Phil Wills V. Strategic Procure Ment (uk) Limited
| Jurisdiction | Scotland |
| Judge | Lord Malcolm |
| Judgment Date | 13 February 2013 |
| Neutral Citation | [2013] CSOH 26 |
| Docket Number | No 23 |
| Court | Court of Session |
| Date | 13 February 2013 |
| Published date | 13 February 2013 |
| OUTER HOUSE, COURT OF SESSION [2013] CSOH 26 | |
| OPINION OF LORD MALCOLM in the cause PHIL WILLS Pursuer; against STRATEGIC PROCUREMENT (UK) LIMITED Defender: ________________ |
Pursuer: R Dunlop QC, A Mckenzie; Lefevre Litigation
Defender: Lake QC, Ower; Maclay Murray & Spens LLP
13 February 2013
[1] The effect of error on the validity of a contract is one of the most uncertain areas in our private law. This is the result of a tension between two fundamental principles. Firstly, a contract is constituted by the agreement of the parties to it. It is based on mutual consent. Secondly, however, one party is entitled to hold the other to what he has said, even if he did not mean it. "When all the external indicia of agreement are present the fact of agreement will, as a general rule, be assumed" (Gloag on Contract, 2nd ed. page 7). So long as a clear and enforceable bargain emerges, the subjective intention, or lack of consent of one party, is defeated by an objective interpretation of what was said or done. From time to time this is explained in terms of personal bar. The mistaken party is barred from relying upon his real intention.
[2] Nonetheless, there are circumstances when error on the part of one or both parties to a mutual onerous contract will bear upon its validity. As the case law has developed, the conventional view is that if one party can say no more than - "I did not mean that" - the objective approach will hold sway. If, however, some additional factor can be prayed in aid, the absence of real agreement may prevail; for example, if one party has caused the contract by misleading the other on an important matter. (Professor McBryde describes this as "error plus": "The Law of Contract in Scotland" 3rd ed. paragraph 15 - 23.) The present case is a good example of how difficult questions can arise when, on the face of it, a party has bound himself to unintended obligations. In particular, can the other party's knowledge of an uninduced error justify reduction of the apparent bargain, and, if so, what kind of error is sufficient for this purpose?
The pursuer's case
[3] Mr Wills made a claim in Aberdeen sheriff court against the defender for damages for an alleged failure to provide him with share options worth, he says, in excess of £3.5m. Discussions took place between the respective solicitors about ending the Scottish proceedings. Mr Wills decided to pursue the matter in the High Court in London. Pre‑action letters were sent by English agents, and in due course a writ was served. The Scottish claim was resolved by way of a joint minute, signed on behalf of both parties, which stated that decree of absolvitor should be pronounced. Subsequently the sheriff pronounced such an order. The pursuer claims that the defender's agent knew that his solicitor was in error in agreeing to a form of settlement which would prevent the damages claim being prosecuted in London. He knew that the pursuer intended to pursue the matter south of the border. The English action has been met with a plea to the effect of res judicata. A motion to strike out has been made, but stayed meantime pending the outcome of the current proceedings, in which the pursuer asks the court to set aside both the decree of the sheriff and the preceding joint minute.
[4] Mr Wills offers to prove that, through its agent, the defender "took advantage" of a known mistake on the part of Mr Wills' solicitor when he agreed to a form of settlement which, unlike dismissal, would involve a total abandonment of the claim. (Counsel for Mr Wills made no express concession that this was the effect of the sheriff court decree, but the debate before me proceeded upon that basis.)
Counsel's submissions
[5] The foundation of the pursuer's case is the decision of the First Division in Steuart's Trustees v Hart (1875) 3R 192. Land was sold at a price of £75. The price was fixed on the footing that the land was burdened with a feu‑duty of £9 15s, the truth being that this was the sum applicable to the whole estate. The purchaser knew that the feu‑duty was only 3s. The result was that the land was bought at a considerable under‑value. Lord President Inglis said: "In short, the allegation is, that the sellers were acting under essential error, and that the pursuers knew that and took advantage of it." His Lordship expressed the view that this was a wrong for which the law would provide a remedy. Lord Deas said that the other party "is not fairly entitled to take advantage of such an error." Lord Ardmillan had a strong conviction that the justice of the case was with the pursuers, in that the other party knew that they were labouring under an "an excusable and essential error", yet entered into a transaction injurious to them. The court's interlocutor reduced the contract on the basis that the defender "took advantage" of the pursuers' essential error.
