JH & W Lamont of Heathfield Farm v Chattisham Ltd
| Jurisdiction | Scotland |
| Judge | Lady Wolffe |
| Judgment Date | 01 May 2018 |
| Neutral Citation | [2018] CSIH 33 |
| Date | 01 May 2018 |
| Court | Court of Session (Inner House) |
| Docket Number | No 24 |
[2018] CSIH 33
First Division
Lady Wolffe
@SIPP Pension Trs v Insight Travel Services Ltd [2015] CSIH 91; 2016 SC 243; 2016 SLT 131; [2016] 1 P&CR 17; 2016 Hous LR 20
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Bell, GJ, Commentaries on the Law of Scotland, and on the Principles of Mercantile Jurisprudence: With additional notes, adapting the work to the present state of the law, and comprising abstracts op the more recent English authorities illustrative of the law of Scotland (7th McLaren ed, T & TClark, Edinburgh, 1871), ii, 122
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Contract — Retention and set off — Pursuers seeking discharge of standard security — Defenders raising counterclaim for losses arising from alleged breach of contract — Whether defenders entitled to plead retention in respect of requirement to grant discharge of standard security — Whether obligation a counterpart to other obligations under the agreement between the parties
JH & W Lamont of Heathfield raised an action seeking specific implement of an agreement entered into with Chattisham Ltd in the commercial court in the Court of Session. The defenders counterclaimed for losses. Following a hearing before the commercial judge (Lady Wolffe), the action was dismissed and decree granted de plano by interlocutor dated 5 October 2017. The counterclaim was appointed to proof before answer. The defenders reclaimed against the decision to grant decree to the Inner House of the Court of Session.
The pursuers and respondents entered in an option agreement with the defenders and reclaimers in respect of heritable subjects belonging to the pursuers. The defenders were private residential developers. In terms of the agreement, the defenders were granted an option to purchase the land or portions thereof in return for two non-refundable payments. The defenders were to promote the land for private residential development which included securing that it would be allocated for such development on the local plan. If not more than ten acres were allocated by a particular date, either party could resile without penalty. If part only was allocated the provisions of the agreement would apply only to the allocated subjects. Once land was allocated the defenders were to take steps to obtain planning permission and ultimately sell parcels of the land to third-party developers with the pursuers conveying the parcels to the buyers. The pursuers granted a standard security over the land in favour of the defenders “in security of performance of all obligations undertaken [by the pursuers to the defenders] in terms of the [option agreement]”. The sale proceeds were to be shared between the parties, with the defenders restricting and ultimately discharging the standard security accordingly. The agreement also provided that upon the earlier to occur of the expiry of the option period and the termination of the agreement the defenders were to deliver to the pursuers a discharge duly executed of the standard security.
The pursuers terminated the agreement by notice after the third-party sale longstop date had passed and at which time no sales had been concluded. The pursuers asked the defenders to discharge the standard security. The defenders refused and following raising of an action by the pursuers for specific implement by execution of a discharge of the standard security, the defenders counterclaimed for alleged breaches of express and implied terms of the agreement. The commercial court judge allowed a proof before answer in respect of the counterclaim and granted decree de plano ordering the defenders to execute the discharge. The defenders reclaimed against the granting of decree to the Court of Session.
Counsel for the defenders and reclaimers submitted that a party to a contract could withhold performance of an obligation for payment of damages for a breach of a contract which had been terminated. The commercial judge had erred in holding that the terms of the agreement breached by the pursuers were not counterparts to the defenders’ obligation to discharge the security.
Senior counsel for the pursuers and respondents submitted that the commercial judge had been correct to find that there was no interdependency between the obligations. The presumption of mutuality was rebutted by a consideration of the terms of the agreement which set out that come what may, the defenders were obliged to execute a discharge of the security in certain specified circumstances and which had occurred.
Held that there was no mutuality between the claim for damages and the obligation to discharge the security as: (1) (per the Lord President (Carloway)) withholding performance could not be used to compel performance of an obligation which was no longer extant because of lawful termination of the contract, and the obligation to discharge the security was not intended to be suspended until the resolution of a claim for damages (paras 21–23); (2) (per Lord Drummond Young) it could reasonably be inferred that an express security (such as a standard security over land) was intended to supersede the implied security conferred by the right of contractual retention, and the option agreement contained express terms for the discharge of the security which were not related to the performance of the granter's obligations (paras 38–42); (3) (per Lord Malcolm) the time-limited nature of the standard security demonstrated that it was not intended to cover outstanding claims for damages (para 50); and reclaiming motion refused.
Observed that: (1) it would not be equitable for the defenders to be allowed to avail themselves of retention (under the doctrine of mutuality of obligations) in the principal action (per Lord President, para 24, Lord Drummond Young paras 45, 46); and (2) the defenders could not avail themselves of the doctrine of special retention (which concerned the set off of competing monetary claims) where the performance being withheld did not concern monetary payment, and in any event the equities favoured the pursuers (per Lord Malcolm, para 60).
The cause called before the First Division, comprising the Lord President (Carloway), Lord Drummond Young and Lord Malcolm, for a hearing on the summar roll, on 16 January 2018.
At advising, on 1 May 2018—
Lord President (Carloway)—
[1] This is a reclaiming motion (appeal) against an interlocutor of the commercial judge, dated 5 October 2017, ordaining the defenders to deliver to the pursuers a duly executed discharge of a standard security granted on 1 February 2010 in terms of an option agreement. The issue is whether the defenders are obliged to discharge the security or entitled to refuse to do so pending the resolution of their counterclaim for damages for alleged breaches of the agreement.
[2] The pursuers are the heritable proprietors of 73 acres in Gartcosh, North Lanarkshire. The defenders are developers. The parties entered into an option agreement dated 21 December 2009 and 1 February 2010, whereby the defenders were granted an option to purchase the land, or parcels of it, from the pursuers in return for two non-refundable payments of £60,000 and £75,000 (option grant, sec 3). The defenders were to promote the land for private residential development. This included securing that it would be allocated for such development on the local plan (sec 4). If not more than ten acres were allocated by a particular date, either party could resile ‘without penalty’. If only part of the 73 acres were allocated, the provisions of the agreement would ‘only apply to the Allocated Subjects and the Non Allocated Subjects shall not be constrained in any manner whatsoever by this Agreement’ (cl 4.8.2).
[3] Once land had been allocated, the defenders...
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