Wipfel Ltd v. Auchlochan Developments Ltd [2006] ScotCS CSOH

OUTER HOUSE, COURT OF SESSION

[2006] CSOH 183

CA11/06

OPINION OF LORD CLARKE

in the cause

WIPFEL LIMITED

Pursuers;

against

AUCHLOCHAN DEVELOPMENTS LIMITED

Defenders:

________________

Pursuers: Johnston, Q.C.; MBM Commercial

Defenders: Cowan, Solicitor Advocate; Simpson & Marwick, W.S.

1 December 2006

Introduction

[1] The parties to this commercial action concluded missives in relation to subjects lying to the west of the A74 Glasgow to Carlisle road at Teiglum Road, Lesmahagow. The pursuers were the heritable proprietors of the subjects. The defenders in terms of the missives agreed to take a lease of the subjects. An option to purchase the subjects was conferred on the defenders. The missives expressly provided that the lease was deemed to be effective from 1 December 2002. In terms of the missives the defenders acquired an exclusive option to purchase the subjects by serving a notice on the pursuers, or their solicitors, at any time during the period between 30 April 2004 and 31 May 2004. The pursuers were designed in the missives as the lessor and the defenders as the lessee. Clause 3 of the relevant missive (6/1 of process), dated 15 January 2003, provided inter alia as follows:

"...following service of the Option Notice the Lessor will be obliged to sell the Subjects to the Lessee and the Lessee will be obliged to purchase the Subjects from the Lessor."

Clause 4 of the same missives set out certain terms and conditions, to which the sale of the subjects by the pursuers to the defenders became subject, following the exercise by the defenders of the purchase option. In particular Clause 4.1 provided:

"Entry with vacant possession shall be given on the Date of Entry when the Purchase Price shall be payable and settlement shall take place."

The term "date of entry" was defined in Clause 1 as meaning

"(1) the later of (One) 31 May 2004 and (Two) the date falling ten working days after the date of service of the Option Notice, or (2) such other date as the parties may agree".

The term "Purchase Price" was defined in the Clause 1 as meaning

"the sum of SIX HUNDRED THOUSAND POUNDS (£600,000) STERLING less the Accrued Rent (in both cases exclusive of Value Added Tax if any)."

Clause 5 of the missive then provided that

"Payment of the Purchase Price in full on the Date of Entry is of the essence of the Missives. 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 the Lessee, the Lessee shall be deemed to be in material breach of the Missives and further, interest will accrue at the base lending rate of 4% per annum above Bank of Scotland Base Rate from time to time until full payment of the Purchase Price is made or, in the event of the Lessor exercising its option to rescind the Missives, until the contractual date of entry in terms of any Missives entered into by the Lessor with a third party in respect of the resale of the Subjects and further interest shall run on any shortfall between the Purchase Price hereunder and the resale price until such time as the shortfall shall have been paid to the Lessor. The Lessor shall be obliged to take all reasonable steps to mitigate its loss in the event of the Lessee being in breach of contract. The clause shall have effect only to the extent that any delay in settlement is not attributable to the Lessor or the Lessor's agents."

In Clause 6 of the missive it was provided:

"In the event that the Purchase Price is not paid in full within twenty one days of the Date of Entry, the Lessor shall be entitled to treat the Lessee as being in material breach of contract and to rescind the Missives on giving prior written notice to that effect to the Lessee without prejudice to any rights or any claims competent to the Lessor arising from the breach of contract by the Lessee including the Lessor's right to claim all losses, damages and reasonable expense sustained as a direct result of the Lessee's breach of contract including interest on the Purchase Price calculated as set out in this Clause. For the purposes of computation of the Lessor's loss, the interest element of that loss shall be deemed to be a liquidate penalty provision exigible notwithstanding the exercise by the Lessor of their option to rescind the Missives for non-payment of the price or any repudiation of the Missives by the Lessee."

