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EXTRA DIVISION, INNER HOUSE, COURT OF
SESSION
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Lord Osborne
Lord Dawson
Lord Drummond Young
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[2006] CSIH 48
XA75/05
OPINION OF THE
COURT
delivered by LORD OSBORNE
in
APPEAL
from the Sheriffdom
of Tayside Central and Fife at Kirkcaldy
by
D.F.R. PROPERTIES
LIMITED
Pursuers and
Appellants;
against
GLEN HOUSE
PROPERTIES and ROBERT SIM DUNLOP and MRS. HILARY JENNIFER SUSAN DUNLOP
Defenders and
Respondents:
_______
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Act:
Beynon; Brodies,
LLP (Rollo Davidson & McFarlane, Cupar) (Pursuers and Appellants)
Alt:
Dewar, Q.C., Bell; Gillespie McAndrew,
WS (Defenders and Respondents)
10 October 2006
The background circumstances
[1] The
appellants are heritable proprietors of five flats contained within a tenement
block situated at 24 Glen Street,
Tollcross, Edinburgh.
The controlling shareholder of the appellants is a Mr. Douglas Francis
Rolland. The second and third named
respondents were partners of the former firm of Glen House Properties, which
was the first named respondent and which was dissolved in July 1999. The five flats situated at 24
Glen Street, Tollcross, Edinburgh were formerly
owned by the respondents, who sold them to the appellants.
[2] Following
the sale of the flats to the appellants, the parties entered into a Minute of
Agreement, which is No. 5/8 of process, dated 26 February 1998 and registered in the Books of Council
and Session on 2 March 1998. In that Minute of Agreement, the second and
third named respondents were designated as "the agent", the appellants as "the
owner". It was thereby agreed that the
agent should let and factor the five flats at 24 Glen
Street, Tollcross, Edinburgh, with the whole
common areas described in the Minute of Agreement, designated as "the common
parts", on the terms and conditions set out therein. Those terms and conditions, so far as
material to the present appeal, were in the following terms:
"1. The duration of this agreement shall be
for the period from 27 February 1998
to 26 February 2001. The agreement may thereafter be renewed
annually subject to the consent of both parties at least 12 months before the
termination of this agreement.
2. The agent agrees to let the properties
on short-term agreements according to the booking conditions. It is clearly understood that vacant
possession is available on commencement of this agreement and can be obtained
at any time during the agreement, subject to three months notice being given by
the owner to the agent in writing whilst honouring all forward confirmed
bookings.
3. The agent agrees to pay the owner the
sum of £39,000 sterling per annum net of VAT payable in twelve equal monthly
payments in arrears on the first day of each month during this agreement. The agent will execute and deliver to the
owner a standing order for these monthly payments and that by 22 March 1998. In the second and third years of this
agreement the payments may be varied by agreement between the parties but shall
in no circumstances be less than £38,500 sterling per annum. For the avoidance of doubt, any payments made
in terms of this agreement are exclusive of any VAT exigible in respect
thereof.
4. Interest shall be payable by the agent
on the sums detailed in paragraph 3 at an annual rate of 3 per cent per
annum above the Royal Bank of Scotland plc, base rate at the dates or terms
upon which said payments became due, running said interest from the respective
dates or terms of payment during non-payment thereof. In the event of payment being in excess of 30
days late the owner shall have the right to terminate the contract with
immediate effect.
...
6. The agent shall be responsible for the
dispersements of all property charges including feu duty and service accounts
including all local authority rates and taxes and all telephone, electricity,
sewerage and water rates, building and contents insurance. For the avoidance of doubt any disbursements
made in terms of this agreement are exclusive of any Value Added Tax exigible
in respect thereof. The agent shall insure
subjects together with all contents provided by the owners against damage by
fire, lightening, explosion, aircraft and other aerial devices (other than such
are hostile) or articles dropped therefrom, earthquake, storm or tempest,
malicious damage, riot and civil commotion, bursting or overflowing of water
apparatus or pipes, flood, impact by road vehicles and such other commercial
risks as may be agreed between the parties for a sum to represent the full
reinstatement value of the subjects together with all professional fees. Insurance cover shall also be taken for three
years loss of income suffered by both the owner and the agent. ... The agent
undertakes to provide the owner with copies of the insurance cover and evidence
of the payment of premiums. Buildings
insurance will be in the name of the owner, the sum to be not less than
£390,000 and the contents not less than £20,000.
