Background
Inner House case concerning an alleged contract relating to the purchase of a local authority flat at Partick Bridge Street in Glasgow in 1989.

Mr Khosrowpour claimed that he had loaned £8k to Mrs Mackay for the purchase of her flat and that the parties had entered a contract by which Mrs Mackay would remain in the property for the rest of her life without repaying the loan but that Mrs Mackay would make a will transferring it to Mr Khosrowpour on her death. Mrs Mackay also granted a standard security (securing all sums due and which may become due) in favour of Mr Khosrowpour in 1991.

Although Mr Khosrowpour said that Mrs Mackay had originally granted a will passing the property to him, she later executed a new will directing that her executors pay the sale proceeds of the flat to her children (who included Mr Khosrowpour’s former wife).

Mr Khosrowpour sought damages for breach of contract from Mrs Mackay’s executor

In the Outer House it was found that the contract related to heritage and, as such, required formal writing for its constitution. However, Mr Khosrowpour argued that, because of his payment of the funds and Mrs Mackay’s execution of the first will, Mrs Mackay was personally barred from relying on the lack of formalities to resile from the agreement. As such Lord Turnbull found that Mr Khosrowpour had set out a stateable case regarding personal bar and allowed a proof (an evidential hearing) to consider whether it could be established. The executor appealed to the Inner House.

Arguments
The pursuer argued that the rule of rei interventus (where there are important actings by the party seeking to rely on the agreement which are known to and permitted by the other party and which are unequivocally referable to the purported contract) applied. However, in the Inner House the court observed that the actings of the party who relies upon the invalidity of the bargain to escape from it fall under the rule of homologation, not rei interventus and that was the rule that applied to this case.

The consequence of this is that, unlike the rule of rei interventus, there is authority to the effect that homologation does not apply unless actings (in this case accepting the funds and writing the first will) took place at a time when the alleged homologator (in this case, Mrs Mackay) was aware of the right to resile. As such Mrs Mackay’s executor argued that Mr Khosrowpour had produced no evidence that the first will was executed at a time when the deceased knew that it was within her power to resile from the verbal agreement (meaning she could not be personally barred from changing her will). There then followed some discussion as to whether there is a rebuttable presumption that parties are aware of their rights with the onus of proving the opposite resting on the party contradicting the proposition (i.e. whether it should be presumed that Mrs Mackay was aware that the verbal agreement was not binding). However, in the view of the court, there is no presumption albeit that, in certain cases, depending upon the particular circumstances, the courts will not allow a party to rely upon alleged ignorance in the absence of clear proof.

Decision
The Inner House allowed an appeal. The circumstances in this case did not entitle Mr Khosrowpour to the benefit of any presumption that, when executing the first will, Mrs Mackay was to be taken as having been aware that she knew of her right to withdraw from the arrangement. Moreover, the court was not persuaded that Mrs Mackay should have borne responsibility for any ignorance on her part in that regard.  As to the suggestion that Mrs Mackey could have obtained legal advice, the court found:

“As a proposition no doubt that is true, and in a different context might well be significant.  However, this was a family matter, and when a formal legal document was prepared and executed, it directly contradicted the alleged oral bargain.”

The full judgement is available from Scottish Courts here.

Background
Sheriff Court case considering a purported lease of chip shop (which was converted from a petrol station forecourt shop) on South Uist. In early 2005, the parties reached a verbal agreement under which Mr Gray would lease the premises from Mr MacNeil for 15 years in return for paying staffing and running costs which would constitute rent. The agreement was not put in writing. Mr Gray bought equipment and the property was converted for use as a chip shop which opened for business in July 2005. The relationship between the parties deteriorated and in 2008, following a dispute, Mr MacNeil cut the electricity to the property and refused Mr Gray entry to the property. Mr MacNeil died in 2015 and Mr Gray raised an action against Mr MacNeil’s excecutor (Mr MacNeil Jnr).

Issues
There were essentially two issues for the court:

1. Whether Mr Gray was entitled to the return of the chip shop equipment (or alternatively payment of the value of the chip shop equipment); and
2. Whether, despite the legal requirement for the lease to be in writing, Mr Gray could recover damages (i.e. his loss of future profits) for material breach of the purported lease on the basis of the personal bar provisions contained in the Requirements of Writing (Scotland) Act 1995.

