| OUTER HOUSE, COURT OF SESSION [2010] CSOH 130 |
| CA163/09 | OPINION OF LORD HODGE in the cause MACTAGGART & MICKEL HOMES LIMITED Pursuers; against CHARLES ANDREW MOORE HUNTER AND SANDRA ELIZABETH HUNTER Defenders: ________________ |
Pursuer: Connal Q.C.; McGrigors LLP
Defender: Ellis Q.C.; Balfour & Manson LLP
16 September 2010
[1] The pursuers ("MML") are developers; the defenders ("Mr and Mrs Hunter") were owners of a site, which had potential for development, at 501 and 505 Lanark Road West, Balerno ("the site"). The parties entered into missives for the sale of the site dated 6 and 9 July 2007 ("the missives"). Disputes in relation to the parties' obligations under the missives have given rise to this action and a counterclaim. The court by interlocutor dated 30 March 2010 allowed a preliminary proof on issues of liability. Parties agreed to focus their dispute in the preliminary proof principally on two issues. The first was whether MML had used "reasonable endeavours" to obtain planning permission for the site. The second was whether MML acted in good faith and reasonably at the relevant date when it served an "Unsatisfactory Planning Notice". After dealing with those matters and the defence of waiver, I discuss the provisions of the missives which govern parties' rights in the event of breach and the law of unjustified enrichment, as parties also debated the nature of the remedies which might be available.
The site
[2] The site is located in a prominent position on the approach to Balerno from Edinburgh at the junction of Lanark Road West and Bridge Road. At the relevant time it comprised two housing plots with one house on each and substantial garden ground. The site also contained a number of mature trees which the planning authority was likely to wish to preserve. It rises gently from Lanark Road West towards Bridge Road and drops to the east.
The relevant planning policies
[3] The site is on the northern edge of the Balerno Conservation Area, which was originally designated in 1975. Its boundary was amended in 1987 and it was re-designated with amended boundaries in 2003. The Balerno Conservation Area Character Appraisal ("the Appraisal") speaks of the area containing two areas of distinct character, namely the open approach to the village and the tightly knit old village centre. In describing the spatial pattern and townscape of the eastern approach to the village the Appraisal spoke of a secluded location, the stone walls and buildings creating a sense of a gateway to a country estate and the rural approach to the village with open fields and mature trees. It recognised however that the pedestrian safety improvements, with an increased number of traffic lights and islands, had detracted from the rural character of the approach.
[4] The Rural West Edinburgh Local Plan ("the local plan"), which the City of Edinburgh Council ("CEC") adopted in June 2006, contained policies to protect the conservation areas within its plan area. It suffices for the purposes of this opinion to describe the thrust of the policies rather than record their precise terms. Policy E35 provided that developments would be permitted only if all features which contributed to the special character and appearance of the area were retained. Policy E36 required that development should be of good architectural quality and relate in mass, scale, design and materials to the existing fabric. More generally, Policy E41 required new development to be integrated with its surroundings in terms of scale, form, siting, street pattern, alignment and materials. It instructed that special attention be paid to design quality at gateways and arterial routes. Policy E42 required new development to make a positive contribution to the overall character of its context and immediate setting.
[5] CEC also published non-statutory guidance in relation to proposals affecting, or within the grounds of, pre-1914 villas ("the Villa Areas guidelines") which were designed to conserve and enhance the particular character of villa areas. The Villa Areas guidelines provided guidance on proposals for new dwellings and house extensions in the grounds of villas, informing developers that CEC might require early consultation with the Head of Planning and the submission of additional information with the planning application. While reference was made to this document, it was not clear that it was directly relevant to MML's application which involved the demolition of the existing houses within the site.
[6] The local plan also had policies relating to sustainable development (policy E1) and affordable housing (policy H7) which are relevant but of less materiality to the issues in this action.
The missives
[7] The missives provided that MML would purchase the site for £3.5 million with a date of entry on 17 July 2007 or such other date as was agreed. Clause 1.1 defined the price as that sum. MML was to pay a deposit of £1.5 million on the date of entry and were to receive in return a disposition of the site at the date of settlement. In clause 1.1 the "Development" which MML sought to obtain was defined as "the Purchaser's proposed development for no fewer than 17 Units and no more than 19 Units on the Subjects;" and "Unit" was defined as "either a dwellinghouse or a flatted dwellinghouse." The term, "Planning Permission" was defined as "detailed planning permission...for the Development."
[8] Before the parties entered into the missives, they had discussed various proposals which MML's architects had prepared for the development of the site. Those included proposals ranging from seven detached houses and a nursing home to combinations of flats and houses or flats, townhouses and houses, totalling seventeen units. Several options included flats at the north eastern corner of the site which with different combinations of houses comprised seventeen units. It was not clear which of the various plans had been shown to Mr Hunter. It was suggested that plans involving nineteen units post-dated the missives. While clause 1.1 defined the development as "the purchaser's proposed development", no particular proposal was appended to the missives.
[9] The missives contained provisions which addressed the uncertainty as to the outcome of a planning application to develop the site. To protect Mr and Mrs Hunter, MML was required to pursue a planning application with all reasonable diligence and to use reasonable endeavours to obtain detailed planning permission for their development (Clause 11.4.1). If they obtained a satisfactory planning permission they were to serve a satisfactory planning notice (and similar notices of satisfaction in relation to their site survey and roads construction consent) and thereafter pay the price (under deduction of the deposit) on the date of completion. There was also a provision for overage: the price was to be increased by £175,000 for every unit above seventeen which the planning authority permitted. MML also was to grant and deliver at the date of entry a standard security over the site in favour of Mr and Mrs Hunter to secure its obligation to re-convey the land on repayment of the deposit if it did not obtain a satisfactory planning permission.
[10] To protect MML the missives empowered it to serve an unsatisfactory planning notice at any time within the earlier of 18 months after the date of entry and 21 working days after the issue of the planning permission, confirming that the planning permission was unsatisfactory (clause 11.1.2). Mr and Mrs Hunter were obliged to repay the deposit within 21 days of receipt of the unsatisfactory planning notice (clause 13). If the deposit was not repaid on time, MML was to have certain remedies. Interest was to be paid at 4% over the base lending rate of The Royal Bank of Scotland plc and MML was entitled to arrange the discharge of the standard security and to rescind the missives (clause 13.4 and 13.5). MML was also protected by the requirement that Mr and Mrs Hunter grant and deliver at the date of entry or date of settlement (when the deposit was paid) a power of attorney authorising MML to discharge the standard security (clause 4). Thus it was within the power of MML to arrange the discharge of the standard security if the sellers did not co-operate.
[11] There was a whole agreement clause (clause 1.4) which was in these terms:
"The Missives (including the annexations thereto) shall, as at the date of conclusion thereof, represent and express the full and complete agreement between the Seller and the Purchaser relating to the sale of the Subjects and shall supersede any previous agreements, representations or others between the Seller and the Purchaser relating thereto."
[12] That was the basic structure of the missives. As clause 11.4.1 is central to the issues in which I have heard the proof, I set it out in full:
"The Purchaser shall, having regard to inter alia the consultative nature of the planning process, submit its application for Planning Permission with all reasonable diligence and in any event within six calendar months of service of a Satisfactory Survey Notice. The Purchaser shall be entitled to amend the application lodged in respect of the Planning Permission and to appeal against any refusal or deemed refusal thereof and against any grant of the same subject to conditions which are not in terms satisfactory to the Purchaser. The Purchaser shall use reasonable endeavours to obtain the Planning Permission and will keep the Seller informed as to the progress of the application. If having complied with the foregoing obligations the Purchaser is of the view (Acting reasonably and in good faith) that the Planning Permission will not be granted the Purchaser shall be entitled to serve on the Seller an Unsatisfactory Planning Notice."
The progress of the development
[13] To pursue the development MML engaged Fouin & Bell ("FB") as its architects and Wren & Bell ("WB") as its engineers. On 12 February 2008 MML submitted a planning application for nineteen units, which comprised nine flats and six townhouses, all of which were three-storey buildings, and four detached villas which were split level three-storey buildings. With the planning application MML lodged a design statement, a tree survey report, drawings and background information on the internal areas of the flats and houses. Thereafter WB had several meetings with officials of CEC's highways department to agree an internal roads layout and an access to the bulk of the site from Bridge Road. WB revised their proposals in the light of those discussions and MML was confident of reaching agreement with the highways department. MML had instructed FB to have pre-application discussions with Ms Helen Martin, who was a principal planner in CEC with responsibility for West Edinburgh, but she had not been available to attend a meeting. Mr Ian Hunt, an architectural design technician at FB had repeatedly attempted to speak to her without success, by leaving messages on her voicemail.
