Simmers v Innes
| Jurisdiction | England & Wales |
| Judge | LORD HOPE OF CRAIGHEAD,LORD SCOTT OF FOSCOTE,LORD RODGER OF EARLSFERRY,LORD WALKER OF GESTINGTHORPE,LORD NEUBERGER OF ABBOTSBURY |
| Judgment Date | 16 April 2008 |
| Neutral Citation | [2008] UKHL 24 |
| Docket Number | No 6 |
| Court | House of Lords |
| Date | 16 April 2008 |
[2008] UKHL 24
HOUSE OF LORDS
Appellate Committee
Lord Hope of Craighead
Lord Scott of Foscote
Lord Rodger of Earlsferry
Lord Walker of Gestingthorpe
Lord Neuberger of Abbotsbury
(Scotland)
Appellants:
Christopher Haddow QC
Nick Gardiner
(Instructed by Brodies LLP)
Respondents:
Jonathan Mitchell QC
Michael Stuart
(Instructed by Maclay Murray & Spens LLP)
My Lords,
I have had the advantage of reading in draft the speech of my noble and learned friend Lord Neuberger of Abbotsbury. Like him, I can find no merit in any of the grounds on which the decision of the Extra Division was challenged. I would dismiss the appeal.
My Lords,
I have had the opportunity of reading a draft of the opinion on this appeal prepared by my noble and learned friend Lord Neuberger of Abbotsbury and I am in complete and respectful agreement with the reasons he has given for dismissing this appeal. There is nothing I can usefully add and so I too, for the same reasons, would dismiss the appeal.
My Lords,
I have had the advantage of reading in draft the speech which is to be delivered by my noble and learned friend, Lord Neuberger of Abbotsbury. I am in full agreement with it and, for the reasons he gives, I too would dismiss the appeal.
My Lords,
I have had the advantage of reading in draft the opinion prepared by my noble and learned friend Lord Neuberger of Abbotsbury. I agree with it, and for the reasons given by Lord Neuberger I would dismiss the appeal.
My Lords,
By this appeal, Mr James Innes seeks to overturn the decision of an Extra Division of the Inner House of the Court of Session (Lords Osborne, Nimmo Smith and Kingarth) pronouncing a decree for specific implement in favour of the respondent, Mr Arthur Simmers. The Extra Division held that Mr Simmers had validly exercised an option to purchase certain property, and could validly enforce that option.
Mr Simmers carried on business as a pig farmer on land he owned in Aberdeenshire. In common with many others in that industry, he got into difficulties in 1998, and his business went into receivership. Mr Innes was anxious to obtain a supply of pigs, and the two parties entered into a shareholders' agreement ("the Agreement") which, as the Lord Ordinary, Lord Clarke, said in the Outer House, "was concluded under some considerable pressure of time". Pursuant to the Agreement, which was completed on 18 December 1998, the business was transferred to Scotpigs Limited ("the Company"), a company which had been formed for that purpose, and was a party to the Agreement. The Agreement also provided that Mr Innes would invest £2,500,000 in the business, of which £2,100,000 was attributable to most of the land on which the business was carried on ("the property"), and £400,000 was for 400,000 "A" shares in the company, which acquired the remaining land. In addition, the Agreement stated that there would be 400,000 "B" shares in the company, which were to be were owned by Mr Simmers and members of his family.
The Agreement also provided that a pig farming business would be carried out on the property, that the property and all the other assets of the business would be transferred to the company, and that the company would transfer on the property to Mr Innes, who would then lease it to a partnership consisting of the company and himself. The rent under such lease was stipulated as being equal to the interest due on the loans advanced to Mr Innes to enable him to provide the £2,500,000. Mr Simmers was to be employed by the company as managing director at a salary of £20,000 per annum, and his wife was also to be employed by the company at the same rate of pay. The Agreement also provided that best endeavours would be used to ensure that Mr Innes was supplied with at least 800 pigs per week.
