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OUTER HOUSE, COURT OF SESSION
[2006] CSOH 202
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CA40/06
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OPINION OF LORD DRUMMOND
YOUNG
in the cause
MIDDLEBANK LIMITED
Pursuers;
against
(FIRST) THE UNIVERSITY
OF DUNDEE AND (SECOND) THE KEEPER
OF THE REGISTERS OF SCOTLAND
Defenders:
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Pursuers: MacColl;
Warners
Defenders: Reid, QC, Bartos; Biggart Baillie
28 December
2006
The Property
[1] The
present action relates to a tenement property in Perth Road,
Dundee. The
tenement in question is very typical, of a kind found in every Scottish
town. The ground floor and basement
premises consist of shops and a storage area; it is indicated in the pleadings that the shops
were at the material time occupied by the first defenders as office premises,
but that is not significant for present purposes. The upper floors consist of flats which,
prior to the sale mentioned below, were used by the first defenders to provide
student residences. Access to the upper
floors is obtained from the street through a common passage and stair. The street numbers are as follows. On the left of the property, looked at from
the street, are basement storage premises numbered 2 and above them at
ground floor level a shop or office numbered 2A. To the right of no. 2 is another ground
floor shop or office, no. 4. To the
right of that is the common entry to the upper flats, numbered 6. To the right of the common entry is a further
shop or office, numbered 8.
[2] Immediately
adjacent to the tenement block described above is another block, broadly
similar in its layout. In this case the
shop premises are numbered 10, 14 and 16 and the upper floors, which again
consisted of flats used by the first defenders to provide student residences,
are entered through a common entry and stair numbered 12.
[3] In
2003 the first defenders were the proprietors of the whole of the tenement
block at nos. 2-8 Perth Road
and the upper floors of the block at nos. 10-16. They held the property at nos. 2-8 under
a disposition by Millpark Limited in their favour dated 31 January 1968 and recorded in the
General Register of Sasines for Angus on 9 February
1968. The property
transferred by that disposition comprised the whole of the property at nos. 2-8
Perth Road, including the ground floor and basement shops and storage area as
well as the flats on the upper floors, and substantial parts of the property at
nos. 10-16 Perth Road; the other
parts of the latter property were obtained by another disposition which is not
material for present purposes. Towards
the end of 2003 the first defenders decided to sell the upper floors of both
blocks of tenements, which had been used as student residences. The upper floors of the property were
accordingly placed on the market, and particulars of sale were prepared, in
terms described below at paragraph [23].
Missives
[4] The
pursuers are associated with two other companies, Century 21 Homes
Limited and Importa Limited. On 21 January 2004, Blackadders,
the solicitors who acted for all three of those companies, submitted an offer
on behalf of Century 21 Homes Limited to the first defenders' solicitors,
Thorntons. The offer was to purchase "the
Property", which was defined in the following terms:
"The Property is
as advertised, as described in the written particulars, if any, or as pointed
out to the Purchaser on inspection and comprises first and second floor and
attic flats at 6-12 Perth Road,
Dundee".
The price offered was
г500,000. Substantial conditions were
annexed to the offer. On 27 January 2004 Thorntons
replied to Blackadders' offer in the following terms:
"On behalf of
and as instructed by our clients, The University of Dundee, Perth Road, Dundee
we hereby accept your formal Offer dated 21 January 2004 on behalf of your
clients, Century 21 Homes Limited, to purchase from our clients the first and
second and attic flats at 6-12 Perth Road, Dundee",
on certain terms and
conditions. The only one of these that
is material for present purposes is condition 8; this is as follows:
"The Property is
that described in the Disposition by Millpark Limited in favour of the
University of Dundee recorded GRS (Angus) 9 February 1968 and Disposition
by Eastbourne Mutual Building Society with the consent of Greenback Property
Company (Dundee) Limited and Mrs Amelia Emma Davidson in favour of Co-operative
and Permanent Building Society recorded GRS (Angus) 23 December 1955".
[5] The
description of the property in condition 8 is the source of the dispute that
has developed between the parties. The
first disposition that is referred to in that description, that by Milllark
Limited in favour of the first defenders in 1968, in fact included the whole
property at numbers 2-8 Perth Road,
including the shops and basement storage area as well as the upper floors. The second disposition that is referred to,
that by Greenback (in reality Greenbank) Property Co (Dundee) Limited in favour
of the Co-operative Permanent Building Society in 1955, related to certain of
the subjects forming part of the tenement at 12 Perth Road.
[6] The
next letter that passed between the parties' agents was a letter of 3 February 2004 from Blackadders
to Thorntons. In this letter the qualifications contained
letter of 27 January were accepted subject to certain further qualifications. The third of these, so far as material, read
as follows:
"Condition 8 of
your said formal letter is held to be deleted.
