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EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
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Lord Nimmo Smith
Lord Philip
Lord Eassie
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[2006] CSIH 45
XA75/06
OPINION OF THE COURT
delivered by LORD PHILIP
in
APPEAL
From the Sheriffdom of
Glasgow and Strathkelvin at Glasgow
in the case of
MRS CATHERINE BLACK
Pursuer and Appellant;
against
FRASER McGREGOR
Defender and Respondent:
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Act: P G Davies; Drummond Miller (Friels,
Uddingston) (Pursuer and Appellant)
Alt: J A Brown; McClure Naismith
(Defender and Respondent)
6
October 2006
[1] In
this action the pursuer seeks payment from the defender of damages of
£62,806.43 for breach of a contract entered into between them in missives dated
5 and 17 October and 12 and 13 November 2002, in which the pursuer
agreed to sell, and the defender agreed to buy, heritable property at
Rockmount, 150 East Clyde Street, Helensburgh.
The price was to be £600,000 and the date of entry and settlement was to
be 28 November 2002. The following clause was incorporated into
the contract by the missive dated 17 October 2002 sent by the pursuer's agents to
the defender's agents:
"2 Payment of the purchase price in full
on the date of entry is of the essence of the contract. In the event of the purchase price or any
part thereof remaining outstanding as at the date of entry, then
notwithstanding consignation or the fact that entry has not been taken by your
clients [sic], your clients shall be
deemed to be in material breach of contract and further, interest will accrue
at the base lending rate of Five per centum (5%) per annum above the Clydesdale
Bank plc base lending rate from time to time until full payment of the price is
made or in the event of our clients [sic] exercising their option to rescind
the contract until such time as our clients shall have completed a re-sale of
the subjects and received the re-sale price and further, interest shall run on
any shortfall between the purchase price hereunder and the re-sale price until
such time as the shortfall shall have been paid to our clients. In the event that the said purchase price is
not paid in full within fourteen days of the date of entry, our clients shall
be entitled to treat your clients as being in material breach of contract and
to rescind the missives on giving prior written notice to that effect to your
clients without prejudice to any rights or any claims competent to our clients
arising from the breach of contract by clients [sic] including our clients' rights to claim all losses, damages and
expenses sustained as a result of your clients' breach of contract including
interest on the price calculated as set out in this clause. For the purposes of computation of our
clients' loss, the interest element of that loss shall be deemed to be a liquidate
penalty provision exigible notwithstanding the exercise by our clients of their
option to rescind the contract for non-payment of the price or any repudiation
of the contract by your clients. This
clause shall have effect always provided that any unreasonable delay in
settlement is not attributable to us or our clients."
The price has never been paid by
the defender and the pursuer remains the owner of the subjects. By letter dated 16 December 2003 the
pursuer rescinded the contract.
[2] The
sum sued for is made up of £60,928.79, representing interest on the purchase
price at 5% above the Clydesdale Bank's base rate from the date of settlement to
27 January 2004, the date
of raising the action, together with abortive solicitors' fees totalling £1,175
and estate agency fees of £702.64.
[3] The
case came before the sheriff at Glasgow for debate
on the defender's pleas to the relevancy and of personal bar. The sheriff repelled both pleas and excluded
from probation averments in support of the plea of personal bar. A proof was subsequently allowed. The defender then appealed to the sheriff
principal, who recalled the sheriff's interlocutor and sustained the defender's
plea to the relevancy, excluding from probation the pursuer's claim for
interest of £60,928.79. The sheriff's
decision on personal bar was not challenged.
[4] Before
us, Mr Davies, for the pursuer and appellant, moved the court to recall the
interlocutor of the sheriff principal and to restore that of the sheriff. He submitted that the clause in question had
been framed in the light of the decision in Lloyd's
Bank plc v Bamberger 1993 SC 570 and was intended to provide that the seller's claim for interest should
survive rescission of the contract by her. The pursuer had rescinded the contract on the
ground of the defender's failure to pay the price. In those circumstances she was entitled, in
terms of the clause, to interest on the purchase price from the date of entry
until she received the proceeds of any re-sale. She was also entitled to recover any shortfall
in the price, together with interest on the shortfall until it was paid by the defender. The terminus
ad quem to which the interest to which she was entitled ran was therefore
specified in the clause.
[5] The
pursuer's claim, counsel submitted, arose from a single breach of contract and
was enforceable in its entirety at the same time, namely, at the date of the
breach of contract. Since she required
to claim all her damages in a single action, her claim for interest terminated
at the date of raising the action. The
clause did not provide that the seller was entitled to interest only if she
re-sold the house. There was no
authority for the proposition that interest could only be claimed when it had
stopped running. The pursuer was entitled to interest so long as she made
reasonable efforts to sell the subjects. The provision was a genuine
pre-estimate of damages to compensate her for standing out of the money she was
owed. It was also intended to compensate
for expenditure on any bridging loan which she might require should she wish to
purchase another house with the proceeds of sale.
[6] Mr
Brown for the defender and respondent argued that, on a proper construction of
the clause, any claim for interest by the pursuer only became enforceable when a re-sale had been completed. A seller faced with a breach of contract by
non-payment of the price had two options.