[14] In March and April 2008 FB sought without success to engage officials of CEC's planning department in discussions about the application. FB emailed Ms Jennifer Zochowska on 9 May 2008 expressing disappointment that CEC officials had not communicated with them and again asked for an opportunity to meet. In response Ms Zochowska sent an email dated 14 May 2008 expressing concerns about the planning application and stating:
"The height, design, scale and massing do not respect the character of the Balerno Conservation Area. The site occupies a prominent open approach to Balerno from the City which Balerno Conservation Area Character Appraisal recognises and seeks to protect. Therefore the number of units proposed and their design is important. It is considered that the open rural appearance would be lost and the proposed materials would not integrate the proposed development into the existing settlement."
She also listed concerns that (i) the building materials were not in keeping with the Conservation Area, (ii) there was insufficient information in the submission to enable an assessment of road safety and access, (iii) there would be loss of trees which would affect the character of the area, and (iv) the application did not provide for affordable housing. She expressed the view that these "fundamental issues" could not be resolved in the current application.
[15] In response, Ms Elizabeth Farrell, who was the land manager in MML responsible for managing this application, emailed Ms Zochowska on the same day to repeat MML's wish to meet officials to discuss CEC's concerns and how they might be overcome. On 21 May Ms Zochowska responded by letter, stating her view that the changes which CEC would require to make the application acceptable involved such significant design and transport issues that they would amount to a new application. She intimated that there would be a recommendation to refuse planning permission unless the application was withdrawn.
[16] After receiving this bad news from CEC, Ms Farrell emailed Mr Hunter on 27 May to warn him that CEC were disputing the principle of significant development on the site. Fearing that CEC intended to refuse the planning application, MML engaged planning consultants, PPCA Ltd, as agents to deal with CEC. MML sought through FB and PPCA Ltd to withdraw the planning application and to arrange a meeting with CEC's planners to discuss a future application. FB on MML's instruction sought to make the withdrawal conditional upon CEC agreeing a date for the meeting but received notice of the refusal of the application before a meeting was arranged.
[17] On 4 June 2008 CEC refused the planning application and gave five reasons in their decision notice. The reasons were:
"1. The proposed development by virtue of its height, design and massing would have a detrimental impact upon the Character of the Balerno Conservation Area contrary to the requirements of Policy E35 and Policy E36, of the Rural West Edinburgh Local Plan.
2. The proposal is contrary to the Rural West Edinburgh Local Plan Policy E41 and E42 and the Council's non-statutory guidelines on Villa Areas and the Grounds of Villas in respect of the new buildings' contribution to its setting as it fails to make a positive contribution to the overall character of its context and does not relate closely to the existing settlement pattern which would have a detrimental effect on the overall quality, character and amenity of the area and street scene.
3. Inadequate information has been submitted to enable an assessment to be made in respect of Road Safety.
4. The proposal is contrary to Rural West Edinburgh Local Plan Policy H7 and the Council's Non-Statutory Guidelines on Affordable Housing as there is no provision for affordable housing.
5. The proposal is contrary to the Rural West Edinburgh Local Plan Policy E4 in respect of sustainable development, as inadequate information has been submitted to enable an assessment to be made of the environmental impacts of the proposal."
[18] MML did not appeal this refusal. Ms Farrell's view at the time was that reasons (1) and (2), which involved subjective judgements, were the two main issues to be addressed and MML sought to negotiate a solution with CEC by engaging in pre-application discussions. MML's design team, which comprised Mr Bruce Mickel, who is an architect and chairman of MML, Ms Farrell, Mr David Bell of FB and Mr Robin Matthew of PPCA Ltd met CEC officials, Ms Zochowska and Mr David Givan, on 16 June 2008. At that meeting the CEC officials made clear their view that their principal concerns were with the number of units which MML proposed and the massing on the site. Ms Zochowska explained her view that the height and scale of the three-storey block of nine flats located at the north-eastern corner of the site would compromise the existing rural setting of Balerno as viewed when approaching the village from the east. MML argued that the flats provided a gateway development to Balerno and Ms Zochowska agreed to consider that concept of a gateway and to respond to it.
[19] On 8 July 2008 Ms Zochowska wrote to FB. She stated that compliance with the Appraisal would be a material consideration in the determination of future applications for the site; applications for significant developments should be accompanied by a contextual analysis. She described the essential character of the Conservation Area as a "secluded location, set back from the surrounding built up areas; ...[a] rural approach to the village with open fields and mature trees"; and a "substantial green setting giving a rural appearance to Balerno." She advised that it was unlikely that CEC would accept a gateway building as any feature at the junction would require to improve the setting of the Conservation Area and the views out of it.
[20] MML's design team was disappointed by this response which seemed to rule out three-storey flatted development and make it very difficult to achieve a minimum of seventeen units on the site. Mr David Bell wrote to Ms Farrell on 10 July to comment on Ms Zochowska's letter. He stated:
"Whilst on the face of it she appears to be simply repeating what was said in our recent meeting, it is possible that a detailed 'contextual analysis' and improved perspectives of the proposed new development to show how it might 'improve' the setting of the conservation Area might still win the day."
He suggested that MML should try to involve a senior officer within CEC who might see the issue at a more intellectual level, above that of the Appraisal. In his oral evidence Mr Bell explained that, at the time he wrote the letter, he remained optimistic that he could obtain planning permission for a residential development on the site but that he thought that it was unlikely that CEC would accept a development on the scale which MML had proposed. After further discussion MML's design team decided to work up a layout which complied with the Appraisal, by avoiding a three-storey development at the prominent north-eastern corner of the site, and also maximised the unit numbers. FB in response to this remit produced a design for thirteen units consisting of ten townhouses (in two blocks of five units) in the middle of the site and three villas facing Lanark Road West. On 19 August 2008 FB, at the design team's request, asked for a pre-application meeting with CEC to discuss the proposal and on 22 August Ms Farrell emailed Mr Hunter the drawings which set out the proposal and later sent him paper copies of the drawings.
[21] FB sought to arrange a meeting with CEC officials but felt frustrated when they were unable to agree dates. They gave CEC a set of revised plans on 1 October 2008 and requested a meeting; but they received no response. Eventually on 22 October Mr Hunt of FB emailed Mr Stephen Hajducki, who was Ms Zochowska's line manager, to seek his assistance in setting up a pre-application meeting on the new proposals. By email dated 23 October Mr Hajducki responded stating that MML's proposals for thirteen units still did not adequately address "the detrimental impact of its height, design and massing on the character of the conservation area and its failure to make a positive contribution" which were "the basic reasons for the previous refusal." He suggested that the earlier scheme had given the impression that it was driven by an "unrealistic notion of site capacity rather than by sound planning and urban design principles" and implied that this remained the case with the thirteen-unit proposal.
[22] Ms Farrell responded on the same day expressing the view that CEC appeared to oppose any development on the site which was more than two or three detached villas. She sent further Ordnance Survey plans showing the undeveloped site and the thirteen-unit development in the wider context of Balerno and suggested that the proposal did not depart significantly from the existing settlement in the vicinity of the site. She requested more specific reasons for CEC's opposition and in response, on 24 October, Mr Hajducki said that he had asked Mr Givan to speak to Ms Zochowska and identify the specific policy areas which remained of concern.
[23] On 5 November 2008 Ms Farrell telephoned Mr Hunter in response to an email which he sent asking if there was any news. There was a significant disagreement about what was said in this telephone call in the evidence which each gave. Ms Farrell stated that she phoned him to alert him of the difficulties which MML faced in progressing its development with the planning department. She said that MML was entitled to resile from the missives if, having pursued a permission reasonably and in good faith, it did not receive a planning consent within the contracted timeframes. She explained that she had thought that it was appropriate to warn him of the difficulty which MML had faced in pursuing the development as he was obliged to re-pay the £1.5 million deposit if MML re-conveyed the site to him. She denied telling Mr Hunter that MML was purchasing no land and was pulling out of all land deals which it was not bound to complete. She also denied saying that MML intended not to proceed with the missives with him.
[24] Mr Hunter gave evidence that Ms Farrell had said that MML no longer wanted to continue with the site and that it was not "pursuing planning." He clearly remembered that Ms Farrell stated that a decision had been taken to resile from the missives at a Board meeting and that MML wanted its money back by the end of its financial year. She said that she was sorry but that was how things were. He wrote a note in his diary on 5 November stating "M+M. Resile from deal." He telephoned his accountant, who advised him to speak to his bank and also to his solicitor.
[25] The defenders also lodged affidavits, which the pursuers did not dispute, by Mr Morris Duncan, his accountant, and Mr Stewart Robertson, his solicitor. Each spoke of having received a phone call from Mr Hunter in November 2008 in which he reported that Ms Farrell had said that MML was pulling out of a number of property deals because of the state of the housing market and would not pursue the planning application for the site. Mr Duncan's recollection was supported by his contemporaneous file note, which stated: "M & M pulling out! Liz Farrell - all work ceasing and they want their deposit back." The note also recorded that Mr Duncan advised Mr Hunter to phone his relationship manager at his bank and Mr Robertson.