It is understood that the property comprises (1) the subjects described
in the Disposition by Millpark Limited in favour of The University of Dundee
recorded GRS (Angus) on 9 February 1968 under exception of the shop and
basement premises Number 10 Perth Road described in [a disposition of 1989 by
the defenders] and the shop premises known as Numbers 14 and 16 Perth Road,
Dundee so far as not already excepted described in [a disposition by the
defenders in 1984] and (2) the westmost second and third floor property at 12 Perth
Road, Dundee described in [the disposition of 1955 by Greenbank Property Co
(Dundee) Limited in favour of Co-operative Permanent Building Society]".
The reference to the shop and
basement premises at 10 Perth Road
was corrected to 12 Perth Road
in a subsequent letter.
[7] Further
missive letters passed between the parties' agents on 9 February, 17 February
and 2 March. Thorntons'
letter of 9 February, in its initial paragraph, referred to the purchase
of "the first, second and attic flats at 6-12 Perth
Road, Dundee". Blackadders' letters of 17 February and
2 March referred to "the subjects at 6-12 Perth
Road, Dundee". Certain qualifications were made to the terms
of the missives in those letters, but those qualifications are not material for
present purposes. Those letters were
followed by a further letter from Blackadders dated 10 March. According to the standard analysis of offers
and qualified acceptances in missives (Wolf
and Wolf v Forfar Potato Co, 1984
SLT 100), each qualified acceptance is strictly speaking a fresh offer, and it
is the final qualified acceptance that constitutes the offer that is ultimately
accepted. Blackadders' letter of 10 March
is the final qualified acceptance, and is thus the offer that was accepted by Thorntons. It is this letter, accordingly, that must be regarded
as the starting point in determining what was agreed between the parties'
agents. The letter of 10 March 2004, so far as material, is in
the following terms:
"On the behalf
of and as instructed by our clients, Century 21 (Homes) Limited, Importa Limited,
... and Middlebank Limited, ..., the said Importa Limited and Middlebank
Limited having been nominated by Century 21 (Homes) Limited as the Purchasers,
we hereby delete the whole terms of our formal letter, dated 2 March 2004,
and Offer on behalf of the said Importa Limited and Middlebank Limited to amend
the terms of our formal letter, dated 17 February 2004, relative to your
formal letter, dated 9 February 2004, on behalf of your clients, The
University of Dundee, relative to our formal letter, dated 3 February
2004, relative to your formal letter, dated 27 January 2004, being a
Qualified Acceptance of our Offer, dated 21 January 2004, on behalf of
Century 21 (Homes) Limited or their Nominees to purchase from your said clients
the subjects at 6-12 Perth Road, Dundee, at the price of FIVE HUNDRED
THOUSAND POUNDS (г500,000) STERLING and on the other terms and conditions
stated in said Missives, as follows, and make the following further
qualifications:-
...
(4) The Purchasers will be
Importa Limited, ..., who will purchase the property at 12
Perth Road at the price of TWO HUNDRED AND FIFTY
THOUSAND (г250,000) STERLING and
Middlebank Limited, ..., who will purchase property at 6
Perth Road at the price of TWO HUNDRED AND FIFTY
THOUSAND (г250,000) STERLING".
[8] That
letter was accepted by Thorntons by
a letter of 11 March 2004. In that letter the subjects were described as
"the subjects at 6-12 Perth Road,
Dundee". The
result is that missives were concluded between the parties for the sale of
certain subjects. The critical question
is what those subjects were.
The parties' respective positions following
the missives
[9] Following
the conclusion of missives a disposition was prepared in favour of the
pursuers. This referred to the property
sold by the first defenders to the pursuers in terms that included the whole of
the tenement comprising nos. 2, 2A, 4, 6 and 8 Perth
Road, and that disposition was executed by the
first defenders. The disposition was
then sent to the Keeper of the Registers, but was subsequently lost. I was informed that the first defenders had
raised proceedings to rectify the disposition, but the action had been
dismissed; no written opinion was
given. The pursuers then raised the
present action against the present defenders to prove the tenor of the
disposition that was lost and for decree ordaining the first defenders to
vacate the basement store and shops at 2, 2A, 4 and 8
Perth Road.
The action was defended and the first defenders lodged a counterclaim in
which they sought a number of remedies.
The first conclusion of the counterclaim, which is the only conclusion
that is material for the purposes of this opinion, is for declarator that in
terms of the missives the first defenders are not obliged to sell or dispone to
the pursuers the basement store and ground floor former shop, now office
premises, at 2, 2A, 4 and 8 Perth Road.
In subsequent conclusions the first defenders seek other declarators
based on error, but those were not considered in the debate that gave rise to
this opinion.
