R & D Construction Group Limited V. Hallam Land Management Limited
| Jurisdiction | Scotland |
| Judge | Lord Hodge |
| Neutral Citation | [2009] CSOH 128 |
| Court | Court of Session |
| Docket Number | CA63/08 |
| Published date | 16 September 2009 |
| Date | 16 September 2009 |
| Year | 2009 |
| OUTER HOUSE, COURT OF SESSION [2009] CSOH 128 | |
| CA63/08 | OPINION OF LORD HODGE in the cause R & D CONSTRUCTION GROUP LIMITED Pursuer; against HALLAM LAND MANAGEMENT LIMITED Defender: ________________ |
Act: Clark QC; Maclay Murray & Spens LLP
Alt: Borland; Harper MacLeod LLP
16 September 2009
[1] The pursuers are the assignees of Robison & Davidson Limited ("R&D"),who were a party to the land purchase contract which is the subject matter of this action. The defenders are Hallam Land Management Limited ("Hallam"), who were the other party to the contract. The parties agreed to a proof of all matters raised on record other than articles 10 and 11 of condescendence and the corresponding answers in the defences, which dealt with causation and damages.
Background
[2] In November 1999 Hallam entered into an option agreement with a landowner, Mrs Barbara Kerr ("Mrs Kerr") in which Hallam were given an option to purchase up to 21.1 acres of land at Wester Windyedge Farm, Cleland, Lanarkshire, at a price to be agreed. In 2003 R&D entered into a contract with Hallam by which R&D contracted to buy 4.685 acres of the option subjects ("the purchase subjects") from Hallam at a price of £571,314. The purchase contract, which comprised an offer dated 29 January 2003, a qualified acceptance dated 24 September 2003 and a letter concluding the bargain dated 1 October 2003, was subject to conditions precedent. One of conditions precedent, which is at centre of the dispute in this action, is clause 4.1.10 which provided:
"The Missives shall be essentially conditional upon:
....
4.1.10 the Seller [Hallam] agreeing a purchase price for the Subjects with the current proprietor in terms wholly acceptable to the Seller (the Seller being required to use all reasonable endeavours in this regard)"
[3] Two principal issues arose in the proof; one was legal, the other was primarily factual and partly legal. The first was whether the obligation to use all reasonable endeavours in the provision which I have quoted was enforceable; the second was whether, if the provision was capable of enforcement, Hallam were in breach of contract.
The contractual context
[4] Hallam trade in land. As part of their business they negotiate option agreements with landowners and also back to back agreements with developers. When doing so they seek to make a satisfactory profit on the differential in price between the two contracts. Someone other than the landowner bears the cost of attempting to obtain planning permission to develop the land and the landowner under the option agreement is entitled to a purchase price fixed by reference to a percentage of the resulting market value.
[5] I summarise below the material provisions of the two contracts in this case.
(a) The option agreement between Hallam and Mrs Kerr
[6] In return for an option fee of £7,000, Mrs Kerr gave Hallam the option, which was exercisable for five years after the delivery of the option agreement, to purchase all or parts of the option subjects after Hallam had obtained a planning permission with which they were satisfied. Hallam undertook to use all reasonable endeavours to obtain a satisfactory planning permission as soon as reasonably practicable. Once the planning permission was in place, Hallam were empowered by clause 6.2.1 to serve a provisional notice in writing on Mrs Kerr stating that they were considering exercising the option and specifying the extent of the relevant land. The service of the provisional notice obliged the landowner to negotiate the amount of the purchase price of that land.
[7] Clause 6.2.3 of the option agreement required Hallam and Mrs Kerr to use all reasonable endeavours to agree the amount of the purchase price as soon as reasonably practicable. If agreement was not reached within twenty days after Hallam served the provisional notice, either party could give notice in writing referring the fixing of the purchase price to the decision of an expert. Clause 6.2.4 provided that Hallam were entitled to exercise the option within one calendar month after the agreement of the price or its determination by the expert by serving a written option notice. Clause 7 provided that service of the option notice constituted the sale of the subjects of the option and clause 8 set out the terms of the sale.
[8] The purchase price of the option subjects was defined in the second schedule to the option agreement as the higher of (i) seventy five per cent of the open market value of the relevant land at the date of the service of the provisional notice or (ii) the sum of £75,000. Thus on service of the provisional notice the parties were to agree or the expert was to fix an open market value and thereby ascertain the purchase price. In the market for land as it existed in 2003 and 2004 the fall back sum of £75,000 was irrelevant. Parties therefore had to address the agreement of an open market value as at the date of service of the provisional notice. Mrs Kerr would receive seventy five per cent of that value and Hallam would retain the balance.