7. The agent shall preserve the furniture,
fixtures and fittings specified in the attached inventory from destruction and
damage and make good, repair or restore the same, fair wear and tear excepted,
leaving a full inventory at the termination of the agreement. In order to satisfy this condition, the agent
undertakes to incur expenditure not exceeding the value of £750 per flat per
annum on repairs and renewals, details of such expenditure to be provided to
the owner on a quarterly basis. The
agent undertakes to advise the owner in the event of expenditure in excess of
this sum being required in which event the excess contribution will be made by
the owner.
8. The owner undertakes to meet the
owner's share of the cost of maintaining the properties in wind and watertight
condition throughout the period of the agreement, by maintenance, repair and
where necessary renewal of the exterior of the subjects which shall include
without prejudice to the foregoing generality the roof and all exterior walls
and gables, gutters, down pipes, windows and drains outwith the subjects.
...
11. It is clearly understood that all
advertising, housekeeping and property management expenses shall be the
responsibility of the agent.
12. In the event of the agent forming a
partnership or limited company to let and factor the properties herein referred
to, the owner hereby legally obliges themselves, their successors and assignees
to enter into a new Minute of Agreement with the said partnership or limited
company in identical terms to this Minute of Agreement... ".
[3] There
was in fact no agreement between the parties to vary the payment of £39,000 per
annum for the second year of the operation of the agreement. Accordingly the rate of payment remained for
that year at £39,000 per annum.
[4] At
the commencement of the operation of the agreement, the flats were categorised
as of 3 star standard by the Scottish Tourist
Board. They were furnished to a high
standard and were in good condition, consistent with that grading. However, from the outset of the operation of
the agreement, the furniture, fittings and fixtures in the flats began to
deteriorate. For a variety of reasons,
not the least being the high turnover of tenants and the expectation of such
tenants that minor repairs were the responsibility of the lessor, the contents
of property let as holiday flats are apt to deteriorate more rapidly than the contents
of other property lets. As a result of
this deterioration, during the first year of the operation of the agreement,
the flats were downgraded by the Scottish Tourist Board from a 3 star to a 2
star rating. In about June 1999, they
were further downgraded from a 2 star to a 1 star rating.
[5] Around
the beginning of 1999 the third named respondent informed Mr. Douglas
Rolland that improvements were urgently required. At that stage, he indicated that the
appellants were not prepared to spend any money on the flats. On 17
February 1999, the respondents wrote to the appellants intimating
that repairs and replacements were required, for which the appellants were
responsible. On 24 February 1999, the respondents intimated
to the appellants that the flats were beginning to fall below the standard of
the respondents' other properties and requested a meeting to decide on the most
important items of expenditure required.
On 2 April 1999 Mr.
Douglas Rolland wrote to the respondents on behalf of the appellants proposing inter alia a programme of capital
expenditure involving the upgrading of one flat per annum. At a meeting on 14 May 1999 Mr. Rolland agreed in principle that the
appellants would pay for necessary repairs and renewals on a priority basis to be
agreed. On that date the respondents
agreed to provide a schedule of necessary repairs and renewals. On 13
July 1999 the respondents forwarded a schedule of repairs and
improvements which were necessary to restore the properties to an equivalent
condition to that in which they stood at the commencement of the operation of
the agreement, or at any rate to a tenantable condition for the holiday letting
market. On 30 August 1999 the appellants' solicitors intimated that
the appellants were prepared to consider the immediate repainting of one or two
flats, and the renewal of carpets. On
each occasion, the appellants acknowledged their obligation to maintain the
flats.