[10] In their counterclaim the first defenders make detailed
averments regarding the layout of the property and its use and occupation in
2003; they also make averments relating
to the particulars of sale that were prepared, the valuation of the subjects,
carried out in January 2004, that was relied upon by the pursuers, and an
inspection of the subjects that was carried out by an architect and a heating
engineer on the pursuers' behalf in February 2004. The essential point that emerges from the
latter averments is that the particulars, the valuation and the inspection
related only to the upper floors of the tenements, and not to the storage and
shop or office premises on the ground floor and in the basement. The first defenders then aver the history and
terms of the missives. On the basis of
those averments, it is contended that the pursuers concluded a contract to
purchase the subjects at 6 Perth Road. 6 Perth Road,
it is said, does not comprise or include the subjects on the ground floor and
in the basement at 2, 2A, 4 and 8 Perth Road. The pursuers have tabled a plea to the
relevancy of the first defenders' averments in the counterclaim and the first
defenders have tabled a plea to the relevancy of the pursuers' answers to the
counterclaim. After sundry procedure the
action was appointed to a debate on those pleas in law, but confined to the
issue of whether the first defenders were entitled to decree of declarator in
terms of the first conclusion of the counterclaim. The issue in the debate was accordingly
whether, on a proper construction of the missives, the subjects referred to in
the missives included the ground floor and basement subjects at 2, 2A, 4 and 8
Perth Road, or whether they were confined to the property on the upper floors
at 6 and 12 Perth Road.
[11] Counsel for the first defenders submitted that the subjects
referred to in the missives did not include the ground floor and basement
subjects, and that the first defenders were accordingly entitled to declarator
in terms of the first conclusion of the counterclaim. The primary submission was that the matter
could be resolved by reference to the language used by the parties in the
missive letters themselves and the relevant part of the 1968 disposition in
favour of the first defenders. In the
alternative, counsel contended that, in construing the missives, it was
permissible to have regard to the surrounding circumstances not to put a gloss
on the words used but to provide the setting for the contract and in particular
its commercial context. Authority for a
dual approach of that nature was found in Bank
of Scotland v Property Investment
Company Limited, 1998 SC 657, at 661G-H per LP Rodger. Counsel submitted that the relevant
surrounding circumstances could be determined from the documentary
productions. On that basis a proof was
unnecessary, and even on the alternative approach I should resolve the issue of
construction in the first defenders' favour at debate. Counsel for the pursuers agreed that the
primary issue was the construction of the missives themselves; his submitted that on the basis I should
decide the question of construction in the pursuers' favour. In relation to the first defenders'
alternative approach, counsel submitted that the matter should still be
resolved at debate in the pursuers' favour.
He accepted that the surrounding context could be determined from the
documentary productions, and that there was no need for a proof on the issue of
construction. I propose to begin by
considering the legal principles that are relevant to the construction of the
missives.
Legal principles applicable to
interpretation of the missives
[12] In a sense it is impossible to construe missives for the sale
of heritable property entirely by themselves, without reference to other
facts. The missives inevitably relate to
specific subjects, and those subjects must be identified on the ground. This point is recognized in what is perhaps
the leading authority in this field of law, Houldsworth
v Gordon Cumming, 1910 SC (HL)
49. In that case Lord Kinnear
stated (at 54) that, in the case of landed estates, the title deeds do not as a
rule define the subject in such a way that it can be identified without the
help of extrinsic evidence. In that case
such evidence was admitted to indicate the extent of property described in
missives of sale as "the estate of Dallas";
the extent of the property sold was
determined by reference to a plan that had been referred to during
negotiations. The same point, however,
applies to almost every kind of property; indeed it may assume considerable
importance in tenement property, where a description such as "flat first floor
left at 100 High Street"
may include cellars and a range of other rights. Nevertheless, the starting point in
identifying the subjects sold is always the wording used in the missives. The law is summarized by Lord Kinnear as
follows (at 1910 SC (HL) 55):
"It is manifest,
therefore, that if a question arises as to the description to be inserted in a
disposition, the first thing to be settled is what is the exact subject sold; and that is to be determined, not by the
existing titles, but by the contract of sale, interpreted, as every document
whatsoever must, more or less, be interpreted, by reference to the surrounding
circumstances".
In most cases, however, while a
reference to the physical location and extent of the property is necessary, it
will be possible to determine the property sold by reference to the wording of
the missives, using a common sense approach.
[13] The general principles relating to the construction of
contracts are well established and were not significantly in dispute between
the parties. The principles that appear
to me to be particularly relevant for the resolution of the present dispute may
be summarized as follows. First, the
starting point is normally the wording of the document that contains the
parties' agreement: Charter Reinsurance Co Ltd v Fagan, [1997] AC 313 per Lord Mustill
at 384B-C. Secondly, where ordinary
words are used, they must be given their ordinary meaning: ibid,
and Melanesian Mission Trust Board v Australian
Mutual Provident Society, [1997] 2 EG 128.
"If their meaning is clear and unambiguous, effect must be given to [the
words used] because that is what the parties are taken to have agreed to by
their contract": Melanesian Mission Trust Board, per Lord Hope
of Craighead at 129F. Thirdly, the court
must give effect to the parties' bargain; it must not substitute a different bargain
from that made by the parties: City Wall Properties (Scotland) Limited v Pearl Assurance PLC, 2004 SC 214.
