Aberdeen City Council v Stewart Milne Group Ltd

 
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[2011] UKSC 56

THE SUPREME COURT

Michaelmas Term

On appeal from: [2010] CSIH 81; [2010] CSOH 80

before:

Lord Hope, Deputy President

Lady Hale

Lord Mance

Lord Kerr

Lord Clarke

Aberdeen City Council
(Respondent)
and
Stewart Milne Group Limited
(Appellant) (Scotland)

Appellant

R Craig Connal QC

Jim Cormack

(Instructed by McGrigors LLP)

Respondent

Craig Sandison QC

David Thomson

(Instructed by Brodies LLP)

Heard on 10 November 2011

LORD HOPE (WITH WHOM LADY HALE, LORD MANCE AND LORD KERR AGREE)

1

The issue in this appeal raises what the courts below have correctly described as a short point of construction. It relates to a contract which the appellants, Stewart Milne Group Limited, entered into with the respondents, Aberdeen City Council, for the purchase of land with a view to its development to form a business park or for industrial development. The subjects comprised an area of about 11 acres lying to the north of the B9119 public road at Westhill, Aberdeen. The purchase price was £365,000, but it was subject to a possible uplift in the events described in clause 9 of the missives. In general terms this was to be payable if the appellants issued a notice indicating their wish to buy out the respondents' share of the open market value of the land with the benefit of all necessary consents and agreements for its development, or if the appellants wished to dispose of the whole or part of the subjects by sale or by a lease for a term of more than 25 years.

2

The negotiations which were recorded in the missive letters between the parties were conducted over a period of several years. They began with a missive letter by the appellants' solicitors dated 6 November 2001 in which all the terms relevant to the present dispute are set out. By missive letter dated 8 November 2001 the respondents accepted the appellants' offer on the terms and conditions contained in the letter of 6 November 2001 and held the bargain as concluded. But further negotiations then followed, the missives were re-opened and the bargain was not finally concluded until 26 August 2004. The appellants took title to the subjects as heritable proprietors. A development of the kind contemplated by the missives was then carried out.

3

On 4 October 2006 the appellants transferred their title to the subjects to another company within the Stewart Milne Group called Stewart Milne (Westhill) Limited ("Westhill"). On 13 December 2006 their solicitors wrote to the respondents stating that they had disposed of the subjects to Westhill by way of sale. Their contention was that the effect of this transaction was to trigger the obligation to pay the uplift to the purchase price that the missives provided for. They contended also that the gross sale proceeds for the purposes of the calculation of the uplift that the missives provided for must be taken to be that part of the total consideration paid by Westhill for the whole of the development land that was attributable to the subjects, which was £483,020. As this was less than the allowable costs which were to be deducted from the sale price in terms of the missives, the result was that no uplift was payable to the respondents. The respondents refused to accept that the transaction had this effect, as theymaintained that the open market value of the subjects was greatly in excess of the consideration paid by Westhill.

4

The parties were unable to agree on this matter, so the respondents raised an action in the Court of Session in which they concluded for declarator that any further sum due to them in terms of the missives falls to be calculated by reference to the open market value of the subjects referred to in the contract as at the date of their sale by the appellants to Westhill, less the allowable costs as defined in the schedule to the missive letter of 6 November 2001. The appellants' defence to this action was that the contract between the parties, on its true construction, did not provide that any additional payment under clause 9 of the missives should, in the case of a sale of the subjects, be calculated on the basis of their open market value.

5

It was agreed that the matter was capable of being resolved by debate. The debate took place before the Lord Ordinary, Lord Glennie, in May 2009. On 3 June 2009 he found in favour of the respondents and granted decree of declarator in terms of the conclusion of the summons. The appellants reclaimed and the reclaiming motion was heard by an Extra Division (Lord Clarke, Lord Hardie and Lord Drummond Young) on 6 July 2010. On 14 October 2010 the Extra Division refused the reclaiming motion and adhered to the Lord Ordinary's interlocutor. The appellants have now appealed to this court. Their solicitor advocate, Mr Craig Connal QC, invited us to recall the Extra Division's interlocutor and to dismiss the action.

