Outer House case concerning RBS’s sale of an interest rate swap agreement to Grant Estates Limited (a property development company) in 2007.  RBS put Grant into administration in February 2011 after Grant had suffered financial difficulties during the economic downturn. Grant claimed that RBS had mis-sold the agreement, which the bank had represented as a device to protect Grant from a rise in interest rates. In actual fact, when interest rates fell sharply and remained low, the agreement prevented Grant from benefitting from those lower interest rates it would have otherwise paid on its borrowing. Grant maintained that, were it not for the agreement, it would not have gone into administration.

Although Grant had accepted RBS’s terms of business which, amongst other things, expressly stated that RBS was not providing advice on the merits of the transaction and advised Grant to obtain independent financial legal advice, Grant contended that:

1      the agreement breached the Conduct of Business Sourcebook issued by the FSA and the Markets in Financial Instruments `Directive (2004/39/EC);

2.1   RBS had entered into a contract to give it advice on financial products and had given negligent advice on those products; and

2.2    the agreement was entered as a result of fraudulent or negligent misrepresentation by RBS.

Grant sought reduction of the agreement and repayment of the sums paid under it together with damages in respect of the breach the Sourcebook and Directive.

Lord Hodge rejected Grant’s arguments.

Conduct of Business Sourcebook
In terms of the Financial Services and Markets Act 2000, breaches of the Sourcebook and Directive are only actionable by “private persons”. As a limited company acting in the course of business, Grant was barred from raising an action.

Negligence and misrepresentation
There had been no contract to provide advice. Although Grant argued that, when they had asked for financial advice and been given it by RBS, a contract arose by implication, Lord Hodge found that the terms of business contradicted any such implied contract and there was no evidence of an express agreement to depart from the terms of business. If Grant had relied on the statements by RBS as investment advice, that reliance had not been reasonable in the face of the contractual arrangements the parties had entered.

The full judgement is available from Scottish Courts here.

Outer House case concerning the termination of a wind farm agreement relating to property in Aberdeenshire.   In terms of the agreement, Backmuir granted an option to Mountwest to develop a wind farm on the property. The option period was ten years (with a right to extend for a further five years).  Mountwest was entitled to apply for planning permission and other consents but Backmuir had a right to see and make representations about the proposed application before its submission to the planning authority. If Mountwest obtained the necessary permissions, it could choose to exercise the option in which case Backmuir required to grant a twenty five year lease of the property to Mountwest. The agreement also contained a termination provision in the following terms:

“[Backmuir] may determine this Agreement by written notice to [Mountwest] if:-

 [Mountwest] materially fails to perform or observe any of its obligations in this Agreement and such failure or event is incapable of remedy or it is capable of remedy and [Backmuir] have [sic] served on [Mountwest] written notice specifying the failure or event and requiring it to be remedied within a reasonable time (to be specified in the notice and taking into account the nature of the obligation in question) and [Mountwest] has failed to do so;”

In June 2011 Mountwest lodged a planning application but failed to send a copy to Backmuir in advance. When it learned of this, Backmuir wrote to Mountwest advising them that they had breached the agreement and requiring them to remedy the breach “if it was capable of being remedied”. The letter also required Mountwest to provide the documentation required by the agreement within 21 days.  Mountwest then wrote to Backmuir enclosing a copy of the application and asking for comments. However, Backmuir’s solicitors replied purporting to terminate the agreement on the basis that Mountwest had failed to remedy the breach of the agreement.  The issue for the court was whether the agreement had been validly terminated.   Three questions required to be answered.

1. Was there a material failure by Mountwest?
2. If so, was it remediable?
3. Did Backmuir serve a valid notice of termination?

Material failure?
On a commercial construction of the contract Lord Woolman found that there had been a material failure by Mountwest. The purpose of the contract was to facilitate Mountwest’s wish to develop a wind farm at the property. But it contained built in checks drawn in Backmuir’s favour of which the right to make representations about the planning application was the most important. The parties had not intended that right to be illusory. Rather, they provided a mechanism which allowed Backmuir to influence the planning at a critical stage in the procedure.

Remediable?
Lord Woolman found that Mountwest’s failure to send the planning application to Backmuir was plainly capable of remedy; the application being at an early stage and local planning committee not yet having considered it.