Fourthly, a contract must be construed objectively, according to the
standards of a reasonable man who is aware of the commercial context. Fifthly, it is permissible in construing a
contract to have regard to the circumstances in which it came to be concluded
for the purpose of discovering the facts which the contract refers and its
commercial purposes, objectively considered: Prenn v Simmonds, [971] 1
WLR 1381; Reardon Smith Line Ltd v
Hansen-Tangen, [1976] 1 WLR 989.
Fifthly, the foregoing rule is subject to certain important limitations
and qualifications. In the first place,
evidence of parties' discussions while a contract is being concluded is
admissible "not to put a gloss on the terms of the contract, but rather to
establish the parties' knowledge of the circumstances with reference to which
they used in words in the contract": Bank of Scotland v Dunedin Property Investment Co Ltd, at 1998 SC 665F-G; Bovis
Construction (Scotland) Ltd v
Whatlings Construction Ltd, 1994 SC 351, at 357 C-G. In the second place, it is not usually
helpful to have regard to evidence as to what was said in the course of the
negotiations over the terms of the contract.
In the words of Lord Wilberforce in
Prenn v Simmonds, at [1971] 1 WLR
1384G-1385A:
"[S]uch evidence
is unhelpful. By the nature of things,
where negotiations are difficult, the parties' positions, with each passing
letter, are changing and until the final agreement, though converging, still
divergent. It is only the final document
which records a consensus. If the
previous documents use different expressions, how does construction of those expressions,
itself a doubtful process, help on the construction of the contractual
words? If the same expressions are used,
nothing is gained by looking back; indeed something may be lost since the
relevant surrounding circumstances may be different. And at this stage there is no consensus of
the parties to appeal to".
In the third place, words that have
been deleted by the parties in the course of the contractual negotiations
should not generally be looked at as an aid to construction because they are
not part of the agreement: A & J
Inglis v Buttery, 1878, 5 R (HL)
87, per Lord Hatherley at 90 and 96-97; Lord O'Hagan at 98-99, and Lord Blackburn
at 102; Prenn v Simmonds, per
Lord Wilberforce at 1384G-1385 H. This
qualification is essentially a development of the previous one, and its
rationale is the same. This was
expressed by Lord Gifford in the Inner House in Inglis in the following terms, which were quoted with approval by
Lord Blackburn in the House of Lords (at 102):
"The only
meaning of adjusting a formal contract is that the formal contract shall
supersede all loose and preliminary negotiations, that there shall be no room
for misunderstandings, which may often arise, and which do constantly arise, in
the course of long, and it may be desultory, conversations, or of
correspondence or negotiations, in the course of which the parties are often
widely at issue as to what they will insist on and what they will concede. The very purpose of a formal contract is to
put an end to the disputes which would inevitably arise if the matter were left
upon verbal negotiations or upon mixed communings partly consisting of letters
and partly of conversations. The written
contract is that which is to be appealed to by both parties, however different
it may be from their previous demands or stipulations, whether contained in
letters or in verbal conversation".
Missives for the sale of heritable
property are of course a type of formal contract.
[14] Two matters in particular assumed importance in the present
case. The first is the rule just
mentioned, that no regard can be had to words that have been deleted during
negotiations. It can be difficult to
apply this rule to missives for the sale of heritage because of the traditional
practice, exemplified in the present case, of referring in each successive
letter to all previous correspondence that can be considered to form part of
the negotiations. In this respect there
is much to be said for the more modern practice of conducting negotiations in
correspondence that does not form part of the missives and then, following the
negotiations, confining the missives to a single offer followed by an
acceptance. When the older practice is
followed, however, I am of opinion that the rules regarding negotiations and
deleted wording must be applied with their full force. Consequently the terms of the parties'
contract must be sought in the final qualified acceptance that is itself
accepted by the other party; it is that qualified acceptance that is the
effective offer. If any provision in
earlier correspondence is to be included in the missives, there must be
sufficiently clear reference to it in that final qualified acceptance.
[15] The second matter that assumed importance is the use of
surrounding circumstances in construing a contract; this was the foundation of
the first defenders' alternative argument.
This is exemplified by the facts of Houldsworth
v Gordon Cumming, discussed at
paragraph [12] above. The critical
evidence that was admitted in that case to determine the extent of the subjects
sold by missives was a plan that had been used by the parties in the course of
their negotiations; the significance of the plan is summarized by LC Loreburn
at 1910 SC (HL) 51-52, where it is pointed out that the plan was provided to
the buyer's agent during negotiations to indicate the extent of the property
offered for sale. The use of the plan in
that case is in my opinion paralleled almost exactly by the property
particulars that were prepared in the present case on the first defenders'
behalf and issued to prospective purchasers and their agents, including the
agents who acted for the pursuers and certain associated companies: see paragraph [23] below. I should also mention certain further remarks
of Lord Kinnear in that case. He
stated (at 1910 SC (HL) 54-55):
"I agree with
the respondent's counsel that a contract to sell the lands contained in a certain
title is perfectly possible, and would give the purchaser right to everything
which the seller and his predecessors had in fact possessed under that
title.... But, if there be any question whether the subject sold is less or
more than the whole estate possessed, that cannot be solved by the title,
unless the contract has been made with express reference to the title".
