| EXTRA DIVISION, INNER HOUSE, COURT OF SESSION |
Lord Menzies Lady Dorrian Lord Philip | [2013] CSIH 61 XA84/12, XA85/12, XA86/12 OPINION OF LORD MENZIES in the Appeal by (1) AMA (NEW TOWN) LIMITED Pursuer and Appellant; against RON LAW Defender and Respondent: and (2) AMA (NEW TOWN) LIMITED Pursuer and Appellant; against SARAH LUCY LAW Defender and Respondent; and (3) AMA (NEW TOWN) LIMITED Pursuer and Appellant; Against GLENMORISON LIMITED Defender and Respondent; _______________ |
Act: Lake QC; Maclay Murray & Spens LLP, Glasgow
Alt: Lindsay QC; DWF Biggart Baillie
26 June 2013
[1] I have had the advantage of reading in draft the opinion of Lady Dorrian, and I am in complete agreement with her reasoning and with the result produced by it. The submissions advanced on behalf of the defenders and respondents would have the effect of inverting the well-established rule of Scots law that if one party to a contract repudiates it, the innocent party has an option to accept the repudiation and sue for damages for breach of contract, or to seek enforcement of the contract. That this option rests with the innocent party cannot be in doubt - it has been stated repeatedly in the most authoritative terms in the several authorities referred to by Lady Dorrian. If the submissions for the defenders and respondents were well-founded, this option could be negated simply by the repudiating party declining to pay the sum due in terms of the contract, in which case the innocent party would be confined to seeking damages for breach of contract. That is not our law.
[2] I am in agreement with the submissions advanced by senior counsel for the pursuers and appellants. It is important to bear in mind the provisions of these particular contracts as to the chronological sequence of events. The event which triggers the obligation on the defenders and respondents to make payment of the price was not a matter within their control. The mechanism in clause 3 of the missives for determining the date of entry did not depend on anything done by the defenders and respondents, and clause 3.1 provided that the price shall be paid in full before 2 pm on that date. It was only once that had happened (together with payment of the price of any extra items not previously paid for, and any interest due), that the pursuers and appellant became obliged to give entry and vacant possession and release the keys. Although these obligations were co-relative, it was not a contractual requirement that they should be precisely simultaneous - the obligation on the sellers only arose once the obligation on the purchasers had been fulfilled.
[3] Senior counsel for the defenders and respondents sought to argue that these contracts were not completed contracts, because steps were still required of the defenders and respondents to complete them - they had to make payment of the price, and they had to accept the dispositions. This argument appears to have persuaded the sheriff principal in McKenna. However I am not persuaded by it. It appears to me that the argument is essentially the same as that rejected by Lord Reid in White and Carter (Councils) Limited v McGregor at page 13, in the passage in which he was analysing the decision of the First Division in Langford & Co v Dutch, and he observed as follows:
"But the peculiarity in that case, as in the present case, was that the pursuers could completely fulfil the contract without any cooperation of the defender. The Lord President cannot have meant that, because of non-acceptance, the contract had not been completely carried out, because that, in itself, would have been a complete answer to an action for the contract price."
[4] I do not consider that, in the circumstances of these contracts, it was necessary for the defenders and respondents to cooperate before the contract could be completed. As senior counsel for the defenders and respondents accepted, there was no contractual obligation on them to accept a disposition. There were no other contractual obligations incumbent on the respondents which had to be completed in order to render the contract complete. All they required to do was to pay the price. Their refusal to do so cannot take away from the pursuers and appellants the option to seek enforcement of the contract should they choose to do so. There are no "wholly exceptional" circumstances present in this case which would justify this court in refusing to grant implement.
[5] I also agree that the sheriff's disposal of the counterclaim was correct, for the reasons given by Lady Dorrian.
[6] For all these reasons I consider that that part of the interlocutor of the sheriff dated 30 March 2012 in each of these actions, in which he sustained the defenders' fifth plea-in-law in the principal action and dismissed the principal action, should be recalled, and instead the first plea-in-law for the pursuers in each action should be sustained, and decree de plano granted in terms of the craves. The sheriff's dismissal of the counterclaim in each action should stand. I move your Ladyship and your Lordship that we allow these appeals and dispose of them in the manner which I have just indicated.
| EXTRA DIVISION, INNER HOUSE, COURT OF SESSION |
Lord Menzies Lady Dorrian Lord Philip | [2013] CSIH 61 XA84/12; XA85/12; and XA86/12 OPINION OF LADY DORRIAN in the Appeal by (1) AMA (NEW TOWN) LIMITED Pursuer and Appellant; against RON LAW Defender and Respondent: and (2) AMA (NEW TOWN) LIMITED Pursuer and Appellant; against SARAH LUCY LAW Defender and Respondent: and (3) AMA (NEW TOWN) LIMITED Pursuer and Appellant; against GLENMORISON LIMITED Defender and Respondent: _______________ |
Act: Lake QC; Maclay Murray & Spens LLP, Glasgow
Alt: Lindsay QC; DWF Biggart Baillie
26 June 2013
Background
[7] This case concerns three actions at the instance of AMA New Town Limited in which they seek payment for the purchase price under contracts for the sale of heritable property. In the present action the defender is Ron Law. In the remaining actions the defenders are respectively his wife, Sarah law, and Glenmorison Limited, a company in which he has an interest. In each case the defender entered into missives to buy off-plan a flat in a housing development being undertaken by the pursuers.
[8] The essential aspects of the missives in each case were the same, and, with one small exception, the arguments advanced on either side were identical. It was agreed that the case against Ron Law should be the primary case in which the pleadings and missives were examined.