[2 ] The defenders exercised their option to purchase the subjects in terms of a fax letter dated 28 May 2004 (6/9 of process). As the parties did not agree any alternative date of entry, the contractual date of entry, in terms of the missives was 14 June 2004. The purchase price at that date of entry was £536,000. The defenders failed to pay the purchase price for the subjects on the date of entry. The pursuers rescinded the agreement contained in the missives by letter dated 22 July 2004 (6/10 of process).

The dispute

[3 ] The pursuers aver, in Article 7 of condescendence, that, by missives dated 1 September 2005, they entered into a binding agreement with Clyde & Forth Homes Limited for the sale of the subjects. That agreement is said to be conditional, in relation to the sale of part of the subjects, upon Clyde & Forth Homes Limited obtaining detailed planning permission for the residential development of that part of the subjects prior to 31 May 2007. The pursuers go on to aver that if the condition is purified, within 14 days of its purification, they will receive a price for the subjects which will exceed the purchase price agreed between the defenders and themselves in terms of the rescinded missives and, in that event, there will be no shortfall between the purchase price due from the defenders, on the one hand, and the price obtained from Clyde & Forth Homes Limited. The pursuers, in response to averments made by the defenders, admit that on 7 September 2005 they received £200,000 for the sale of part of the subjects and that on that date Clyde & Forth Homes Limited paid the pursuers a £100,000 non-refundable deposit. In this action the pursuers sue the defenders for payment of £64,451.07. They do so on the footing that the defenders are due to pay them interest in terms of clauses 5 and 6 of the relevant missive on the balance of the purchase price of the subjects remaining to be paid after deduction of the £300,000, which they have already been paid by Clyde & Forth Homes Limited, i.e. £236,000. They seek interest on that balance up until the date of raising the present proceedings. It is of importance to note at this juncture that in their action the pursuers initially averred that the interest due would continue to accrue until the sale of the subjects to Clyde & Forth Homes Limited was completed. Those averments have, however, been deleted. The interest sued for, accordingly, is interest on the purchase price agreed to be paid by the defenders, calculated from the agreed date of entry until the raising of the present proceedings, but adjusted to take into account that the pursuers during that period received from Clyde & Forth Homes Limited £300,000 in respect of the conditional sale of the subjects. There is, accordingly, a terminus a quo and a terminus ad quem averred by the pursuers for the running of the interest which they claim is due to them in the circumstances.

[4 ] The defenders have a plea to the relevancy of the pursuers' case. I allowed the parties a debate on that plea.

The defenders' submissions

[5 ] At the debate hearing the defenders' solicitor advocate sought dismissal of the action. He pointed to the pursuers' second plea-in-law which is in the following terms:

"The pursuers being contractually entitled to payment of £64,451.07 as interest on the unpaid purchase price as condescended upon, decree should be pronounced as second concluded for."

That established, it was contended, that the pursuers' claim was based on a contractual entitlement to payment of interest. Moreover, the averments of the pursuers were to the effect that in pursuing a contractual right to liquidate damages, they are entitled to recover even though, in the event, they may have suffered no loss as a result of the defenders' breach of the missives. The defenders' position was that the action was irrelevant for the following reasons. The missives having been rescinded, the pursuers were no longer able to pursue any contractual entitlement to interest. Post rescission, the pursuers' only remedy was the claim for damages and their reliance on the interest provision in the missives constituted no more than an attempt to liquidate one head of claim in that claim for damages. To have a relevant claim for damages, the pursuers had to be in a position to aver that they had suffered a loss. Since the pursuers did not aver, in these present proceedings, that they suffered a loss, the action was irrelevant.

[6 ] The defenders' solicitor advocate referred to the cases of Heyman v Darwins (1942) A.C. 356 and Photo Production Limited v Securicor Transport Limited (1980) AC 827 for the discussions in those cases of what clauses might survive the accepted repudiation of a contract and to what effect they might survive. The authorities, it was accepted, established that the answers to these questions turned on the construction of the particular contractual terms in question.