The contractual provisions
6

The appellants were referred to in the missive letter of 6 November 2001 as "the Purchasers". The respondents were referred to as "the Sellers". In clause 2 it was stated that the purchase price of £365,000 payable for the subjects on the date of entry was subject to any uplift payable in terms of clause 9. Clause 4 contained a list of conditions which were described as conditions suspensive of the missives. They provided for a site and soil survey report and an environmental audit on the subjects, the obtaining of outline planning permission and sewage connection consent and water authority consent for the construction and subsequent operation of the development on the subjects. The opening paragraph of clause 9, which was headed "Uplift", was in these terms:

"In addition to the purchase price detailed in Clause 2 hereof, the Purchasers and the Sellers have agreed that the Sellers shall be entitled to a further payment ('the Profit Share') upon the Purchasers purifying the suspensive conditions contained in Clause 4 hereof and issuing a notice to the Sellers intimating to the Sellers that the

Purchasers wish to purchase the relevant part of the profit-share as defined in the Schedule to which the Sellers are entitled. The Sellers' entitlement to the relevant part of the profit-share will also be triggered by the Purchasers disposing either by selling or by granting a lease of the whole or part of the Subjects."

7

Various expressions used in clause 9 were defined in a Schedule to the missives. They included a definition of "the Allowable Costs". The definition, which does not need to be quoted in full, comprised various costs that were likely to be incurred by the appellants with a view to obtaining planning permission and all other necessary consents in connection with the development and servicing of the subjects. Among the other definitions were the following:

"'Estimated Profit' means the Open Market Valuation under deduction of the Allowable Costs.

'Gross Sale Proceeds' means the aggregate of the sale proceeds of the Subjects received by the Purchasers for the Subjects.

'lease' means a lease for a term of more than 25 years.

'Lease Value' means the open market capital valuation of the Subjects or that part of the Subjects to be leased having regard to the terms of the lease but assuming that the lease is an open market transaction carried out at arms length with no consideration or other incentives being paid by either party other than the rent or, in the case of a lease granted in consideration of a grassum, the grassum

'Open Market Valuation' means the open market value of the Subjects or relevant part thereof as specified in the notice at the date of the notice served in accordance with clause 9.5, with the benefit of and subject to the necessary consents and all agreements entered into with the local Planning Road [sic], Water or other Authority or service provider relative to the Subjects and making due and proper allowance for the costs of remedying any adverse ground conditions, any off site infrastructure or planning gain contributions to be made in terms of any of the necessary consents or the aftermentioned agreements and the costs of completing any access road within or serving the Subjects to adoptable standard.

'Profit' means the Gross Sale Proceeds under deduction of the Development Costs.

'the Profit Share' means 40% of 80% of the estimated profit or gross sale proceeds or lease value less the Allowable Costs as herein defined."

8

By clause 9.1 the appellants were to be obliged to keep accounts in respect of the Allowable Costs, which the respondents were to be entitled to examine at any time. Clause 9.2 provided that the profit share was to be calculated in the first instance by the appellants, and that in the event of the respondents disputing their calculations the matter was to be referred to an independent chartered surveyor for his determination. Clause 9.3 provided for what was to happen if the appellants served notice in respect of a part only of the subjects or if they sold or leased part only of them after servicing. Clause 9.4 was in these terms:

"The relevant part of the profit share due to the Sellers shall be paid by the Purchasers to the Sellers within 14 days of it being calculated in accordance with clause 9.2 hereof or in the event of a sale 14 days after receipt of the gross sale proceeds by the Purchasers."

Clause 9.5 provided that the appellants were to be entitled to serve a notice to the respondents intimating that they wished to purchase the profit share at any time after purification of the suspensive conditions in clause 4. Clause 9.6 provided that in the event of the respondents disputing the appellants' Estimated Profit or the Lease Value the matter was to be referred, failing agreement between the parties, to an independent chartered surveyor for his determination. Clause 9.7 was in these terms:

"For the avoidance of doubt in the event of all or part of the Profit Share being paid following upon the grant of a lease of all or part of...

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