It was in that context that Lord
Kinnear went on to hold, in the words quoted at paragraph [12] above, that the
subjects sold must be determined by the contract of sale, interpreted according
to the surrounding circumstances. In the
present case the issue between the parties came, ultimately, to be how the
subjects sold had been defined in the missives.
The pursuers contended that they had been defined by reference to the
first defenders' prior title; the first defenders contended that they had been
defined by reference to a postal address, taken along with the layout of the tenement
in which the subjects are situated. That
issue must in my opinion be determined according to the approach stated by Lord Kinnear. I will accordingly begin by considering the
construction of the wording used in the missives, interpreted in the light of
the physical configuration of the tenement property and the system of postal
addresses used at that property.
Thereafter, in the alternative, I will consider the other circumstances
that surrounded the conclusion of missives, and whether those circumstances
have a bearing on the construction of the wording used in the missives.
Construction of wording in missives
[16] In construing the missives, the first task is to determine the
operative documents. In this connection,
as indicated above, it is essential to bear in mind the rule, laid down in A & J Inglis v Buttery & Co, supra, and reiterated in Prenn v Simmonds, supra, that no regard should be had to wording that has
been deleted in the course of negotiations over the terms of a contract. In the present case, the starting point must
be the letter from Blackadders to Thorntons
dated 10 March 2004 whose
terms are set out in paragraph [7] above; that letter is the offer whose terms
were accepted. In the letter two
references are made to the subjects of sale.
The first and more significant of these is found in the main paragraph
of the letter, which contains an offer to purchase from the first defenders "the
subjects at 6-12 Perth Road,
Dundee". The
second reference is found in qualification 4 of the letter, in which clause it
is stated that Importa Ltd will purchase "the property at 12
Perth Road" and the pursuers will purchase "the
property at 6 Perth Road". The first question must accordingly be the
meaning of those expressions.
[17] In Charter Reinsurance Co
Ltd v Fagan, supra, Lord Mustill stated (at 384B-C) "I believe that most
expressions do have a natural meaning, in the sense of their primary meaning in
ordinary speech.... [T]he inquiry will start, and usually finish, by asking
what is the ordinary meaning of the words used". In my opinion that must be the starting point
in construing the letter of 10 March
2004. The main paragraph of
the letter refers to "6-12" Perth Road. The use of a hyphen sometimes denotes a
series of numbers, or of odd or even numbers, running from the first to the
second of the numbers mentioned. That
cannot be the present meaning, however, in that the pursuers do not suggest
that no. 10 Perth Road (part of the tenement comprising nos. 10, 12,
14 and 16) had been purchased by them, and do not contend that they are
entitled to no. 8 but not nos. 2, 2A and 4 Perth Road. Consequently the hyphen must be intended as a
simple link between the two numbers, corresponding to the conjunction "and". That is borne out by the second reference in
the letter of 10 March 2004,
which refers separately to 12 Perth Road
and 6 Perth Road but
to no other properties. The critical
issue is accordingly whether the reference to "6 Perth
Road" includes only the upper flats at that address
or is rather intended to comprehend the whole tenement, including the ground
floor and basement premises that bear the addresses 2, 2A, 4 and 8
Perth Road.
In my opinion, on the ordinary and natural meaning of the words used, it
is clear that the wording is intended to refer to the upper flats only, and not
to the premises at ground and basement levels.
The latter premises have different postal addresses, using different
street numbers. A
street number is perhaps the commonest way of
referring to an urban property; its plain and obvious function is to
differentiate the property so numbered from other properties that bear
different numbers. On this basis alone I
have no hesitation in holding that the wording used in the offer of 10 March 2004 was intended to include
only the upper flats entered through the stair numbered 6 Perth
Road. The
other premises bore different numbers; if
it had been intended to include those properties those numbers should have been
added. Exactly the same reasoning
applies to the acceptance letter, dated 11
March 2004, which also refers to "the subjects at 6-12
Perth Road".
[18] The matter does not end there, however. The argument for the pursuers was that the
expression "6 Perth Road"
was intended to include the whole tenement, including the ground floor and
basement premises; on their averments the pursuers offered to prove that
proposition. In advancing that argument
the pursuers founded largely on the disposition of 1968 by Millpark Limited in
favour of the first defenders; that
disposition was the source of the first defenders' title, and included all of
the properties in the tenement; in addition, it was the disposition that was
incorporated by reference into the missive letter of 3 February 2004.
In the disposition, however, the subjects are referred to as "the
tenement forming Two, Two a, Four, Six and Eight Perth
Road, Dundee, and the whole
other buildings and erections thereon".