[26] I formed the impression that both Ms Farrell and Mr Hunter were doing their best to recall events and to tell the truth as they understood it to be. I am not persuaded that either could reliably speak about the precise words which each had used in the conversation. I accept that the message which Mr Hunter took from Ms Farrell's words was that MML intended to resile from the missives. The evidence of Mr Robertson and Mr Duncan supports him in his assertion that that was his understanding at the time. But the contemporaneous documentation from within MML's management records does not support the assertion that MML had decided to resile from the missives.
[27] MML's board met on 22 October 2008. The directors were presented with a schedule of land purchases which suggested that a further £1.5 million would be paid for the site in June 2009. This prediction superseded the earlier schedule which had been produced in June 2008 which had suggested that the planning application would be determined in December 2008 and that a further £2 million (being the balance of the price due under the missives) would be paid in January 2009. The presentation and acceptance of the revised schedule suggests that MML's Board was content to proceed with the development of the site but envisaged the possibility of negotiating a reduced price with Mr Hunter because the directors expected to obtain permission for less than seventeen units. At that meeting the directors of MML also agreed to reduce the level of future land purchases to limit the company's need to borrow.
[28] The suggestion that MML had decided to pull out of the missives by early November 2008 is also not supported by the actions of its directors and employees thereafter. See paragraphs [33] to [36] below.
[29] Also on 5 November Ms Zochowska emailed MML to offer an opportunity to meet to discuss the thirteen-unit proposal with her and her design colleagues. Eventually FB arranged a meeting to take place on 17 December.
[30] Before that meeting, Mr Andrew Mickel, who is a director of MML with responsibility for the acquisition of its sites, and Ms Farrell met Mr Hunter at his office in Gorgie Road, Edinburgh on 2 December 2008. Again there was disagreement in the evidence as to what was said. Again I am satisfied that each participant in giving evidence attempted to recall accurately what had been discussed. Mr Mickel gave evidence that the purpose of the meeting was to update Mr Hunter on the progress of the proposal, explain the difficulties and, if possible, agree a way forward. He said that they explained that MML had terminated a number of potential deals but that it was keen to pursue the site and agree an outcome with CEC. They discussed the possibility that reduced unit numbers were the only way forward with CEC and also the possibility of having to return the site to him and seek the repayment of the deposit. He recalled that Mr Hunter's position was that he was not minded to repay the deposit as he thought that the site could be developed with the agreed number of units. Ms Farrell's recollection broadly supported Mr Mickel's. She said that the message that MML wished to give was not that it would resile from the missives. MML had not yet arranged the meeting with CEC and the message which Mr Mickel and she sought to convey was that Mr Hunter should be prepared for the scenario of MML resiling if the meeting with CEC did not get positive feedback on their thirteen-unit proposal. They discussed various scenarios which might arise if MML did not get planning consent for its proposal.
[31] Mr Hunter's recollection was that Mr Mickel told him that MML wanted to pull out of the deal and that it wanted its money back. He said that he was told that MML needed the £1.5 million and had to pay the wages of a skilled workforce. Mr Hunter encouraged him to persist with the proposal and said that he would wait to be paid the remaining sum due under the missives. Mr Mickel said that MML was not taking the planning application any further and Ms Farrell said that MML would be prepared to give him the planning file so that he could pursue the application through FB himself. Mr Mickel said MML would resile and Mr Hunter told him that he could not repay the £1.5 million and that MML was contractually bound to obtain planning permission before considering whether to resile. Mr Hunter said that MML should pursue an application with fewer housing units and he would accept a smaller payment but Mr Mickel refused and said that MML wanted its money back.
[32] Thus again there is a stark contrast between the accounts which each side has given of what was said at this meeting. It is necessary to look to what people did in order to assess the accuracy of their recollection. Mr Hunter recorded in his diary the words, "Pulling out of all sites that they have not paid for!!!" He also telephoned his solicitor to explain the outcome of the meeting. His solicitor, Mr Robertson, recorded in his affidavit that Mr Hunter had explained to him that he had passed on his legal advice that MML needed to obtain a planning consent before it could withdraw. He said that Mr Hunter informed him that he had been told that MML could not "go through with it" and that they had to pull back from sites in which it had an interest. Mr Robertson's evidence, as I have said, was not challenged.
[33] It is clear that Mr Hunter believed by early December 2008 that MML intended to resile from the missives. But it is also clear from MML's internal papers and the evidence of its personnel and professional advisers that it continued to pursue its proposal for a thirteen-unit development with CEC. I conclude that Mr Andrew Mickel and Ms Farrell thought it likely that MML would have to resile when they spoke with Mr Hunter and that he understood their message to be that MML was going to resile. At the same time, I accept that there had been no decision to resile at that time and that MML was awaiting the outcome of the meeting with CEC before deciding what to do. In an email on 15 December to Mr David Bell Ms Farrell explained that MML wanted the meeting to find out what density of development CEC would support and in particular whether CEC would accept townhouses or require only detached villas. She stated that "legals with Charlie [Mr Hunter] need to be finalised one way or another in January and the board are keen to get one last meeting with CEC before we make our decision on way forward." In this context I am not persuaded that in the discussion on 2 December MML rejected an offer by Mr Hunter to accept a lower price if it obtained permission for fewer units and demanded its money back.
[34] The meeting with CEC took place on 17 December 2008. Mr Bruce Mickel, Ms Farrell and Mr David Bell and Mr Ian Hunt of FB attended for MML. Ms Zochowska and Ms Linda Nicol attended on behalf of CEC. MML sought to find out whether CEC would accept in principle the thirteen-unit proposal with three‑storey townhouses. The CEC officials did not commit themselves but advised that MML was seeking too many units on the site and that flats were not acceptable. Ms Zochowska expressed the view that the townhouses did not reflect the existing character of Balerno. Mr Bruce Mickel formed the impression that CEC were thinking that only four villas would be appropriate development of the site.
[35] In a letter dated 31 December 2008 Ms Zochowska set out CEC's response to MML's proposal. She stated that it was unlikely that the proposal would be acceptable in its present form. She explained that any planning application would have to justify the demolition of the existing houses and give sufficient contextual analysis to demonstrate that the proposal preserved or enhanced the special character of the conservation area. She commented on the earlier application which had been refused, stating that that scheme had given the impression that it was "driven by an unrealistic notion of site capacity rather than sound planning and urban design principles." She commented on the revised proposal as follows:
"We welcome the reduction in units from the previous planning application and note that the proposals are moving towards addressing previous concerns, however, the numbers proposed are still rather ambitious and therefore are unable to comment fully without full justification.
Without the benefit of site sections and level drawings it is difficult to comment on the positioning of the detached houses and town houses on the site within the context of their surroundings. I have concerns, as stated at our meeting, on the principle of town houses as these are not in keeping with the character of this part of Balerno."
[36] By this time MML's employees considered that there was no prospect of obtaining permission for a seventeen-unit development on the site. Ms Farrell instructed FB to prepare a ten-unit layout for the site. In January 2009 FB devised a scheme which consisted of six detached and four semi-detached houses. Ms Farrell explained in her evidence that while the proposal did not meet the terms of the missives MML had hoped to obtain a planning permission which was acceptable to both parties. MML's design team discussed the proposal at a meeting on 3 February 2009. It was decided that the layouts were not financially viable.
The decision to withdraw
[37] MML's board met on 19 November and 17 December 2008 and did not discuss the Balerno proposal at those meetings. At a meeting on 28 January 2009 the board discussed the Balerno site. The minutes of the meeting record that MML still had an option over the site. It noted that if MML walked away from the deal it would be left with the site in its ownership but no claw-back would be payable. Mr Bruce Mickel explained in his evidence that that was a reference to the obligation to pay Mr Hunter anything in addition to the £1.5 million deposit which he had received. It was agreed that a full report with recommendations would be available for the next meeting of MML's land forum.
[38] The board decided to resile from the missives at a meeting on 25 February 2009. The minute of that meeting recorded that it would be known over the following weeks whether Mr Hunter would be in a position to repay the £1.5 million deposit.
[39] Thereafter MML instructed its solicitors to serve an unsatisfactory planning notice on Mr and Mrs Hunter and a notice was served initially on 20 March 2009. After Mr Hunter's solicitors challenged MML's right to serve such a notice without having obtained a planning consent, MML's solicitors served a revised notice, which referred to clause 11.4.1 as well as clause 11.1.2 of the missives, on 16 April 2009. Thereafter, when Mr and Mrs Hunter had not repaid the deposit within the twenty one days provided by the missives, on 5 May 2009 MML's solicitors gave notice that MML reserved the right to discharge the standard security and to rescind the missives. On 4 June 2009 MML used the power of attorney to discharge the standard security over the site.