Decision
Return of the equipment
The sheriff found, on the evidence, that the chip shop equipment belonged to Mr Gray. Although, Mr MacNeil Jnr argued that that the equipment had nonetheless acceded[1] to the property, he failed to provide evidence relating to the conditions required (physical union, functional subordination and permanency) for accession to occur and the sheriff found that accession had not taken place.[2]

Verbal lease
Although a lease for more than a year requires to be in writing[3], Mr Gray argued that, in terms of the personal bar provisions contained in the 1995 Act[4], because Mr Gray had acted in reliance of the verbal lease with the knowledge and acquiescence of Mr MacNeil, Mr MacNeil had not been entitled to withdraw from the contract. However, after considering previous authorities[5], the sheriff found that the personal bar provisions in the 1995 Act only apply to the creation of rights which are purely personal whereas the verbal lease would also create real rights[6] (i.e. rights which are enforceable against the world rather than rights enforceable only between contracting parties). As such, the verbal lease was invalid and Mr MacNeil had been entitled to withdraw from it[7].

The full judgement is available from Scottish Courts here.

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[1] I.e. that the equipment had been fixed to the building in such a way as to become part of it (meaning that the owner of the building would also become the owner of the equipment).

[2] However there were some technical difficulties with Mr Gray’s pleadings regarding relating to delivery of the equipment/payment of the value and a further heading was fixed in that regard.

[3] 1995 Act s1(7).

[4] Section 1(3) and (4).

[5] The Advice Centre for Mortgages v McNicoll 2006 SLT 591 and Gyle Shopping Centre General Partners Ltd v Marks and Spencer PLC, [2014] CSOH 122

[6] The verbal lease effected the creation of a real right in land (in the same way, for example, as a disposition effects the creation of real rights in land) in contrast to being purely a contract for the creation of a real right (i.e creating personal rights relating to the creation of a real right to be effected in a future conveyance, in the same way as missives are a contract for the creation of a real right in land – with the real right then being created by the subsequent registration of the disposition which the seller will be obliged to deliver in terms of the missives.) Although a lease can be seen both as a contract for the creation of a real right in land and as effecting a real right in land, the courts have taken the view (after consideration of the Scottish Law Commission’s, Report on Requirements of Writing (Report No112) at para 2.50) that the personal bar provisions contained in the 1995 Act cannot apply in situations where real rights are actually conveyed (even if a contract for the creation of an interest in land is created at the same time).

[7] The sheriff also noted that the result seemed harsh in the circumstances of the case.

Outer House case concerning an alleged contract relating to the purchase of a local authority flat at Partick Bridge Street in Glasgow in 1989.

Mr Khosprowpour claimed that he had loaned £8k to Mrs Mackay for the purchase of her flat and that the parties had entered a contract by which Mrs Mackay would remain in the property for the rest of her life without repaying the loan but that Mrs Mackay would make a will transferring it to Mr Khosprowpour on her death. Mrs Mackay also granted a standard security (securing all sums due and which may become due) in favour of Mr Khosprowpour in 1991.

Although Mr Khosprowpour said that Mrs Mackay had originally granted a will passing the property to him, she later executed a new will directing that her executors pay the sale proceeds of the flat to her children (who included Mr Khosprowpour’s former wife).

Mr Khosprowpour sought damages for breach of contract. Mrs Mackay’s executor argued that, as a contract relating to heritage[1], the contract required to be constituted by probative writing (i.e. signed and witnessed) and was consequently not enforceable. On the other hand, Mr Khosprowpour argued that the contract did not relate to heritage but instead was an innominate or unusual contract and, as such, could be proved prout de jure (by any means known to law). Even if that were not the case, Mr Khosprowpour argued that, by virtue of his payment of the funds and Mrs Mackay’s execution of the first will, Mrs Mackay was personally barred[2] from relying on the lack of formalities to resile from the agreement. Conversely, Mrs Mackay’s executor argued the fact that the Standard Security was granted in security of sums due rather than an obligation to include a provision in the will suggested that payment of the funds and execution of the first will were not unequivocally referable to an obligation requiring her to leave the title to the flat to Mr Khosprowpour in her will.

After considering the authorities[3], Lord Turnbull found that the contract related to heritage and, as such, required formal writing for its constitution. However, it was found that Mr Khosprowpour had set out a stateable case regarding personal bar and a proof was allowed to consider whether it could be established.

The full judgement is available from Scottish Courts here.

(NB: see appeal to Inner House here.)

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

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[1] As the alleged contract took place in 1989, the Requirements of Writing (Scotland) Act 1995 did not apply and the situation was governed by the pre-1995 Act common law rules on the requirements of writing.

[2] By virtue of the common law rule of rei interventus (where there are important actings by the party seeking to rely on the agreement which are known to and permitted by the other party and which are unequivocally referable to the purported contract.)

[3] In particular McEleveen v McQuillan’s Executrix 1997 SLT (Sh Ct) 46.