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OUTER HOUSE, COURT OF SESSION
[2006] CSOH 139
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P1752/06
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NOTE BY LORD
BRACADALE
in the petition of
ALGAGROVE
PROPERTIES LIMITED
Petitioners;
for
Recall of
inhibition
MAKO PROPERTY
LIMITED
Respondents:
ннннннннннннннннн________________
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Petitioners: McIlvride;
Burness
Respondents: Cowie;
Harper MacLeod
9 August
2006
[1] The
respondents have raised an action at Edinburgh Sheriff
Court ("the Sheriff Court
action") against the petitioners for decree ordaining the petitioners to
implement contracts for the sale to the respondents of three properties at 7,
14 and 18 South Bridge,
Edinburgh. They also seek declarator that the contracts
have not been validly rescinded by the petitioners. The other craves include an alternative crave
for damages.
[2] On 25 July 2006
the respondents obtained a warrant for inhibition on the dependence of the Sheriff
Court action.
The case came before me in the vacation court on a motion for recall of
inhibition by the petitioners. I granted
partial recall and the petitioners have reclaimed.
[3] At the outset of the hearing Mr Cowie on behalf of the
respondents made it clear that the respondents sought inhibition only in
relation to the three properties which were the subject of the Sheriff
Court action and were content that the inhibition
should be recalled to the extent that it affected other properties owned by the
petitioners. The limited recall was,
however, not acceptable to the petitioners and Mr McIlvride on their
behalf submitted that there were two grounds on which the inhibitions should be
recalled. Firstly, in the Sheriff
Court action the respondents had failed to
demonstrate a prima facie case
against the petitioners. Secondly, the
respondents themselves were materially in breach of the missives between the
parties and therefore not entitled to enforce the contract.
[4] There
is one preliminary matter which I should mention. In article 3 of the petition a question is
raised as to the validity of the warrant to inhibit but this matter was not
discussed before me. Indeed, both
counsel for the respondents and I formed the impression in the course of the
hearing that the petitioners were not insisting on this point, which is
properly a prior question. However, at
the conclusion of the hearing Mr McIlvride explained that this was still a
live issue but would require the leading of evidence.
[5] By letters dated 12 and 13 April 2006 the petitioners and the respondents
concluded missives for contracts of sale by the petitioners to the respondents
of the three properties. The total price
of the properties was г1.15 million. In
terms of clause 2.3 of each of the missives a deposit was payable in respect of
each of the properties on conclusion of the missives. The deposits, totalling г115,014, were paid
by the respondents to the petitioners.
Date of entry to each property was agreed to be 30 June 2006. In the event, on that day the respondents
failed to pay the purchase price and on 18
July 2006 the petitioners gave notice that they were rescinding the
missives. In addition, they retained the
deposit.
[6] In order to understand the background against which these
events unfolded it is, I think, helpful to have regard to the correspondence
between the parties, which was produced.
Production 7/7 is a letter dated 23 June
2006 from the respondents' solicitors to the petitioners' solicitors. It was in the following terms:-
"I am pleased
finally to have received information in a (semi) coherent form regarding the
title but note that I have not seen a form 4 or confirmation from
pre-registration that all is proceeding to plan so far.
We submitted the
offer for the properties some 9 weeks ago, and, at your client's request
rapidly concluded a missive and paid a deposit in excess of г100,000, so it is
disappointing that we still have incomplete evidence of title. I calculate that it would take the best part
of a week to piece together the title, probably do a site visit and draft the
deeds, which brings us to the original date of entry. Because of the slowness of responses, my
clients' parents group will now have to re-align matters and have instructed me
that they wish to postpone settlement, without payment of penalties, to a
window of 9 - 11 August 2006. To
show that they are serious in their wish to continue they have put me in funds
to pay the VAT on the deposit if an appropriate invoice is issued to Sandbar
Limited".
Later in the same letter:
"I appreciate
your client will not be keen to delay, but they do have the deposit, and the
benefit of interest on that to provide some compensation."
Production 7/5
is a letter dated 3 July 2006
from the petitioners' solicitors to the respondents' solicitors in the
following terms:-
"I refer to
previous correspondence and note that the deadline for the completion of this
transaction passed on Friday last week.
