Outer House case concerning an Option Agreement relating to a 4.6 acre Brownfield site near the Commonwealth Games Athletes Village in Glasgow which was owned by Glasgow City Council.
Background
PIP 3 wanted to construct a hotel and car park on the site and, between 2006 and 2011, instructed various investigations to be carried (which showed that the site was relatively free from hazardous waste) However, following receipt of a survey from the Council, PIP 3 discovered that a large quantity of extra earth had been deposited on the site which the Council then confirmed was spoil derived from the construction of the nearby Commonwealth Games facilities.
The parties entered an option agreement in late 2011 (schedule 1 of the agreement was termed “the Missives”). Amongst other things, the agreement provided for payment of an initial purchase price by PIP 3 (at settlement –which was 15 working days after PIP 3 exercised the option to purchase the property) and for the Council to instruct a remediation consultant to prepare a Site Waste Management Plan and a Materials Management Plan (as soon as reasonably practicable after execution of the option agreement). The Council were also to procure that the contractors and the remediation consultant were to provide collateral warranties to PIP 3.
The settlement date was 11 April 2013. PIP 3 asked for copies of the Site Waste Management Plan and a Materials Management Plan in February 2013 and, whilst the Council said it was obtaining the documents, it said that there was no obligation on them to deliver them at settlement. PIP 3 did not pay the initial purchase price at settlement. The Council delivered the copy documents to PIP 3 on 5 June 2013. However, PIP 3 still did not pay and the Council rescinded the Agreement on 4 July 2013.
PIP 3 raised an action for breach of contract on the basis that the Council had failed to provide (a) the Waste Management Plan and the Materials Management Plan and (b) the collateral warranties. PIP 3 sought damages of over £15m equating to an estimate of its lost profit if the development had gone ahead. Alternatively, PIP 3 sought abortive costs on the basis that the Council had (i) breached its obligations of good faith and (ii) negligently misrepresented the position by failing to disclose the deposit of hazardous waste.
Decision
Lord Woolman dismissed PIP 3’s claim for breach of contract. In the first place, it was found that, in terms of the wording of the relevant clause in the agreement, there was a duty to instruct the Waste Management Plan and a Materials Management Plan but not to deliver them on or prior to settlement. (In coming to that conclusion Lord Woolman also observed that there were only three working weeks between exercising of the option and settlement and it might have been difficult for the Council to obtain the documents in that period.)
Secondly, Lord Woolman referred to the missives. Clause 1.7 provided that Council was not entitled to rescind: “for any period of time during which the delay in payment by PIP 3 is due to any failure or breach by or on behalf of the Council to implement its obligations or duties under the Missives on time”. Lord Woolman noted that, unlike clause 1.3 which provided that the Council was entitled to rescind both the missives and the option agreement if PIP3 failed to pay the initial purchase price, clause 1.7 referred only to the missives. As such, the limitation of the Council’s right to rescind contained in clause 1.7 applied only in respect of obligations contained in the missives (but not the option agreement). The obligation relating to the Waste Management and Materials Management Plans was contained in the option agreement but not the missives meaning PIP 3 could not withhold payment on the basis non-compliance with the obligation without giving the Council a right to rescind.
Thirdly, PIP 3 had also claimed that they were entitled to withhold payment on the basis that the missives required the Council to deliver certain documents including the collateral warranties at settlement. However, Lord Woolman found that, having regard to the wording of the agreement, payment of the initial purchase price was the hinge of the transaction and, until payment occurred, the Council had no obligation to deliver the collateral warranties (and other settlement documents).
Lord Woolman also held that, in the circumstances[1], the case was not one in which PIP 3 could argue alternative and inconsistent grounds of action. (I.e., on one hand, make a claim for damages equivalent to PIP 3’s lost profit on the basis that the development would have gone ahead were it not for the Council’s actions but, on the other hand, claim for abortive costs on the basis that PIP 3 would not have gone ahead with the transaction if it had known about the hazardous waste.) Lord Woolman took the view that PIP 3 must have known whether it would have exercised the option and developed the subjects and agreed with the Council that the whole thrust of the PIP 3’s arguments indicated that the transaction would not have gone ahead. As such, PIP 3 could only claim for abortive costs and not for damages amounting to lost profit.
The full judgement is available from Scottish Courts here.
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[1] Lord Woolman took the view that this was an extreme type of case in which the court had to exercise supervision referring to Maclaren Court of Session Practice page 311 and Smart v Bargh 1949 SC 57.
