Scottish Sheriff Court Decisions

SHERIFFDOM OF LOTHIAN AND BORDERS   Case Number: A885/11
	Judgment by   SHERIFF PRINCIPAL MHAIRI M STEPHEN   in appeal in the cause   Bruce and Company Pursuers and Appellants   against   William and Elizabeth Ferguson Defenders and Respondents   ___________________________

 

Act: Winter, Advocate instructed by Messrs Brodies, WS

Alt: Reid, Advocate instructed by Messrs Anderson Strathern, Solicitors

 

 

 

EDINBURGH, 28 May 2013

The Sheriff Principal, having resumed consideration of the cause, refuses the appeal; adheres to the sheriff's interlocutors of 17 July 2012 and 6 September 2012; finds the appellants liable to the respondents in the expenses of the appeal and allows an account thereof to be given in and remitted to the Auditor of Court to report and tax; certifies the cause as suitable for the employment of junior counsel.

(signed) Mhairi M Stephen

NOTE:

NOTE:

1.              The appellants and original pursuers Messrs Bruce and Company appeal the sheriff's interlocutor of 6 September 2012 assoilzing the defenders and respondents. The note of appeal is no 13 of process. The sheriff's judgment follows proof and is dated 17 July 2012. The sheriff gives full reasons for finding that the appellants were not entitled to any remuneration under the sole selling agreement entered into between the parties in October 2010. The sheriff found that the existence of missives of let between the respondents and an existing tenant Michael Ward was not an event which gave rise to the appellants being entitled to remuneration in terms of the contract between the parties.

 

Background

2.              The appellants, who are commercial estate agents, were engaged by the respondents to sell licensed premises known as "The Lounge" in Bathgate. The respondents are a married couple who own a number of licensed premises in West Lothian and who wish to organise their business interests and realise assets as they approach retirement. They wish to sell the licensed premises known as The Lounge which comprised a downstairs bar and an upstairs music venue. In 2010 the respondents received rent from tenants in their public houses including "the Lounge".

 

3.              In October 2010 the parties entered into an agreement, a sole selling agreement (5/1/1 of process). The appellants were instructed to market the premises for sale at offers over £300,000 with a sitting tenant. The registration fee of £2,000 plus VAT was paid by the respondents to the appellants. This payment was intended to cover the marketing costs such as the preparation and distribution of sales particulars and advertising etc. The sales particulars (5/2 of process) emphasized the rental income generated by the sitting tenant (£30,000 per annum).

 

4.              The agreement (5/1 of process) is a pre-printed document headed up with the appellants' name and business address. After the sellers' details and the property details are filled in the document proceeds to set out the terms and conditions on which the appellants will agree to act as sole agents in connection with the marketing of the property. The heading specifically records in bold type "Asking Price" and in handwriting it is filled in with the answer "OFFERS £300k". Other headline topics in bold are "Sellers Solicitors" and "The Commencement Date". Neither have been completed. Instead the agreement records "T.B.A." and "T.B.C." respectively. Clause 3 sets out what is meant by "sole selling rights" as required by statute. (The Estate Agents Act 1997 and The Estate Agents (Provision of Information) Regs 1991). Clause 4 sets out how the agreement may be terminated and Clause 10 the withdrawal fee in the event of termination. Importantly, Clause 6 sets out the remuneration payable to the appellants in the event of four separate events and in the fifth place a minimum fee of £5,000 in any event. In two events (6.1 and 6.3) the remuneration is reduced from the pre-printed sum of 3.5% to 2% (sale or sale of shareholding). The remuneration due in the event of disposal by lease remains unaltered (6.2). Clause 8 sets out when that remuneration falls due as follows:

"8. Payment

Bruce & Co shall become entitled to payment of its remuneration upon conclusion of a contract for the sale of or other disposal of the business and premises or any part thereof, share, shares or other interests therein, however informally constituted, and that notwithstanding and suspensive or other condition."

 

5.              The registration fee having been paid, the premises are marketed for sale but no offers were forthcoming. Within a few months of marketing the tenant of the downstairs bar required to give up his tenancy for personal reasons. That was a significant event as the respondents decided to close the downstairs bar whilst the tenant running the upstairs music room, Michael Ward, continued to run that enterprise for a short time before a decision was made on the part of the respondents to close both parts of the premises temporarily and refurbish the whole premises. During that period Michael Ward relocated to other premises owned by the respondents in Bathgate. As a result the premises were re-marketed without a sitting tenant at a reduced price. A second set of sale particulars were printed reflecting these material changes. (5/3 of process.) The asking price is stated to be offers over £199,985.

 

6.              The respondents were aware that it was desirable for the premises to be trading as a higher price would be achieved with tenants operating the licensed premises. Discussions to this effect took place between the parties. These discussions may have led to a misapprehension on the part of the appellants that the respondents wished to dispose of the premises by way of lease rather than sale.

 

7.              The appellants' appreciation of the situation may have been further complicated by one Brian McAllister intimating interest in the licensed premises. Apparently, Mr McAllister had been employed as a barman in the premises. The appellants prepared a further (third) set of sales particulars (5/4 of process) indicating that the subjects were available for let at a premium of £15,000. It was not disputed that the defenders did not receive these particulars for approval.

 

8.              The sheriff finds at Finding in Fact 14 in the following terms:

14. In the mistaken belief that Brian McAllister had, or was to, acquire a remunerable interest in the sale subjects, the pursuers ceased marketing the sale subjects in about July 2011. Purportedly in terms of Clause 6.2 of the Agreement, they, on 20 July 2011, invoiced the defenders for payment of £6,000 (inclusive of £1,000 VAT) on the basis of there being a new tenancy giving rise to that minimum payment."