Thus in that disposition the properties in the tenement are referred to
by their individual postal addresses, and are discretely numbered and
identified. The disposition does not
refer, for example, to "the tenement known as Six
Perth Road, Dundee, and
comprising numbers Two, Two a, Four, Six and Eight
Perth Road, Dundee". Consequently there is no basis in the
disposition for any argument that a reference to "6 Perth
Road" includes the whole tenement, including the
subjects that bear different numbers. In
the operative missive letter, that of 10
March 2004, the description is restricted to the subjects at no. 6 Perth
Road. That restriction must in my
opinion be significant; it makes it clear that it is only the upper floors,
accessed through the entry at no. 6, that are included in the
missives. The ground floor and basement
properties, which bear different numbers both generally and in the first
defenders' title, are excluded.
[19] The
parties must be presumed to have chosen the wording used in the letters of 10
and 11 March 2004 deliberately: City Wall Properties (Scotland) Ltd v Pearl Insurance PLC
supra, at 229. The expression that
is used has a perfectly ordinary meaning, and there is no need to incorporate
additional words to make sense of it.
The pursuers' contention is that the reference to "6 Perth Road" is truly a reference to
something more than that. In the summons
in the principal action various expressions are used; typical of these is the
expression used in the first conclusion, which is "the tenemental property
known as 6 Perth Road, Dundee (comprising the flatted dwelling houses known as
6 Perth Road, together with the basement store and ground floor shops known as
2, 2A, 4 and 8 Perth Road)"; another
version is "6 Perth Road, Dundee (comprising 2, 2A, 4, 6 and 8 Perth Road,
Dundee)" (an expression taken from the draft Forms 1 and 4 used in subsequent
registration procedures). These
expressions, however, do not appear in the missives; nor do they appear in the 1968
disposition. Moreover, they involve the
addition of considerable wording to the expressions used in the letters of 10
and 11 March 2004. In my opinion the addition of such wording is
not warranted; it involves remaking the
parties' contract.
[20] Counsel
for the pursuers further founded on the terms of condition 3 of Blackadders'
letter of 3 February 2004, which is set out in paragraph [6]
above. The opening paragraph of that
letter, which contains an offer, subsequently superseded, to purchase the
property, refers to "the two tenements of flatted dwelling houses at 6 and 12 Perth Road, Dundee".
Condition 3 then states an understanding that the property comprises the
whole of the subjects described in the 1968 disposition in the first defenders'
favour under exception of certain premises in the adjacent tenement; the 1968
disposition of course included the ground floor and basement premises at 2, 2A,
4 and 8 Perth Road. In my opinion
the pursuers cannot found on this reference to the 1968 disposition to
establish that the missives included the ground floor and basement
premises. The primary reason for this
conclusion is the rule that in construing a contract regard may not be had to
provisions that have been deleted during the course of negotiation. The operative letters are the offer of 10 March
2004 and the
acceptance of 11 March 2004.
All earlier correspondence merely forms part of the negotiations, and
regard may be had to that correspondence only to the extent that it is
incorporated into the offer and acceptance and is not inconsistent with those
two letters. The letter of 10
March 2004,
for the reasons discussed above, amounts in my opinion to a clear offer to
purchase 6 Perth Road, that being the upper flats accessed
through the entry bearing that street number.
The references in the main paragraph of that letter to previous
correspondence are convoluted in the extreme; unfortunately they are very typical of the
style of missives commonly in use. They
appear to amount to an amendment of the terms of Blackadders' letter of 17 February
2004;
references to earlier letters seem to be inserted as a pure matter of
form. When the amendments are looked at
as a matter of substance, however, they appear to be amount to a deletion of
qualification 2 of the letter of 17 February 2004, a deletion of
conditions 1-6 of the earlier letter of 9 February, an amendment of the date of
entry and a statement that the identity of the purchasers is to change. None of these has a bearing on the identity
of the subjects. Qualification 2 of the
letter of 17 February is concerned with a title indemnity policy, and has
no relevance to the present dispute.
Paragraphs 1-6 of the letter of 9 February deal with part of the
property at 12 Perth Road, the date of entry and the period
for acceptance. Once again, none of
these has a bearing on the description of the subjects. Nothing in the offer of 10
March 2004
amounts to an incorporation of the terms of the letter of 3 February
2004. In these circumstances, qualification 3 of
that letter is a mere part of the negotiations, and for the reasons discussed
above it is not relevant.
[21] In addition, even if that letter were relevant, qualification 3
of the letter of 3 February 2004
appears in my opinion to contradict the main operative paragraph of the
letter. The latter paragraph refers to "the
two tenements of flatted dwellinghouses at 6 and 12
Perth Road, Dundee". That wording points very clearly to the
conclusion that it is the upper flats that are to be sold. Qualification 3 refers to the disposition of
1968, which of course includes the ground floor and basement premises. Even if that letter is construed in
isolation, I am of opinion that the description in the opening paragraph must
prevail. The opening paragraph
constitutes the offer to purchase; qualification
3 is, in terms, a mere qualification.
The hierarchy of contractual provisions accordingly suggests that it is
the former that should prevail.
[22] I accordingly conclude, on the basis of the two critical
missive letters and the system of postal addresses that apply to the tenement,
that the first defenders' construction of the missives is correct and that the
subjects sold are confined to the upper flats bearing the postal addresses 6
and 12 Perth Road. That conclusion is further supported,
however, by consideration of the circumstances surrounding the conclusion of
the missives.