As you are aware, our clients are due interest in respect of the
purchase price and I would be obliged if you would confirm when you expect to
conclude, in order that we can let you have an amended State for Settlement,
including the interest on the purchase price."
They wrote again on 10 July
(production 7/6) in the following terms:-
"I refer to our
recent telephone conversation and note that you are awaiting observations from
DLA solicitors acting on behalf of your funders. As discussed I can confirm that interest is
accumulating on this matter at a rate of 4% above the base rate of the Bank of
Scotland. Please confirm that you have
confirmed to your clients that these monies are accumulating and that
settlement will not be effected until this, together with the principal
purchase price are paid."
[7] On 18 July the petitioners gave notice that they were
rescinding the contract under clause 2.2 which provided that the purchase price
was to be paid on the date of entry and that, if the price was not paid within
14 days of the date of entry, the seller would be entitled to treat the
purchaser as being in material breach of contract and to rescind the missives
on giving written notice.
[8] The respondents were being funded by a third party whose
solicitors responded to the news that the petitioners had given notice of their
intention to rescind by fax dated 8 August 2006 to the solicitors acting
for the respondents (Production 7/11) in the following terms:
"I am most surprised at this course of action as the sellers'
solicitor has been unable to date to provide most of the title documentation
required to complete the due diligence exercise. The most basic of conveyancing requirements
have not yet been met - I am yet to see the principal Land Certificate for the
property."
[9] In
the initial writ the respondents as pursuers aver that the petitioners failed
to comply with clause 5 of the missives by not making available the originals
or extracts of all Title Deeds in respect that they failed to provide the Land
Certificate; and failed to comply with clause 4 of the missives by failing to
deal with the respondent's queries with respect to the property enquiry
certificates. Further specification with
respect to the question of the property enquiry certificates is provided in the
answers to the petition. It is averred
that these were in draft form and were out of date.
[10] Further, the respondents aver in the initial writ that because
the petitioners were themselves in material breach of the contract they were
not entitled to rescind the missives. The
respondents were ready and willing to implement their part of the missives
subject to the terms of the missives and required the petitioners to comply
with their obligations in order to do so.
[11] Clause 5 provides:
"The seller shall make available to the purchaser
upon conclusion of the missives the originals or extracts of all title deeds of
the property. Unless [sic] written
notice is received by us from you within five working days of the date of the
receipt of said title deeds intimating any defect in the seller's title or any
unusual and unduly onerous burdens or conditions and if the seller is unable or
unwilling to rectify or remedy the same, the purchaser will be entitled to
rescind the missives without penalty (which shall be the purchaser's sole
remedy) whereupon the deposit and accrued interest will be repayable to the
purchaser."
Clause 4.1 provides:
"On or before
the date of entry there shall be exhibited to the purchaser property reports in
the usual form from the relevant Local Authority and Water and Sewage Authority
or by some reputable provider of such reports whose reports are generally
acceptable in the market. In the event
that said reports disclose anything which materially detrimentally affects the
property then the purchaser shall be entitled to rescind the missives but only
in the event that it gives written notice to the seller ..."
[12] Before me Mr McIlvride was critical of these averments in
the initial writ. He said that the
respondents' pleadings lacked specification as to the alleged breaches of
Clauses 4 and 5 of the missives. Certain
Title Deeds had been produced by the petitioners. There was no entitlement under clause 5
to require the petitioners to produce further Title Deeds. If the respondents considered that the Title
Deeds which had been produced disclosed some defect in title then the
respondents' remedy was rescission. This
was their only remedy and they were not entitled to seek implement. They had failed to demonstrate a prima facie case for implement.
[13] Secondly, he submitted under reference to Turnbull v Mclean 18 74
1R 730 that since the respondents were themselves in breach of a material term
of the contract they were not entitled to have the other party to the contract
ordered to implement the contract. There
was an obligation on the purchaser to pay the price and an obligation on the
seller to produce deeds and certificates.
The purchasers had failed to pay the purchase price on 30 June or
in the period of fourteen days thereafter.