 

9.              Subsequently in August 2011 the respondents entered into missives to lease the licensed premises to their existing tenant, Michael Ward, for a period of five years.

 

10.           Against that background the sheriff found that the expression "disposal" in the agreement (5/1/1 of process) related to the disposal of the sellers' interest in land and that the missives entered into between the respondents and Michael Ward did not constitute a disposal of an interest in land nor was it a long lease and therefore did not trigger any entitlement on the part of the appellants to remuneration in terms of the agreement. The appellants appeal that decision.

 

Appellants' Submissions

11.           Mr Winter, for the appellants asked me to allow the appeal; recall the sheriff's interlocutor of 6 September 2012; sustain the first, third, fourth and fifth pleas-in-law for the pursuers and appellants and to grant decree for the sums in craves 1 and 2 together with expenses. Mr Winter also asked me to certify the cause as suitable for the employment of junior counsel.

 

12.           Mr Winter spoke to the note of appeal (no 13 of process) which contains the outline argument for the appellants. In effect five grounds of appeal are stated at part 2 ground 2.1 is the overarching proposition on appeal and 2.2 specifically considers the legislative framework of the Estate Agents Act 1979 and the Estate Agents (Provision of Information) Regulations 1991 and whether the agreement existed within that framework; whether the agreement between the parties related to "a disposal of an interest in land" and whether the sheriff was entitled to find that as the missives of the lease between the respondents and Mr Ward were only for the duration of five years, there being no long lease, the appellants were not entitled to payment under the agreement. Mr Winter argued that the sheriff erred in respect of these conclusions. In particular the sheriff erred in finding that the respondents' knowledge at the time of negotiating the agreement extended to the legislation referred to there being no evidence and no pleadings to support that proposition. In this context I was referred to the case of Luminar Lava Ignite v Mama Group PLC 2010 SC 310 "facts which are known only to one party are not admissible as part of the surrounding circumstances. For such circumstances to be available to the court in its contract, the circumstances must have been known to both parties or at least such knowledge must have been reasonably available to both of them."

Furthermore, there was no evidence, far less proof, of the technical meaning of a lease and whether that might be "a disposal of the respondents' interest". I was referred to McBryde on the Law of Contract in Scotland Chapter 8 - (8-11)

"the literal meaning of the word is a question of fact. The dictionary will supply a meaning in other words which can in turn be looked up and so on. No question of law is involved. A court may consider dictionary meanings as an aid to construction. The proper construction of a contract is, however, a question of law for the court to determine. This difference is of particular importance when the court is reviewing the decision of a lower court or an arbiter. Contracts are construed in the light of their surrounding circumstances and so, although the construction is a matter of law, it may be necessary to ascertain the facts surrounding the formation of the contract. That is not to say that there will always need to be a proof of those facts, but proof (or an equivalent) is necessary if the contention is upheld that words have a special technical meaning or a meaning given by custom. The conclusion to be drawn from all this is that the construction of a contract involves both questions of law and questions of fact."

 

13.           Ground 2.3 - It was argued on behalf of the appellants that even if the sheriff was correct as to the parties knowledge of the Estate Agents Act 1997 at the time of entering into the contract, nevertheless the sheriff fell into error in failing to find that Clause 3 had as its sole purpose the giving of notice that the agreement was a sole selling agreement in terms of the 1979 Act and the Estate Agents (Provision of Information) Regulations 1991. This was a mandatory requirement in terms of section 18 of the 1979 Act and accordingly Clause 3 in effect stood alone as a statutory notice. By linking the regulatory framework with the remainder of the agreement the sheriff fell into error. He also erred by reading words into the agreement namely, after the word "disposal" the words "of an interest of land". There was no basis upon which he should have done that. There was no evidence to support it. It was submitted that words should only be added if it becomes clear that the language the parties actually used creates an ambiguity which cannot be solved otherwise. In this regard I was referred to Multi-link v North Lanarkshire Council 2010 (UKSC) 53. Reliance was also placed on the dicta of Chadwick LJ in City Alliance Limited v Oxford Forecasting Services Limited 2000 WL 184 1625. In this case it could not be suggested that the words used in the contract were so commercially nonsensical that the parties could not have intended their use. Accordingly, the sheriff was not correct to introduce words into the agreement. The appellants, indeed, have a commercial interest in maintaining these clauses with regard to remuneration in order that they can obtain a fee in connection with marketing property whether that marketing results in a sale or a lease. In terms of City Alliance no other commercial purpose had been identified "with confidence".

 

14.           Accordingly, the words in Clause 6 should be given their ordinary meaning there being no necessity to introduce qualifying words. I was urged to prefer the appellants' construction of the contract and find that any disposal, whether by sale or lease, of whatever period or duration, triggered the remuneration provisions of Clause 3. I was referred to Lord Reed's decision in Credential Bath Street Limited v Venture Investment Placement Limited [2007] CSOH 208. At paragraph [24] Lord Reed states:

"The court will not, of course, interpolate words or substitute one word for another merely because the result might appear to be fairer or more commercially sensible. One of the parties may simply have made a bad bargain; and the court is not entitled to impose on the parties some other bargain, under the guise of construction, on the basis that it might be thought to be fairer or more sensible."