[7] I was then referred to the case of Lloyd's Bank plc v Bamberger 1993 SC 570. In that action the pursuers sought payment of interest on the purchase price of certain heritable subjects in terms of missives entered into between the parties. The terms of the missives included a provision to the following effect:

"Payment of the purchase price in full on the Completion Date is of the essence of the contract. In the event of the purchase price or any part thereof remaining outstanding as at the Completion Date, then notwithstanding consignation or the fact that entry has not been taken by your clients, interest will accrue at the rate of 4 per centum per annum above Lloyd's Bank plc base lending rate from time to time until full payment is made. In the event that the said purchase price is not paid within fourteen days of the date of entry, our client shall be entitled to resile from the Missives on giving prior written notice to that effect to your clients without prejudice to any right or any claim competent to our clients arising from the breach of contract by your client; Provided always that the aforesaid rights to interest and to resile from the Missives shall not be enforceable or exercisable by our clients in the event that the delay in settlement is due solely to the act or default of our clients or their agents."

No timeous payment was made of the purchase price and the pursuers issued a notice purporting to resile from the missives. The sheriff held that, as the pursuers had resiled from the missives, they had brought the contract to an end, and could not therefore sue for interest on the basis of that contract. The sheriff's decision was affirmed, on appeal, by the Second Division. At page 573 Lord Justice Clerk Ross set out the following propositions:

"(1) Where, as here, a contract has been rescinded by the innocent party as a result of material breach of contract by the party in default amounting to repudiation, both parties are absolved from future performance of their primary obligations under the contract (Photo Production Limited v Securicor Transport Limited (1980) AC 827).

(2) However, it is incorrect to say that in these circumstances the contract has come to an end. The innocent party may still bring an action for damages against the party in default for breach of contract (Photo Production Limited v Securicor Transport Limited).

(3) Furthermore, even after such rescission, either party may still enforce against the other any clauses in the contract which were plainly intended by the parties to survive rescission. These are sometimes referred to as ancillary clauses. Examples are arbitration clauses, clauses prorogating jurisdiction, or clauses specifying the proper law of the contract (LEP Air Services v Rolloswin Investments Limited (1973) A.C. 331).

(4) Apart from such ancillary clauses, there may be clauses in the contract affecting damages due for breach of contract, and the language of the contract may show that parties must have intended these clauses to be enforceable after rescission. Examples are exclusion clauses, clauses limiting liability and clauses providing for liquidate damages (Photo Production Limited v Securicor Transport Limited).

(5) Although rescission absolves both parties from future performance of their primary obligations under the contract, they are not absolved from primary obligations already due at the time of rescission. Thus claims for debts or arrears of money unconditionally due under the contract may still be enforced. Examples are arrears of rent due under a lease, or instalments of price due prior to rescission (Hyundai Heavy Industries Co Limited v Papadopoulos (1980) 1 W.L.R. 1129). These are sometimes referred to as accrued rights.

(6) Sales of land or goods where there has been rescission following a total failure of consideration are an exception to the last mentioned rule (Hyundai Heavy Industries v Papadopoulos). Under our law, a seller who rescinds such a contract of sale, cannot retain advances or instalments of the price that he has received, but is required to repay these to the purchaser unless the payment falls to be regarded as a deposit (Zemhunt (Holdings) Limited v Control Securities plc).

(7) In all cases, the question of whether a particular clause in the contract can be enforced after rescission depends upon ascertaining the intention of the parties from a consideration of the terms of the contract in the light of the foregoing principles of law."

I was referred to an article in the 1993 Journal of the Law Society of Scotland by Professor Robert Rennie, which commented upon the decision in that case. At page 364 of the article the writer said this:

"The point of framing a penalty clause in missives is to remove uncertainty as to the seller's rights if the purchaser fails to pay. The Lloyd's Bank case has thrown this matter into some confusion. Admittedly, the penalty clause in that case, although reserving the seller's right to damages, did not specifically refer to this as 'including interest as aforesaid'. For the future, conveyancers will obviously require to look closely at the penalty clauses in the schedules attached to their offers or qualified acceptances. It is suggested that it is now imperative that the right to interest after repudiation is expressly preserved."