Surrounding circumstances
Documentary
evidence
[23] Two items of documentary evidence are in my opinion highly
material; both of these were accepted by
both parties. The more important of
these is the property particulars prepared by the first defenders' agents in
preparation for the sale of the subjects.
These refer at the outset to "5 Flats at 6-12
Perth Road".
The description of the property relates to "five flats", offered for
sale as one lot. There follows a description
of the individual flats, specifying the various rooms in each and giving the
dimensions of each room. No mention
whatsoever is made of the ground floor and basement premises. It is in my opinion clear beyond doubt that
the particulars related to the upper flats only, and not to anything else. The second item of documentary evidence that
has some bearing on the case is a valuation report prepared by Shepherd, a firm
of chartered surveyors; this was based
on an inspection carried out on 6 January
2004 on behalf of Century 21 Homes.
It was accepted by the parties that this report had been instructed on
behalf of the latter company but that the present pursuers had acquired the
report and had relied on it. The report
refers on its opening page to the address of the property as "6/12
Perth Road, Dundee". The subject type is described as "5 flatted
dwellings contained within two adjoining tenement buildings". The individual flats are then described. Once again, nothing whatsoever is said about
the ground floor and basement premises.
[24] The property particulars and survey are clearly both important
documents prepared in furtherance of the sale of the property. The property particulars are especially
important because they define the property that was originally offered for
sale. Moreover, they were available to
both parties and their solicitors and other advisers. Consequently they are clearly a critical part
of the circumstances in which the missives came to be concluded. The survey was a document prepared for the
purposes of the pursuers, and there was no indication that it was made
available to the first defenders or anyone acting on their behalf. For that reason it is a document of lesser
significance. Nevertheless, the pursuers
and their solicitors were clearly aware of the terms of the survey at the time
when missives were concluded, and the survey can be regarded as providing
considerable support for the inferences to be drawn from the property
particulars. The property particulars
and the survey relate to property described either as "6-12
Perth Road" or "6/12
Perth Road".
In each case, it is clear that those expressions were intended to refer
to the upper flats only. That leads in
my opinion to a strong inference that, when the same expression as in the
property particulars, "6-12 Perth Road", came to be used in the offer of 10 March
2004 and the acceptance of the following day, the intention was to refer to the
upper flats only, and not to the ground floor and basement premises.
[25] In addition, the fact that the property particulars and survey
related only to the upper floors is a strong indication that, initially at
least, the parties had in mind the sale of the upper flats only. In those circumstances the overall commercial
context in which the correspondence between the parties' agents took place was
a proposed sale of the upper flats.
Counsel for the pursuers accepted that that was initially the case, and
that the initial offer of 21 January
2004 was for the upper floors only, but he submitted that the
position had changed during negotiations.
I am bound to say that, if the subjects offered for sale did indeed
change during negotiations, I would have expected to find an express reference
to the change in the correspondence. In
the letters that passed between the parties' solicitors, however, there is no
express reference to any change, and indeed the expression "6-12
Perth Road" continued to be used. Any change can accordingly only be an
inference from the descriptions by reference to the 1968 disposition found in Thorntons'
letter of 27 January 2004
and Blackadders' letter of 3 February
2004. In my opinion the
absence of any express reference gives a degree of improbability to the
pursuers' argument. Instead, it appears
to me that the clear and obvious commercial context was an offer to sell the
upper flats only; that is an irresistible inference from the property
particulars. When missives were
eventually concluded, I am of opinion that the plain intention, objectively considered,
was that the property described in those missives should be the property that
was initially offered in the property particulars, that is to say, the upper
flats only.
[26] As I have indicated previously, the use of surrounding
circumstances to explain the extent of the property sold by missives is
permissible and indeed, in limited respects, essential; Houldsworth
v Gordon Cumming, supra, is
authority for that proposition. I
consider that the present case is closely analogous to Houldsworth; the property
particulars fulfilled a function that was almost exactly parallel to the plan
furnished to the purchaser's agents in that case. In these circumstances I conclude that, when
the missives are construed in the light of the surrounding circumstances, the
description of the property found in the offer of 10 March 2004 must be taken to refer to the upper flats at
nos. 6 and 12 Perth Road
only, and not to the ground floor and basement premises.
[27] A number of other documents were relied on by both parties as
disclosing the circumstances that surrounded the conclusion of the
missives. The first of these
chronologically was a letter of 3
February 2004 written by Blackadders to Century 21 (Homes)
Limited. In that letter, which was
founded on by the pursuers, reference is made to "the tenement property now
referred to as Number 6 Perth Road and formerly comprising Numbers 2, 2A, 4, 6 and
8 Perth Road". In my opinion this letter cannot be
considered part of the surrounding circumstances because it was a private
communication between the solicitors who acted for the pursuers and one of
their clients; there was no indication
that it was known to the first defenders or their agents. The second document, founded on by the first
defenders, was a letter of 5 February
2004 written by Blackadders to the Registers of Scotland. In this letter reference is made to "the
purchase of flats at 6 and 12 Perth Road,
Dundee". Once
again, there was no indication that this letter was made known to the first
defenders. For that reason I do not
think that it forms part of the surrounding circumstances by reference to which
the contract may be construed. The third
document, which was relied upon by the pursuers, was the application for first
registration (Form 1) sent to the Keeper of the Registers by Blackadders. This document was dated 10 March 2004.