 

15.           Ground 2.4 - Mr Winter submitted that the sheriff erred in law by failing to give the word "disposal" it's plain and ordinary meaning. I was referred to the dicta of Lord Mustill in Charter Re-insurance Company Limited v Fagan [1997] AC 313 at page 384 followed with approval by the First Division in Bank of Scotland v Dunedin Property Investment Company Limited [1998] SC 657 (in particular the dicta of Lord President Rodger at page 661). Mr Winter also referred to Lord Hodge's decision in Forbo-Nairn v Murrayfield Properties Limited [2009] CSOH 47 where following Lord Reed in Credential Bath Street Limited (supra) he deals with the correct approach to the construction of a contract at paragraph 13. Mr Winter used this passage in support of his argument that the sheriff erred by effecting a different bargain by using different words from those which the parties actually used. Echoing the words of Lord Reed and Lord Hodge in the cases to which I was referred the sheriff had erred by failing to be alive to the possibility that the respondents had simply made a bad bargain. Mr Winter submitted that the word "disposal" had its plain and ordinary meaning and that was the "rearranging of affairs". Had the respondents sought to make explicit amendments to the pre-printed contract they were in a position to do so. They had already made and agreed certain amendments to the percentage payments due in Clause 6 (6.1 and 6.3). Accordingly, failure to amend other clauses or parts of clauses must be a material factor in construing the contract in the manner argued for by the appellants.

 

16.           Ground 2.5 - Mr Winter argued that the sheriff contradicted himself in his judgment and disclosed a conflicting approach to the missives of let between the respondents and Michael Ward. In particular, it was argued that the sheriff's reasoning in paragraph 59 of the judgment was inconsistent and at odds with his reasoning in paragraph 50. In paragraph 50 he accepts that the missives entered into between the respondents and the existing tenant amounted to a new lease which is contradicted in paragraph 59. The missives related to both parts of the subjects instead of one part only; there was a change in annual rent and of course a new date of entry. This is not simply a renewal of an existing lease. Accordingly, this points to the sheriff having erred in taking the view that there had been no disposal by way of lease. The sheriff was wrong to state "That lease was part of the asset and not a disposal of it. It was not the sort of lease that was included within the terms of the Estate Agents Act.".

 

17.           Ground 2.6 - Under this ground of appeal it appeared to be argued that the sheriff had placed an interpretation on the contract which was contrary to commercial sense or reality. It was argued that the sheriff's construction was not commercially sensible at all and instead the sheriff placed a technical and artificial interpretation on the agreement. I was referred to Rainy Sky SA v Kookmin Bank [2011] UKSC 50 and the dicta of Lord Clarke of Stone-cum-Ebony who was considering the role to be played by business common sense in determining what the parties to a contract meant. "If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other." (Para 21). It was argued that the sheriff's interpretation namely that the parties could only be referring to the registrable long lease made no commercial sense and the commercial reality of the contract could readily be circumvented by negotiating a lease of just less than 20 years in order to defeat the other party's claim for remuneration. In interpreting the contract in the manner which he did the sheriff had produced a result which was so commercially nonsensical that neither of the parties could have contended for it. Instead the purpose of the appellants having the remuneration clause in the agreement was to ensure that they would be remunerated in circumstances relating to "disposal" irrespective of who had introduced the purchaser or lessee. It was, indeed, intended to prevent the sellers doing a deal behind the selling agent's backs. I was also referred to ING Bank NV v Ros Roca SA [2011] EWCA CIV 353 and City Alliance Limited v Oxford Forecasting Services Limited (supra).

 

Respondents' Submissions

18.           Mr Reid for the respondents asked me to refuse the appeal and adhere to the sheriff's interlocutor. He sought the expenses of the appeal and that I certify the cause as suitable for the employment of junior counsel due to the complexity of the issues and the importance of the cause to the parties.

 

19.           Counsel for the respondents prepared written outline submissions to which I refer and which I do not propose to repeat in full. They meet the grounds of appeal presented on behalf of the appellants. Paragraph 2.1 of the note of appeal being the general criticism of the sheriff's judgment with the following paragraphs 2.2 to 2.6 detailing the discrete grounds of appeal advanced by the appellants. Prior to considering the grounds of appeal Mr Reid reminded me of the role of the Appeal Court and the familiar words of Lord Thankerton in the case of Thomas v Thomas 1947 SC (HL) 45 which deals with the Appellate Court's function and approach to findings in fact made by the judge (or sheriff) at first instance.

 

20.           Mr Reid agreed that much of the factual background to the case was not disputed as the sheriff notes in his judgment. Whether the respondents ever instructed marketing of the property for let was probably the only controversial issue of fact. Likewise, Mr Reid submitted that on the the law as to the interpretation of contractual terms the parties did not in essence differ. The law may appear quite complicated but essentially the authorities to which I was referred pointed towards determining what the parties meant by the language they used and involved consideration of what a reasonable person would have understood the parties to have meant. (Rainy Sky SA v Kookmin Bank [2011] UK SC 50).

 

21.           Turning to the grounds of appeal and accepting that paragraph 2.1 of the note of appeal was essentially the overarching argument put forward on behalf of the appellants the following five sub-paragraphs 2.2 to 2.6 inclusive constituted the disputed grounds of appeal. Mr Reid replied to the appellants' arguments in sequence.

 

22.           (2.2) - Mr Reid argued that this ground of appeal is flawed. The ground of appeal criticises the sheriff for finding that the respondents had knowledge of the Estate Agents Act 1979 or were deemed to have knowledge of the Act at the time of formation of the contract. With reference to Luminar Lava Ignite (supra) he argued that it was not necessary that the respondents were possessed with actual knowledge. The court was entitled to have regard to knowledge which "must have been reasonably available to both" parties. Further the respondents would be deemed to know the law and be aware of it as they contracted. Furthermore, as the Estate Agents Act 1979 was an Act of Parliament which is available and knowledge of which can be assumed.