The writer went on to suggest that the clause contained in the Law Society of Scotland's standard style of missives for the sale and purchase of heritable property might have to be reworded to take into account the effect of the decision in the Lloyd's Bank case. He concluded:

"Accordingly, it seems as though it will now be necessary to spell out in greater detail that interest will be due notwithstanding the repudiation of the contract for a period from the date the price ought to have been paid until some fixed point. Such a terminus could be the date on which the sellers' loss has been totally satisfied following on resale of the property, with interest running on the purchase price unpaid or, in the event of a loss on resale, on any shortfall between the resale price and the original price. It is to be hoped that a clause framed in these terms would be treated as a liquidate damages clause which would survive any repudiation, but it might be sensible to state that such a provision is to be treated as such."

Later in the same year, Professor Rennie and Professor Douglas Cusine published, in the Journal of the Law Society of Scotland at page 450, two styles of clauses which they suggested might meet any difficulties caused by the decision in the Lloyd's Bank case. The second of these clauses contained wording which, for all practical purposes, is the same as is to be found in clauses 5 and 6 in the relevant missive in the present case. If, as one might reasonably suppose, the draughtsmen of this provision had intended to produce clarity and certainty into the matter which would not necessitate litigation, their intentions, in that respect, have not been fulfilled.

[8] As will be seen, apart from the present case, there have been at least three sheriff court decisions in which the wording of the second version of the relevant provision re interest on the price as produced by the Professors had to be considered. The defenders' solicitor advocate referred me to the decision of Sheriff Baird in Kerr v McCormack 12 January 2005 (unreported). In that case the sheriff at pages 7-8 of his judgment, having considered the wording of the relevant provision which were, to all intents and purposes, identical to what appears in clauses 5 and 6 in the relevant missive in the instant case, said this:

"There are indeed two parts to the clause, and the first relates to the accrual of interest in the specified event of non-payment or delay in payment. That accrual of interest, and the right to claim payment for it, arises even if the purchaser does take entry and makes eventual payment. The second part refers to a situation where the seller decides to resile, assuming he is entitled to, (which they were here ex concessu), and states that the seller is entitled to make a claim for other consequential losses, which will include interest as calculated in the clause.

I regard the opening words of the next sentence as determinative of the issue. They are:

'For the purposes of computation of our client's loss, the interest element of that loss shall be deemed to be a liquidated penalty provision...'

It seems clear to me that the right to claim interest is plainly intended to be an element only of any potential loss, and not the predetermined estimate of the entirety of that potential loss."

In the Kerr case, the purchaser of heritable property had failed to complete the purchase. The subjects were eventually resold. There was a shortfall in the price obtained but the sellers did not sue for the shortfall. They chose instead to sue for interest on the purchase price which had been agreed to by the defender and for a second sum in relation to expense occasioned by the defender's breach of missives. The argument of the pursuers, in that case, was that the seller could only sue for the interest because the missives provided for liquidate damages calculated by reference to the interest formula and those liquidate damages were intended to cover all the loss and damage suffered by the defender's breach. As has been seen, that argument was rejected by the sheriff. The solicitor advocate for the defenders, in the present case, however, appeared to rely on the decision in that case as giving support for his submission that, unless the pursuers could show that they had some actual loss resulting from breach of contract, they could not seek to enforce the provision in respect of liquidate damages.

[9 ] I was then referred to the decision of Sheriff Principal Bowen in the case of Black v McGregor 13 March 2006 (unreported). That case was also concerned with the wording similar to that which is contained in clauses 5 and 6 of the relevant missive in the present case. In Black the seller had validly rescinded on non-timeous completion of the contract by the purchaser, but had not resold the subjects and had remained in occupation of them. The seller sued for wasted expenditure she claimed she had paid in relation to the aborted sale. For the rest, she sued for interest in terms of the relevant provisions in the missives calculated, apparently, up until the date of the framing of the initial writ. The Sheriff Principal held that the claim for wasted expenses was relevant, but the claim for interest was not. In reaching his conclusions he said at paras.13-14 of his judgment:

"What I consider to be more important arises from an examination of the underlying principles upon which the pursuer is entitled to recover anything. From the opening words of the clause under consideration, one has the impression that it owes it origin simply to the situation when settlement might be delayed - either the purchaser takes entry without paying the price, or the purchase price is consigned depending clarification of some issue of title. In either situation as a matter of law the seller would be entitled to interest on the price, and it is wholly appropriate that parties should agree the rate of it. In the event, however, that the sale falls through, any resultant claim by the seller would not, in principle, give rise to a claim for interest - it would be a claim for damages.