[40] On 24 August 2009 McGrigors LLP on behalf of MML rescinded the missives on the basis that Mr and Mrs Hunter had failed to repay the deposit. MML obtained two separate valuations of the two housing plots on the site. Each valuation attributed value to the development potential of the individual plot only to the extent that one larger housing unit might be built on the plot to replace the existing dilapidated unit. No valuation of the development potential of the site as a whole has been produced. MML raised these proceedings to recover what it asserts is the shortfall between the aggregate of the two valuations and the £1.5 million which it had paid.
Subsequent attempts to obtain planning permission
[41] On 13 May 2009 Mr Hunter met Mr David Bell, who suggested that the site was a good one and that it was not unusual for the planners to be "sticky". Mr Hunter met Mr Ian Hunt and Mr David Bell on 8 June 2009 and instructed them to carry out pre-application discussions with CEC on his behalf. FB approached Ms Helen Martin, a principal planner in CEC, and sent her an updated proposal on 5 August 2009. The proposal, which Mr Ian Hunt prepared, comprised eight villas, of which six had two storeys and two comprised two and a half storeys. FB had difficulty in obtaining a response from CEC. Eventually on 7 October 2009 Ms Elaine Robertson wrote to Mr Ian Hunt to comment on the proposal. She requested a detailed tree survey, cross sections of the site and an initial idea of the massing of the development. Her informal opinion of the proposal was adverse. She stated:
"It is my initial view that the level of development proposed in this revised scheme is still overdevelopment of the site. The spatial character of the village at this point is one of openness with large detached stone built houses with slate roofs set in deep front gardens with mature trees creating a semi-rural feel. There has been consistency in the assessment of the proposals on this site that the openness of the corner is an important spatial feature in the character of the conservation area. The latest proposals include development in close proximity to this corner. The level of development does not respect the character of the area."
Ms Robertson requested the additional information to allow her to provide more detailed advice on the possibilities for development and to identify the area on which development could take place.
[42] On 6 November 2009 Mr Hunter, Mr Ian Hunt and Mr David Bell met Ms Robertson of CEC. They discussed, among other things, questions of access and the density of the layout and the possibility of developing a nursing home on the site. Ms Robertson seemed to be more willing to support the development of the site than her colleague, Ms Zochowska, had been. Mr Hunter considered that Ms Robertson was positive about the development on the site comprising eight villas. He interested another house-building company in the site and a representative of that company approached FB to obtain their drawings and files. It appears that the proposal did not go further as FB were uncomfortable about a possible conflict of interest.
The site's potential for development
[43] In or around 2006 Mr Hunter had received several significant conditional offers to purchase the site from developers at prices ranging from £2.9 million to £4 million. The precise scope for its development was not examined in the proof. In their evidence several witnesses spoke of the potential of the site, but their views have not been tested by the pursuit to conclusion of a further planning application. Mr David Bell suggested that a developer could obtain permission to develop six or seven units on the site very quickly and that he would have gained permission for the development referred to in paragraph [41] above. Mr Andrew Mickel also considered that the site had potential to command an attractive price and that it could accommodate five detached units. MML's difficulty was that it could not obtain planning permission for the number of units which would support the price which Mr Hunter sought.
[44] Mr Hunter also spoke in his evidence about a proposal which Richard Murphy, architects, had prepared in 2006 for Cala Homes Limited, which entailed the construction of nineteen houses on the site, which would be accessed from Lanark Road West. He also referred to an email which he had received from Mr Lynes of Cala dated 18 July 2006 which spoke of a discussion of the proposal with Ms Helen Martin of CEC who had expressed some concerns over access but had stated that the concept, layout and design were of merit. In my opinion it is not appropriate to infer much about the likely attitude of CEC to a scheme of this size from this limited information which was not explored in evidence. It is clear from MML's application that CEC highways department was not prepared to allow access from Lanark Road West to a significant number of houses on the site on the grounds of road safety. It is not clear what would have been the attitude of CEC on a more detailed examination of the relevant policies and on the extent of tree clearance which the proposal would have entailed.
Mr and Mrs Hunter's defences
[45] Mr Ellis QC on behalf of Mr and Mrs Hunter submitted that MML was not entitled to serve an unsatisfactory planning notice under the missives for three reasons. First, MML had to use reasonable endeavours to obtain planning permission before it was entitled to decide that planning permission would not be granted. Secondly MML had failed to prove that it reached the view "reasonably and in good faith" that permission would not be obtained. Thirdly, by abandoning its pursuit of a permission involving seventeen units MML had waived its right to serve the unsatisfactory planning notice under clause 11.4.1. Mr and Mrs Hunter were, he submitted, entitled to the re-conveyance of the site on MML's repudiatory breach of contract. I will deal with the three arguments in turn. Before doing so I summarise the expert evidence which I heard.
The expert evidence
[46] In support of the contention that MML had not used reasonable endeavours to obtain planning permission Mr Ellis led as an expert witness Mr Andrew Munnis, an experienced chartered surveyor and planning adviser and a director of Montagu Evans. He was asked to advise the defenders on what steps MML had taken to address the reasons for which its application was refused planning permission in June 2008 and what other steps somebody who was making a reasonable effort to obtain planning permission would have taken.
[47] I set out the reasons for refusal in paragraph [17] above. In relation to reason (1) Mr Munnis criticised MML for not taking sufficient account of the conservation area status of the site and the related policies in the local plan. It failed to provide a contextual analysis as required by the Appraisal, which was a material consideration in the determination of the application. MML thus failed to present its proposals in the best light. MML's design statement was not sufficiently detailed on the context of the conservation area to serve this purpose. In relation to reason (2) MML should have had pre-application discussions with the Head of Planning as recommended by CEC's Villa Areas guidelines and should have adhered more closely to the local plan's policies E41 and E42. MML failed to do so both in the documentation submitted in support of the applications and in failing to have regard in the design to the stone built character of the villa areas, to respect the spatial character and setting of the buildings, to encourage appropriate building forms and to maintain a low density of built form and high percentage of garden area on the site. The tree survey which MML obtained should have discussed the constraints which the trees placed on the layout.
[48] In relation to reason (3), Mr Munnis recognised that MML was making progress in its discussions with CEC's transportation officials and might have reached an acceptable solution but opined that a detailed transportation and access report should have been submitted with the application. He suggested that MML had taken no steps to address its obligation to make a contribution to affordable housing, hence reason (4). In relation to reason (5) MML had failed to provide a sustainability statement.
[49] Mr Munnis suggested that a different planning outcome might have resulted if (i) MML had had meaningful pre-application discussions with CEC, (ii) MML had ensured compliance with relevant planning policies and non-statutory planning guidelines (as above) and (iii) MML had monitored progress of the planning application and sought early feed-back from the case officer or other CEC official. He also suggested that it would have been appropriate to apply for conservation area consent at the same time as seeking planning permission but he recognised that one could apply for the former after obtaining the latter.
[50] Mr Munnis accepted that he could not say that it was probable that CEC would have approved MML's proposal if the application had been as he suggested. His point was that MML had lost the opportunity to present all of the details in a way which the planning authority favoured. He suggested that it was impossible to judge how CEC would have reacted to a fully detailed proposal, but thought that MML had not given its proposal the best chance of success.
[51] MML led Mr Peter Allan, a very experienced chartered town planner and architect who is a founder director of PPCA Ltd, as their expert planning witness. He was instructed to address two questions, namely (i) whether MML used reasonable endeavours to obtain the planning permission defined in the missives and (ii) whether MML was entitled to come to the view that planning permission for its development of a minimum of seventeen units on the site would not be obtained.
[52] He opined that the application which MML lodged in February 2008 was competently prepared and was accompanied by a design statement, tree survey and report, and site sections. He agreed with Mr Munnis that it would have been good practice to have had a pre-application consultation but observed that the relevant senior CEC officer was not available. He pointed out that applicants often had difficulty in obtaining guidance at pre-application meetings and expressed the view that it was reasonable for MML to lodge its application without such a prior consultation.
[53] He observed that after MML lodged the application, it had fruitful discussions with CEC highways department but was unable to arrange a meeting with the case officer of the planning department. He criticised CEC for using delegated powers to refuse the application contrary to the advice of PAN 40 (paragraph 18) and expressed the view that MML should not have had to face the processes which it did.
[54] Mr Allan saw the fundamental issue in the application to be the effect of the proposed development on the character of the conservation area. That had to be decided before other planning issues were considered. The issue involved subjective judgement and he opined that MML's attempt to address the issue by creating a gateway feature at the junction of Lanark Road West and Bridge Road was a reasonable approach. The CEC official took a different view. She considered the scheme to be unacceptable and in the light of CEC's Charter considered it inappropriate to have meetings or to allow MML to amend the scheme. After CEC refused the application, MML proposed a more modest scheme. That also did not find favour with CEC. In view of the unanimity of the stance by CEC officials, he considered that an appeal to the Scottish Ministers would not have been likely to succeed.