[9] The missives provided in each case that the purchase price would be £212,000, consisting of (a) a deposit of £1,000 on reservation of the plot; a further deposit of £9,600 on conclusion of missives; and (c) the balance of £201,400 payable "at the date of entry aftermentioned". Clause 3 of the missives provided a mechanism for determining the date of entry, namely that it was to be fourteen days from the later of (a) the date on which the plot was passed by the Local Authority as habitable and fit for occupation and (b) the date on which a cover note was issued by NHBC/Zurich confirming that a new home warranty would be issued for the plot. It is a matter of agreement that in each case this clause triggered a date of entry at 23rd December 2009. As to payment, clause 3 of the missives also provided thus:
"Entry and vacant possession will be given and the keys released to the Purchaser only on payment of the full purchase price (including the price of any extra items not previously paid for) and any interest due on the purchase price. Consignation of the price will not be accepted."
Clause 3.1 provided that:
"The price shall be paid in full before 2.00p.m. on the date of entry"
and provided for interest on the outstanding balance until full payment was made or until rescission and resale.
[10] At the date of entry, payment in terms of the missives was not made and agents for each respondent advised the sellers' agents that their clients were not in a position to proceed with their respective purchases. A formal demand for payment was made on 24 December 2009 but no payment was forthcoming. In these circumstances the sellers sued for payment of the balance of the purchase price, averring in each case, which was admitted, that they were ready and willing to implement their obligations under the missives.
[11] The respondents aver first, that the contract was incomplete, with the result that the appellants had not averred a contractual debt in respect of which they were entitled to decree for payment, and the action was thus irrelevant; and second, that in all cases the appellants were in material breach of contract, and thus the respondents were not required to perform any obligations placed upon them in terms of the missives. The alleged breaches were, in the principal case, breach of clauses 6 and 9 of the missives; and in the remaining cases breach of clause 6. A further defence that the respondents had been induced to enter the contracts on the basis of misrepresentation was not insisted in. The appellants averred that the defences were irrelevant and sought decree de plano.
[12] The pleadings in each case went to debate before the sheriff at Edinburgh who considered that the arguments for the appellants were well-founded, that the defences were irrelevant, and that the appellants should be entitled to decree de plano. However, he felt himself to be bound by a contrary decision of Sheriff Principal Bowen in a similar case, AMA v McKenna 2011 SLT (Sh Ct) 73 and accordingly he dismissed both the principal action and the counterclaim. All parties appealed.
Submissions in principal actions
Appellants
[13] Mr. Lake for the appellants noted that in these actions the appellants were seeking to enforce a right they had under their contracts with the respondents. They were seeking implement of the contract, but since the obligation co-relative to their right under the contract is that of payment of a sum of money, they sought to enforce their right by decree for payment rather than implement. Specific implement was not an appropriate remedy to enforce an obligation of payment: see Gloag on Contract p655 and Wilson: The Scottish law of Debt p129. The sheriff principal had not had the benefit of British Railways Board v Birrell 1971 SLT (N) 17 in which this point was noted.
[14] Counsel submitted that the effect of the decision of the sheriff, and that of the Sheriff Principal in AMA v McKenna, was that a party in the position of the appellants does not have the right to seek implement of a contract by payment but were put in the position where the repudiating party, by refusing to implement the contract, could force the innocent party to accept the substitutional remedy of damages. He submitted that this conflicted with the established principle of Scots law that, a limited number of situations apart, such an innocent party was entitled to implement.
[15] In development of that argument he advanced four primary submissions:
1. When one party to a contract was faced with a repudiatory breach by the other party, he had a choice either to rescind the contract and claim damages; or to enforce performance of the contract. A party in default could not compel the innocent party to accept repudiation and be content with damages. The choice of remedy lay with the innocent party.
2. The only exception to this proposition arose in exceptional circumstances where there were cogent reasons for a court to exercise an equitable power refusing to allow the innocent party to enforce the contract.
3. Where the obligation to be enforced was one of payment, the appropriate remedy was not specific implement but decree for payment.
4. The question of whether a right to payment had become enforceable under the contract was to be determined by construction of each individual contract.
[16] In the case of McKenna, where the circumstances were for all relevant purposes the same as the present, the sheriff principal described the missives as an "uncompleted contract", which he considered brought it within observations made by Lord Reid in White & Carter (Councils), Limited v McGregor 1962 SC (HL) 1, paras 17 and 18, where he noted that the pursuers in that case might have been unable to obtain a decree for payment if fulfilment of the contract had required the co-operation of the defenders. The sheriff principal had erred in equating the situation where some positive step in co-operation was required from the defenders with the situation, such as the present case, where further performance was required only of the pursuers.
[17] The sheriff principal relied upon Newcastle Building Society v White 1987 SLT (Sh Ct) 81 in which it was suggested that because a court would not usually punish a party for non-payment of money, if payment were not forthcoming a court would normally proceed to make an award of damages rather than grant decree for payment. Counsel submitted that this was inconsistent with the authorities, in particular: White & Carter; Stewart v Kennedy (1890) 17R (HL) 1 (at 5, 9-10, 11); Salaried Staff London Loan Co Limited v Swears and Wells Limited 1985 SC 189 (at 191-192 193-194); and Highland and Universal Properties Ltd v Safeway Properties Ltd 2000 SC 297 (at 299-300 204-209, 311-312).
[18] Reference was made to the speech of Lord Reid in White & Carter at p11:
"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 the innocent party, has an option. He may accept that repudiation and sue for damages 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."
[19] In that case a contract had been entered into between a garage and an advertising company for advertisements for the garage to be placed on litter bins. On the day on which the contract was completed the garage proprietor sought to cancel the contract but the advertising company refused this and placed the advertisements as agreed, suing for the price. An argument was advanced that in such circumstances the only option available to the innocent party in the face of repudiation was to wait until the day of performance and claim damages estimated at that date. The respondents there relied on the case of Langford & Co. v Dutch 1952 (SC) 17 in which the Lord President (Cooper) made the following observations:
"It appears to me that, apart from wholly exceptional circumstances of which there is no trace in the averments on this record, the law of Scotland does not afford to a person in the position of the pursuers the remedy which is here sought. The pursuers could not force the defender to accept a year's advertisement which she did not want, though they could of course claim damages for her breach of contract. On the averments the only reasonable and proper course which the pursuers should have adopted, would have been to treat the defender as having repudiated the contract and as being on that account liable in damages, the measure of which we are, of course, not in a position to discuss."