In the present context, parties have agreed that, for the purposes of computation of the pursuer's loss 'the interest element of that loss shall be deemed to be a liquidate penalty provision exigible notwithstanding the exercise by (the pursuer) or (her) option to rescind the contract'. ---The use of the words 'for the purpose of computation of her client's loss' nevertheless indicates an acknowledgement that the pursuer's claim in the event of the transaction falling through is in substance a claim for damages. The first prerequisite of such a claim is that there must actually be a loss. I reject the contention - which was not vouched by any authority - that liquidate damages are payable when there is no loss at all. On one view such a provision would be deemed to constitute a penalty and as such be unenforceable. The absence of loss is directly relevant in cases such as the present where, due to at times dramatic rises in house values, the property which is the subject of the transaction rises markedly in value after the sale falls through. Where is the pursuer's loss if the house is now worth £750,000? It may well be that she is entitled to recover her outlays needlessly incurred, but what is the justification for a further sum, contractually described as a 'liquidate penalty provision'? The short answer in my view is that there is no such justification; the contractual provision relating to interest was never intended to apply in a situation where the pursuer retains the house."

[10 ] The solicitor advocate for the defenders, in the present case, accepted that the Sheriff Principal was wrong to reject the general proposition that liquidate damages may be payable when there is no loss at all. Nevertheless, the defenders' solicitor advocate submitted that the Sheriff Principal's approach otherwise supported the defenders' position in this case that the interest provision could only be sued upon as part of a damages claim for breach of the missives and not in isolation.

Pursuers' submissions

[11 ] In reply, Mr Johnston, Q.C., for the pursuers, sought a proof before answer. He made the following points, by way of introduction.

[12 ] First, clause 6 included a liquidate damages provision.

[13 ] Second, on its wording and in its context, it survived rescission of the contract. That apparently was not disputed by the defenders.

[14 ] Third, a party was entitled to receive payment under a liquidate damages provisions without the necessity of proving actual loss.

[15 ] Fourth, the courts exercise control over such clauses by declining to enforce them when they were oppressive, i.e. disproportionate to any loss that could conceivably be suffered by the breach.

[16 ] Fifth, that last question viz. whether the clause was oppressive and therefore an unenforceable penalty was to be judged by reference to the circumstances pertaining at the time the contract was concluded. It was consistent with the rationale operating in relation to such provision that questions of proving or mitigating loss did not arise.

[17 ] Sixth, it is possible for parties to liquidate damages by agreement in respect of one element of potential loss leaving other elements to be proved in the normal way.

[18 ] These foregoing propositions, it was submitted, led to the conclusion that the defenders' line of defence advanced at the debate fell to be rejected. The decision of the court in the Lloyd's Bank case was authority for the proposition that the liquidate damages provision survived rescission of the contract. The absence of any need to prove actual loss, before such a provision could be enforced, was well and authoritatively established. Reference was made to Chitty on Contracts, 29^th ed., vol.1, para.26-109 and Clydebank Engineering and Shipping Co Limited v Castaneda (1904) 7F. (H.L.) 77 per Lord Chancellor at page 77 and Lord Davey at pages 82-83. That the enforceability, or otherwise, of such a clause has to be judged by reference to the circumstances existing at the time the contract was concluded, was vouched for by the decision in the case of Dunlop Pneumatic Tyre Co v New Garage Motor Company (1915) AC 79 at pages 86-87 per Lord Dunedin. In Abrahams v Performing Rights Society (1995) ICR 1028, the Court of Appeal observed, at page 1041, that a duty to mitigate was entirely foreign to the notion of a liquidate damages clause.

