The University Court of the University of St Andrews and others v Headon Holdings Limited and others, 20 August 2015 – duty of disclosure when negotiating joint venture

Background
Outer House case relating to a joint venture agreement which five parties had entered with a view to obtaining planning permission for, and optimising the sale value of, an area of land to the west of St Andrews.

Four of the parties held title to the parts of the property to be developed and the fifth was the intended developer of the land. Two of the parties to the agreement (including the developer) were controlled by Joseph Headon.

Two of the parties to the joint venture (Headon Holdings and the Cuthills) reached a separate agreement under which the Cuthills would convey an area of land to Headon who would hold the land and any future sale proceeds (less the price paid by Headon to the Cuthills for conveyance of the land) in trust for the Cuthills.

Arguments
Two of the other parties to the agreement including the University of St Andrews were unaware of the agreement between Headon and the Cuthills when they entered the joint venture. When they became aware of the agreement, they sought to have the joint venture agreement reduced on the basis that (1) they had relied on a material misrepresentation by Headon and the Cuthills and (2) they argued that Headon and the Cuthills had a duty to disclose material facts to them when they entered the joint venture. The university argued that they had been led to believe that Headon and not the Cuthills had the “beneficial interest” (i.e. being the recipient of the benefit which would result from the development of the property in question) as a result of statements made by Joseph Headon and others.

The University pointed out that Headon was closely related to the developer (both were controlled by Joseph Headon) and that, as a party to the joint venture, Headon received certain privileges under the joint venture agreement including voting rights on matters affecting the developer and enjoyed the ability to block agreement amongst the parties to the joint venture on certain issues. As such, if the university had known about the agreement between Headon and the Cuthills (the result of which the university argued was that the Cuthills were the “beneficial owners” of the property in question and not Headon as they had believed), they claimed they would have not have allowed Headon into the joint venture and would not have entered the venture themselves.

Decision
Lord Tyre rejected the university’s arguments and dismissed the action.

Duty of disclosure
In the first place Lord Tyre found that, in the circumstances, there was no duty of disclosure. The general rule is that the parties to a contract have no duty of disclosure. However, a duty can arise in relation to certain special contracts or where the parties are in a special relationship. (A common example where the duty arises is contracts of insurance, where facts material to the insurer’s risk are known only to the insured.) The university argued that the duty also applies to parties negotiating a partnership. After noting that it was not definitely decided that the duty applies to such cases in Scotland, Lord Tyre found that he was not persuaded that the joint venture could properly be characterised as a partnership (or analogous to a partnership) for the purpose of applying the law of pre-contractual duties.

Misrepresentation
Secondly, Lord Tyre held that there had been no misrepresentation in the statements describing Headon as the owner or landowner of the land in question as Headon did in fact hold title to the land. Describing Headon as the landowner did not amount to a representation that Headon was a “beneficial owner” in the sense that the term had been used by the university.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

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(First) Ewen John Macpherson and (Second) Lorraine Mary Anne Macaulay v (First)  Richard Colin Macqueen, (Second) Michael Iain Macqueen And (Third) Yvonne Janette Macqueen, 7 August 2015   -enforceability of contractual obligations contained in missives after the missives ceased to be enforceable

Inner House case considering the enforceability of contractual obligations contained in missives after the missives ceased to be enforceable.

Background
Mr McPherson and Ms Macaulay (the pursuers) sold a house and garden ground in North Connel to the Macqueens (the defenders) whilst retaining some adjacent land on which they intended to build two semi-detached houses. The missives contained conditions obliging the defenders (who also owed an adjacent property) to convey a strip of land to the sellers and also to grant a servitude right of access over an additional strip of land. The missives incorporated the Combined Standard Clauses (2009 edition) which include a clause providing that the missives will cease to be enforceable after 2 years.

Arguments
The pursuers sought an order for specific implement in order to compel the defenders to convey the strip of land and grant the servitude. The action was raised outwith the 2 year period and the defenders argued that it was time barred (as the obligations were either part of the missives or collateral to them and consequently ceased to be enforceable when the missives ceased to be enforceable). That argument was rejected in the sheriff court; the sheriff taking the view that the obligations to convey the strip and grant the servitude formed a separate contract to the sale of the house and garden (albeit recorded in the same document).