Dealing with the argument advanced on the basis of that case Lord Reid said:
"The Lord President cited no authority, and I am in doubt as to what principle he had in mind. In the earlier part of the passage which I have quoted, he speaks of forcing the defender to accept the advertisement. 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 pursuer's 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. The Lord President cannot have meant that, because of non-acceptance, the contract had not been completely carried out, because that, in itself, would have been a complete answer to an action for the contract price. He went on to say that the only reasonable and proper course which the pursuers should have adopted would have been to treat the defender as having repudiated the contract, which must, I think, mean to have accepted the repudiation. It is this reference to 'the only reasonable and proper course' which I find difficult to explain. It might be, but it never has been, the law that a person is only entitled to enforce his contractual rights in a reasonable way, and that a Court will not support an attempt to enforce them in an unreasonable way. One reason why that is not the law is, no doubt, because it was thought that it would create too much uncertainty to require the Court to decide whether it is reasonable or equitable to allow a party to enforce his full rights under a contract. The Lord President cannot have meant that."
[20] Counsel recognised that in a situation where the party repudiating required to carry out some positive act before the contract could be performed, the innocent party could not compel performance and sue for the price. In that situation the only remedy would be damages. For example, if a party undertook to build something with raw materials to be provided by a defender who refused to provide the materials, the innocent party could not perform his side of the bargain and the right to payment would not arise. Similar considerations would arise in a contract for repair of a car where the owner of the car failed to deliver it for that purpose; or where in a contract for redecorating a house the proprietor refused to give access. These were examples of the sort of situation to which Lord Reid was referring. This did not apply in circumstances like the present where all the respondents had to do was pay the price due under the contract.
[21] At page 14 of White & Carter Councils v McGregor Lord Reid made further comments about Langford v Dutch thus:
"The only principle I can think of which he may have had in mind is the principle invoked by Lord Watson in a well-known passage at the beginning of his speech in Grahame v Magistrates of Kirkcaldy:
'It appears to me that a superior Court, having equitable jurisdiction, must also have a discretion, in certain exceptional cases, to withhold from parties applying for it that remedy to which, in ordinary circumstances, they would be entitled as a matter of course.'
But Lord Watson went on to say:
'In order to justify the exercise of such a discretionary power there must be some very cogent reason for depriving litigants of the ordinary means of enforcing their legal rights. There are, so far as I know, only three decided cases, in which the Court of Session, there being no facts sufficient to raise a plea in bar of the action, have nevertheless denied to the pursuer the remedy to which, in strict law, he was entitled. These authorities seem to establish, if that were necessary, the proposition that the Court has the power of declining, upon equitable grounds, to enforce an admittedly legal right; but they also show that the power has been very rarely exercised'."
[22] Lord Reid was of the view that Langford v Dutch had been wrongly decided:
"Langford & Co. v Dutch is indistinguishable from the present case. Quite properly the Second Division followed it in this case as a binding authority, and did not develop Lord Cooper's reasoning: they were not asked to send this case to a larger Court. We must now decide whether that case was rightly decided. In my judgment it was not. It could only be supported on one or other of two grounds. It might be said that, because, in most cases, the circumstances are such, that an innocent party is unable to complete the contract and earn the contract price without the assent or co-operation of the other party, therefore, in cases where he can do so, he should not be allowed to do so. I can see no justification for that."
Counsel also referred to the speech of Lord Hodson at p26.
[23] He submitted that it would not matter that a contract contained several obligations: as long as the one which a party sought to enforce had crystallised, it became enforceable. Reference was made to the comments of the Lord President (Emslie) in Salaried Staff at p191:
"In the procedure roll to which the action was sent on the defenders' motion the Lord Ordinary sustained the defenders' first plea-in-law - a plea to the relevancy - and dismissed the action. As his opinion shows he accepted that in the law of Scotland the general rule in cases of breach of contract is that the innocent party has a choice of remedy and in that connection said this:
'He may sue for implement of the contract. Alternatively, he may accept the repudiation of the contract and claim damages for the breach. He cannot in the normal case be compelled to seek the alternative remedy if he does not wish to do so. This was authoritatively stated by Lord Watson in Stewart v Kennedy (1890) 17 R. (H.L.) 1, at p. 10, in the context of a contract for the sale of a specific subject'".
He then went on to hold, as I understand his opinion, that the general rule does not permit innocent parties in the position of the pursuers, faced by repudiation of an entire contract, to enforce only a particular term of the contract ...
In this reclaiming motion the defenders did not seek to support the Lord Ordinary's reasons for dismissing the action. They recognised, quite correctly in my opinion, that if an innocent party is entitled to refuse to recognise and accept a repudiation of a contract he is entitled to hold the party in breach of contract in this way to each and every obligation, but is not bound to sue for performance of all the obligations in one action."
[24] The Lord President went on to quote from Stewart v Kennedy:
"The common law which is applicable in the events which have happened in this case is not in doubt. In Stewart v Kennedy (1890) 17 R. (H.L.) I, Lord Watson at pp. 9-10 said this:
'I do not think that upon this matter any assistance can be derived from English decisions; because the laws of the two countries regard the right to specific performance from different standpoints. In England the only legal right arising from a breach of contract is a claim of damages; specific performance is not matter of legal right, but a purely equitable remedy, which the court can withhold when there are sufficient reasons of conscience or expediency against it. But in Scotland the breach of a contract for the sale of a specific subject such as landed estate gives the party aggrieved the legal right to sue for implement, and although he may elect to do so, he cannot be compelled to resort to the alternative of an action of damages unless implement is shewn to be impossible, in which case loco facti subit damnum et interesse. Even where implement is possible, I do not doubt that the Court of Session has inherent power to refuse the legal remedy upon equitable grounds, although I know of no instance in which it has done so. It is quite conceivable that circumstances might occur which would make it inconvenient and unjust to enforce specific performance of contract of sale, but I do not think that any such case is presented in this appeal'."