[19] The proposition that it was perfectly possible for parties to agree to liquidate one item of potential loss while leaving other items of loss unquantified, and to be proved in the ordinary way, was vouched by what was said in McGregor on Damages 17^th ed., para.13.016 - 13.017 where it is stated:

"These cases show that the claimant can neither claim unliquidated damages in addition to the liquidated damages in which are designed to deal with the loss that has occurred nor elect to ignore the liquidated damages provision and sue only for unliquidated damages.

The claimant will, however, be entitled to sue for unliquidated damages in the ordinary way, in addition to suing for liquidate damages, if other breaches have occurred outside those which fall within the ambit of the liquidated damages provision or, it seems, if only part of the loss arising from a single breach is regarded as falling within the provision's ambit."

In the present case, the position was that only one element of the pursuers' potential claim had been liquidated. In respect of any other elements the pursuers would have required separate conclusions. Clause 6 of the missive is the liquidated claim after rescission of the contract. Clause 6, it was said, did not limit to any extent claims in right would survive. It was not a limited provision. It spelt out the wide extent to which there were rights enforceable after rescission of the contract. The sheriff, in the case of Kerr, was correct in holding that, on a plain reading of the provisions, as a whole, there were two elements to them. The first part provided for liquidate damages. The second provided for illiquid claims. Senior counsel for the pursuers referred me to a paper by another two professors, Professors Reid and Gretton. The papers entitled "Conveyancing: What happened in 2005?" It is dated January 2006. In that paper the style of clauses, in question, in the present case, are discussed and the sheriff's approach to their construction in the case of Kerr meets with the writers' approval. Senior counsel for the pursuers submitted taking clauses 5 and 6 together, their effect was, in the first place, to provide an agreed basis for calculating interest and in the second place, to provide a liquidate damages clause. The defenders' argument was based on a heresy, namely that, in such a case, it was necessary for the pursuers to quantify their total loss after the contract had been rescinded and then, and only then, would they sue for the provision regarding liquidate damages. It was perfectly competent for the pursuers to sue simply for the liquidate damages without averring and proving any loss.

[20 ] Shortly after I had made avizandum in the case, it came to my attention that the decision of the Sheriff Principal in Black v McGregor had been the subject of a reclaiming motion and that the Extra Division had taken the matter to avizandum. The Court's opinion in Black was issued on 6 October 2006. Having considered its content, it seemed to me to be appropriate to invite parties in the present case, if so advised, to make further submissions in the light of it. Both parties took up that invitation.

[21 ] At the further hearing before me, the solicitor-advocate for the defenders argued that, in the light of the approach taken by the Extra Division in Black, the pursuers could not now succeed in the present action. The ratio decidendi in the case of Black was that since the terminus ad quem provided for in the missives, i.e. the resale of the subjects, had not been reached, the pursuers could not sue on the liquidate damages provision. As the Court put the matter, at para.10 of their Opinion

"It (the clause) 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 resale 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".

In the present case, the terminus ad quem, as provided for in clause 5, was the "contractual date of entry in terms of any missives entered into ... with a third party in respect of the resale of the subjects" and continued "until such time as any shortfall of the original price and the resale price" was paid. The pursuers have entered missives for the resale of the subjects but the date of entry to a substantial part of the subjects has not yet arrived and may never arrive, since a concluded sale in respect of that part of the subjects, is conditional on planning permission being granted. The defenders' solicitor-advocate submitted that, applying the approach of the Court in the Black case, since the event agreed upon by the parties as being the terminus for the calculation of any interest has not yet occurred, the clause is not enforceable at this time. I should record that this point was not taken by the solicitor-advocate for the defenders, at the original hearing before me, but no objection was taken by counsel for the pursuers to the point being taken in the light of the Court's subsequent decision in Black. The solicitor-advocate for the defenders sought to glean some support for the decision in Black for the arguments which he had originally advanced before me. In his reply, counsel for the pursuer also sought to glean some support from dicta in the Extra Division in Black for the arguments he had previously advanced. In the event, I do not consider that, as regards the original arguments put to me, anything said in the case of Black advanced matters one way or another.