(b) The purchase agreement between R&D and Hallam
[9] Clause 4 of the purchase agreement between R&D and Hallam contained a number of suspensive conditions in addition to that which I have set out in paragraph [2] above. As a result R&D were not bound to purchase unless, among other things, they had received a detailed planning permission in relation to the purchase subjects in terms which were wholly acceptable to them. Other relevant suspensive conditions provided that such things as a road construction consent (clause 4.1.3), other statutory consents (clause 4.1.4), a site survey, ground conditions report and an environmental assessment of the subjects (Clause 4.1.5) and a report on the title deeds (clause 4.1.9) were to be wholly acceptable to R&D.
[10] Clause 10 of Hallam's qualified acceptance dated 24 September 2003 introduced a long-stop date. It provided that Hallam had seven months to complete the purchase of the subjects from the current owner after their solicitors had received a written notice from R&D's solicitors purifying or waiving condition 4.1.5. Thereafter Hallam were entitled to resile from the purchase agreement without penalty.
The sequence of events
[11] After Hallam had entered into the option agreement with Mrs Kerr in 1999 some time passed before they sought to market the development opportunity. They obtained outline planning permission for residential development of the purchase subjects in September 2000. Hallam initiated a marketing exercise which involved erecting a "For Sale" sign on the site in February 2001 and placing advertisements in "The Scotsman" and "Herald" newspapers and in a trade publication on various dates in February and March 2001. R&D in December 2002 informed Hallam that they calculated the value of the land for a thirty five unit development at £571,314 and submitted an offer in that sum dated 29 January 2003 but the bargain was not concluded until 1 October 2003. Shortly thereafter, on 6 October 2003, R&D's solicitors, Burness LLP, notified Hallam's solicitors, MacRoberts, of the purification of clause 4.1.5 of the purchase missives. This started the clock on the long-stop date to which I referred in paragraph [10] above which would entitle Hallam to resile from the missives without penalty.
[12] Hallam's solicitors intimated the missives to Mrs Kerr's solicitors, Dale & Marshall, and in early November 2003 Mr Gary Smith, a land buyer employed by Hallam, met Mrs Kerr and her advisers. He reported that Mrs Kerr appeared to be content in principle with £571,314 as the open market value, provided that Hallam produced evidence to satisfy her that they had properly marketed the option subjects. Hallam provided evidence of the marketing exercise and on 20 November 2003 Mrs Kerr's solicitor, Mr John Dale, wrote to her accountant acknowledging that Hallam had made an effort to market the subjects. There was also an issue over the proposed layout of the purchase subjects as Mrs Kerr wished to reserve a substantial strip of ground from development in order to obtain vehicular access to the remainder of her land to permit future residential development.
[13] On about 26 November 2003 R&D's solicitors wrote to Hallam's solicitors confirming that the planning authority had granted detailed planning permission and encouraging them to make progress with the transaction. In fact the planning authority on 19 November 3003 had only resolved to grant planning permission for R&D's proposed development of thirty five housing units as R&D had yet to agree the financial contribution which it would make to an off-site play area. On 12 December 2003 Hallam served on Mrs. Kerr a provisional notice under clause 6.2.1 of the option agreement, declaring that they were considering purchasing the 4.685 acre site which they had agreed to sell to R&D. This notice was important as it established the valuation date.
[14] Two issues emerged to prolong the negotiations between Hallam and Mrs Kerr. First, against the background of a rising land market, Mrs Kerr remained concerned that the price which R&D had offered and which Hallam were advancing as the market value of the purchase subjects did not reflect the open market value of the subjects as at 12 December 2003. As early as October 2003 Mrs Kerr expressed scepticism about the thoroughness of Hallam's marketing exercise. Aftondale Ltd ("Aftondale") had submitted offers for the purchase subjects, including an offer of £578,000 in August 2003, and she believed that Hallam had turned away developers who had visited her and had proposed higher offers. Secondly, a dispute arose between Hallam and Mrs Kerr over the extent of the land which she was entitled to reserve as an access route. Hallam wished to confine the reservation to agricultural access and thus gain control of the development of the retained land. Mr Dale informed Mrs Kerr of...
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