[25] Counsel indicated that he was not aware of any case in which court had refused decree for payment on equitable grounds. He posited that circumstances in which this might arise could include encroachment upon a neighbour's property when removal of the encroachment might not be equitable for structural reasons; or where implement of the contract required purchase of a ransom strip at an extravagant and disproportional price.
[26] Counsel submitted that his proposition was supported by Highland & Universal Properties v Safeway, where the Lord President (Rodger) said, at p 299D:
"Even from the terms of the passage from Stair, it is apparent that our law could have adopted a different approach and pursued a different path. But in fact from his time onwards Scots law has recognised that, even where the obligation of the debtor is to do something, the basic rule is that the creditor has a choice of remedies: he may either seek specific implement of the obligation or damages ... These passages affirm the existence of a discretion in the court, in exceptional cases, to deny to a party the remedy to which the party would otherwise be entitled. It is important to note, however, that the power is plainly regarded as being wholly exceptional and is to be invoked only where there is some 'very cogent reason' for doing so."
[27] Counsel accepted that payment of the price and delivery of the disposition with vacant possession were co-relative obligations but the latter was triggered by the former. Contract terms may vary but here the contract specifically provided that the only trigger for payment was the entry date. That sequence would be disrupted if there were a plea of retention, but no such plea was maintained. The choice of remedy lay with the innocent, not the defaulting, party. The only requirement was that the right on which the pursuer sought to rely had become enforceable. The only situation where the remedy might have to be damages would be where the non co-operation of the defaulting party were such that the contract could not be taken to the point of being enforceable. It would be necessary for the respondents to show that on the facts the right to payment was not yet enforceable.
[28] The Sheriff Principal in McKenna concluded:
"[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."
[29] Counsel submitted that had the second sentence referred to the need to complete the right to payment, rather than to complete the contract, he would have taken no issue with it. Otherwise the position would be that a party such as the respondents would always be able to prevent enforcement of the contract. A decree in the form of implement failing which damages would leave the power with the respondents and was entirely inconsistent with the rights of an innocent party described in the cases referred to. Normal practice was irrelevant: the question was what did the terms of the contract indicate?
[30] The missives in the present case provided that payment was to be on a specified date, the ascertainment of which had nothing to do with the respondent. The respondents had no part to play in the ascertainment of the date and were not in a position to prevent the contractual right crystallising. Entry and vacant possession were to be given only on payment of the full purchase price. There was thus an unconditional right to payment on that day. The fact that the contract made provision for payment of interest was simply to provide a contractual framework for the right of rescission. A procedure of notice and ultimatum would otherwise be required to specify a material breach entitling the seller to rescind, so such a clause was now almost universal.
[31] The respondents had argued that the contract was "incomplete" as the respondents still required to hand over the disposition, but that was not a precondition for payment of the purchase price. It was open to a party to open to enforce those clauses in a contract which have become due. In any event this was something which was in the power of the pursuers to bring about by tendering a disposition, something which they were willing and ready to do, as the respondents acknowledged. The respondents seemed to consider that there was an obligation on them to accept the disposition, which, if they refused to accept meant that the contract could never be implemented. The sheriff principal in McKenna was of a similar view (para 19). That was incorrect: the respondents had a right to delivery, they had no obligation thereanent. There was an obligation on the appellants, namely to deliver the disposition, but they did not require to do so until payment had been made. There was no rule that the appellants could not hold a decree for payment and the title at the same time: what they could not do was to hold the actual payment and still retain the title. The fact that payment of the price and provision of the title were reciprocal obligations did not mean there was no obligation to pay the price until the title had been handed over.
[32] Decree for payment was granted in very similar circumstances in British Railways Board v Birrell, where the sellers declared themselves ready and willing to carry out their obligations of delivering a disposition with vacant possession. The Sheriff Principal (Caplan) stated:
"In terms of the contract between the parties the price was payable on the defenders' acceptance of the pursuers' offer, and that was on 29th August 1968. I would agree that the pursuers cannot demand the price unless they are willing and able to give the defenders a good title to the subjects. Here they say they are so willing and able and the defenders do not dispute that fact ... I was referred to Gloag on Contract, 2nd edition, pp. 655-656, where the learned author states 'there is probably one exception to the rule that a decree for specific performance is an ordinary remedy in Scotland - the case of an obligation to pay money'. This is not an action for specific implement but an action for payment of a sum due in terms of a contract. No authority was cited to me to support the proposition that in circumstances like the present an action for payment is incompetent ... On the other hand the competency of an action by the seller of heritage for the price before delivery of a disposition is affirmed by text book writers, e.g., the late Mr Burns in Green's Encyclopaedia of the Laws of Scotland, Vol. XIII, p. 173 and Walker on Damages, p. 396:
'In my opinion where, as here, the price of the subjects is payable in terms of the contract at a fixed date and the pursuers are willing and able to make over to the defenders a good title, the pursuers are entitled to demand the price. That is what they do in the present action and, in my opinion, their averments are relevant and their conclusion competent. I shall accordingly grant decree as concluded for'."
[33] The averments in the defences fell far short of the exceptional circumstances in which the court would refuse to grant a decree for payment in circumstances such as this. The highest the matter was put was that:
"Damages would be the most appropriate remedy in the current situation due to the difficulties with enforcement of a decree of specific implement and the financial hardship that would result."