[55] In the circumstances he considered that MML had used reasonable endeavours to obtain the planning permission. While Mr Allan accepted that certain documents could have been prepared earlier and pre-application discussions might have taken place, he considered that such steps would not have affected the outcome of a subsequent application; it would merely have disclosed CEC's reasoning earlier. CEC's judgement on what would enhance the conservation area meant that they were not prepared to allow a development on the site which would match MML's commitment under the missives. He considered that MML's design statement was a type of contextual analysis. He had not assessed its quality but thought that a more detailed appraisal would not have altered CEC's views. Reasons (3) - (5) were not central to CEC's decision and could have been addressed without difficulty. There was also no requirement to seek permission to demolish the houses in a conservation area at the same time as applying for planning permission; in his view it was good practice for an applicant to establish the acceptability of the replacement buildings first.
Discussion
(i) The use of reasonable endeavours (clause 11.4.1)
[56] Parties agreed on the approach to the construction of the missives, namely that the court should construe the contract objectively, give its words a commercially sensible construction and have regard to the factual background which would have been within the shared knowledge of reasonable people standing in the shoes of the parties to the contract. Further, a particular contractual provision should be construed in the context of the contract in which it is found.
[57] Clause 11.4.1 provides that the purchaser "shall use reasonable endeavours to obtain the Planning Permission and will keep the Seller informed as to the progress of the application." Mr and Mrs Hunter took no issue about having been kept informed. Their criticism is that MML did not use reasonable endeavours. In particular they criticise the absence of pre-application discussions, the form in which the application was presented, and the "desultory" way in which discussions were undertaken.
[58] In my view the onus of showing that MML used reasonable endeavours rested on MML: Yewbelle Ltd v London Green Developments Ltd [2008] 1 P & C R 17 (CA).
[59] The parties disagreed on the nature of the development for which MML had to endeavour to obtain planning permission. I am satisfied that the missives did not impose an obligation on MML to try to obtain permission for a development which it did not wish to construct. The missives, as I have stated, provided that MML were to obtain detailed planning permission for the "Development," which in turn was defined as "the Purchaser's proposed development for no fewer than 17 Units and no more than 19 Units on the Subjects." "Unit" was defined as "either a dwellinghouse or a flatted dwellinghouse." Although the words "Purchaser's proposed development" were not defined or linked to any identifiable layout, they point towards the development which the purchaser, MML, wished to construct. The surrounding circumstances, which would have been known to reasonable businessmen in the shoes of the parties, support this view. MML is a well-known house-builder and Mr Hunter as a businessman interested in property development would have been aware of its products. The parties had discussed several of MML's proposed layouts for the site before MML submitted the application.
[60] The missives did not envisage that the units could be small flats; clause 12.3 provided that if planning permission were obtained for more than seventeen units, MML would pay £175,000 in respect of each additional unit. That enhancement of land value is not prima facie consistent with the erection of small flats. Such flats would not have been in the parties' contemplation in this market area which was at the upper end of the housing market.
[61] Mr Ellis submitted that, on his interpretation, the obligation on MML to endeavour to obtain permission for seventeen units, even if it did not wish to build those units, was balanced by its right under clause 11.1.2 to treat the resulting planning permission as unsatisfactory. This would, he submitted, have entitled MML to hand back the site, with planning permission, to Mr and Mrs Hunter and to obtain the return of its deposit. I am not so persuaded. Both parties had an interest in a development which maximised the value of the site as developed. That involved MML seeking permission for a development which it wanted to build. I do not see the commercial sense to Mr and Mrs Hunter of the obtaining of a detailed planning permission by one house-builder which it would not utilise; on the return of the site to their ownership, they would try to sell it to other house-builders, which would have their own house styles.
[62] Parties did not challenge the enforceability of clause 11.4.1 of the missives but were not in agreement as to the meaning of the phrase "reasonable endeavours" in that clause. I was referred to Yewbelle Ltd (at first instance - [2006] EWHC 3166 - and in the Court of Appeal - above), UBH (Mechanical Services) Ltd v Standard Life Assurance Company (Rougier J at first instance 7 November 1986 and in the Court of Appeal 5 July 1988), Rhodia International Holdings Ltd v Huntsman International LLC [2007] EWHC 292 (Comm) and Agroexport State Enterprise for Foreign Trade v Compagnie Europeene de Cereales [1974] 1 Lloyd's LR 499.
[63] In my opinion the phrase "reasonable endeavours" in its context imposes obligations on MML which are not as onerous as the phrase "all reasonable endeavours", which was used in the contract in Agroexport, and which required the court to consider whether there were reasonable steps which could have been taken but were not. The phrase is also less burdensome on the obligant than the phrase "best endeavours", which appears to me, as it did to Rougier J, to require something more than "all reasonable endeavours". See also Jolley v Carmel Ltd [2000] EGLR 154, at p.159. In Rhodia International Julian Flaux QC (sitting as a Deputy High Court Judge) stated (at paragraph 33):
"There may be a number of reasonable courses which could be taken in a given situation to achieve a particular aim. An obligation to use reasonable endeavours to achieve the aim probably only requires a party to take one reasonable course, not all of them, whereas an obligation to use best endeavours probably requires a party to take all the reasonable courses he can."
I note that in so stating he appears to equate "all reasonable endeavours" with "best endeavours". Whether or not that is correct is immaterial in this case. The point is that a "reasonable endeavours" obligation is less burdensome than the other formulations. Whichever phrase is used, I do not think that the obligation of this nature requires the obligant to disregard its own commercial interests. Where the balance between the obligation to try and countervailing commercial considerations is struck depends on the wording of the obligation. The phrase in this contract is the least onerous of the three phrases. In my view the question to be asked of MML's actions is what would a reasonable and prudent Board of Directors acting properly in the interest of their company and applying their minds to its contractual obligations have done to try to obtain the planning permission.
[64] In considering what steps were reasonable, the court has also to consider whether any steps would have been successful. If the obligant can show that it would have been useless for it to have taken those steps because they would not have been sufficient to achieve success, that would give an answer to the claim of breach of contract: Agroexport, Ackner J at p.506. In UBH in the Court of Appeal Croom-Johnson LJ stated:
"Whether the action which was not taken would have made any difference must always be a factor to be considered in deciding if the defendants' endeavour was reasonable or not...But if the evidence clearly shows it would have made no difference at all, the court only with great persuasion would be induced to say that if [the obligants] were not to take it, it would be unreasonable. There might even be a case where there was a prospect that a course of action could produce a certain result but for other reasons it would still be reasonable not to take it. It must be a question of fact in every case."
[65] Similarly, in Yewbelle Ltd, which concerned an obligation to use all reasonable endeavours to secure a completed planning agreement with a planning authority - a more onerous obligation than a "reasonable endeavours" obligation - the Court of Appeal took account of the prospects of success of a particular course of action. Lloyd LJ observed (at paragraph 103) that if there were an insuperable obstacle, it was irrelevant that the obligant could have overcome other obstacles or that it had not done all that could reasonably be expected of it to overcome those other obstacles. See also Waller LJ at paragraph 126. In relation to the obstacle in question Lloyd LJ held that the relevant question was whether there was anything else that the obligant could reasonably have done, with any real or significant prospect of overcoming the problem (paragraph 107). For the reasons set out above, this formulation is more onerous than that which in my opinion should apply where the obligation is only to use "reasonable endeavours." But it also supports the relevance of an assessment of the prospects of success of the course of action.
[66] Turning to the facts of this case, it is clear in my view that of CEC's reasons for refusing planning permission, which I set out in paragraph [17] above, it is the first two reasons, which were concerned with the compatibility of the proposed development to the character of the conservation area, that were the critical consideration. The planning officer's report to the development management sub-committee emphasised the failure of the proposed development to contribute to the special character and appearance of the conservation area which it described as "the substantial green setting giving a rural appearance and open approach to Balerno." It criticised the scale and massing, observing that while the detached houses were of similar proportions to the existing ones, the density was greater and they were without the benefit of large gardens. In relation to policies E35 and E36 it concluded:
"It is considered that the proposal would be contrary to policy 35 and policy E36...as the proposal results in a high density development with the loss of a significant number of trees and which is at odds with the character of the conservation area."
In relation to policies E41 and E42 it described the spatial character near the site as one of openness with large detached stone built houses set in deep front gardens with mature trees creating a semi rural feel. It criticised the design of the new development as "pastiche" and suggested that the building materials were not in keeping with the existing use of stone and slate. It concluded:
"It is considered that the scale, design and level of the development are such that it would detrimentally affect the character and appearance of the Balerno Conservation Area contrary to policies 41 and 42 ...."
It referred also to incomplete information on transport and sustainable drainage and the absence of provision for affordable housing; it also criticised the failure to include a sustainability statement in the design statement. But these later comments are stated briefly. That is not surprising and I agree with Ms Farrell's assessment that they could readily have been dealt with. I accept the judgement of MML's design team that the principal issue which the refusal of planning permission raised was set out in the first two reasons.
