeting of 3 March 2004 meant that there was then a price "wholly acceptable" to Hallam without their having received from R&D the comfort of a formal offer to increase the price which they had offered. That formal offer was never made. It may have been, as Mr Hume suggested, that Hallam could have been content with his informal offer to pay 630,000. It may have been reasonable for Hallam to have been satisfied by that, particularly as the agreement of the price with Mrs Kerr did not bind them to exercise the option. But the reasonableness of Hallam's view of the nature of the arrangement with R&D which would make the price which Mrs Kerr would take "wholly acceptable" is not in issue.

[72] I turn then to the second question: were Hallam obliged to use all reasonable endeavours to make the price which Mrs Kerr would take wholly acceptable to themselves by taking the initiative to renegotiate the price in the missives with R&D?

[73] I have concluded that they were not. The contractual obligation on Hallam to use all reasonable endeavours to agree a price falls to be construed in the contract in which it is contained. In that contract R&D were bound to pay and Hallam were bound to accept 571,314 for the purchase subjects if the conditions precedent were purified. I am not persuaded that Hallam's contractual duty of "all reasonable endeavours" extended to the initiation of the amendment of the missives price, for example by submitting a formal offer to accept an enhanced price or writing informally to R&D inviting them to offer such a price. I do not construe the clause as requiring Hallam to take the initiative to bring about an amended deal with R&D in order to render acceptable to them the price which Mrs Kerr was prepared to take. Even if Hallam were content to reach agreement without a formal amendment of the price in R&D's offer, I do not construe the clause as requiring Hallam to act as a broker to obtain clear but non-binding undertakings from R&D.

[74] Clause 4.1.10 of the missives created a condition precedent principally to protect Hallam and required that Hallam had agreed the purchase price with Mrs Kerr before they could be compelled to sell the purchase subjects to R&D. The reasonable endeavours provision in that clause was to protect R&D's interest in the outcome of discussions between Hallam and Mrs Kerr in which they had no part. I interpret the endeavours which the clause required of Hallam to be directed principally towards their negotiations with Mrs Kerr rather than the alteration of their back to back agreement with R&D. It may be that the parties to the missives, when they incorporated clause 4.1.10 into their contract, or reasonable people in their position, could have envisaged rapidly rising land prices. But they did not provide any contractual mechanism by which R&D would improve the price which they offered in order to allow Hallam to meet Mrs Kerr's expectations. Nor did they provide that Hallam should take the initiative in seeking to amend the missives to that end.

[75] It was for R&D to make the formal offer to amend the missives in order to make the price, to which Mrs Kerr would agree, wholly acceptable to Hallam. Had they done so, Hallam could not have ignored that offer and then argued that Mrs Kerr's price was not acceptable because the missives with R&D had not been amended. In that context good faith in relation to what was "wholly acceptable" would have required Hallam to accept R&D's formal offer to achieve the back to back arrangement which they required. R&D's offer would have been on the table and that would not have involved Hallam in negotiating a deal with them. But that is not what happened.

[76] I am therefore satisfied that R&D have not proved on balance of probabilities that the valuation of 606,000 which Mrs Kerr was prepared to accept on 2 March 2004 gave rise to a price which was wholly acceptable to Hallam without some further reassurance than that which R&D gave during the period before Homepark's offer altered Mrs Kerr's expectations. Hallam were not under any contractual duty to accept R&D's oral undertakings or to elicit from them a clearer commitment to an enhanced price when deciding what was a wholly acceptable price to pay Mrs Kerr. As a result I am also satisfied that Hallam did not fail to use all reasonable endeavours to agree such a price with Mrs Kerr.

[77] If I had construed Hallam's contractual obligation in clause 4.1.10 of the missives as imposing on them a duty to negotiate with R&D to achieve an offer which would make the price which Mrs Kerr would take acceptable to them, my conclusion would have been different. I consider that Mr Hume was an honourable man who considered himself bound by the oral offer of 630,000 and that R&D would have amended their missives to increase the price which they offered if Hallam had secured a deal with Mrs Kerr. Thus if there had been an obligation on Hallam, in using all reasonable endeavours, to act as a broker by seeking to obtain from R&D an enhanced offer to match or exceed the market valuation which Mrs. Kerr was prepared to accept in early March 2004, I would have found that Hallam's inactivity in the weeks after 3 March 2004 amounted to a breach of their contract with R&D.

 

Conclusion

[78] R&D's action therefore fails. Accordingly, I sustain the defenders' third plea in law and assoilzie them from the conclusions of the summons.