SHERIFFDOM OF GRAMPIAN HIGHLAND AND ISLANDS AT PETERHEAD

A124/09

 

 

 

 

Act: Mr Neil Beynon, advocate, instructed by Stewart & Watson, Banff

Alt: Mr Graeme Walker, solicitor, Brown & McRae, Fraserburgh

 

 

 

Peterhead: 4^th August 2010

The sheriff principal, having resumed consideration of the cause, refuses the appeal and adheres to the interlocutors of the sheriff dated 11 February and 5 March 2010 subject to the deletion in the later of these interlocutors of the words "Finds the defenders liable to the pursuers" and the substitution therefor of the words "subject always to the terms of the interlocutor dated 7 August 2009 finds the pursuer liable to the defenders"; finds the pursuer and appellant liable to the defenders and respondents in the expenses of the appeal and allows an account thereof to be given in and remits the same, when lodged, to the auditor of court to tax and to report; quoad ultra remits the cause to the sheriff to proceed as accords.

 

 

 

Note

 

[1] In this case the pursuer and appellant craved decree for payment to her by the defenders and respondents of the sum of £23,000 with interest and expenses. The action was defended and in their defences the defenders tabled a plea (plea in law 6) to the effect that, the pursuer's averments being irrelevant et separatim lacking in specification, the action should be dismissed. After a debate the sheriff by interlocutor dated 11 February 2010 sustained this plea and dismissed the action accordingly. The pursuer has now appealed and, in short, she maintains that the sheriff erred in sustaining the defenders' plea in law 6 and dismissing the action.

 

[2] So far as material, the circumstances of the pursuer's claim as averred by her were as follows. The pursuer is the mother of the first defender who resides with the second defender. The pursuer purchases, rents out and/or sells property. On or around 30 September 2005 she purchased a property at 10 Chapelhill Road, Fraserburgh for the sum of £47,250. Thereafter the pursuer's husband (and father of the first defender) carried out extensive works to the property including replastering the kitchen area, boarding up a door within the kitchen, supplying and fitting new kitchen units, new flooring and new skirting boards throughout the property and in addition the preparation and repainting of all the paintwork. It is said that further to this work the property was substantially improved. The pursuer then avers:

 

On or about, however, 29 September 2006 the pursuer sold to the defenders the property of 10 Chapelhill Road, Fraserburgh. A payment in the sum of £35,000 was made by the defenders to the pursuer. Said payment was a sum equivalent to the level of mortgage available to the defenders at that point. The first named defender had obtained a valuation of the property prior to payment of the said sum and the property had been valued at £58,000. It was agreed between the parties that the first and second named defenders would account to the pursuer to the extent of £23,000 in the event of future sale of the property. They have now sold the property but are refusing to repay the pursuer the £23,000 sum. This action is accordingly necessary.

 

The pursuer thereafter refers to a handwritten letter dated 31 (sic) April 2008 in the following terms:

 

Reference is made to a further copy letter dated 31 April 2008 at a time when the first and second offenders were having difficulties and it was thought they might be separating wherein the second defender acknowledges the sum of £23,000 is due to the pursuer. Explained and averred that said letter was written on or around the end of April 2008.

 

[3] A copy of this letter has been produced as no.5/2/2 of process. Its terms have not been formally incorporated in the pursuer's pleadings. But both counsel for the pursuer and the solicitor for the defenders referred to it in the course of their submissions at the appeal hearing, and I therefore set the main body of it out in full. At the top it bears the date "31-04-08" and the pursuer's address, and it continues:

 

To Peter Gavryluk,

We, Bertie and Elaine Gibson offer to purchase 10 Chapelhill Road, Fraserburgh at a price of which it is valued by the surveyor. After the mortgage, and any penalties due are paid back to the mortgage company, the twenty three thousand pounds due to us by you and Leanne will be paid to us on the same day as the purchase takes place. Any equity above £58,000 will be paid directly to yourself. If the mortgage payments you have made since buying the property adds up to more than the equity, we will gladly pay you the difference on day of purchase. We guarantee no payment for rent all the while you lived there before buying it will be paid by you.