Decision
However, the Inner House allowed an appeal of the sheriff’s decision. The court agreed with the defender’s contention that the obligations to convey the strip of land and grant the servitude formed part of the overall consideration (in addition to the purchase price of £245k) and, as such, were an intrinsic part of the contract for the sale of the property and became time barred when the missives ceased to be enforceable.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

 

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Kennedy and others for suspension and interdict, 21 July 2015 – interpretation of a minute of agreement relating to devlopment

Outer House case concerning the interpretation of a minute of agreement in respect of professional fees relating to a planned development.

Background
Mr Kennedy and others (the trustees) were the owners of a 6.293 acre site in Ayr which they agreed to sell to a house builder (DMH). The missives of sale included a term which allowed DMH to resile from the bargain on the payment of an “abort fee”. DMH paid the fee and resiled. The parties then entered a minute of agreement which provided for the trustees to reimburse DMH for professional fees of just over £165k in certain circumstances if the trustees agreed to sell the site to a third party.

When the trustees agreed to sell the site to Miller Homes, DMH served charges on the trustees for payment of the professional fees.  The trustees denied liability to pay and sought suspension of the charges. The question for the court was whether, in terms of the minute of agreement, there was a liability to pay the fees in the situation where DMH had not obtained planning consent for the development.

Decision
On the interpretation of the contract, Lady Stacy said:

“I accept the submissions made by both counsel to the effect that the task of the court is to consider what the reasonable person, armed with the information that the parties reasonably had at the time of entering into the contract, would consider was meant by the words of the contract.  I accept that the construction should, if there is a choice, favour a commercially sensible outcome.  I am bound by the case of Grove Investments to proceed in that fashion. The words of the contract are to be read as a whole, and if possible meaning given to all of them.  I am not concerned to find out what the parties intended to agree, but rather what in the context of the facts agreed or proved, their words show that they did agree. I have reached my view by considering all of the circumstances known to both parties. I have not relied on internal communications known to only one of them.”

 On that basis, and after noting that the minute of agreement was not easy to construe, Lady Stacy accepted DMH’s arguments to the effect that the trustees were liable to pay the fees even where planning permission was not obtained and refused the trustees’ petition.  In coming to that conclusion Lady Stacey found that, although the trustees commercial intention had been hard to ascertain, they had entered the agreement and agreed to make the payment because they wished to encourage  DMH to proceed with their planning application during the period when the trustees were looking for a third party to purchase the site. If, however, the intention had been that the payment would only be made if DMH were successful in obtaining planning permission, it would not have been drafted in the way it had been drafted.  It would not have been difficult to draft an agreement which stated plainly that payment was dependent on DMH obtaining planning permission and the minute of agreement did not do so.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

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Execution in counterpart – Legal Writings (Counterparts and Delivery) (Scotland) Act 2015

The Legal Writings (Counterparts and Delivery) (Scotland) Act 2015 came into force on 1 July 2015.

It does two things:

  •  It makes provision to the effect that documents signed in counterpart are legally effective under Scots law
  •  It permits delivery of ‘traditional’ or paper documents by electronic means.

Execution in counterpart
Execution in counterpart refers to the practice (frequently used in England) whereby each of the parties to a document executes a separate physical copy of the document before the documents are exchanged so that each party holds a copy of the documents signed by the other parties.

It can be done where the parties are in different places and signing at different times. As such, it avoids problems of time and cost that can arise if all of the parties have to get together for a signing meeting or wait for a single document to be circulated around each of the parties one-at-a-time for execution.

There was a great deal of confusion as to whether executing documents in counterpart was competent in Scots law prior to the 2015 Act and the situation was so uncertain that it was common practice for parties to contracts in Scotland to agree to contract under English law in order to allow the use of counterpart signing. The 2015 Act removes that uncertainty and confirms the validity of the practice.

Delivery of traditional documents by electronic means
Under Scots law, contractual documents which have not been signed by all of the parties to the contract require delivery (i.e. to be given to the other parties to the contract) to be effective. The theory is that, until the document has been delivered to the other party, it is open to the party granting the obligations to change their mind and destroy or change the principal document but, once the document has been delivered to the other party, it is out of the control of the party granting the obligations and the contract becomes effective.

It is of course common for contracts to be negotiated by email or fax with the relevant documents attached. However, there is case law which suggests that sending a document as an attachment to an email or fax is not sufficient to amount to delivery. The reason for this is that faxed or e-mailed documents are merely copies of the principals meaning that, until the original document is delivered, a party could still change its mind and destroy the original.