Valid termination?
The clause allowing termination of the agreement had been a bespoke irritancy clause. The potency of the clause suggested that Backmuir would have to adhere to its precise requirements (it required Backmuir to serve written notice on Mountwest specifying the failure and requiring it to be remedied within a reasonable time). However, Backmuir’s initial letter notifying the breach had not been clear. It had both expressed doubt as to whether the breach was remediable and had required Mountwest to provide the documentation within 21 days. Lord Woolman found that the reasonable recipient of the letter would read it as requiring delivery of the documentation within 21 days and, if it were done, that would comply with the terms of the agreement.

Another approach was to ask whether the mischief created by Mountwest’s omission had been cured. Lord Woolman concluded that it had. Backmuir had asked for the documents. Mountwest had supplied them in return. If Backmuir had wished to insist on Mountwest withdrawing its application and beginning the process again, that would have been a simple message to convey and could have been easily and clearly set out in its letter.

The purported termination was therefore invalid.

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.

Sheriff Court case considering a lease of residential property at 39 Calside Road in Dumfries.  The landlords (Calmac) were seeking to recover possession of the property from the tenant at the end of the term. The issue for the court was whether the lease was a short assured tenancy (in terms of the Housing (Scotland) Act 1988).

For a tenancy to qualify as a short assured tenancy, it must be “for a term of not less than 6 months” (s 32(1) of the 1988 Act).

The lease stated:

 “The Date of Entry will be 29th April 2011. The Let will run from that date until 28th October 2011…”

The general rule for calculating time periods, known as the civilis computatio, is that the whole of the day on which a period commences is excluded and the whole of the day on which it ends is included (days being indivisible for the purposes of the rule).

Following that rule, the period of the lease in question would be one day short of 6 months. The sheriff rejected Calmac’s argument that there is a general exception to the rule for leases (on the basis that the date of entry should always be counted when computing the term of a lease).  However, after considering the authorities, he found that use of the words ‘date of entry’ in the lease meant that it had been contemplated that the tenant would take entry on that date thus creating an exception to the general rule[1].

Consequently, the lease ran from midnight on the 28^th April meaning that its term was exactly 6 months and the lease was correctly constituted as a short assured tenancy.

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.

Outer House case considering the interpretation of missives between two builders for the sale of land at Broomhouse in Glasgow. The land was to be sold by Bellway to Persimmon for £4.16m. Bellway were to undertake works before the sale and the date of entry was tied to Bellway’s completion of these works (which involved the upgrading of a road and construction of a roundabout).

In terms of the missives, if the works were not completed before the longstop date, Bellway were to offer an alternative site of comparable size and value to Persimmon. In a previous decision Lord Glennie found that, although Bellway were not breach of contract at the point they failed to complete the works, the alternative site they offered to Persimmon was not of comparable size and value and, following the failure to offer an alternative site, Bellway were then in breach of contract.

Persimmon’s letter giving notice that they were rescinding the contract referred only to the fact the works had not been completed in time and not to the failure to provide an alternative site. In these proceedings Bellway argued that, as they were not limited to only one opportunity to offer a suitable alternative site, the contract was still open for performance and they were not in breach of contract. However, Lord Glennie found that the contract had been validly rescinded by Persimmon’s letter. In doing so he confirmed the principle that, providing the intension to rescind is clear, the fact that no reason is given or the wrong reason is given is not normally significant. Further, although Persimmon failed to issue an ultimatum notice [1] before rescinding the contract, even if they had served an ultimatum, Bellway would have been unable to comply as they did not have a comparable site in their land bank at the relevant time. Also, as Bellway’s argument had been that the alternative site they had offered fulfilled the requirements of the contract, the service of an ultimatum notice would have served no purpose.

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.

Sheriff Court case concerning the sale of Harwood Estate near Bonchester Bridge in Hawick. In 2002 the trustees sought to sell part of the estate with the exception of Harwood Mill, which was being retained as a residence for Andrew Lubbock, and the lodge, which was the subject of a liferent to Georgina Lauder.   However, no mention was made of the exception of the lodge in the narrative to the disposition and title to the lodge was included within the estate title registered in favour of the purchaser, Mr Feakins in the Land Register for Scotland.

When this was discovered some years later, the trustees sought declarator that the lodge had not been included in the subjects of sale and an order that the Land Register be rectified. The trustees argued that, as the scale of the plan attached to the disposition meant it was impossible to determine whether the lodge was part of the subjects of sale, regard should be had to the intention of the parties in determining the effect of the disposition.