Counsel submitted that this was tantamount to saying that in any case where the defenders were unable to pay the sum claimed, there would no longer be a right to implement. Inability to pay would free a party of having contractual obligations enforced against them.
Respondents
[34] Counsel for the respondents submitted that the case of McKenna had been correctly decided and was consistent with in White & Carter (Councils), Salaried Staff London Loan Co Limited and Highland & Universal Properties Limited. On the other hand, British Railways Board v Birrell was wrongly decided and was inconsistent with these authorities. The sheriff principal in McKenna based his conclusion on the principle "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." The pursuers were not entitled to retain title to the property and at the same time hold a decree for payment of the price. This was a correct statement of the law.
[35] It was important to note the main terms of a contract for the purchase and sale of heritable property. In the normal case the missives provided that on the date of entry (i) the buyer would pay the price; and (ii) the seller, in exchange, would deliver a good and marketable title, a validly executed disposition and vacant possession with the keys. These obligations were concurrent and reciprocal. Payment of the price by the buyer was conditional on performance by the seller; delivery of the deeds by the seller was conditional on payment of the price. Unless otherwise agreed, these obligations were to be performed at the same time on the date of entry. Since these obligations were concurrent and reciprocal the pursuers were not entitled to retain title to the property and at the same time hold a decree for payment of the price.
[36] Counsel submitted that the present case could be distinguished from the facts of White & Carter since in that case nothing further required to be done by the defenders to complete the contract. In the present case each party had to do or accept something at the same time. In the absence of concurrent performance of the reciprocal obligations implement was not possible and the maxim loco facti subit damnum et interesse applied. This case fell within the exception, recognised in White & Carter, that since it would be necessary for the respondent to cooperate before the contract could be completed by the appellants, the contract remained uncompleted and the only remedy available was damages. Bosco Design Services Ltd v Plastic Sealant Services Ltd, 1979 S.C. 189, referred to in the lower court, was another such case. White & Carter was not cited in British Railways Board v Birrell. Had it been, the case would have been decided differently.
[37] The analysis and approach of the sheriff principal in McKenna was consistent with the well-established practice of the Scottish Courts, reflected in the style books. Counsel relied heavily upon and article by Professor W.W. McBride and Professor G.L Gretton entitled "Sale of heritable property and failure to pay" S.L.T. 2012, 4, 17-21 in which the learned authors commented on the case of McKenna. They had carried out a survey of styles in normal use and noted that these followed what they described as
"... the "judicial ultimatum" approach: implement, which failing rescission plus damages. As the averments make clear, the second sum claimed is damages for loss."
[38] Counsel for the respondents pointed out that difficult issues could arise if, in response to their decree, the appellants received only part payment. Suppose that sequestration or insolvency intervened? Such practical considerations had featured in consideration of McKenna by Professors McBryde and Gretton, and featured in their conclusion that the case had been correctly decided. In that regard they had this to say:
"In any contract there are logically three possibilities: (i) X is to perform first, and then Y is to perform; (ii) Y is to perform first and then X; or (iii) both are to perform at the same time. (This is the basic set of possibilities: there can of course be more complex cases where each party is obliged to render several performances at different times. But for present purposes the simple picture can be adopted.) Take each in turn. (i) If X is to perform first, and has not yet done so then clearly an action requiring Y to perform is premature. (ii) If X has already performed, then evidently Y can be required to perform, unconditionally. The problems arise with (iii), where the performances are supposed to be simultaneous, as in the typical sale of heritable property. X (the seller) may indeed be ready to hand over the disposition and the keys. But any decree for the price can be enforced -- against a reluctant buyer -- only by legal process, such as diligence or sequestration. And that creates an insoluble problem. Any payment received by legal process will be received before the seller hands over the disposition and the keys, thereby contravening the requirement in the contract of simultaneous performance. The seller could circumvent this problem only by delivering the disposition and the keys before being paid. But even if the buyer were willing to accept them that approach would be suicidal for the seller: what rational seller wishes to hand over title and possession without payment to a buyer who is quite likely unable to pay?
A closely connected point is one emphasised by Sheriff Principal Bowen at 2011 S.L.T. (Sh Ct), p.77, para.23. Against an impecunious buyer (and impecuniosity is likely to be the reason for non-settlement in the first place) it is likely that nothing better than partial payment can ever be obtained, thus giving rise to the unworkable result of the seller having both the property and part of the price."
They had noted further the complications which could arise:
"What if the seller obtains the decree sought, i.e. for the price? The disposition has not been delivered. Neither have the keys. The seller enforces the decree by diligence or sequestration (etc) and obtains, say, half the sum due under the decree. No more can be extracted from the defender. The seller still has the property, plus half the price. What happens now? Whatever the theory may be about the seller keeping to the contract, at some stage the seller will resell, in this way potentially gaining one and a half times the price -- more than the seller's loss. Or the seller may delay enforcement of the decree, for example, if, as has happened in some of the cases, the defender lives outside the jurisdiction. The flat is resold and the second buyer has no knowledge of the first abortive sale. The decree against the first buyer is later enforced and full payment is received. The seller has in effect sold the same property twice and been paid twice (with interest and litigation expenses).
It may be argued that any gain to the seller can be reversed by another action by the first, now penniless, buyer based on unjustified enrichment. This is a haphazard and cumbersome way to do justice. By granting the seller a decree for price the possibility emerges that the seller will gain from the first buyer's breach. The decree for price will also have a great impact on the buyer's other creditors. It must be questioned whether a system of law which produces these results correctly balances the interests of all parties."