[67] I am satisfied that MML and its advisers used reasonable endeavours to obtain a planning permission for seventeen or more units. MML and FB were experienced in developing residential sites, including sites in conservation areas. The application which MML made was accompanied by the documents which MML normally submitted. I accept Ms Farrell's evidence on that matter. While the experts were agreed on the benefits of pre-application discussions, both recognised that it was not always possible to gain the co-operation of the planning authority and both expressed the view that MML had been unlucky in the way in which CEC had handled the proposal. FB had attempted to have discussions with Ms Helen Martin before proceeding with the application and decided to submit the application only after they had failed to arrange a meeting. Thereafter they and MML tried repeatedly to engage CEC officials in discussions but delays resulted.
[68] I am not persuaded that, if MML had achieved pre-application discussions and had produced the documents which CEC wanted, it would have made any difference to the outcome of the application. While Mr Munnis is correct that there is no certainty how CEC would have reacted if that had been done, I am satisfied that there is a very strong probability that CEC would have refused the application. CEC were consistent throughout in their opposition to the principle of development of the site on this scale. Nor do I consider that MML can be criticised for applying for nineteen units rather than the contractual minimum of seventeen. In my opinion it was not unreasonable for MML to attempt to persuade CEC to accept a gateway feature at the corner of the site and thereby achieve the numbers which it had undertaken to seek.
[69] CEC criticised MML for using their standard houses in the application when the surrounding houses were stone-built and had slate roofs. But there is nothing in the planning officer's report which suggests that CEC's attitude to the proposal would have been different if MML had offered to use other materials. The clear message was that the problem was the combination of height, design, scale and massing. Further I do not think that MML acted unreasonably in proposing the construction of such houses. They adapted their catalogue houses to include more facing brick and Mr Andrew Mickel gave uncontested evidence that MML had built such houses in other conservation areas.
[70] An applicant for planning permission may often have to make decisions which are matters of judgement on which experienced and reasonable people may reasonably differ. I accept that MML could have done what Mr Munnis desiderated; but I do not consider that it needed to do so to meet its obligation of reasonable endeavours. Nor for the reasons discussed above do I consider that it would have made any difference to CEC's attitude to the principle of development on the scale envisaged by the missives.
[71] Parties disputed when MML ceased to attempt to obtain a planning permission for seventeen or more units. I do not think that much turns on this dispute as I consider that by July 2008 MML were entitled to conclude that it was very unlikely that CEC would grant planning permission for a development on that scale. It is clear from the evidence of Mr Andrew Mickel and Mr Bruce Mickel that they were aware by August 2008 that any permission for the development of the site would probably be on a smaller scale. That is why MML pursued the pre-application discussion of a thirteen -unit proposal. Ms Farrell, who was responsible for progressing the proposal, suggested that she still hoped that, if she could engage CEC in a pre-application discussion of a thirteen-unit development, it might be possible to persuade them to accept a slightly larger development which complied with the missives. It does not appear that the directors shared her view. But I see no reason to doubt her evidence that that was her thinking at the time.
[72] It is clear that by late October 2008 the directors of MML thought that any development of the site would be on a smaller scale than that provided in the missives. The cash flow statement, which they approved, suggested that there was an expectation that there might have to be a re-negotiation of the price to a figure of about £3 million in place of the missive price of £3.5 million. But the cash flow forecasts were intended merely as an indication of a foreseen outcome and did not represent a decision to depart from the missive price. I accept in that regard the evidence of Mr Andrew Mickel that while a re-negotiation of price was likely, no decision had been taken to depart from the missive price and much would depend on the terms of any planning permission and the state of land values at the relevant time.
[73] As discussed above, I do not accept the suggestion that MML had decided to withdraw from the development of the site by November 2008. It, like other building companies, had been badly affected by the financial crisis in the second half of 2008, and it was laying off staff and withdrawing from land deals which it was not committed to take forward. But I accept the evidence of Mr Andrew Mickel that MML's directors were keen to develop sites in the east of Scotland and, having paid a deposit of £1.5 million, wished to explore what could be achieved on the site. This is supported by subsequent events. MML pressed for the meeting with CEC in December and a director, Mr Bruce Mickel, attended the meeting on 17 December.
[74] It was only after that meeting and CEC's letter of 31 December 2008 that MML decided that it would not continue its attempt to develop the site. The decision to resile from the missives followed the rejection as non-viable of the ten-unit option.
(ii) Whether MML acted reasonably and in good faith (clause 11.4.1)
[75] The onus was on MML to show that it acted reasonably and in good faith in reaching the view that planning permission for its development would not be granted.
[76] I am satisfied that it has discharged that onus. In my view the date for testing the reasonableness and good faith of that view is the date when the Board of MML decided to resile from the missives, namely 25 February 2009. Although MML did not attempt to serve a notice until 20 March 2009 and served a correct notice only on 16 April 2009, there is no suggestion that it reconsidered its view in the interim. By late February a view that MML would not obtain permission for seventeen or more units of the sort which it wished to build was eminently reasonable and I see no basis for questioning the good faith of the directors of MML in reaching that view.
[77] Mr Allan opined that MML had demonstrated its good faith by going beyond the missives and seeking to obtain permission for a thirteen-unit development. While that may not strictly be a correct analysis, MML's actions, in seeking to identify a development which CEC would accept, support the view that it was pursuing the development of the site in good faith. Only after CEC had expressed serious concerns about the scale of the thirteen-unit proposal and MML had made an adverse financial assessment of a ten-unit proposal with regard to the expectations of Mr and Mrs Hunter as to price did the directors of MML finally decide that they could not proceed with the missives.
[78] Mr Ellis submitted that MML's decision was vitiated because it had taken account of irrelevant considerations. He referred me to two cases which concerned respectively the consent of a tenant to the alteration of a shared car park and the consent of a landlord to a sub-lease, namely Legal & General Assurance Society Ltd v Tesco Stores Ltd (Lord Hamilton 18 May 2001, unreported) and Burgerking Ltd v Rachel Charitable Trust 2006 SLT 224. Those cases drew on principles laid down by the Court of Appeal in England in relation to a landlord's consent for the assignment of a lease by a tenant in International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch 513. Those principles included (i) the rule that a landlord could not refuse consent on grounds which were collateral to the particular lease in question, in the sense that they had nothing to do with the relationship of landlord and tenant and (ii) the rule that the reasons for refusal must be those which influenced the decision-maker when he made his decision.
[79] I do not see the rules which apply in the context of the law of landlord and tenant as directly applicable to this contract. But I do not doubt that where a notice can be given only if a person has reached a particular view reasonably and in good faith, the court will have to consider, if it is contested, whether the person giving the notice was of that view at the relevant time. If he reached a decision to issue a notice for other reasons and was not of the relevant view, that would be a ground for challenging the validity of the notice. In this case, I have concluded that MML did not decide to withdraw from the missives in late October or early November 2008 because of the then adverse economic circumstances. I see no reason to question the evidence of Mr Bruce Mickel and Mr Andrew Mickel that in February 2009 the Board of MML was of the view that MML could not obtain a planning permission for a development of the type that it wanted which had seventeen or more units. There is no reliable evidence to contradict that evidence. Accordingly I reject the submission that MML has failed to prove that it reasonably and in good faith reached the view that entitled it to serve the notice.
(iii) Waiver
[80] Mr and Mrs Hunter also averred in their defences that MML had waived its right to assess the prospects of obtaining the planning permission in terms of clause 11.4.1 based on a minimum of seventeen units. In his submission Mr Ellis argued that from August 2008 MML gave up the attempt to obtain permission for at least seventeen units and informed the sellers that it was going for thirteen units. It did not warn the sellers that it reserved the right to serve an unsatisfactory planning notice on the basis of an inability to gain permission for seventeen units. MML's actions were inconsistent with the reservation of such a right. Mr Hunter gave evidence that he thought that MML was not insisting on obtaining permission for seventeen units and would pay the price under the missives if it obtained permission for thirteen units. He acted on that understanding until he understood from Ms Farrell's telephone discussion on 5 November that MML wanted to resile.
[81] In support of his submission Mr Ellis referred to Armia Ltd v Daejan Developments Ltd 1979 SC (HL) 56, Lousada & Co Ltd v J. E. Lesser (Properties) Ltd 1990 SC 178, Presslie v Cochrane McGregor Group Ltd 1996 SC 289, James Howden & Co Ltd v Taylor Woodrow Property Co Ltd 1998 SC 853, and Maureen McLaughlin, Petitioner [2010] CSIH 24. He submitted that waiver amounted to a permanent abandonment of a right and in the context of a contractual right had an effect similar to a variation of contract.