 

23.           (2.3) - This ground of appeal criticises the sheriff for apparently reading into the contract the words "of an interest in land" after the word "disposal" in circumstances where he was not justified in so doing. Further, that the sheriff was wrong to construe the contract as a whole and that he ought to have appreciated that Clause 3 effectively stood alone unconnected to Clauses 6 and 8.

 

24.           Mr Reid argued that such an approach to interpretation of the contract would be contrary to the principles and referred me to McBryde on the Law of Contract Chapter 8. A contract must be construed as a whole and furthermore, the various clauses of the contract are linked.

 

25.           Further, the appellants had mistakenly criticised the sheriff for reading in words when, in fact, the sheriff was interpreting the language used by the parties. There had been no "reading in". Nor was it necessary for the respondents to place on record averments relating to the statutory background to a sole selling agreement when it was an essential part of the appellants' case that this was indeed a sole selling agreement or contract.

 

26.           (2.4) - This ground of appeal is in two parts firstly, that the sheriff gave the word "disposal" a legal interpretation rather than its true and ordinary meaning and secondly, that the sheriff substituted a different bargain from that which the parties actually made in an effort to get round the reality of the respondents having made a bad or disadvantageous bargain. Mr Reid's reply to this was to the effect that the meaning of the word "disposal" was not the subject of submission to the sheriff other than by the defenders and respondents. Indeed, the sheriff had followed the dicta of Lord Hoffman in Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1WLR 896 when he distinguished the meaning of words in a document with the meaning which a document would convey to a reasonable man. Lord Hoffman went on to say "the meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean."

 

27.           Turning to the second part of this ground of appeal I was reminded that the only evidence about the formation of the contract and the intention of the parties came from the respondents as the appellants did not lead evidence from anyone who had any involvement in the negotiation of or formation of the contract. The appellants' submission with regard to the amendments to Clause 6.1 and 6.3 was misguided given the evidence which the sheriff heard and accepted from the respondents with regard to the reason why Clause 6.2 remained unaltered - that being as Clause 6.2 referred, as it does, to disposal by way of lease, it was irrelevant in the context of the contract and intention of the parties.

 

28.           (2.5) - The respondents argued that this ground of appeal was also flawed. Nevertheless the respondents accept that the statement of the law by the sheriff may have been incorrect when he described the missives of let concluded on 17 August 2011 as being "part of the asset" (paragraph 59 of his judgment). That said, the true meaning the sheriff's reasoning on this matter is correct even if the manner of his expressing the point could be open to criticism. The sheriff was correct in recognising that the individual with whom the respondents entered into missives, Michael Ward, was an existing tenant and had remained a tenant despite other changes to the premises and their refurbishment. The sheriff's reasoning remains sound that the missives do not constitute disposal as the respondents remained the heritable proprietors; had a continuing obligation to insure and because the missives contained an option to purchase. The sheriff was correct in stating that these factors pointed away from a disposal. As a matter of law and as a finding in fact the respondents continued to own the premises. Accordingly, even if the sheriff erred in describing the missives as part of the asset the facts which the sheriff found on the evidence led before him were inconsistent with the missives of let constituting a disposal.

 

29.           (2.6) - That the sheriff has interpreted the contract in a manner which does not make commercial or business common sense. Mr Reid adopted his original submissions before the sheriff to the effect that the pursuers and appellants' argument as to how the contract should be interpreted is flawed. Firstly, the appellants had chosen to lead no evidence as to the formation of the contract. Secondly, the interpretation urged on the sheriff by the appellants would lead to the punitive and commercially absurd result of the appellants being entitled to charge a fee on more than one occasion namely, when the missives of let were entered into and also when the option to purchase was exercised. Likewise, a renewal or continuation of an existing lease would entitle the appellants to payment. In this regard I was reminded that the court should interpret a contract in a way which avoided "commercial nonsense" in the language of Rix LJ in ING Bank NV v Ros Roca SA (supra). The sheriff had considered the commerciality of the contract carefully in his judgment and his reasoning cannot be flawed. Furthermore, the sheriff deals with the evidence of Mr Scobie in paragraph 50 of his judgment. The sheriff was not impressed with his credibility and reliability and considered that he had given "mutually inconsistent evidence". In any event Mr Scobie's view as to what may or may not constitute a "disposal" was quite irrelevant that being an issue or question of law for the sheriff only. Mr Scobie was not in a position to assist the court with regard to the intention of the parties at the time the contract was entered into. Accordingly, this ground of appeal should be rejected as it is without merit.

 

Decision

30.           The context to this dispute is the respondents wish to sell their pub in Bathgate and the ensuing contract with the appellants as their selling agents to achieve that end. There appears to be little dispute about this. The appellants aver so in these terms:-

Article 2 of Condescendence (page 2)

"In or around October 2010 the defenders instructed the pursuers to market the business for sale with a sitting tenant for a price of offers over £300,000. The pursuers offered to do so on the basis that the defenders entered into a sole selling rights agreement subject to the pursuers' standard terms of engagement. The defenders agreed to do so, subject to the pursuers restricting their standard remuneration of 3.5% to 2% of the total selling price of the business. The pursuers agreed that restriction subject to a minimum fee payable of £5,000 plus VAT. The defenders agreed that minimum fee and the parties entered into a contract."