[39] Counsel argued that in the event that his primary submission were rejected, the court should exercise its equitable discretion to refuse the pursuers the remedy of payment, there being very cogent reasons for doing so, to prevent the defender from suffering inconvenience and injustice. Noting the complications which could result from partial payment, counsel referred to another observation by Professors McBryde and Gretton that the normal practice of the "judicial ultimatum" procedure
"achieves a fair balance between the rights of the parties, fortifies sellers with a judicial determination of their rights, enables a second sale in good faith, and does not pose conundrums about the seller having both property and price."
Counterclaim
[40] As noted above, the sheriff had concluded that the averments of breach of contract and misrepresentation were irrelevant and dismissed the counter claim. The issue of misrepresentation is no longer insisted in. In the principal action, the alleged breaches relate to clauses 6 and 9. In the other actions they relate only to clause 6. The respondents aver that the appellants have let numerous flats within the development with the specific purpose that they be used for serviced apartments, and in particular that Block 3, where the relevant flats are located, now operated as a fully serviced apartment hotel. They aver that the subjects of the missives have been devalued accordingly. It is averred that this use of the premises constitutes breach of clause 9 on the part of the appellants. It is averred that the development was to be a high quality residential development, and that the current use is a commercial one, or at least a mixed use which would require an application to be made for change of use, which would be unlikely to be granted for policy reasons which are averred. The respondents aver that at the date of settlement the appellants were also in breach of clauses 6 in that they had failed to comply with planning permission and building warrants since the use to which specified properties in the development, and specifically Block 3 were being put, was a commercial not a residential one. That use was a breach of the deed of conditions referred to in clause 10.
[41] The appellants deny any breach of contract; maintain that there are in any event no relevant averments of any breach; aver that some commercial use within the development had all along been envisaged; and aver that the respondents are in no position to rely upon the deed of Conditions.
[42] The critical parts of the relevant clauses are in the following terms:
"6. The plot will be completed to the satisfaction of the Local Authority and in accordance with plans thereof approved by the Local Authority. The Purchaser will have no concern with the terms of any planning permission, building warrant or the like which relate to the plot or said development and shall not be entitled to demand sight of same but shall accept the Seller's assurance that all necessary permissions, warrants and the like have been obtained and complied with.
9. There is reserved to the Sellers the right to carry out the development in such a manner and at such time as the Sellers in their sole discretion shall so determine and in the event of their altering, amending or departing from their proposals the Purchaser shall have no right or title to object to or make claim against them."
10. A valid Disposition for the plot including a servitude right to the car parking space will be granted in the Sellers' standard form. The plot will be subject to the reservations, conditions, servitudes and real burdens contained in the title deeds and to be contained inter alia in (a) a Deed of Conditions granted or to be granted with regard to the development and (b) the Disposition to be granted by the Sellers in favour of the Purchaser. A set of copy title deeds will be exhibited to the Purchaser's solicitors after conclusion of missives and at least ten working days prior to the date of entry. The Purchaser's solicitors will have a period of seven working days from the date of receipt of the said copy title deeds within which to satisfy themselves and for the Purchaser to be satisfied as to the contents thereof and failing intimation to us as agents for the Sellers to the contrary within said period the Purchaser will be deemed to be satisfied as to the position. If there is anything in the title deeds materially prejudicial to the Purchaser, the Purchaser's sole remedy will be to resile from the Missives with no sums being due by either party provided that written intimation of the intention to resile is received by us within said seven working day period ..."
During the course of negotiation, clause 9 was qualified by clause 8 as follows:
"8. In relation to Condition 9 of the Offer any such alteration, amendment or departing from the Sellers proposals to carry out the Development will be carried out in such a manner as not to materially prejudice the Purchaser's position and in any event will not be seen to devalue the Plot and the Sellers and the Purchaser will act reasonably in this regard."
Respondents
[43] Counsel for the respondents submitted that the sheriff had erred in accepting the appellants' submissions that clause 9 related only to the physical construction of the development. Read with clause 8, it was not so restricted, and any alteration, amendment or departure from the pursuers' proposals which materially prejudiced the respondents position and/or devalued the plot, amounted to a breach of contract. Proposals" in clause 8 should be read as going beyond the physical built environment and encompassing an intention of use for a high quality residential development. Planning permission was to be for residential use, but the development had been completed for commercial use, so there had been a breach of clause 6.
Appellants
[44] In response it was submitted that the sheriff was well aware that clause 9 had been qualified by clause 8, and specifically noted this at para 26 of his judgment. Clause 8 refers to "the development" which is a clear reference to the opening words of the offer which identify "the development" as "the Sellers' development at Springside, Edinburgh". The property actually purchased by the respondents is "the plot". "The plot" was part of "the development", which indicated that the parties had in mind the physical end product. This was consistent with other parts of the contract, and consistent with the use, in clause 8 itself, of the phrase "carried out". The averments did not, therefore, amount to any alteration or amendment of, or departure from, the appellants' proposals. Moreover, it was not averred that the appellants' themselves operated any apartments as serviced apartments, merely that they had let such apartments to others for that purpose. The respondents' interpretation of Clause 9 would mean that third parties who made a change could prevent the missives being enforced, rendering the developer vulnerable to the acts of those to whom they have sold units within a development. Is it to be suggested that the appellants would be in breach of contract with the respondents had they sold on the properties in question rather than letting them?
[45] It was clear that the respondents were not claiming a breach of clause 10, since they sought to rely on the deed of Conditions. Since they had not become infeft, however, they were not entitled to do so. As to the alleged breach of planning conditions, clause 6 refers only to "the plot" and there are no averments that the individual property was not completed in accordance with planning permission.