[82] In this case Mr and Mrs Hunter assert an implied waiver. In Armia Ltd Lord Keith of Kinkel (at p.72) observed that such waiver was:
"a creature difficult to describe but easy to recognise when one sees it, subject to the proviso that it is on occasion difficult to distinguish it from variation of a contract."
In my view an implied waiver arises from a person's actions or inactivity seen in their factual context, from which the law deems that he, in the knowledge that he has a right, has voluntarily abandoned that right. It deals with a particular type of inconsistent conduct, by preventing a person who has objectively created the impression that he will not enforce a right from thereafter attempting to enforce it. In "Personal Bar" (2006) Reid and Blackie state (at paragraph 3.10):
"Waiver is regarded as a matter of fact: the conduct in question is viewed objectively to ascertain whether it is consistent with a continuing intention to exercise the right."
As waiver seeks to prevent unfairness arising from inconsistent conduct, the court, in the context of implied waiver, usually looks to see if the person asserting waiver has acted in some way in reliance on a belief induced by the conduct of the other party: Armia Ltd and Presslie.
[83] In my view the evidence in this case falls short of establishing that MML abandoned its right to rely on clause 11.4.1 of the missives in relation to a development of seventeen or more units. MML from August 2008 sought to have pre-application discussions with CEC about a proposal to develop thirteen units. Nothing was said about its attitude to its contractual rights. No decision was taken or intimated that MML would or would not pay the price under the missives if it obtained permission for such a development. Beyond informing Mr Hunter that it was seeking discussions in relation to a thirteen-unit scheme MML did not discuss the matter with him. Ms Farrell still hoped that discussions with CEC might allow MML to extend its development beyond thirteen units; but Mr Andrew Mickel and Mr Bruce Mickel appear to have been considerably less sanguine. MML's cash flow forecasts in October 2008 showed an expectation that it would attempt to renegotiate the price on obtaining a permission for fewer than seventeen units. But Mr Andrew Mickel's evidence, which was not contradicted, was that MML did not want to break the missives; any renegotiation of the price was for the future once a planning permission crystallised a value and Mr and Mrs Hunter would have had a strong negotiating hand. MML did not inform Mr Hunter of these discussions and views. But, as Ms Farrell's evidence showed, the pursuit of discussions on a thirteen-unit development was not of itself inconsistent with an aspiration towards a larger development.
[84] At the time MML did not address itself to its contractual rights under clause 11.4.1; that may not matter as one must look at its actions objectively. More importantly, neither did Mr and Mrs Hunter. There was no evidence that Mr Hunter, who carried on the discussions with MML on behalf of himself and his wife, addressed the possibility that MML could serve an unsatisfactory planning notice without having obtained a planning permission. On the contrary, from November 2008 onwards, his position, having obtained legal advice, was that MML could not. Mr Hunter is an experienced businessman who was, or readily could have become, aware of the contractual terms governing MML's right to withdraw from the missives. He must have known that the contract price was based on MML obtaining permission for seventeen units. In his oral evidence he spoke of his belief from August 2008 that MML would be content with thirteen units under the contract. I am not able to infer from that general statement that he understood that MML had abandoned the right to invoke clause 11.4.1 in accordance with its terms. I am not satisfied that MML's actions reasonably gave rise to such a belief. The more obvious conclusion was that there might have to be a renegotiation of the contract terms once CEC's position became clear. He also said that in December 2008 he was willing to re-negotiate the price of the site but that MML would not negotiate.
[85] Looking at MML's actions - and inactivity - objectively I am not able to infer that MML abandoned its right to invoke clause 11.4.1 in relation to a seventeen-unit development. Any alteration of the contract was a negotiation still to be had. Nor can I infer that Mr Hunter acted in reliance on a belief that MML had done so. This is not a case where there has been inconsistent behaviour which has led to unfairness. The case of waiver therefore fails.
(iv) Conclusion on MML's entitlement to serve the Unsatisfactory Planning Notice
[86] It follows from my decisions that (i) MML used reasonable endeavours to obtain the relevant planning permission, (ii) it acted reasonably and in good faith in concluding that it could not obtain that permission and (iii) it did not waive its right to serve an unsatisfactory planning notice, that that notice is valid. By letter dated 16 April 2009 MML gave notice under clause 11.4.1 of the missives that it was it was of the view that the relevant planning permission would not be granted. As a result MML was entitled to call on Mr and Mrs Hunter to repay the deposit. They acted in material breach of contract in failing so to do.
(v) The parties' entitlements on the sellers' breach of contract
[87] It is necessary to return to the terms of the missives to consider the provisions which applied following the service of notices.
[88] If MML had served satisfactory notices it would have been obliged to pay the price (£3.5 million) under deduction of the deposit on the date of completion and Mr and Mrs Hunter would have been under a duty to deliver a discharge of the standard security in their favour (Clause 12.1 and 12.2).
[89] Because MML served the unsatisfactory planning notice Mr and Mrs Hunter came under the obligation to pay back the deposit within twenty one days of the service of that notice (Clause 13.1). Had they done so, MML would have been obliged by clause 13.3 to re-convey the subjects to them. As mentioned in paragraph [10] above, clause 13.4 provided for the payment of interest on late repayment of the deposit and clause 13.5 allowed MML to arrange for the discharge of the standard security and to rescind the missives.
[90] Clause 13.6 so far as relevant was in the following terms:
"If the Deposit with interest as set out in Clause 13.4 remains unpaid at the date twenty one days after the Repayment Date, the Purchaser is entitled at any time to rescind the missives without liability and to recover from the Seller:-
(a) any shortfall between the price obtained on any re-sale of the Subjects and the Deposit;
(b) damages calculated as the amount of interest which would have accrued at the rate specified in clause 13.4 on the Repayment Date (sic) from the Repayment Date until the earlier of:
(i) the date on which the price on any re-sale is received by the Purchaser; and
(ii) the date three months after the date upon which the Purchaser rescinds the Missives in accordance with this Clause;
(c) [a provision for interest after the date of re-sale of the Subjects if there was a shortfall]
(d) all expenses of advertising, all reasonable legal and other professional expenses and any other disbursements in connection with any re-sale; and
(e) any other loss, damage and expense suffered by the Purchaser as a result of the Seller's failure to pay on time."
[91] Clause 13.7 provided that these rights were without prejudice to any other rights, claims or remedies available to MML against Mr and Mrs Hunter as a result of the breach of the missives. Clause 13.8 provided that the damages which MML might claim by law or by virtue of clause 13 were deemed to be exigible even if MML exercised its right to rescind the missives. It also provided that if MML failed to implement its obligations under the missives, the period of delay arising from that failure would be disregarded in the calculation of its claim for interest as a component of its damages claim.
[92] In my view it is clear that the price of the site was £3.5 million and that MML was incorrect in its assertion that it had purchased the site for £1.5 million. That sum was the deposit, which was repayable on the re-conveyance of the site after MML had served an unsatisfactory notice. Clause 13 contained provisions which were plainly intended by the parties to survive rescission. In Lloyds Bank plc v Bamberger 1993 SC 570, Lord Justice-Clerk Ross set out at p. 573 the principles which applied on rescission of contract. It is clear, in my view, that the parties, in accordance with those principles, intended clause 13 to govern their relationship post-rescission.
[93] MML registered title to the site after Mr and Mrs Hunter delivered the disposition on receipt of the deposit. As a matter of property law MML then became the owner of the site. But, contrary to Mr Connal's submission, that does not mean that the contract provided "in effect" for the purchase of the site for £1.5 million. Rather, MML obtained a real right of property in the site under the contract on payment of that sum as a deposit. The parties' rights and personal obligations arising from that transfer are determined by the terms of the missives and the general law.
[94] Clause 13.6 envisaged that MML would re-sell the site to re-coup the £1.5 million, which it had paid out as the deposit. It provided that a claim for damages could include interest on the deposit, which had not been repaid, only for three months after the rescission, unless the re-sale of the site gave rise to a shortfall. The missives thus envisaged a prompt re-sale of the site after the rescission. The contract did not address the rights of the parties in at least two circumstances, namely (i) if MML did not sell but sought to retain the site and (ii) if the site on re-sale or on a proper valuation was worth more than the aggregate of the deposit and MML's contractual entitlement to interest as a component of its claim for damages.
[95] If the site were to be re-sold and were to realise less than MML was entitled to recover, the contract in clause 13.6 (subject to clause 13.8) provided a mechanism for the calculation of MML's claim. That is straightforward. But the contract was silent on the two circumstances which I have mentioned.
[96] There is an oddity in this case. The directors of MML and their architect have recognised the site's potential for development. See paragraph [43] above. Yet the valuations which MML proponed as the market value of the two individual housing plots (paragraph [40] above), while acknowledging some development value on each plot, make no allowance for any increased development value which one might, prima facie, think would exist from the marriage of the two lots and the development of the site at least to the extent to which I referred in paragraph [43] above. I reach no view on this matter as all questions of quantification are for a later hearing. But it is appropriate, when dealing with issues of liability, that I address Mr Ellis's submission that Mr and Mrs Hunter may have a claim for unjustified enrichment if the site is worth more than MML's claim against them.