[22 ] On the substantive point raised by the decision in Black, counsel for the pursuers submitted that the fact that the sum provided for, in the liquidate damages clause, may not be actually payable in certain circumstances or is only payable on certain conditions, does not alter its character as a liquidate damages clause. Counsel posed the question as to whether, in the present case, it was sufficient to trigger the liquidate damages provision, that there had been a completed sale of part of the subjects and entry taken to them and he submitted that the answer to that question was clearly in the affirmative. It would be odd, he contended, if the pursuers could sue for interest in respect of the original purchase price of the whole subjects in a situation where the land was resold, in lots, once all the lots had been sold but could not do so before then as and when individual lots were sold. The wording in the present case "until the contractual date of entry in terms of any missives" did not, it was submitted, suspend the right to claim interest. It simply provided for when the right to claim interest ceased. Counsel for the pursuers frankly accepted that that submission was not consistent with the decision in Black but it was consistent with the position being that it was not necessary to show actual loss in order to recover the interest due under the relevant provision. With respect to their Lordships, in the Extra Division, their decision, it was submitted, did not, on the face of things, appear to have proceeded from an analysis of any tract of authority relating to liquidate damages provisions. The only authority referred to in that context was the case of Bamberger, which did not address any issue as to whether there required to be a terminus ad quem in such a provision. It was unusual, it was commented, to talk in terms of a terminus ad quem in the context of liquidate damages rather than a terminus a quo. That the claim was truly one of damages and not for payment of a sum contingent on a future event was demonstrated by what Professor Bell had to say in his commentary (7^th edition) Volume One, Chap.VIII para.646 and Gloag on Contract, 2^nd edition, pages 270‑272.

[23 ] In reply, the solicitor-advocate for the defenders stressed that the "subjects" in clause 5 in the missive were the whole of the subjects as defined in the missives. There was no provision for payment of interest in the event of sale of part of the subjects. To follow the pursuers' approach to matters would allow for multiplicity of claims in a situation where subjects originally sold off as a whole were subsequently sold off in parcels. That did not make good commercial sense. It was appropriate to ask the question as to why the pursuers in the present case, should be in any different position from that of the pursuers in the case of Black. The pursuers were seeking to recover interest under the relevant clause, prematurely. If a partial sale triggered the interest provision that would mean the pursuers were entitled to interest on the full purchase price on the resale of the first lot. The result would be that, following the reasoning in Black, if a seller had decided not to resell the subjects, he would be unable to claim any interest in terms of the relevant provision, whereas a seller who decided to resell only part of the subjects could sue for interest on the whole of the purchase price up until the time of the resale of part of the subjects. There was no justification for such an inconsistency in approach.