 

31 Accordingly, the sheriff required to analyse and interpret the contract which the appellants describe variously as "the pursuers' standard sole selling rights terms of engagement"; "sole selling rights agreement" and "the sole selling rights written contract". Much is admitted in the pleadings. However, the critical averments are that are denied are:-

Article 2 of Condescendence (page 3 line 1)

"On or around 16 March 2011 the Defenders instructed Lewis Murphy of the pursuers to market for sale a lease of the business and to advertise it at a price of offers over £15,000".

 

and on the same page line 14 -

"Believed that in or around June 2011 the Defenders disposed of the business by way of a lease in terms of Clause 6 of the sole selling rights written contract."

 

The same Article of Condescendence contains averments relating to Brian McAllister, the significance of which is problematic.

 

31.           In Article 3 of Condescendence the appellants set out the basis for their craves as follows:-

"The pursuers became contractually entitled to payment of a minimum fee of £5,000 plus VAT of £1,000 in terms of Clauses 6 and 9 of the sole selling rights written contract when the defenders disposed of the business by way of lease during the operation of that contact."

 

These are the averments which support the appellants' plea in law 3.

 

32.           In Answer the defenders and respondents make the following averments in answer 2 on page 5 of the Record.

"The defenders did not instruct the pursuers to market for sale a lease of the property. The defenders did not have sight of nor did they provide approval for sale particulars in respect of a lease of the property. In terms of Clause 3 of the contract between the parties the pursuers would become entitled to payment of the fee by the defenders on the conclusion of unconditional missives for the sale of the property. Unconditional missives for the sale of the property have not been concluded. The defenders have not disposed of their interest in the property. The pursuers are not entitled to payment of a fee in terms of the contract between the parties."

 

These and other averments support the second plea in law for the defenders in the following terms:-

"2 There having been no disposal of the defenders' interest in the property, the pursuers are not entitled to payment of a fee in terms of the contract between the parties and the defenders should be assoilzied."

 

33.           Thus the dispute between the parties is focussed. The sheriff requires to interpret the contract in order to answer the issues posed in the respective pleas in law. He could conduct an abstract exercise but normally there requires to be, as Lord Wilberforce famously stated in Prenn v Simmonds [1971] 1WLR 1381, a "matrix of fact" or background knowledge. Albeit prior negotiations are excluded from this background due to subjectivity the crucial principles of interpretation have been enunciated in numerous cases. However, with specific reference to Lord Hoffman in ICS Limited v West Bromwich Building Society [1998] WLR 896 and Lord Clarke of Stone-cum-Ebony in the Supreme Court in Rainy Sky SA v Kookmin Bank (supra) it is clear that the meaning which the document would convey to a reasonable person and what that reasonable person would have understood the parties to have meant is important. Accordingly, the role of the sheriff is important in determining not only the legal position but also the factual position.

 

34.           The issues to be decided by the sheriff are "What do the parties to the contract mean by the words 'disposal by way of a lease'" in Clause 6.2 of the contract? And "did the missives of let entered into by the respondents with Mr Ward constitute such a disposal?"

 

35.           Thus the sheriff required to consider the evidence in relation to the formation of the contract and the parties' intention when contracting. Only the respondents gave direct evidence as to the formation of the contract. Plainly, the sheriff accepted the evidence of the respondents in the absence of contrary evidence. Furthermore, he also preferred the evidence of the respondents where there was a conflict between them and the witnesses who gave evidence for the appellants who were employees of the appellants. They gave evidence about the operation of the contract and instructions. On the disputed issue of whether the respondents instructed the appellants to market the premises for let the sheriff accepts the respondents' evidence. At Finding in Fact 13 he states:-

13. The defenders wanted the sale subjects to be operating with a tenant in place. It was to their advantage in selling the sales subject that that be so. A telephone conversation took place between the pursuers' sales negotiator, Lewis Murphy and Mrs Ferguson on 16 March 2011. During that conversation Mrs Ferguson expressed her desire for there to be a tenant in place and for the sale subjects to be trading. There was a misunderstanding between them. Mrs Ferguson did not instruct the pursuers thereafter to market the sale subjects for let to a tenant but Mr Murphy mistakenly proceeded as though she had.........The defenders did not know about that sales brochure or that the pursuers were marketing the sale subjects for let."

 

The sheriff's reasoning can be found at paragraphs 49, 50, 58 and 61. In paragraph 49 the sheriff deals with his assessment of Mr Murphy's evidence. The sheriff found that Mr Murphy was not an entirely reliable witness. In paragraph 59 he gives an assessment of Mr Scobie's credibility and reliability dealing also with what he considers to be the premature invoice issued on an erroneous belief. On the formation of the contract the sheriff makes a finding with regard to the purpose of the contract namely marketing the subjects for sale with a sitting tenant at offers over £300.000. This accords with the written terms of the contract. His reasoning can be found at paragraphs 55 and 56. Of course the appellant chose not to lead evidence from any witness who could speak to the formation of the contract and this indeed is mentioned by the sheriff at paragraph 55 of his judgment.

 

36.           The sheriff's view of the evidence and the findings he makes having heard the witnesses will not lightly be interfered with on appeal. He had the advantage of hearing and seeing the witnesses at proof. I would refer to Clarke v Edinburgh and District Tramways Company 1919 SC (HL) 35 and Thomas v Thomas 1947 SC (HL) 45.