Discussion and decision
[46] It is clear from the speech of Lord Reid in White & Carter that in a situation such as the present, the innocent party has the choice either of accepting the repudiation and seeking damages or of refusing to accept it, in which case the contract remains in full force and may be implemented. That this is the basic principle is emphasised by the Lord President in the passage from Salaried Staff Services quoted above. He approved the words of the Lord Ordinary that the innocent party "cannot in the normal case be compelled to seek the alternative remedy if he does not wish to do so". The matter was put very succinctly by Lord Cameron in Salaried Staff Services, thus:
"The freedom of the innocent party's choice of remedy is uncontrolled by the party in breach; it is for the innocent party primarily to select that course which to him seems appropriate, subject, however, to a very limited discretionary power in the court which may be invoked in certain exceptional circumstances, to control and direct the remedy which the innocent party will be held entitled to exercise."
[47] In the Inner House in White & Carter, the Lord President rejected the pursuers' claim on the basis that the court could not force the defenders to accept advertisements which they did not want. This reasoning was not endorsed in the House of Lords, where the innocent party's right to a choice of remedy was emphasised. The exception recognised by Lord Reid was not based on any equitable considerations of not forcing a party to accept that which they no longer want. It was limited to the situation where the innocent party was unable to earn the contract price without the assent or co-operation of the other. That is echoed, in my view, by the Lord President in Salaried Staff Services when he said that an innocent party "cannot be compelled to resort to the alternative of an action of damages unless implement is shown to be impossible". That is not the position in the present case. The terms of the contract are clear: payment was triggered by the date of entry and nothing else. Clearly, once payment had been made the appellants would be obliged to grant a valid disposition granting a valid title, and to give vacant possession of the property. They aver that they are ready, willing and able to do so. It is not averred for the respondents that there is any impediment to the appellants' being able to do so. They rely entirely on their own unwillingness to meet their obligations under the contract. Indeed, they admit that the appellants are willing and able to perform their side of the bargain. In my view this is far from the sort of situation envisaged by Lord Reid, and I agree that the examples given by Mr. Lake are more apposite to reflect those exceptions.
[48] With respect to the Sheriff Principal in McKenna, I do not agree that the extent to which an innocent party may be able to enforce a repudiated contract is "restricted". In my view the opposite is the case: the innocent party will be able to do so unless circumstances render it impossible, or in exceptional circumstances, wholly unjust.
[49] The Sheriff Principal referred to the usual practice of raising an action for implement, failing which damages - what is referred to by Professors McBryde and Gretton as the judicial ultimatum. No doubt it may be the more usual practice to follow such a course, and no doubt that is why the style books give this form of action as the appropriate style in the circumstances, but it seems to me that this is in all likelihood a practice which has sprung up for practical considerations. In the vast majority of cases the reason for default on the part of the purchaser will be impecuniosity. In the vast majority of such cases there would be little to be gained for a seller in obtaining a decree for payment, and the more sensible and practical step would be to resell the property and seek damages, a course which would probably also lead to a quicker resolution of the problem, at least if he is able to re-sell the property. That is however only in "most cases". The respondent in the principal case and the company which he controls are said to be property developers themselves. The appellants clearly believe that the alleged impecuniosity is rather an unwillingness to proceed further because it is now not convenient. They clearly believe that they will be able to recover the funds they seek. They may be right about that; they may be wrong; but the risk is one for them to choose to take. It is not something about which they should be dictated to by the party in default.
[50] The same practical considerations in my view underlie the practice that payment of the price and delivery of the disposition with vacant possession are treated in practice as contemporaneous events. The practice seems to be that the disposition is provided in advance to the purchaser's agents on condition that it is held to be undelivered until payment is made, thus achieving contemporaneity. Again, this is a sensible practical step for parties to take. On the one hand a seller would not wish to part with the title until he is sure of payment; a purchaser would be unwilling to hand over his money until he is sure of the title. However this again is a matter of convenience and not any formal requirement or condition of a contract for the sale of heritage. Mr. Lindsay referred to the obligation under the missives as concurrent and reciprocal. They are certainly reciprocal, and by common practice they may usually be concurrent but in the present case they are not and there is no fundamental requirement that they require to be so. Parties are free to agree that the money will be handed over in advance of the title; or that the title will be transferred in advance of payment. The risks which they run by so doing are risks which they are entitled to take. In this case handing over the disposition in advance is not a prerequisite for payment of the purchase price.
[51] The submission for the respondents was that "since it would be necessary for the respondents to co-operate before the contract could be completed", the only available remedy was damages. In the course of discussion, the court sought to clarify exactly what was the nature of the required co-operation upon which the respondents relied. It seems to me that there was a certain inconsistency in the position adopted. He submitted that in order for the contract to be completed the respondents had to "accept" the disposition. However, he rejected the suggestion that there was any obligation on them to do so, and insofar as the SP in McKenna had appeared to think otherwise, counsel did not support that reasoning. Accordingly, what it amounted to was that he agreed that there was no contractual requirement on them to accept the disposition, but argued that nevertheless their practical cooperation was required to enable the contract to be completed. As far as I can see the only cooperation, either contractually or in practical terms, was to pay the price, which they refused to do. Effectively his submission amounted to saying that a party who had no further obligation under a contract but to pay the price, could prevent performance or enforcement of the contract by the willing party by simply refusing to do so. He submitted that the matter would not even be improved were the appellants to deliver the disposition and keys to the defenders' agents, or lodge them in court, because although" the pursuer had done all in his power, he could not complete the contract without assistance from defender". Having rejected the notion that there was any obligation to accept the disposition he went on to say that the purchaser had to accept vacant possession, but again said that there was no contractual obligation to do so. Nevertheless he sought to rely on cl 3 but that only refers to the obligation to give vacant possession. Counsel specifically submitted that "there is no contractual obligation to accept the keys". "The concurrent and reciprocal obligations are payment of price and vacant possession being given".
[52] The absolute nature of the respondents' position can be seen from this submission:
"The respondents' case is whether they can fall within the exception of White & Carter: it is not necessary for there to be a positive obligation to bring themselves under that exception, because by refusing to co-operate they make it impossible for the pursuers to complete the contract. "
The contract would not be complete, not because the respondents had failed to honour an obligation but simply because they failed to co-operate.