The two centrally relevant provisions of the Agreement for present purposes were clauses 10 and 21. They were in the following terms:
"10. Buy-Out by Mr Simmers
On [31 March 2004], Mr Simmers shall be entitled to effect the Buy-Out and acquire the Buy-Out Shares and the [property] in exchange for payment by way of telegraphic transfer of the Buy-Out Price, and the Buy-Out Expenses to Mr Innes or his nominees. In exchange Mr Innes shall execute all transfers, conveyances, deeds and documents as shall be reasonably required to constitute Mr Simmers as owner of the 'A' Shares and the [property]…
21. Duration and Winding-Up
The terms of this Agreement shall remain in full force and effect for a period of five years expiring on 31 March 2004. If Mr Simmers has not served on Mr Innes a notice intimating his intention to effect the Buy-Out prior to [31 March 2004], then this Agreement shall terminate automatically without the requirement of any party to serve notice…"
In order to understand clauses 10 and 21, it is necessary to refer to some definitions in clause 1 of the Agreement. "The Buy-Out Price" was defined as "the aggregate of the Buy-Out Shares Price and the Buy-Out Properties Price". "The Buy-Out Shares Price" was defined as being the higher of £400,000 or "…£400.000…plus half any gain in the net asset value of the company as disclosed by the balance sheet produced to 31 March 2004…". The "Buy-Out Properties Price" was defined as meaning "….the higher of (i) [£2,100,000]; or (ii) the aggregate of [£2,100,000] and an amount equal to the figure brought out by the following formula: ½ x (Buy-Out Valuation - £2.1M)…". The expression "Buy-Out Valuation" was defined as meaning "the valuation carried out by a valuer to be agreed between [Mr Innes] and [Mr Simmers] on or within one month prior to [31 March 2004]". "The Buy-Out Expenses" meant "all legal and other expenses and outlays…incurred by Mr Innes in relation to the Buy-Out".
Unfortunately, the plight of the pig industry did not improve, and consequently the venture did not flourish. On 10 February 2004, Mr Innes presented a petition for the winding-up of the company. The following day, Mr Simmers's solicitors wrote to Mr Innes to "give notice" on behalf of Mr Simmers pursuant to the Agreement that he "intends to effect the Buy-Out of the Buy-Out Shares and [the property] as at…31 March 2004 all in accordance with the terms of the…Agreement".
The parties discussed the appointment of a valuer to determine the Buy-Out Valuation, and the correct basis of that valuation. They agreed that Mr J E Rhind FRICS of Aberdeen & Northern be appointed valuer but they could not agree on the correct basis of the valuation. Mr Innes argued that the property should be valued with vacant possession, whereas Mr Simmers contended that it should be valued subject to the tenancy created under the Agreement ("the tenancy"). In letters from their respective solicitors, the parties each informed Mr Rhind as to how they said the property was to be valued.
Mr Rhind proceeded to carry out his valuation, and produced a report dated 26 March 2004 ("the Report"). Having devoted several pages to describing the land and buildings constituting the property, with further details in appendixes, Mr Rhind then set out his valuation ("the Valuation"). It was divided into three parts. The first part set out the "Vacant Possession Value" which he assessed at £3,931,000. The second part consisted of a deduction for improvements, fixtures and farm payments, which resulted in a reduction of £226,000 to £3,705,000. The third part involved applying a "discount subject to tenancy", in other words, a reduction in the vacant possession value on the basis the land was subject to the tenancy. Mr Rhind estimated the deduction as being 45% resulting in a "Value subject to a lease in favour of the firm Scotpigs & Co", which was £2,038,000.
Following receipt of the Report, the parties adhered to their respective positions. Mr Innes's solicitors contended that the total consideration due under clause 10 was £3,415,000 "namely half the gain on the [property] and £400,000 for the shares", but Mr Simmers's solicitors argued in a letter of the same date that the consideration was £2,500,000 on the basis that the value of the property as set out in the Report was less than the £2,100,000 specified in the Agreement. It was made clear on behalf of Mr Innes that he was prepared to complete the transaction at £3,415,000, but Mr Simmers was not prepared to complete at that price. Indeed, on the Lord Ordinary's finding, Mr Simmers "could not have paid the Buy-Out Price (as he understood it to be) on 31 March 2004".
Mr Simmers then began proceedings for specific implement, seeking an order that the sale of the property be completed for a consideration of £2,500,000. This was resisted by Mr Innes on the ground that specific implement should not be ordered at all, or, in the alternative, on the ground that, if specific implement was to be ordered, it should be in the sum of £3,415,000 and not £2,500,000.
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