The 2015 Act changes that and provides that traditional or paper documents can be delivered electronically meaning that the document will now become effective on the sending of the email (or fax) to which it is attached (unless the document provides otherwise).  It is worth noting that the original documents can still require to be sent to the other party, in addition to electronic delivery, where self-proving status is required or where the principal documents are required for another purpose (for example, registration).

The Legal Writings (Counterparts and Delivery) (Scotland) Act 2015 is available here.

The explanatory notes can be seen here.

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LKS Style Bank – corporate styles

The LKS style bank now has a corporate section which includes new articles, dividends and a shareholder agreement.

The styles have been drafted by Iain Taylor of  e-corporate. You can access them here or from or from the styles menu on our home page.

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Private client locum service

If you think your firm might require a private client locum solicitor please contact james@legalknowledgescotland.com

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Coal Pension Properties Limited v. (First) The Scottish Ministers; (Second) Stirling Council and Standard Life Investments UK Shopping Centre Trust, 14 July 2015 – Extent of selling restriction in planning permission

Background
Inner House case considering the interpretation of a detailed planning permission granted in respect of Springkerse Retail Park near Stirling.

The provision at the centre of the dispute (condition 3) contained a definition of household goods which listed various specific types of (non-food) goods permitted for sale.

Coal Pension Properties (CPP) argued that the retail units within the park could be used for the sale of a wider range of goods than those contained in the condition 3 list and applied for a certificate of proposed lawful use permitting “the retail sale of any non-food goods”. Stirling Council refused the application and a reporter appointed by the Scottish Ministers refused an appeal of that decision. CPP appealed to the Inner House.

Argument
CPP contended that the condition 3 list only applied to units engaged in the selling of household goods. (i.e. those which were not engaged in selling household goods could sell any non-food goods). They also argued that the planning permission did not exclude the operation of the Town and Country Planning (Use Classes) (Scotland) Order (which allows buildings within class 1 (shops) to be used for the retail sale of goods other than hot food without it being taken as a development requiring planning permission).

Decision
The Inner House rejected those arguments and refused the appeal.

The court noted that, when interpreting a planning permission, the question is not what the parties intended but what a reasonable reader would understand would be permitted by the planning authority. On that basis, the court found that the condition 3 list applied to all of the retail units in the park. The court also agreed with the Scottish Ministers’ argument that, if CPP were correct then, if no unit sold household goods, the condition would not apply and would serve no purpose. In addition, the court took account of an earlier decision letter in relation to the grant of outline planning permission (to which the detailed planning permission expressly referred) which indicated that the condition 3 list applied to all of the retail units in the park.

With regard to the Use Classes Order, the court found that, when construed as a whole considering the purpose and context of the permission (including the earlier outline permission which had referred to the need to restrict the non-food goods sold at the retail park to protect town centre shopping facilities), the planning permission had the effect of excluding the operation of the Use Classes Order.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

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Keshia Cordiner v Gassan Al-Shaibany, 9 June 2015 – whether advance payment of rent amounts to tenancy deposit in terms of the Housing (Scotland) Act 2006

Sheriff Court case relating to a short assured tenancy of a flat on Laurence Street in Broughty Ferry. Ms Cordiner was the tenant and Mr Al-Shaibany, the landlord. In terms of the lease, the rent for the first and last months was payable in advance. The lease also provided that no deposit was required by the tenant. In terms of the Tenancy Deposit Scheme (Scotland) Regulations 2011, if a landlord fails to pay a tenancy deposit into an approved scheme within 30 days of the beginning of the lease, it may be liable to pay a penalty to the tenant for failing to comply with its duties.

The question for the court was whether payment of the last month’s rent fell within the definition of a “tenancy deposit” (provided in the Housing (Scotland) Act at s120).

The definition provides that:

“A tenancy deposit is a sum of money held as security for

(a) the performance of any of the occupant’s obligations arising under or in connection with a tenancy or an occupancy arrangement, or

(b) the discharge of any of the occupant’s liabilities which so arise.”