[14] Mr Cowie on behalf of the respondents submitted that in
the initial writ the respondents had set out a prima facie case. Mr Cowie
explained that the initial writ was at an early stage and that the pleadings
would be developed. He accepted the
concept of mutuality and pointed out that that was the foundation of the
respondents' own case in the initial writ.
The petitioners had failed to implement their side of the bargain and
were therefore not entitled to insist on their remedy of rescission. The missives obliged both sides to perform;
it was misleading to look at one side alone. [15] The question of paying the price went along with the
question of title. The purchasers would
not be expected to pay the price until they were satisfied about title. The petitioners were well aware that the
respondents were relying on outside funders.
The funders required to be satisfied that there was good title.
[16] The petitioners had failed to comply with clause 5 by failing to
make available the original or Extracts of all Title Deeds which included the
Land Certificate. He submitted that Mr McIlvride
was wrong in his interpretation of clause 5 and that failure to produce was not
the equivalent of a defect of title leading to the right of rescission.
[17] There was a failure to comply with clause 4.1 because the
property enquiry certificate had not been produced. What was produced was a draft document which
was out of date and lacked information.
In these circumstances the subsequent operation of that clause giving
the purchaser an entitlement to resile did not come into effect. In any event, clause 4.1 did not require the
purchaser to resile. It would be bizarre
if a purchaser who wanted to proceed and thought that there was a way in which
the matter might be dealt with could not do so.
[18] It is clear from the decision in Advocate General for Scotland v
Taylor 2004 SC 239 that in order to obtain a warrant for inhibition on the
dependence of an action a pursuer requires to demonstrate a prima facie case. It was common ground that if I was satisfied
that the respondents as pursuers in the Sheriff Court action had failed to
demonstrate a prima facie case, the
inhibition should be recalled. In
deciding whether the respondents had demonstrated a prima facie case in the Sheriff Court
action I took into account the following: the terms of the initial writ; what was averred in the petition and answers;
the terms of the correspondence between the parties; and the submissions advanced by counsel.
[19] This dispute turns upon questions relating to the mutuality of
obligations under a contract for the sale of heritable property. It seemed to me that the duty on the
purchasers to pay the price on the date of entry or within the window of the
ultimatum was interdependent on the duty on the sellers to provide all the
title deeds and the property enquiry reports in order that the purchasers could
satisfy themselves as to title and services.
[20] The respondents' position was that having been confronted with
a breach of the missives by the petitioners they withheld performance of their
own obligation to pay the price until such time as the petitioners complied
with their duties under clauses 4 and 5 of the missives. It appears that at least up to 10 July 2006 the petitioners
were prepared to proceed to a late settlement by payment by the respondents of
the purchase price together with interest.
However, on 18 July the petitioners adopted the nuclear option and
gave notice that they were rescinding the missives.
[21] It seemed to me that it was legitimate in these circumstances
for the respondents to raise the question as to whether the petitioners were
entitled to rescind and whether they were themselves entitled to insist on
implement, failing which damages. It
would be open to a party in the position of the respondents to seek to prove
that the other party was in material breach of an obligation under the
contract, and so to seek implement, failing which damages.
[22] Accordingly, while it is certainly true that the initial writ will
require adjustment, I took the view that on the information before me I was
able to conclude that the respondents had demonstrated a prima facie case that the petitioners were in material breach of
the contracts by failing to comply with clauses 4 and 5. I was unable to say that the respondents had
failed to demonstrate a prima facie
case in the Sheriff Court
action. I considered that the
interpretation of clause 5 for which Mr McIlvride contended was
strained but I took the view that the proper forum to explore that issue was in
the Sheriff Court action.
[23] Accordingly, I was not prepared to grant full recall of the
inhibition on the ground that the respondents had failed to demonstrate a prima
facie case in their Sheriff Court
action.
[24] In addition, because of the interdependence of the duties, the
question of whether the respondents as opposed to the petitioners were in
material breach of the contracts and not in a position to insist on implement
is one which can only, in my view, be resolved in the Sheriff court action.
[25] In the light of the concession by the respondents that
inhibition should be restricted to the three properties which are the subject
of the litigation I granted recall of the inhibition, excluding the three
properties which are the subject of the Sheriff Court
action.