 

The letter bears to have been signed by the pursuer and her husband and there is a third, illegible signature. In their answers the defenders aver that the second defender has no recollection of signing the letter or entering into any discussions with the pursuer relating to a proposal that the defenders sell back the subjects to her, and further that the letter purports to be an offer by the pursuer and her husband addressed to the second defender which was never accepted by the defenders and that in any event the date 31 April 2008 does not exist.

 

[4] In their answers the defenders also refer to the missives of sale of the property between the pursuer and the defenders dated 8 and 18 August 2006 and incorporate the terms of these missives in their pleadings. For some unexplained reason these are not admitted by the pursuer in her pleadings. But she does refer at one point to the offer to purchase dated 8 August 2006, and in her ground of appeal (ii) she states: "There is no dispute that the missives were constituted properly under and in terms of the 1995 Act" (the 1995 Act being a reference to the Requirements of Writing (Scotland) Act 1995). Moreover, in the course of his submissions counsel for the pursuer explicitly drew attention to the missives which have been produced as no. 6/1/1 of process. For present purposes I do not think that it is necessary to set these out in full. Suffice it to say that the offer dated 8 August 2006 was made on the conditions contained in the Aberdeen and Aberdeenshire Standard Clauses (2005 Edition) and incorporated the following particular terms:

 

(a) The purchaser means Peter Brian Gavryluk and Leanne Donna Gibson both residing at 10 Chapelhill Road, Fraserburgh.

(b) The property is as occupied by the purchaser and comprises All and Whole the semi detached house known as 10 Chapelhill Road, Fraserburgh.

(c) The price is THIRTY FIVE THOUSAND POUNDS (£35,000) STERLING.

(d) The date of entry will be 29 September 2006 or such other date as may be mutually agreed.

 

[5] The offer was accepted by the pursuer in terms of the letter dated 18 August, 2006 subject to certain detailed qualifications, none of which had any bearing on the matters specified in paragraphs (a) to (d) of the original offer. Curiously there is no reference in either party's pleadings to a final letter from the defenders accepting these qualifications. But in light of the position adopted by the parties both before the sheriff and in the appeal I think that it may be assumed that such a letter was sent.

 

[6] The primary legal basis of the pursuer's claim is that, the defenders having contracted with her to make payment of the sum of £23,000 in the event of a future sale of the property (as has now occurred), decree should be granted in favour of the pursuer as craved. Alternatively, she contends that the defenders were unjustifiably enriched as a result of having bought the property from her for £35,000 when, as the defenders admit, it had been valued at around £58,000, and it is said that the pursuer should be recompensed to the extent of the difference between these two sums, namely £23,000.

 

[7] The defenders' answer to the pursuer's primary basis of claim, which found favour with the sheriff, was that the supposed agreement upon which the pursuer founded, namely that they would account to her to the extent of £23,000 in the event of a future sale of the property, was invalid since it did not comply with the formal requirements of the 1995 Act, and in particular the requirement that it should be in writing. The sheriff also found that the defenders were justified in challenging the absence of specification in the pursuer's pleadings in relation to this supposed agreement, in particular since there were no averments setting out when, where or how the agreement had been reached. As for the pursuer's alternative basis of claim, the sheriff records that at the debate for the pursuer's solicitor accepted that there was little by way of averment in support of this but proposed that this could be resolved by way of minor amendment. But he did not seek leave to amend and in the circumstances it is scarcely surprising that the sheriff should have sustained the argument for the defenders that there were no relevant averments in support of this basis of claim which, as expressed at that stage (and as focused in the pursuer's plea in law 3) amounted to no more than the bald proposition that, it being just and equitable that the sum sued for should be paid to the pursuer, decree should be granted as craved.