Although no mention was made of the exceptions in the missives or disposition, the trustees had instructed their estate agents and solicitors that the estate was to be sold with the exceptions and the trustee’s solicitors had sent a fax to the purchaser’s solicitors indicating that the mill and lodge were not included in the sale (a fact that had not been brought to Mr Feakins attention, his solicitors believing it unnecessary as he had been content with the plan which represented the subjects being purchased). The draft sales particulars had also been drawn up in a manner which neither specifically included or excluded the mill and lodge (the estate agents having taken the view that specific mention may have deterred purchasers and was unnecessary as the buildings were not within the body of the estate).

Sheriff Daniel Kelly QC found that the Register was not inaccurate as the lodge had been transferred in the disposition. Even if the disposition had been ambiguous, the lodge was amongst the property transferred in the missives. The missives had been agreed to be final[1] and it was not open to have regard to the prior intention of the parties. Further, even if the parties’ intentions had been considered, their intensions were not ‘as one’ as Mr Feakins did intend to purchase the lodge.

Finally, even had there been an inaccuracy in the Register, it would not have been open to order rectification as Mr Feakins was ‘a proprietor in possession’[2] who would have been prejudiced by the rectification. Although Miss Lauder was in natural or direct possession of the lodge, neither she nor the trustees held a registered title. Mr Feakins held title to and possessed the estate as a whole (living on it with his family and having a sheep farm there too). Mr Feakins also understood that, following the sale, Miss Lauder’s liferent was with him as fiar and he allowed her to continue to occupy the lodge. Although the Sheriff found there was difficulty in construing Miss Lauder’s occupation of the lodge as being civil possession on behalf of Mr Feakins, he nevertheless tended towards the view that Mr Feakins might be construed as a proprietor of the whole estate including the lodge.

The full report is available from the Scottish Courts here.

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

Inner House case concerning tripartite agreement between East Dunbartonshire Council, Bett Homes and Glasgow University. The agreement allowed the Council to sell the Bearsden Academy site to Bett for development and relocate the school to a site at St Andrews College in Bearsden which it was purchasing from the University of Glasgow.

The Council sought declarator that Bett was bound to fulfil its side of the bargain and pay the final instalment of the purchase price for Academy site. The dispute centred on whether the time was of the essence regarding the entry date on which vacant possession was to have been given to Bett. Bett argued that it was of the essence and, the Council having been unable to give vacant possession on the agreed date, it had been in material breach of contract and Bett had validly rescinded the contract. The Inner House upheld Lord Glennie’s decision finding that time was not of the essence and the contract remained live for performance.

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.

Outer House case considering the interpretation of missives for a property in Melrose, near Galashiels. Pinecraven sought damages and interest from Mr and Mrs Taddei as a result of their failure to settle the transaction. Mr and Mrs Taddei argued that there was no concluded contract.

The crux of the Taddeis’ argument was that Pinecraven’s offer to sell contained a time limit for acceptance after which the offer would be null and void. Whilst the Taddeis’ qualified acceptance arrived within the time limit, as it contained a qualification, it was not an acceptance of the offer. Consequently, Pinecraven’s subsequent letter concluding the bargain had no effect.

Lord Kinclaven rejected the Taddeis’ arguments finding that, although the acceptance was qualified, it was still an acceptance within the meaning of the clause containing the time limit. Even if that were not the case, the Taddeis’ qualified acceptance was a counter offer which was capable of acceptance within a reasonable time, and indeed, was so accepted by Pinecraven’s letter concluding the bargain. As a result it was found that there was a concluded contract between the parties.

The full text of the decision is available from the Scottish Courts website here.

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

Inner House case considering an agreement between NCP and EDI for a development at Castle Terrace car park in Edinburgh. The agreement involved EDI being interposed into a lease of the subjects between the City of Edinburgh Council and NCP in return for a capital payment of £5m and then using its close links with the City of Edinburgh Council (EDI being wholly owned by the Council) to deliver the development.

In terms of the agreement, EDI were obliged to “use all reasonable endeavours” expected of “a normal experienced prudent developer in the circumstances” to pursue the development. However, the development did not take place and, as it was entitled to do under the agreement, EDI served notice on NCP requiring NCP to buy back the tenant’s interest under the lease. NCP failed to do so contending that they were not obliged to serve the appropriate notice[1] as EDI were in material breach of the agreement having failed to comply with their obligation to use all reasonable endeavours.  NCP argued that EDI had approached the project as if they merely had an option to pursue the development rather than an obligation compelling them to undertake it. The question for the court was whether EDI had met the required standard.