[97] Mr Ellis submitted that Mr and Mrs Hunter were entitled to recover the site under the condictio causa data causa non secuta. He referred me to Cantiere San Rocco SA v Clyde Shipbuilding and Engineering Co Ltd 1923 SC (HL) 105. He submitted that the contract had failed though MML's inability to obtain the relevant planning permission. In those circumstances Mr and Mrs Hunter were entitled to recover their property from MML. If MML were entitled to retain the site, he submitted that it would be under an obligation to account for the valuation of the land. As I have not upheld his submission that MML was in breach of contract in serving the unsatisfactory notice and purporting to rescind the missives, I do not need to consider his submission that MML forfeited the right to recover the deposit. But questions of unjustified enrichment arise if the site exceeds MML's damages claim.
[98] In Cantiere San Rocco the Earl of Birkenhead analysed the Roman law which had influenced the Scots law of unjustified enrichment. He stated (at p.109):
"The underlying principle of the Condictio was that a person had received from another some property, and that, by reason of circumstances existing at the time or arising afterwards, it was or became contrary to honesty and fair dealing for the recipient to retain it."
Mr Ellis submitted that Mr and Mrs Hunter had a cause of action in the form of the condictio. I would not now state the submission in those terms. In recent years in three cases, Morgan Guaranty Trust Company of New York v Lothian Regional Council 1995 S.C. 151, Shilliday v Smith 1998 S.C. 725 and Dollar Land (Cumbernauld) Limited v CIN Properties 1998 S.C. (H.L.) 90 the courts have redefined the law of unjustified enrichment in Scotland. In particular, in Dollar Land (pp. 98H-I and 99D-E), Lord Hope of Craighead stated:
"The event which gives rise to the granting of the remedy is the enrichment. In general terms it may be said that the remedy is available where the enrichment lacks a legal ground to justify the retention of the benefit. In such circumstances it is held to be unjust... I think that Lord Rodger stated the matter correctly in the present case at page 353D when he said that the pursuers must show that the defenders have been enriched at their expense, that there is no legal justification for the enrichment and that it would be equitable to compel the defenders to redress the enrichment."
[99] An analysis of the condictiones may be useful to ascertain some of the circumstances in which the law will treat enrichment as unjustified. But fundamentally the questions for the court are (i) whether there has been enrichment of A at B's expense and, if so, (ii) whether A's retention of that enrichment is justified on some legal ground. The law has identified situations in which B may seek to have A's unjustified enrichment reversed: In Shilliday v Smith, the Lord President (Lord Rodger) (at p.727E-F) stated:
"As the law has developed, it has identified various situations where persons are to be regarded as having been unjustly enriched at another's expense and where the other person may accordingly seek to have the enrichment reversed. The authorities show that some of these situations fall into recognisable groups or categories. Since these situations correspond, if only somewhat loosely, to situations where remedies were granted in Roman law, in referring to the relevant categories our law tends to use the terminology which is found in the Digest and Code. The terms include condictio indebiti, condictio causa data causa non secuta and - to a lesser extent - condictio sine causa."
As he observed, some situations correspond only loosely to the circumstances in which Roman law provided causes of action in the condictiones. It appears to me that it would be unnecessarily rigid if our law were to require a precise match with a Roman law cause of action and that the establishment of a unitary principle of unjustified enrichment in the three cases which I have mentioned does not demand such rigidity. In this case the condictio sine causa appears to cover the circumstance, if it is shown to be, that MML has obtained an asset of greater value than their claim for damages, enabling the sellers to recover the excess.
[100] In this case, MML did not purchase the site for £1.5 million. It did not contract to receive a windfall on a failure of the sellers to re-pay the deposit. Their breach of contract gave rise to a claim in damages. The missives did not address what would occur if the site were worth more than MML's claim for damages. In that respect the present case can be distinguished from Dollar Land in which a windfall arose by operation of a contractual term; the contract of lease thereby provided justification for the enrichment and excluded the equitable remedy.
[101] It is not necessary or appropriate that I express a view at this stage on (i) whether the site is worth more than MML's claim and (ii) the precise remedy available to Mr and Mrs Hunter if it is. I need to hear evidence on (i) and would prefer to hear further submissions on these matters in the next stage of these proceedings. But as Mr Ellis raised a question whether, in view of a comment in Gloag on Contract, it was competent to seek the re-conveyance of the subjects, I address the subject briefly.
[102] In Gloag on Contract (2nd ed.) it is stated (at p.621) that:
"The principle that failure by one party in a material obligation justifies the other in treating a contract as repudiated is limited to the rescission of those terms of the contract which are still executory. It does not extend to rescission of real rights in property which the party in default has acquired under the contract."
[103] Mr Ellis submitted that this statement and the text which followed did not exclude the recovery of the site in the circumstances of this case. I agree that the text is not a bar to such recovery. Rescission for breach of contract of itself does not re-transfer property rights which have passed from seller to buyer under a contract of sale. As Professor Gloag stated in a footnote, the argument that the property did not pass [under a contract of sale] if the price was not paid was considered and rejected in Blacklock v Heron 1767 M 14157. Thus in Richmond v Railton (1854) 16D 403, to which Professor Gloag also referred, the sellers of furniture could not regain ownership of furniture sold to a person who failed to pay the price and later was bankrupted. To have allowed recovery of the property after the buyer's insolvency would have been at the expense of the general body of his creditors. There were no grounds for favouring the personal right of the sellers over those of the other creditors.
[104] In my view it does not follow from those cases that the remedy which the court can devise to reverse unjustified enrichment must necessarily exclude the re-conveyance of the property on payment by Mr and Mrs Hunter of the sums due by them to MML in damages from their breach of contract. But it appears to me that any enrichment could also be reversed if MML were to pay to Mr and Mrs Hunter the amount (if any) by which the value of the site exceeds the value of their claim for damages. I propose to hear further submissions on remedy in the next stage of the proceedings in which the value of the site and the value of MML's claim are ascertained.
[105] In support of an assertion of a right to regain ownership of the site Mr and Mrs Hunter averred that a term should be implied into the missives that MML was obliged to re-convey the property in exchange for repayment of the deposit or, which failing, to pay the full market price of the property. Mr Ellis referred to DFR Properties Ltd v Glen House Properties 2007 SC 74 for a modern statement of the law in relation to implied terms. I am not persuaded that such a term can be implied into the missives. First, it would contradict clause 13, which allows MML to re-sell the site on the sellers' failure to re-pay the deposit. Secondly, it contradicts that clause by making no allowance for MML's claim for damages in addition to the sum representing the deposit. Thirdly, the term which he proposes is not the only way in which the problem could have been addressed and thus cannot be seen as the term which the parties would have chosen if they had considered the matter: they could have agreed that MML would account for the value of the site in excess of its claim. Fourthly, the term is not necessary to give the contract business efficacy as the general law can, in my opinion, deal with the matter which the contract has not addressed through the law of unjustified enrichment.
(vi) Other matters
[106] Mr and Mrs Hunter averred that MML was not entitled to use the power of attorney to discharge the standard security and one of the conclusions in their counterclaim was for reduction of the discharge. They averred that MML had no contractual entitlement to have the discharge. They based this averment on the assertions (a) that MML was not entitled to serve an unsatisfactory planning notice, and (b) that the use of the power of attorney involved a breach of fiduciary duty as the discharge was granted in face of opposition from them. Mr Ellis did not expand on the averments in his submissions but invited me to give effect to conclusions of the counterclaim which rested on them.
[107] I have dealt with the former argument in holding that MML was entitled to serve the relevant notice. I am satisfied that there is no substance in the latter argument. Whatever fiduciary duties may be owed by an attorney to his principals will be determined by the contractual context in which the power is conferred. Under the missives the clear purpose of the power of attorney was to enable MML to dispose of the site with an unencumbered title in the face of non-co-operation by Mr and Mrs Hunter. Accordingly, the attorneys who executed the discharge were not in breach of any duty to Mr and Mrs Hunter to refrain from doing so in the face of their opposition.
Conclusions
[108] It appears to me that the issues which remain to be determined are (i) the market value of the site, (ii) the quantification of the pursuer's claim in damages if the sale price or value of the site is less than its claim in damages, and (iii) the appropriate remedy to the defenders if the sale price or value of the site exceeds the pursuer's claim in damages.
[109] It follows from the above that much of the counterclaim fails. I therefore sustain the pursuer's fourth, fifth and sixth pleas in law in the answers to the counterclaim and repel the first to sixth pleas in law of the defenders in the counterclaim. I also repel the third to eighth pleas in law of the defenders in their defences. I will put the case out by order to determine further procedure.