 

[8] Section 1(2) of the 1995 Act provides, inter alia, that subject to subsection (3) (which it has not been suggested has any application in this case) a written document complying with section 2 of the Act shall be required for (a) the constitution of (i) a contract or unilateral obligation for the creation, transfer, variation or extinction of an interest in land, and (ii) a gratuitous unilateral obligation except an obligation undertaken in the course of business. Section 2 of the Act provides inter alia:

 

(1) No document required by section 1(2) of this Act shall be valid in respect of the formalities of execution unless it is subscribed by the granter of it or, if there is more than one granter, by each granter, but nothing apart from such subscription shall be required for the document to be valid as aforesaid.

(2) A contract mentioned in section 1(2)(a)(i) of this Act may be regarded as constituted or varied (as the case may be) if the offer is contained in one or more documents and the acceptance is contained in another document or other documents, and each document is subscribed by the granter or granters thereof.

 

[9] Section 1 of the Contract (Scotland) Act 1997 provides:

 

(1) Where a document appears (or two or more documents appear) to comprise all the express terms of a contract or unilateral voluntary obligation, it shall be presumed, unless the contrary is proved, that the document does (or the documents do) comprise all the express terms of the contract or unilateral voluntary obligation.

(2) Extrinsic oral or documentary evidence shall be admissible to prove, for the purposes of subsection (1) above, that the contract or unilateral voluntary obligation includes additional express terms (whether or not written terms).

(3) Notwithstanding the foregoing provisions of this section, where one of the terms in the document (or in the documents) is to the effect that the document does (or the documents do) comprise all the express terms of the contract or unilateral voluntary obligation, that term shall be conclusive in the matter.

(4) This section is without prejudice to any enactment which makes provision as respects the constitution, or formalities of execution, of a contract or unilateral voluntary obligation.

 

It has not been suggested that the missives dated 8 and 18 August 2006 contained a term to the effect mentioned in section 1(3) of the 1997 Act.

 

[10] Opening the appeal, counsel for the pursuer submitted that the issue in relation to her primary basis of claim was whether, on the one hand, oral evidence would be competent or sufficient to establish the obligation on the part of the defenders for which the pursuer contended, namely to account to her to the extent of £23,000 in the event of a future sale of the property, or whether on the other hand such an obligation required to be incorporated in a formal written document subscribed by the defenders. Counsel submitted that, while it would be good practice to incorporate an obligation such as that relied upon by the pursuer in some kind of written agreement, the absence of this was not fatal to her claim. The missives had done all that they required to do in the present context, namely to make provision for the parties to the contract, the subject matter of it and the price to be paid. The obligation upon which the pursuer founded would be triggered only if and when the defenders came to sell the property. The argument for the defenders had confused the need for formality in the missives in compliance with section 1(2) of the 1995 Act with the separate issue whether, once this need for formality had been satisfied, as it had been here, section 1(4) of the 1997 Act precluded the establishment by oral or informal documentary evidence of the additional obligation relative to the repayment of the sum of £23,000. It was submitted that, the necessary formalities having been met in regard to the parties, the price and the subject matter of the contract, it was competent to establish the obligation upon which the pursuer founded by oral evidence or an informal document, and there was nothing in section 1 of the 1997 Act which precluded this outcome. Counsel submitted that this obligation was part and parcel of the original contract for the sale of the property by the pursuer to the defenders. At the same time, he explained that he did not maintain that this obligation fell to be treated as part of the price of the subjects since this would get the pursuer into difficulties under sections 1(2) of the 1995 Act and 1(4) of the 1997 Act. Instead he submitted that the obligation to repay the sum of £23,000 was a contingent obligation which would be triggered only on the resale of the property and not in the event, for example, that it was gifted by the defenders to their children. The sheriff had therefore erred in sustaining the argument for the defenders on this branch of the case.