He could seek implement by raising an action for the price together with
interest. Alternatively he could rescind
the contract. In the event of
rescission, if he re-sold the subjects at a lower price he would be entitled to
interest at the contractual rate from the date of settlement to the date of receipt
of the re-sale price, as well as payment by the purchaser of the shortfall in the
price, with interest on the shortfall from the date of settlement until
payment, and agents' fees. If an
identical price was achieved on re-sale his claim would be for interest only. If he achieved a greater price on re-sale the
general law provided that he would be entitled only to restitutio in integrum, and only his net loss would be
recoverable. Parties could however agree
that there should be no set off of the increase in price against the loss
sustained, but that had not been done in this case.
[7] Counsel
further submitted that if the pursuer's argument were sound, there would be a
third option open to a seller in her position.
She could rescind the contract, refrain from selling the house and claim
interest indefinitely. The clause did
not contemplate such an option. It did
not provide for interest to be recoverable in the circumstances which had
arisen in this case. Interest must run
from a specified date or event to another specified date or event. It was not recoverable day by day, but only
when the terminus ad quem had been
reached. The only event which could give
rise to a claim for interest in the present case, the re-sale of the subjects,
had not occurred. The pursuer therefore
had no enforceable claim to interest.
[8] The
clause with which we are concerned in this case is an amended version of the
clause which was the subject of the decision in Lloyd's Bank plc v Bamberger. In this case, the provision entitling the
seller to interest in the event of late payment of the price is in similar
terms to the equivalent provision in Bamberger,
but is amplified by the addition of the following, immediately succeeding,
passage:
"or in the
event of our clients exercising their option to rescind the contract, [interest
at the said rates will accrue from the date of entry] until such time as our
clients shall have completed a re-sale of the subjects and received the re-sale
price and further, interest shall run on any shortfall between the purchase
price hereunder and the re-sale price until such time as the shortfall shall
have been paid to our clients ... "
There follows thereafter a further additional
provision to the effect that the interest element of the seller's loss is to be
deemed to be a liquidate penalty provision exigible despite rescission by the
seller or repudiation by the buyer.
[9] The
court in Bamberger held that the
unamended clause did not allow a seller who had rescinded the contract to claim
interest, at the contractually stipulated rate, on the unpaid price. He was not entitled to demand performance by
the purchaser of any of the provisions of the contract when he himself was
unwilling to perform his part. Moreover,
the terms of the clause did not provide for interest to be payable by a
defaulting purchaser to the seller when the price had not been paid. The clause only dealt with the situation in
which full payment of the price was actually made. The purpose of the amendment to the Bamberger clause was to entitle a seller
who had rescinded the contract to continue to claim interest on the unpaid
purchase price until he received payment of the re-sale price and of any
shortfall between that figure and the original purchase price.
[10] Counsel for the pursuer argued that the provisions of the
amended clause also entitled the seller who had rescinded the contract to claim
interest although the subjects had not been re-sold, so long as he took or was
taking reasonable steps to obtain a re-sale.
In our opinion the clause in its present form does not have the effect contended
for by counsel. It provides that
interest will continue to accrue after rescission by the seller, but that provision
applies only in the situation in which the property is then re-sold and the
seller receives the re-sale price. The
clause makes no provision for the situation in which no re-sale of the subjects
takes place. The only termini ad quem mentioned in the passage
quoted above are "until such time as our clients have completed a re-sale of
the subjects and received the re-sale price" and "until such time as the
shortfall shall have been paid to our clients". As the court held in Bamberger, the phrase "interest will accrue" means no more than
"interest will run" and carries no implication that accrued rights to payment
of interest are continuously created. Accordingly
the events specified in the passage require to occur before the seller is
entitled to payment of interest.
[11] The fact that, in the penultimate sentence of the clause, the
interest element of the seller's loss is deemed to be a liquidate penalty makes
no difference to our conclusion. The
meaning and effect of the penultimate sentence are not entirely clear. In the context of a claim for damages for
breach of contract the phrase "liquidate penalty", used in former times in feu
contracts and similar writs in relation to delayed payment of feu duty, or
other periodical payment, sits a little unhappily with the distinction between
liquidated damages and penalty provisions.
However, we think the effect of the clause to be that in the event of
the contract being rescinded by the seller and a re-sale thereafter taking
place, any financial loss suffered by the seller by reason of the seller's not
having received the original sale price, and subsequently the "shortfall", is
liquidated in the contractually stipulated rate of interest and the seller does
not need to establish actual loss in the shape of lost investment returns or
the incurring of finance charges. Be
that as it may, it does not alter the fact that a claim for the "liquidate
penalty" can arise only after a re-sale.
We would add that before the sheriff principal, and to a limited extent
before us, there was discussion whether, in the event of a re-sale producing a
higher price than that contracted for in the contract between the parties, that
gain required to be brought into account.
It is however not necessary for us to express any view on that question.
[12] For the foregoing reasons we shall refuse the appeal and affirm
the interlocutor of the sheriff principal.