The Inner House upheld Lord Glennie’s judgement that EDI had met the standard and found that the work they carried out and the assessment they reached were not significantly different from those to be expected of a normal experienced prudent developer in the circumstances. In particular, EDI could not be criticised for failing to pursue further steps in relation to any of four alternative sites since (on the evidence heard by Lord Glennie) such further steps would have been futile. It was clear from the papers available to the court that the problem of finding alternative car parking space was critical to unlocking the development and it had not been possible to identify alternative provision for car parking.

The Court also said the following on the standard of effort required from the Council:

“In our opinion it is clear that the obligation to pursue a project or seek a planning consent with all reasonable endeavours is one that requires the court to consider whether there were reasonable steps which the obligant could have taken but did not. For that reason it is a higher or more onerous obligation than one restricted to using “reasonable endeavours”. However, whether the phrase used is “all reasonable endeavours… or “reasonable  endeavours” we agree with the view expressed by Lord Hodge in MacTaggart & Mickel Homes Ltd v Hunter… that an obligation in either terms does not require the obligant to disregard its own commercial interests. Where the balance between the obligation to use reasonable endeavours and countervailing commercial considerations falls to be struck depends on the wording of the obligation in question. In considering what steps would be reasonable, the court also has to consider whether any further steps would have been successful. We agree with Lord Hodge… that if an obligant can show that it would have been useless for it to have taken a particular step (or steps), because it would not have been sufficient to achieve success, that would provide an answer to any claim that the obligant had acted in breach of contract… Equally if there was an insuperable obstacle, it is irrelevant that there may have been other obstacles which could have been overcome, or at any rate in respect of which the obligant had not yet done all that could reasonably be expected of it to try to overcome.”

 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.

Sheriff court case in which Wimpey sought damages from Mr Henderson in respect of his failure to pay the purchase price for subjects at Ferry Village in Renfrew.  Mr Henderson was acting on behalf of a group of investors who were purchasing multiple properties from Wimpey. Missives were concluded on 21st December 2007.  Wimpey had been anxious to conclude missives before Christmas and put pressure on Mr Henderson to conclude.  However, although Mr Henderson was also keen to proceed, he had concerns about the state of the property market and the fact that he was purchasing before the subjects had been built as he required finance for the transaction and the amount he could borrow would depend on a valuation of the property which could not be obtained until completion of the subjects.

This led to an email exchange indicating an underlying agreement by which missives would be concluded allowing Wimpey to show the properties as sold on their accounts but by which the properties would also be re-valued during 2008. Further negotiations could then take place and the properties could, if necessary, be re-marketed by Wimpey. In particular, Wimpey made the following comment by email:

“With this in mind, I want to give you some reassurance that should the circumstances arise that there are difficulties with the valuations we will find a resolution one way or another and I suggest that against this background I would like to have a “gentleman’s agreement” that we will have valuations carried out in the new year with a view to having them all back early Feb which will be the basis of any negotiations (if need be). I just want to give you the comfort that in concluding missives now will still allow for further negotiation should the valuations necessitate this.”

And, in response to a question by Mr Henderson as to what would happen if exchange bonds (being used by the parties in place of a deposit)[1] were not in place by the end of January as had been agreed:

“I would take the view of (sic) should this happen then we remarket the properties. If the question is will we come after you then I can give assuarnce (sic) that we wont, all I need is enough notice, ie as early in the year as possible to remarket. Hope this helps.”

Further emails were exchanged in which it was agreed that a condition would be inserted into the missives providing  that, if exchange bonds were not in place by 31^st January 2008 for plot 38, then Wimpey would be entitled to withdraw from the transaction at their instance. In the course of these emails Wimpey also advised that they could agree that, should the situation arise that all Bonds were in place and the property had not achieved the values required, an agreement would be reached by both parties whereby Wimpey could remarket all or some of the properties.  They said that, in effect Wimpey would resile from the missives at no penalty to Mr Henderson expressing the hope that this would alleviate the concerns of Mr Henderson and his business partner. However, nothing to this effect was inserted into the missives.

In September 2008 valuations were obtained which were substantially below that required for Mr Henderson to obtain finance for the subjects. The parties entered into negotiations aimed at enabling the sale to proceed but no agreement was reached. Nevertheless Wimpey wrote to Mr Henderson advising that the subjects were ready for occupation and that entry should take place on 17 October 2008. Entry was not taken and Wimpey resiled from the bargain, resold the property and sought damages from Mr Henderson in terms of the missives.

Mr Henderson argued that Wimpey were personally barred from enforcing the missives and also sought rectification[2] of the missives to reflect the true agreement; in his opinion that, following a revaluation of the properties, the price could be revised or the transaction aborted.