Decision
[24 ] I am satisfied that the defenders' line of defence, as initially argued before me, at debate, is, for the reasons, advanced on behalf of the pursuers, misconceived. I cannot forbear from remarking, in my view, that the difficulties and the disputes that this case and others have thrown up have, perhaps, been at least, in part, caused by somewhat over-elaborate drafts contained in the style clauses which were produced by Professors Rennie and Cusine in what seems to me also to have been perhaps an over-reaction to what was decided in the case of Lloyd's Bank. Be that as it may, I am satisfied that parties by employing the wording of the provisions which was used in the present case (and I recognise as Professors Reid and Gretton point out in their paper, that there has perhaps been some degrading of the original style), intended that the seller, in the event of the purchaser failing to complete the contract, and the seller having resiled from the contract, should be entitled to sue for liquidate damages, represented by interest accruing on the purchase price up until the time of the seller concluding binding missives for the sale of the subjects to a third party. That, as senior counsel for the pursuers submitted, is not conditional on the seller averring and proving actual loss. Nor is it conditional on his being able to sue for damages in addition to the liquidate element of his claims. I agree with Sheriff Baird's analysis in Kerr of the structure of the relevant provision (an analysis which echoes that of Sheriff Principal McGuire in Field v Dickinson 1995 S.C.L.R. 1146) and the views expressed by Professors Reid and Gretton in their paper in that regard. The question remains, however, as to whether the pursuers' claim is relevant having regard to the decision of the Extra Division in the case of Black which is clear authority, binding upon me, that where there has been no resale of the subjects and the liquidate damages provision is to the effect that interest accrues until the seller "shall have completed a resale of the subjects and received the resale price", the seller of the subjects cannot sue for interest in terms of that provision if there has been no resale. The approach of the Extra Division does appear to have been very much driven by simply construing strictly the precise terms of the missives and applying their content, so construed, to the facts as they were at the time of the raising of the action. I agree with counsel for the pursuers, in the present case, that their Lordships do not appear to have addressed the issue in the context of a detailed analysis of the law relating to liquidate damages. If the question raised now before me is to be approached simply on a construction of the wording of the relevant clause itself, I am driven to the conclusion that, on a straightforward construction of the provisions therein, the terminus ad quem provided, that is a contractual date of entry for resale of the whole subjects, does not yet exist and therefore, applying the decision in the case of Black, the event upon which a claim for liquidate damages, may be made, to use the words of the Extra Division "has not yet arisen". I do, however, consider that there was some force in the submission of counsel for the pursuers, in the present case, that such an approach to matters does, perhaps, somewhat overlook the normal approach applying to liquidate damages provisions once there has been an identifiable breach of contract, but that may simply be a result of the drafting of the provisions in question, and, in particular because of the introduction of an express terminus ad quem, a feature not normally found in liquidate damage provisions. I note, in this connection, that Professor Rennie, in his article cited above, in discussing what he considered needed to be done in the light of the Bamberger decision, specifically highlighted the need for an express terminus ad quem to be incorporated in such provision, when he said

"accordingly, it seems as though it will now be necessary to spell out in greater detail that interest will be due not withstanding the repudiation of the contract for a period from the date the price ought to be paid until some fixed point. Such a terminus could be the date on which the seller's loss has been totally satisfied following on resale of the property, with interest running on the purchase price unpaid or in the event of a loss on resale, on any shortfall between the resale price and the original price. It is to be hoped that a clause framed in these terms would be treated as a liquidate damages clause which would survive any repudiation, but it might be sensible to state that such a provision is to be treated as such". (my emphasis)

The decision in Black is not necessarily all good news for the buyer in breach, since it would seem to mean that (subject to questions of prescription) the seller can delay as long as he wishes to resell (there being no duty to mitigate if the clause is truly a liquidate damages provision) and then sue for interest, after resale, which by that time might be a very considerable sum indeed. In that situation, the buyer, in breach, would then only be left with arguing that the provision was not truly a liquidate damages provision but a penalty, but that matter would, of course, require to be judged by reference to the circumstances pertaining at the time the missives were concluded. This point is expressly referred to by Professors Reid and Gretton in their article cited above. Both sides, in the present case, drew to my attention to anomalies which arise from each of their respective approaches to the question. Ultimately, I think, counsel for the pursuers, however, recognised that his submissions were difficult to square with what appears to be the approach and reasoning of the court in the case in Black. As noted above, the pursuers originally averred that interest would continue to accrue until the sale of the whole subjects was completed. Those averments were deleted. Instead they have, in effect, imposed their own terminus ad quem, being the date of the raising of the present action. That is not provided for in the missives.

[25 ] I have come to the conclusion that, standing the decision in Black the pursuers' claim is irrelevant. The events which on a plain reading of the missives, the parties provided for, as the terminus ad quem, have not yet materialised. The particular clauses did not provide for how interest was to be calculated in the event of any partial completed resale of the subjects in question. It could have done so, although, no doubt, that would have simply added to the complexity of what are already complex provisions. Having not done so, however, and the situation for which the missives did provide, having not yet materialised then, following the decision in Black, the event which triggers a claim has not yet occurred. I shall therefore sustain the defenders' plea to the relevancy and dismiss the action.

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	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Wipfel Ltd v. Auchlochan Developments Ltd [2006] ScotCS CSOH_183 (01 December 2006) URL: http://www.bailii.org/scot/cases/ScotCS/2006/CSOH_183.html Cite as: [2006] CSOH 183, [2006] ScotCS CSOH_183

Scottish Court of Session Decisions