 

[11] Referring to the defenders' attack upon the absence of specification in the pursuer's pleadings in relation to the circumstances in which this agreement had come to be constituted, counsel submitted that these pleadings were sufficient to show that the agreement had been in existence at the time of the purchase of the property by the defenders from the pursuer, and that it had been made when the original missives had been entered into (and this of course was consistent with his earlier submission that the obligation to repay the sum of £23,000 was part and parcel of the original contract of sale of the property).

 

[12] In response, the defenders' solicitor submitted that the sheriff's decision should be upheld. He suggested that the nub of the case here was how one interpreted the alleged agreement between the parties upon which the pursuer relied. He submitted that, if the agreement had been entered into when the missives had been concluded as counsel maintained, then it was an agreement in relation to the consideration to be paid for the property and accordingly formed part of the price. The fact that payment under the agreement was contingent upon the occurrence of a future event, namely the sale of the property by the defenders, did not impact materially on this proposition. Being part of the consideration, and part and parcel of the original contract as counsel had conceded, the agreement required to be in writing since the provisions of section 1(2)(a)(i) of the 1995 Act applied to it. And since it had not been constituted in writing, even if the pursuer was successful at proof in establishing that the agreement had been entered into between the parties, this would not confer any validity upon it. On the contrary, it would remain unenforceable and accordingly the pursuer would be bound to fail in her attempt to establish the primary basis of her claim.

 

[13] In my opinion the sheriff reached the correct decision on this branch of the case. The missives do indeed appear to comprise all the express terms of the contract between the parties for the sale of the property by the pursuer to the defenders, and accordingly it is to be presumed in accordance with section 1(1) of the 1997 Act, and unless the contrary is proved, that these missives do comprise all the express terms of this contract. As already indicated, it has not been suggested that section 1(3) has any application in this case and accordingly section 1(2) would in other circumstances allow the admission of extrinsic oral or documentary evidence to prove for the purposes of section 1(1) that the contract between the parties did contain additional express terms. But the difficulty for the pursuer is that section 1(4) provides that the section is without prejudice to any enactment which makes provision as respects the constitution, or formalities of execution, of a contract or unilateral voluntary obligation. So, even if she is able to prove that the parties agreed orally (there being no suggestion that they did so in writing) that the defenders would, as she avers, "account to the pursuer to the extent of £23,000 in the event of future sale of the property", this would not constitute a valid and enforceable obligation upon which she could rely to compel payment by the defenders to her of the sum of £23,000 so long as it falls to be treated as part and parcel of the contract for the sale of the property. This, it will be recalled, is exactly what counsel for the pursuer submitted it was, and in this situation I do not consider that the pursuer can be heard to say that the obligation did not require to be constituted in writing and signed by the defenders in order to be enforceable against them. In this context it is in my opinion nothing to the point that the obligation was a contingent one (contingent, that is, on a future sale of the property by the defenders), that as a matter of strict legal analysis it may not have been part of the price and that, the essential components of property, parties, price and date of entry having been stated and agreed in the missives, the contract would have been complete without this additional obligation. The fact remains that the pursuer contends that this obligation was part and parcel of the contract and, as such, it was in my opinion governed by section 1(2)(a)(i) of the 1995 Act. And I might add here that it seems to me that, even if the obligation was somehow severable from the remainder of the contract, then it must have constituted a gratuitous unilateral obligation subject to section 1(2)(a)(ii) since there is no suggestion that the pursuer gave any consideration for the obligation apart from what she undertook to do in terms of the missives.