[53] It is important to note that the argument proceeded on an absolute rejection of any suggestion that there was an obligation on the defenders to accept the disposition, despite a passing reference in the McBride & Gretton article thus:
"But what if (as is likely) the defender is not willing to take delivery of the disposition -- one of the simultaneous and reciprocal obligations under the missives? The court could be asked to ordain the defender to accept delivery (see Harvey v Smith, above, following a 19th century style we cannot here examine). But how would such a decree be enforced against an unwilling defender?"
Given the position adopted for the respondents we were not therefore addressed on this issue and proceed on the basis that there is in current practice no such obligation, and that even if there were, it is not relied upon. Certainly, whilst formerly it could be argued that there might have been an implied obligation to register the title, for reasons of obligations to feudal superiors, which would I suppose have implied a need to take delivery of the disposition in the first place, it is difficult to see why such an implied obligation should in the majority of cases survive in a post-feudal world.
[54] It is also worth noting that in their article the professors note that "If the price were to be payable without the conditions for payment being met, the court would be rewriting the contract." In many cases that would be correct: it is not the case here since the conditions for payment have all been met. The exact nature of the missives entered into was not apparent from the report in McKenna so would not have been available to them, but we have been assured on behalf of the appellants who were of course parties to the case that they were to all intents and purposes identical with those under consideration in the present litigation.
[55] I should also mention that counsel for the respondent referred in passing to the concept of frustration, saying " the Law has always recognised the concept of frustration, that one party may collapse the scrum, in which case the only remedy is damages." However, he did not press the matter and in my view to do so would have been untenable.
[56] I accept that in certain circumstances it would be open to the court, for reasons of equity, to refuse to grant implement but in my view those circumstances would require to be highly unusual- wholly exceptional" as it was put by Lord President Rodger in Highland & Universal Properties - circumstances in which implement would impose a burden on the repudiating party completely out of proportion to the remainder of the contract; where the circumstances fell short of frustration but where implement of the contract would be so unreasonable as to be manifestly unjust. Here, the burden is simply payment of the price which has been contractually agreed.
[57] If the boot were on the other foot, the court would not refuse implement to a purchaser just because there would be inconvenience to the seller in granting a marketable title, for example, where the purchaser required to purchase a ransom strip. Only if the price demanded were exorbitant would the court contemplate refusing implement to the purchaser.
[58] Of course, I acknowledge that if the respondent is in truth so impecunious as to be unable to pay the price, complications can arise. However, there are ways in which such complications can be resolved. Moreover, it is not the case that no complications might follow were the appellants to accept repudiation and claim damages. They might not be able to re-sell the property; the impecuniosity of the respondents might man that they would not be able to pay the award of damages. Many different situations could be envisaged. The mere fact that there might be awkward consequences, which require further legal steps to resolve, is not a reason for refusing the appellants their remedy.
Counter-claim
[59] On the issue relating to clause 9, I am of the view that the sheriff was correct in concluding that this related to the physical construction of the development. That is certainly the appropriate construction to be put on clause 9 were one to read it in isolation. Counsel's point, of course, was that reading it in conjunction with clause 8, as one must, it should be interpreted as extending beyond the physical environment to the use to which the property has been put. In my view there is no justification for such a suggestion. Clause 9 refers to the carrying out of the development and those words are reflected in clause 8 where it is the carrying out of the development which
must not prejudice the purchasers' position. I consider that a fair and proper reading of these provisions is the one selected by the sheriff, namely that they relate to the physical construction of the development. They do not dictate long-term use. No averments are made in criticism of the physical construction of the development, so this aspect of the counterclaims is irrelevant.
[60] As to clause 6, the matter is straightforward. The focus of clause 6 is "the plot". There is no suggestion at all that the plot has not been completed to the satisfaction of the local authority or to plans approved by them, whatever may be the position regarding other premises in the development.
| EXTRA DIVISION, INNER HOUSE, COURT OF SESSION |
Lord Menzies Lady Dorrian Lord Philip | [2013] CSIH 61 XA84/12, XA85/12, XA86/12 OPINION OF LORD PHILIP in the Appeal by (1) AMA (NEW TOWN) LIMITED Pursuer and Appellant; against RON LAW Defender and Respondent; and (2) AMA (NEW TOWN) LIMITED Pursuer and Appellant; against SARAH LUCY LAW Defender and Respondent; and (3) AMA (NEW TOWN) LIMITED Pursuer and Appellant; against GLENMORISON LIMITED Defender and Respondent: _______________ |
Act: Lake QC; Maclay Murray & Spens LLP, Glasgow
Alt: Lindsay QC; DWF Biggart Baillie
26 June 2013
[61] I too am in complete agreement with your Ladyship's opinion, with the conclusions reached, and the reasons for those conclusions.
[62] I would only add one point. Your Ladyship referred to the article by Professors McBryde and Gretton relied on by counsel for the respondent, in which they express concerns about the perceived difficulties which may arise if a seller of heritable property were to be granted decree for the unpaid price. What they appeared to me to be saying was that the "judicial ultimatum" approach was the only reasonable one for the court to take in any such action by an unpaid seller. That, it seems to me, is at odds with a passage in Lord Reid's speech in White & Carter (Councils) at page 14 cited by your Ladyship. His Lordship said,
"It might be, but it never has been, the law that a person is only entitled to enforce his contractual rights in a reasonable way, and that a Court will not support an attempt to enforce them in an unreasonable way. One reason why that is not the law is, no doubt, because it was thought that it would create too much uncertainty to require the Court to decide whether it is reasonable or equitable to allow a party to enforce his full rights under a contract. The Lord President cannot have meant that."
[63] It follows from that that if the seller is entitled to decree for the unpaid price, it is not for the court to speculate about the possible consequences of granting such a decree.