The sheriff found that the payments made by Ms Cordiner under the lease has been payments of rent and not payments held as security for the performance of any of the tenant’s obligations. In coming to that conclusion found the reasoning of the English Court of Appeal in Johnson v Old[1] to be persuasive. In particular, the sheriff noted that in that case:

“the Court made the crucial distinction between a payment discharging an obligation or liability and a payment made as security for that obligation or liability. A payment as security does not discharge the obligation or liability. Rather, it is an assurance that the obligation or liability will be discharged at a future time. The court concluded that a payment of rent in advance is a payment which discharges the obligation to pay rent and is not therefore a payment held in security for the discharge of any such obligation in the future”.

As regards the present case the sheriff stated:

“[Ms Cordiner] paid the first and last rental payment at the start of the lease. At that time she discharged her obligation to pay the first and last month’s rent in accordance with the lease. It seems to me to be wrong to describe that money as money held as security for the performance of an obligation, if that obligation has already been discharged. There was no evidence to suggest the rental payments were being held for any other purpose.

 As the payment of the last month’s rent was not “held as security” for the performance of the obligations under the lease, the payment was not a tenancy deposit in terms of the 2006 Act and did not require to be paid into an approved scheme in terms of the 2011 Regulations.

 The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

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[1] [2013] EWCA 415; [2013] HLR 26.

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David Douglas Ernest Kenwright v. Stuart Milne Group Limited, 30 June 2015 – interpretation of option agreement for purchase of development land

Outer House case considering an option agreement over land at Greystone farm, Alford in Aberdeenshire.

Background
Mr Kenwright owned the land and entered into an option agreement with Stuart Milne by missives agreed in 2003. In terms of the agreement Stuart Milne could exercise the option to purchase parts of the farm land with detailed planning permission (which the parties were to work together to obtain) and consents for a housing development. Under the agreement Mr Kenwright was bound to enter any section 75 agreement[1] required by the local authority and Stuart Milne was to indemnify Mr Kenwright against any obligations he incurred under such an agreement.

Stuart Milne applied for and entered negotiations with Aberdeenshire Council regarding planning permission. It was agreed that the council would grant planning permission for two areas referred to as phase 1 and phase 2 and that an area of land between the two phases would be conveyed (for no purchase price) by Mr Kenwright to the council for the building of a new school/community centre. The planning permission was then granted subject to a section 75 agreement obliging Mr Kenwright to transfer the school land to the council.

In June 2010 further missives varied the agreement to change the purchase price for the phase 1 land and made provision for Stuart Milne to exercise the option in respect of the school land (at a purchase price of twice the open market agricultural value of the land). Stuart Milne also wrote to Mr Kenwright in June 2010 undertaking to “implement and perform or to procure the implementation and performance” of the obligations under s75 agreement and indemnifying him against any loss.

In July 2010 Stuart Milne exercised its option to purchase phase 1 and began building the development. The option agreement expired in January 2013 and the council called on Mr Kenwright to convey the school land to it in August 2013. He did so in September 2013.

Arguments
Mr Kenwright argued that the indemnity granted in June 2010 obliged Stuart Milne to exercise the option in respect of the school land (paying him the agreed price) and then convey it to the council (for no consideration) in terms of the 2010 missives.

The questions for the court were whether Stuart Milne was obliged to indemnify Mr Kenwright and, if so, what loss had he suffered.

Decision
Lord Woolman found that, in terms of the June 2010 indemnity letter, Stuart Milne had the option to implement and perform the obligation contained in the s75 agreement using the procedure contained in the 2010 missives (i.e. purchasing the school land from Mr Kenwright for the agreed price then selling to the council for no consideration) or it could ‘procure’ the implementation and performance of the obligation. Stuart Milne had procured implementation and performance of the obligation when Mr Kenwright had conveyed the land directly to the council. There was no binding obligation requiring Stuart Milne to follow the procedure contained in the 2010 missives and it was able to choose not to do so.

Lord Woolman observed that, if Mr Kenwright had not transferred the school land to the council, the council would have refused to grant planning permission or required a developer’s contribution from Stuart Milne (which would have reduced the price Stuart Milne would have been willing to pay Mr Kenwright): meaning that, in effect, Mr Kenwright had already received the value of the school land. Lord Woolman also noted that Mr Kenwright retained the phase 2 land which had an enhanced value due to the planning permission.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

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[1] Agreements which local authorities can use to divert some of the benefit received from the grant of planning permission for a development back to the public sector.

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Private client locum service

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