 

[14] Turning to the case based on unjustified enrichment, counsel for the pursuer drew attention to the averments to the effect (i) that the first defender's father had carried out extensive works at the property so that it had been substantially improved, (ii) that it had thereafter been sold by the pursuer to the defenders at what was on any view a substantial undervaluation, (iii) that it had been agreed between the parties that the first and second defenders would account to the pursuer to the extent of £23,000 in the event of future sale of the property so that, even if this agreement had not been constituted as an enforceable contract, it was clear that the pursuer had not intended to make a gift to the defenders of the sum of £23,000, and (iv) that the second defender had acknowledged in writing in the letter dated 31 April 2008 that, in the event of a resale of the property, the sum of £23,000 would be due by him and the first defender to the pursuer. In all these circumstances counsel submitted that the pursuer had made out a relevant and specific case to go to proof based on the proposition that the defenders had been unjustifiably enriched as a result of the defenders having resold the property and retained the free proceeds of sale. Reference was made to Shilliday v Smith 1998 SC 725, Morgan Guaranty Trust Company of New York v Lothian Regional Council 1995 SC 151, McKenzie v Nutter 2007 SLT (Sh Ct) 17 and Dollar Land (Cumbernauld) Ltd v CIN Properties Ltd 1996 SC 331. (For some reason counsel did not refer me to the report of this last case in the House of Lords - see 1998 SC (HL) 90).

 

[15] In response the solicitor for the defenders explained that his original challenge to the pursuer's case of unjustified enrichment had been based upon the absence of specification in the pursuer's pleadings as to how this case was constituted. He submitted that there were a number of ways in which the defenders might have disposed of the property without being enriched, for example by giving it away or bequeathing it to their successors. So it did not necessarily follow from the fact that the pursuer had sold the property to them at an undervaluation that they had been enriched. As for the letter of 31 April 2008, this was no more than an offer by the pursuer and her husband to buy the property back subject to certain conditions, and it could not be said that the second defender's signature on the letter constituted either an acceptance of this offer or an acknowledgement that he and the first defender were obliged to pay the pursuer the sum of £23,000 on the resale of the property. Moreover, Parliament had stipulated that certain types of agreement such as that on which the pursuer now relied should be in a particular form in order to be given formal validity. So, if the pursuer had wished to rely upon this agreement, she should have ensured that it was committed to writing and, this not having been done, it was inequitable that she should get a second bite at the cherry, so to speak, in effect to enforce the agreement by founding upon the supposed unjustified enrichment of the defenders.

 

[16] It is well established that the principle upon which the pursuer relies in this context is an equitable one. Her position is that the agreement whereby the defenders would pay £23,000 to her on the resale of the property was part and parcel of the original contract between them. Parliament has clearly stipulated in section 1(2) of the 1995 Act that a written document complying with section 2 of the Act shall be required for the constitution of a contract for the transfer of an interest in land which is what the contract in this case is. This being so, it would in my opinion be inequitable to allow the pursuer to sidestep this requirement by the device of seeking redress against the defenders on the ground of their supposed unjustified enrichment. Besides, it is far from clear to me that the enrichment of the defenders in this case can be said to have been unjustified. "An obligation in unjustified enrichment is owed where the enrichment cannot be justified on some legal basis arising from the circumstances in which the defender was enriched. There can be no better justification for an enrichment than that it was obtained and is being retained in the exercise of a contractual right against the party who seeks to invoke the remedy" - see Lord Hope of Craighead in Dollar Land in the House of Lords at page 94E/F (and see Lord Sutherland to the same effect in the same case in the Court of Session at page 344E/F). In that case the enrichment of the defenders came about as a result of their having exercised their right of irritancy against the pursuers under the sublease between them. The present case is different in that the defenders are not seeking to exercise a contractual right under the missives against the pursuer. Nonetheless, the fact remains that the right upon which the defenders now rely, namely to retain for themselves the whole free proceeds of sale of the properrty, is derived from their ownership of the property which in turn is derived from the terms of the missives for the sale to them of the property by the pursuer in August 2006. In these circumstances the defenders' enrichment can in my opinion indeed be seen to have been entirely justified. The only basis upon which the pursuer seeks to assert that it cannot be justified is the agreement which she avers was entered into at the same time as the missives were concluded and which in the context of the present argument must be taken to have no legal force and effect in light of the provisions of section 1(2) of the 1995 Act. If it were otherwise, the pursuer would have no need to resort to the argument based on unjustified enrichment at all. Since the agreement is invalid and unenforceable it cannot be said to undermine the legal basis upon which the defenders rely to retain the proceeds of sale of the property.