[6] On behalf of the defender, Mr Lake QC submitted that the ratio of Steuart's Trustees v Hart was overruled by the subsequent decision of the House of Lords in Stewart v Kennedy (1890) 17R (HL) 25. According to Mr Lake, to be effective, unilateral error must be induced by the other party. Mere knowledge of it is of no consequence. Mr Lake recognised that there could be reduction at common law when a mutual understanding was undermined by a slip or blunder in the formal expression of the parties' agreement. Counsel emphasised that there was no slip or blunder in that sense here. Throughout, both parties intended that decree of absolvitor would be pronounced. There was no error in the expression of the formal agreement. If it be the case that one party misunderstood the legal effect of such a decree, the other can enforce the agreement, even if he was aware of the mistaken belief. Steuart's Trustees is no longer good law. In any event the particular error here did not fall within the scope of that decision, in that it extended only to the consequences of, or to the value of the agreement, not to the agreement itself.
[7] In Stewart v Kennedy their Lordships in the House of Lords neither expressly disapprove of the earlier decision, nor even refer to it; but Mr Lake relied upon a decision of Lord Marnoch in Spook Erection (Northern) Limited v Kaye 1990 SLT 676. Lord Marnoch said that he was satisfied that the ratio of the decision in Steuart's Trustees "depended on a view and understanding as to the effect of error in substantialibus which 15 years later was disapproved by the House of Lords in the case of Stewart v Kennedy." If that is correct, the present pursuer's case is irrelevant and should be dismissed.
[8] For the pursuer, Mr Dunlop QC asked for a proof before answer. He relied upon the uncritical mention of Steuart's Trustees in a number of cases decided after Stewart v Kennedy, for example in Anderson v Lambie (cited earlier) and Steel's Trustee v Bradley Homes Limited 1972 SC 48. He made particular reference to the post Spook Erection discussion of the issue by Lord Cameron of Lochbroom in Angus v Bryden 1992 SLT 884. He adopted the discussion at paragraph 7.22 of the 13th edition of Gloag & Henderson as a correct statement of the law. The present case goes well beyond an error as to the value of the agreement - it relates to an essential aspect of the agreement itself. The purpose of the settlement was to facilitate the English proceedings, not to abandon the whole claim. There was no consensus as to the key outcome of the joint minute, namely a decree which meant that the pursuer lost the opportunity of seeking damages for the defender's alleged breach of contract. The error went "to the root of the contract." Reliance was placed on paragraph 686 of volume 15 of the Stair Memorial Encyclopaedia, including the reference to "error in transaction." Mr Dunlop drew a distinction between an error as to "what one is doing", and a mistaken belief which relates to "why one is doing it." In the event of doubt as to which category applies in this case, it would be better to resolve this after evidence from those involved. Mr Dunlop accepted that there are cases where it can be difficult to draw the line. As to the general theory, he adopted the "error plus" approach, as explained by Professor McBryde (see above).
Discussion and decision
[9] The key issue focussed in the debate was - is Steuart's Trustees v Hart still good law? I am satisfied that the decision in Stewart v Kennedy did not overrule Steuart's Trustees, so I answer this question in the affirmative. The outcome in Steuart's Trustees depended upon the knowledge of one party that the other was in error. Stewart v Kennedy did not proceed upon the basis of an uninduced, but known error. Lord Herschell rejected any contention that a contract could be set aside simply because one party understood and intended it to be other than it really was. There was reference to an exception in respect of induced essential errors, but there is nothing to suggest that his Lordship intended to reject the reasoning of the Inner House in Steuart's Trustees v Hart. That case is not mentioned in any of the speeches. Lord Watson adopted a relatively expansive approach as to when an error as to the nature of a contract might be regarded as an error in substantialibus in terms of Professor Bell's classification. He rejected the proposition that the mere existence of such an error in the mind of one party allows the court to annul the contract.
"The result of admitting any other principle would be that no contract in writing could be obligatory if the parties honestly attached in their own minds different meanings to any mentioned stipulation" (page 30).
Lord Watson was of the opinion that
"the alleged error of the appellant is by itself insufficient to invalidate his consent, but it will be sufficient for that purpose if it can be shewn to have been induced by the representations of the respondent, or of anyone for whose conduct he is responsible"...
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