Sheriff William Holligan found that Mr Henderson was not entitled to rectification of the missives as he was unable to show that there was a common intention[3] between the parties as to what would happen in respect of valuations were any further negotiations to fail.

“I return to the proposition that section 8 concerns a defectively expressed document. In this case it is said to be defective because it does not contain a provision as to what would happen if the negotiations failed. What then was the common intention of the parties on that issue? Viewed objectively, I find myself unable to say what that was. I have no doubt, with the benefit of hindsight, [Mr Henderson] is quite clear what he expected. However, even if [Wimpey’s sales director] accepted that his expectation might have been reasonable, I cannot conclude it reflects the common intention of both parties… The issue is one of rectification. This does not allow the court to write into a contract provisions where it is not proved both parties shared a common intention on that particular issue.”

However it was clear that, when agreeing to conclude missives, Mr Henderson had relied on the content of the emails and Wimpey were found to be personally barred from enforcing the missives:

“On any view of this matter, the missives did not reflect the whole commercial relationship between the parties. Not only did both parties know that but they both acted on the strength of it.”

And further:

“To leave [Wimpey] with the unqualified right to insist on their rights under the missives, given [Mr Henderson’s] business model, does not make commercial sense. It would make the agreement to renegotiate the price almost meaningless. Whether [Wimpey] deliberately said nothing or genuinely did not turn their minds to the issue does not matter. As I have said the matter requires to be looked at objectively. The missives said one thing: the words and to some extent the actions of [Wimpey] conveyed to [Mr Henderson] something different. To that extent there was inconsistency. The element of unfairness is largely self evident.”

A full report is available from Scottish Courts here.

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

Outer House Case considering a lease of premises at Wardpark South Industrial Estate in Cumbernauld.  Batley acquired the tenant’s interest in the lease and North Lanarkshire Council were sub-tenants.

Central to the dispute was a minute of agreement entered into between Batley’s predecessors as tenants and North Lanarkshire Council regulating the terms and conditions on which the Council could carry out alterations to the property.  It provided:

“By the expiration and sooner determination of the period of the sub lease (or as soon as the license hereby granted shall become void) if so required by the mid landlord and at the cost of the sub tenant to dismantle and remove the Works and to reinstate and make good the premises and to restore it to its appearance at the date of entry under the sub lease, such reinstatement to be carried out on the same terms (mutatis mutandis) as are stipulated in this license with respect to the carrying out of the works in the first place (including as to consents, the manner of carrying out works, reinstatement, inspection, indemnity, costs and otherwise).”

 The lease came to an end on 18 February 2009. On 20 February 2009 the Council received a schedule of dilapidations in respect of the property.  However, they claimed that, as they had received the schedule after the expiry of the sublease, there was no obligation to remove the alterations (it having died on expiry of the lease). They argued that the notice provisions from the head lease were incorporated in the sub lease and any notice required to be in writing and to be served prior to the end of the lease.

This argument was rejected by the temporary judge (Morag Wise QC) who noted:

 “the wording of clause 2.5 which obliges the sub-tenant “if so required by the mid-landlord to remove the works” makes no mention of a notice. The means by which the sub tenant can be so required are not specified. In my opinion, it cannot be said to be a mandatory term of the Minute of Agreement that the mid-landlords convey in writing to the sub-tenants the requirement to remove the works unless [it] can be implied that service of some form of notice or request is part of that term.  If written notification of the type envisaged in clause 5.8 of the head lease cannot be so implied, then clause 2.5 would seem to me to permit the pursuers to offer to prove that they required the defenders to remove the work by conveying that to them orally.”

 And further:

“It seems to me that the [Council's] argument is predicated upon a notice being necessary for the purposes of clause 2.5. However, there is nothing in that provision of the Minute of Agreement to support the contention that something formal is necessary before the sub-tenants can be required to remove the works. For that reason I do not accept the submission that the notice provisions of the lease automatically apply to the “if so required” provision of clause 2.5.”

 An amendment to the pleadings was allowed in which Batley claimed that surveyors acting on their behalf had contacted the Council on 22 December 2008 and, after receiving confirmation that the Council were intending to leave the premises, advised them that the surveyors would require access to the property to prepare a schedule of dilapidations and that Batley would require reinstatement of the premises to their original condition.

The temporary judge found that this was ‘just’ sufficient to entitle Batley to a proof before answer on the question of whether or not they had adequately conveyed the requirement for reinstatement of the premises to the Council before the expiry of the sub lease.

 The full judgement is available from Scottish Courts here.

(NB: See also appeals to Inner House and Supreme Court)

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