 

37.           As I have said the sheriff required to decide the issue of what the parties meant by "disposal by way of a lease" in Clause 6.2 of the contract and that involves interpreting the contract which requires the application of law to the facts. The sheriff's findings in fact are therefore of significance to the interpretation of the contract and form the bedrock of his process of interpretation.

 

38.           It is of some consequence that the sheriff had no evidence from the pursuers' witnesses as to the formation of the contract/agreement. This may well be of significance particularly as there were handwritten alterations to Clause 6 and the first page was also partly completed by hand. Both respondents gave evidence; both respondents appear as sellers on the contract albeit only the first named respondent signed the agreement. Accordingly, in the absence of other evidence as to the contract save the written document their evidence is crucial. Obviously Mr Scobie and Mr Murphy were led as witnesses for the appellants but neither had any involvement in the formation or negotiation of this contract and Mr Murphy's employment appears to postdate the contract. Clearly, although material the respondents evidence is not determinative of the contract and neither the respondents nor the sheriff can innovate with the contractual terms (Multi link) (supra) per Lord Hope at page 57 paragraph 11:

"The court's task is to ascertain the intention of the parties by examining the words they used and giving them their ordinary meaning in their contractual context. It must start with what it is given by the parties themselves when it is conducting this exercise. Effect is to be given to every word, so far as possible, in the order in which they appear in the clause in the question. Words should not be added which are not there, and words which are there should not be changed, or taken out or moved from the place in the clause where they have been put by the parties. It may be necessary to do some of these things at a later stage to make sense of the language. But this should not be done until it has become clear that the language the parties actually use creates an ambiguity which cannot be solved otherwise."

 

39.           Against that background I turn to deal with the specific grounds of appeal advanced on behalf of the appellants. At 2.2 of the grounds of appeal the appellants argue that the sheriff erred in paragraph 54 of his judgment by finding that the respondents knowledge extended to the Estate Agents Act 1979 in the absence of specific evidence to that effect. In advancing that argument the appellants' counsel relied upon the judgment of Lord Hodge in Luminar Lava Ignite v Mama Group PLC [2010] SC 310. In my view this ground of appeal is based on an erroneous assumption. The pursuers and appellants advance the argument that the agreement and Clause 3 in particular was simply intended to comply with section 18 of the Estate Agents Act 1979. The sheriff, having regard to the dicta of Lord Clarke of Stone-cum-Ebony in Rainy Sky (supra), looked at the reasonable person contracting with all relevant background knowledge. In these circumstances the sheriff decided that the reasonable estate agent and reasonable client would know that the agreement existed within the framework of the 1979 Act and the 1991 Regulations which flowed from that Act. Lord Hodge in the Luminar Lava case was dealing with the parties' knowledge of facts which provided the backdrop to that contract. Knowledge of the legislation and the purpose of the legislation is a matter concerning the law and is the legislative framework which permeates the agreement. The appellants cannot comply with the legislation selectively. The wording of the written explanation for a sole selling rights contract is set out in a schedule to the Estate Agents (Provision of Information) Regulations 1991. The purpose of providing that information is to explain to the client his liability to pay remuneration to the agent. In my view the respondents' argument on this ground of appeal is correct. Parties are deemed to know the law; but actual knowledge may not be necessary and, given the legislative framework, knowledge of that legislation can be taken to be within the knowledge of both parties. A distinction falls to be made between the situation which Lord Hodge was describing in Luminar Lava which was strictly the background facts to the formation of the contract whereas in the present case the sheriff took the view that the agreement existed within the framework of the 1979 Act and its regulations by operation of law. It follows from that knowledge or deemed knowledge that an analysis of the legislation and in particular section 2 of the Estate Agents Act 1979 that disposing of an interest in land referred to inter alia "Transferring or creating in Scotland any estate or interest in land which is capable of being owned or held as a separate interest and to which a title may be recorded in the Register of Sasines;" as the sheriff states:- "So far as leases were concerned only a long lease was capable of being recorded." Against that background and in the knowledge that they were contracting for the sale of the subjects the respondents would have little interest in the provisions relating to lease certainly in so far as Clause 6 is concerned. Accordingly, in my view, this part of this ground of appeal without merit.

 

40.           However, consideration of ground 2.2 leads to the following ground of appeal which firstly, suggests that the sheriff erred in not appreciating that Clause 3 (the mandatory "sole selling rights" clause) and Clauses 6 and 8 (remuneration) and (entitlement to payment) were unconnected. The second part of this ground of appeal criticises the sheriff for reading in to the agreement after the word "disposal" where it occurs in Clause 6.2 the words "of an interest in land". The first part of this ground of appeal draws its impetus from the statutory background of the Estate Agents Act 1979. Consideration of the Act and Regulations indicates quite clearly that the requirement to provide a written explanation is to describe for the client the client's liability to pay remuneration. This is clear from Regulation 5 of the Estate Agents (Provision of Information) Regulations 1991. The prescribed explanation in the schedule to the regulations is designed to give information as to the estate agents entitlement to remuneration. There is nothing in the regulations which suggest that the wording is designed to be an antiseptic or warning but rather it is an explanation which should make explicit when and in what circumstances the estate agent might be entitled to remuneration. Accordingly, it is proper firstly, that the contract be construed as a whole or unum quid. In my view that is the proper approach to the interpretation of a contract and well settled. Secondly, there is a clear link or audit trail between the client or sellers liability to pay remuneration (Clause 3); the amount of that remuneration (Clause 6) and the stage at which the agents become entitled to payment of its remuneration (Clause 8). There is a clear chain or link between the various clauses. It would be contrary to the principle of interpretation of any contract and contrary indeed to the spirit of fairness and indeed the spirit of the 1991 Regulations to construe the contract in any other way. Put simply the contract must be construed as a whole. McBryde on the Law of Contract in Scotland, Chapter 8 (8.17); Charter Re-insurance (supra) per Lord Mustill at page 384 - "The words must be set in the landscape of the instrument as a whole". Accordingly, this ground of appeal is without foundation.