In the description of the subjects it referred to the street number and
name as 6 Perth Road. Under the heading "Other" relating to the
subjects, however, the document continued "Comprising 2, 2A, 4, 6 and 8 Perth
Road, Dundee". The fourth document, also relied on by the
pursuers and also prepared by Blackadders, was the inventory of writs relevant
to the application for registration (Form 4); this referred to the subjects as "6 Perth
Road, Dundee. (Comprising 2, 2, 4, 6 and 8 Perth
Road, Dundee.)" Both of these documents had been revised and
approved by Thorntons; that was clear from a letter from Thorntons
to Blackadders dated 11 March which accompanied the acceptance that
concluded the missives. In my opinion
neither the Form 1 nor the Form 4 can be relied upon as surrounding
circumstances. They are rather documents
that formed part of the negotiations between the parties, and as such cannot be
referred to. In addition, counsel for
the pursuers relied on those documents to put a gloss on the letter of offer of
10 March 2004; essentially he attempted to modify the reference to "6 Perth
Road" in the offer to read "2, 2A, 4, 6 and 8 Perth Road". A reference to surrounding circumstances may
not, however, be used to put a gloss on the terms of the contract concluded by
the parties; it should only be used to
establish matters of fact extrinsic to the contract in order to indicate the
circumstances that formed the subject matter of the contract: Bank of
Scotland v Dunedin Property
Investment Company Limited, supra, at 1998 SC 665F-G.
Commercial
reasonableness
[28] For the reasons discussed in the previous section of this
opinion, I have concluded that the surrounding circumstances, as disclosed by
the documentary evidence, strongly support the construction of the contract
advanced by the first defenders; the
reference in the letter of offer of 10 March 2004 to "6-12 Perth Road" is
a reference to the upper floors at those two addresses, and not to the ground
floor and basement premises. This
conclusion is also supported by certain further factors going to the commercial
reasonableness of the pursuers' construction.
It was accepted by counsel for the pursuers that the ground floor and
basement premises were not included in the property originally offered for sale
by the first defenders. The question
then arises as to the commercial explanation for the addition of the ground
floor and basement premises to the subjects of sale. Those premises were not used for residential
purposes; that was not in dispute between the parties. Nor were they surveyed on the pursuers'
behalf. The price for the subjects of
sale remained exactly the same, г500,000, from the original offer of 21 January 2004 to the final
missives. No explanation is given in the
pleadings as to why the ground floor and basement premises were added to the
residential properties that were originally offered. Nor was there any explanation as to why there
was no price increase. Objectively
considered, it is strange that there is no explanation of these matters. The absence of any such explanation tends in
my opinion to support the construction advanced by the first defenders.
Need
for proof
[29] As indicated above, both parties were anxious that the case
should be decided if possible without the need for a proof; to the extent that extrinsic evidence was
relevant, they agreed that the relevant circumstances could be discerned from
the documentary productions. I agree
with this view. If a proof took place,
the solicitors responsible for concluding missives would not be able to add
anything to the terms of their letters.
Evidence of what is said in the course of negotiations over the terms of
a contract is not admissible, and that would preclude evidence of anything that
went beyond the documents: see paragraph
[13] above. So far as the contract
itself is concerned, it is the documents that must be construed; what the solicitors who wrote the letters
meant would be of no value, and would probably be inadmissible. Neither party suggested that there was any
scope for evidence of conveyancing practice, and I am quite unable to see any
relevance in such practice. Finally, it
would not be necessary for leading evidence as to the system of postal
addresses; that is a matter that is well known, and in the present case the
system of addresses used at the property was very obvious. All that would be left, accordingly, would be
the documents, and I have used the documents for the purposes of the present opinion.
Conclusion
[30] For the foregoing reasons I conclude that the contract
contained in the missive letters of 10 and 11 March 2004 did not include the
ground floor and basement premises at 2, 2A, 4, and 8 Perth Road. For that reason I find the counterclaim to be
relevant, and I will accordingly repel the pursuers' first plea in law in the
answers to the counterclaim, which challenges its relevancy. I further find irrelevant the averment by the
pursuers (contained in answer 6 to the counterclaim) that "the concluded
missives provided that the pursuers would take title to the subjects at 6 Perth
Road, Dundee (including the basement store and ground floor shop premises at 2,
2A, 4 and 8 Perth Road)". To that extent
I will sustain the first defenders' plea in law to the relevancy of the answers
to the counterclaim. I will further
sustain the first defenders' first plea in law in the counterclaim and
pronounce decree in terms of the first conclusion of the counterclaim.