 

[17] In the course of his submissions counsel for the pursuer placed particular reliance on two matters which I shall deal with briefly. Firstly he drew attention to a passage in the judgment of Lord Caplan in Shilliday v Smith at page 734F which reads:

 

The simple equitable formulation of the rules arising from unjust enrichment would perhaps be: "Is it right that the person should be entitled to retain a valuable benefit in circumstances where the person who conferred it had no intention that he should keep it?" The need to regard the equitable basis of a right to recompense as the paramount consideration rather than getting entrapped in the process of labeling was recognized by both Lord President Hope and Lord Clyde in Morgan Guaranty Trust Company of New York v Lothian Regional Council (at pages 155 and 169 respectively).

 

Counsel submitted that in the present case the pursuer had had no intention of making a gift of £23,000 to the defenders, as could be seen from her averments to the effect that they would repay her this sum in the event of a future of sale of the property, and in the absence of any such intention on her part equity would entitle her to recover this sum from the defenders.

 

[18] In my opinion the answer to this particular submission is that the passage in the judgment of Lord Caplan just quoted must be read in the context of his judgment as a whole. I refer in particular to the third sentence in the judgment at page 734C which reads:

 

The governing equitable principle is that a party ought not to be permitted to remain enriched in respect of a benefit in property or money which he has no legal rights to retain against the party from whom it derived.

 

The emphasis here is mine, and there are plenty of other passages to the same effect in the cases to which I was referred - see, for example, the passage in the judgment of Lord Hope of Craighead quoted in paragraph [16] above, and the passage in the judgment of Lord Rodger in Shilliday v Smith at page 727C/D in which his Lordship in turn adopts the explanation given by Lord Cullen in Dollar Land in the Court of Session at pages 348I/349A. In the present case, for the reasons which I have already explained, it appears to me that the defenders do indeed have a legal ground for retaining the whole free proceeds of sale of the property.

 

[19] Counsel for the pursuer also founded strongly on the decision of Sheriff Principal Lockhart in McKenzie v Nutter. For present purposes I do not think that it is necessary to go into the details of that case which are readily distinguishable from those of the present case. Suffice it to say that, in contrast to the present case, no argument was advanced (nor perhaps could it have been) to the effect that the agreement between the parties which preceded the title to the property in question being taken in their joint names was invalid and unenforceable. Moreover, it respectfully appears to me that, in considering (at paragraphs [37] and [38] of his judgement) whether the enrichment of the appellant in that case had been unjust, Sheriff Principal Lockhart did not address the argument which had been presented for the appellant (see paragraphs [17] and [18]) to the effect that the appellant had by virtue of the title, taken jointly with the respondent, a right in law to a one half share of the property and on sale to a one half share of the net free proceeds, that this right carried with it the consequence of sharing in the benefit of any increase in the value of the property, and that any benefit which accrued to the appellant, beyond the extent of the conceded claim based on repetition and recompense, was one which she was legally entitled to retain and could not be regarded as unjust.

 

[20] For the sake of completeness I should mention that I was also referred to the Scottish Law Commission's Report on Three Bad Rules in Contract Law (Scot Law Com No 152) at paragraphs 2.30 and 3.31, Cusine and Rennie: Missives (2^nd Edn) at paragraph 3.02 and Gretton and Reid: Conveyancing (3^rd Edn) at paragraph 3-31.

 

[21] It was not in dispute that in her interlocutor dated 5 March 2010 the sheriff had mistakenly found the defenders liable to the pursuer in expenses and that the liability ought to have been the other way around. I have also qualified this finding by reference to the sheriff's interlocutor dated 7 August 2009 in terms of which the defenders were found liable to the pursuer for the expenses of their motion to recall the inhibition granted on the dependence of the action. There was no suggestion that this particular finding should be disturbed.