 

41.           The argument is advanced that the sheriff erred in reading words into the agreement. The appellants say this is so as the sheriff uses the words "disposal of an interest in land" in order to interpret the meaning of the words used by the parties and to give context and content to the contract itself. In this regard I was referred to the dicta of Chadwick LJ in City Alliance Limited v Oxford Forecasting Services Limited (supra). In that judgment the court set two criteria which must be satisfied before the court can introduce words which the parties had not used. The court had to be satisfied that the words actually used produced a result which was so commercially nonsensical that the parties could not have intended it and that they intended some other commercial purpose which can be identified with confidence only then should the court introduce words. In this case, however, the purpose of the contract is entirely clear and there can be little or no doubt that the parties contracted in order to effect a sale of the respondents' licensed premises. No other purpose is identified from the evidence and indeed the terminology throughout the agreement relates to the sale of the property. Where sale is not appropriate the word "disposal" appears. It is clear from the findings in fact that the agreement related to the marketing for sale of heritable subjects owned by the first respondent. In that context the sheriff was entitled having regard to the facts and the contract to make the finding in fact and law that he does that the agreement between the parties concerned a disposal of an interest in land. The sheriff fully considers the commerciality of the agreement at paragraph 58 of his judgment and considers this from the point of view of both parties. It would indeed be contrary to common sense to suggest, on the evidence, that the parties intended anything other than a selling rights agreement only.

 

42.           The next issue relates to the sheriff's approach to the meaning of the word "disposal". I was referred to a series of authorities which looked at the meaning of words in a contract. The Scottish authorities indicate that the ordinary meaning of words should be the starting point (Bank of Scotland v Dunedin) (supra); Lord Mustill in Charter Re-insurance (supra) likewise considers that the ordinary meaning of the words used will be the start and usually the finish of the enquiry. Lord Steyn's words in Mannai Investment Company Limited v Eagle Star Life Assurance Company Limited [1997] AC 749 were commented on with approval by Lord Rodger in Bank of Scotland v Dunedin. Lord Steyn's guidance indicates that in interpreting a commercial document the court should apply the commercially sensible construction. Counsel for the appellants suggested that the ordinary meaning of the word "disposal" should be something akin to "rearranging of affairs" which, with respect, appears to me to be a particularly loose and unfocussed meaning to give to a word which has as its ordinary meaning "alienation". Accordingly, it was open to the sheriff to reach the view he did. The submission made on behalf of the respondents is sound. The sheriff did not fall into the trap of simply adopting a sterile definition given in a dictionary but gave a straightforward meaning to the word against the relevant background.

 

43.           The second leg of ground of appeal 2.4 in the note of appeal falls to be rejected for the reasons I have given relating to the evidence heard by the sheriff. As regards the formation of the contract and the intention of the parties the sheriff heard evidence only from the respondents who were clear as to the purpose of the contract. The submission made by the appellants with regard to the amendments made to Clause 6 of the agreement with regard to the percentage fee can be turned on its head by the evidence from the respondents which the sheriff accepted. That evidence is to the effect that the respondents left Clauses 6.2 and 6.4 alone as they were of no relevance or interest given their purpose in contracting with the appellants. The sheriff was entitled to look at the agreement, consider the facts and the commercial reality of the situation when he interpreted the agreement and the language of the agreement.

 

44.           There was a measure of agreement that the sheriff's statement in paragraph 59 of his judgment that "the lease to the sitting tenant that the pursuers already had clearly could not have been considered by the parties, when contracting, to be a disposal. That lease was part of the asset and not a disposal of it. It was not the sort of lease that was included within the terms of the Estate Agents Act". Firstly, it is presumed that the sheriff is referring to the defenders (respondents) when he refers to pursuers. I suspect that the difficulty here is one of expression. The lease referred to by the sheriff is no doubt the missives of let entered into in August 2011. They were not part of the asset in the legal or strict sense however, I take the view that the sheriff was meaning that the fact that there was a sitting tenant was good for marketability and that another lease to that tenant would continue and enhance the asset which the respondents were seeking to dispose of by way of a sale. It was accepted that the price to be achieved for the subjects with a sitting tenant would be greater than the price to be achieved with no tenant. In the former situation the subjects comprised both a heritable capital asset and a trading asset thus enhancing the price. This is reflected in the drop in asking price from £300,000 to £199,985 when the premises ceased to trade due to Mr Close requiring to terminate his tenancy and Mr Ward temporarily relocating to allow refurbishment. Nevertheless, the missives of let which the appellants found upon as the trigger for a payment under Clause 8 of the agreement, involve an intention on the part of the respondents to provide their existing tenant, Mr Ward, with another lease to allow him to continue to trade from the premises. Whether trading or not Mr Ward never ceased to be a tenant of the respondents at the premises. When trading he enhanced the asset which the respondents were seeking to dispose of by way of sale. Missives of let cannot be considered an alienation of the respondents' rights in the property. The first respondent continued to be the heritable proprietor with obligations in respect of insurance etc. The missives conferred an option to purchase on Mr Ward an option which could be conferred only by the owner or heritable proprietor. An option to purchase could not be conferred at the same time as a disposal. The two are mutually exclusive. Accordingly, albeit, that the sheriff may have expressed himself loosely when speaking of this lease no consequences flow from that. The sheriff, in my view, was expressing the value of retaining the existing tenant who would secure for the respondents a more marketable trading asset generating income for a potential purchaser as well as being a capital asset. This ground of appeal is without merit.

 

45.           Turning to the final ground of appeal. In my view this ground of appeal, as stated, highlights the appellants' difficulty with and misapprehension of the facts. The appellants appear to have had regard to the involvement of Brian McAllister and misplaced reliance on his activities. In a sense this is a parallel thread of evidence which has no real bearing on the issues. Nevertheless, it appears from this ground of appeal that the appellants true position is that they thought the respondents were going behind their back by entering into a lease with another individual without the appellants knowledge. The suggestion that the sheriff erred by failing to take account of Ewan Scobie's evidence on whether there had been a disposal by way of a lease is simply misconceived. Firstly, Ewan Scobie was a witness who did not impress the sheriff from the point of view of either credibility or reliability. Secondly, Ewan Scobie's view as to whether there had been a disposal by way of a lease is nothing to the point. He was a witness to fact and by the sheriff's assessment a poor witness to fact and his view as to whether there had been a disposal was of no moment as that is a question of law for the sheriff. Likewise it is difficult to understand what weight the sheriff ought to have given to his evidence as regards the intention of either party, but particularly the appellants, in introducing certain clauses into the contract. He was not involved in the formation of the contract. Mr Scobie's evidence with regard to that matter was of no assistance to the sheriff and indeed irrelevant.

 

46.           Turning to the commercial purpose of the agreement. The suggestion that the commercial purpose of the agreement is to ensure the appellants' remuneration in circumstances which include the other party entering into missives of let with the sitting tenant is, in my view, absurd. That contention disregards completely the fact that there are two parties to the contract and in respect that the purpose of the contract is to achieve either a sale of the premises or, as contended for by the appellants, a lease of the premises. The commercial reality or purpose of the contract is for both parties to achieve such a result. Without achieving the sellers' purposes the estate agent will not receive remuneration. The commercial purpose contended for on behalf of the appellants would be to have the other party as a "hostage" for the duration of the contract. It would mean that the seller would be unable to conduct and regulate their business affairs by renewing a lease or renegotiating a lease with an existing trading tenant without triggering liability to pay a fee to the estate agent. The respondents' counsel contended, and rightly so, that if the appellants' argument is correct then the appellants would be entitled to double payment should the missives of let crystallise and Mr Ward subsequently exercised his option to purchase the premises. Both parties referred to City Alliance Limited v Oxford Forecasting Services Limited and ING Bank NV v Ros Roca SA [2011] EWCA CIV 353. In the latter case Lord Justice Rix referring to the construction of a contract speaks of the choice to be made, on the contractual language, between an absurd interpretation and a commercial interpretation. In circumstances where the sheriff has found as a matter of fact that the respondents did not instruct the appellants to market the premises for lease and instead that the purpose of the contract was to sell the property the interpretation placed on the contract by the sheriff was the interpretation best placed to meet that commercial purpose. On the other hand, the interpretation urged on me by the appellants was considered and rejected by the sheriff (at paragraph 58). In my view the sheriff was correct to do so.

 

47.           Accordingly, I detect no error which would vitiate the sheriff's decision on the material issues relating to the interpretation of the contract and the meaning of Clause 6.2 in particular. However, it is proper that I postulate on the manner of interpretation of the contract argued for on behalf of the appellants. If I put to one side the statutory and regulatory framework in which the contract exists which led the sheriff to conclude that a lease of less than 20 years could not constitute a "disposal" by way of lease what then would be the outcome? On a straightforward consideration of the facts the sheriff, in my view, was still entitled to assoilzie the respondents. No lease was ever entered into between the respondents and Mr Ward. However, accepting that the missives of let have, in the practical sense, been implemented it is appropriate to consider that the missives of let concluded in August 2011 are to be the equivalent to a lease for a period of five years. Against that background, as at 20 July 2011, when the appellants invoiced the respondents in the sum of £6,000, there was no entitlement in terms of the agreement to do so. Clause 8 of the agreement governs the issue of when the appellants are entitled to payment. Another difficulty for the appellants is the apparent reliance placed upon the instructions given by Mr McAllister who is neither a purchaser nor a tenant. For somebody in the shadows of these proceedings he appears to have been an unnaturally influential force at least as far as the appellants are concerned and perhaps ultimately to their detriment. The involvement of Mr McAllister and his apparent influence on these proceedings is something of a conundrum.

 

48.           The appellants averments in support of their pleas in law proceed on the belief that the respondents disposed of the business by way of lease in June 2011. The sheriff makes findings on the evidence which contradict that belief. That belief appears to be based on several misapprehensions - firstly, that they were ever instructed to market the premises for let and secondly, the role of Mr McAllister. No lease was effected nor were missives even concluded until August 2011. In short, the appellants had no entitlement to payment of any fee when they issued the invoice 36/884 in July 2011.

 

49.           The appeal is refused. There will be a finding of expenses in favour of the respondents. Both parties asked me to certify the cause as suitable for the sanction of junior counsel given both the complexity of the issues and the importance of the cause to the clients. I note that counsel appeared before the sheriff and he certified the cause in the same manner. I agree that the cause is suitable for the employment of junior counsel and I will make the appropriate certification in the interlocutor.

(signed) Mhairi M Stephen