[6] However,
the appellants carried out no repairs or renewals. As a result, the level of the respondents'
booking declined and their rental income was therefore reduced. On 14
September 1999 the respondents wrote to the appellants' solicitors
intimating that they had reached the stage when it was necessary to take the
flats out of use for work to be done.
That letter was succeeded by a further letter from the respondents to
the appellants' solicitors, dated 24
September 1999, intimating that the flats were becoming impossible
to let, with a resultant threat to the whole of the respondents' business. On 30
September 1999 the respondents' solicitors, on their behalf, called
upon the appellants to implement their obligations in terms of clause 12 of the
Minute of Agreement by means of the grant of an assignation of the agreement to
a new limited company, Glenhouse Property Lettings Limited. The appellants refused to do this initially
until the respondents granted personal guarantees for the obligations of the
company, and latterly until all sums the appellants claimed were due had been
paid.
[7] By
about October 1999 the flats had deteriorated in condition below a tenantable
standard for the purposes of holiday letting.
On 21 October 1999
Mr. Douglas Rolland wrote to the respondents advising them inter alia to bring the flats up to the
standards required by law and to the specification which existed prior to the
purchase of those flats by the appellants.
This letter of 21 October 1999
was the last straw, so far as the respondents were concerned. On 7
December 1999 the respondents' solicitors wrote to the appellants'
solicitors intimating the respondents intention to
remove the appellants' flats from their agency, as a result of the appellants
failure to maintain them. Finally, on 7 February 2000, the respondents wrote
to the appellants confirming that they regarded the letter of 21 October 1999 as having
effectively ended the contract between the parties.
[8] Subsequently,
the appellants raised the present action against the respondents in Kirkcaldy
Sheriff Court in which they sought decree against
the respondents for payment to them of £49,193.49, with interest, as damages
for breach by the respondents of the contract between the parties. The basis upon which that sum was compiled
was set out in Condescendence 4 of the initial writ. The respondents lodged a counter-claim
against the appellants seeking payment of £35,000, with interest, as damages
for the appellants' breach of contract.
The basis on which the sum claimed by the respondents was compiled is to
be found in statement of facts 3 in the counter-claim.
[9] Both
parties tabled preliminary pleas, on which a debate was held on 11 March 2004. On 7 April 2004, the sheriff repelled the
first, eighth and ninth pleas in law for the respondents and sustained the
first plea-in-aw for the appellants, but only to the extent of not admitting to
probation the last three sentences in Answer 3, which were concerned with a
case of frustration of contract.
Otherwise a proof before answer was allowed. Following that proof, which ran over a period
of 12 days altogether, the sheriff pronounced an interlocutor, dated 11 May
2005, in which he sustained the third and fourth pleas in law for the
appellants, to the extent aftermentioned;
repelled the remaining pleas in law for the appellants; repelled the first, second, third, fourth,
seventh and eighth pleas in law for the respondents; sustained the fifth and
sixth pleas in law for the respondents to the extent aftermentioned; and decerned against the respondents for
payment to the appellants of the sum of £13,676.07, inclusive of contractual
interest of £139.11, with interest at 8 per cent per annum from 10 April 2002
until payment; and decerned against the appellants for payment to the
respondents of the sum of £12,500, with interest thereon at 8 per cent per
annum from 10 April 2002 until payment.
Against that interlocutor, the appellants have appealed to this court. The respondents have lodged grounds of
cross-appeal.
Submissions of the appellants
[10] Counsel for the appellants commenced by explaining the pattern
which his submissions would take. He
intended to begin with certain introductory comments; secondly he would deal with the test which he
had to satisfy; thirdly he would deal with the findings-in-fact made by the
sheriff; fourthly he would address
certain evidential issues; and fifthly he would consider specifically the
appellants' five grounds of appeal. In
his introductory remarks, he drew attention to the matters with which we have
already dealt. He explained that the
central issue in dispute at the proof before answer was whether there existed
an implied condition in the contract under which the appellants were obliged to
maintain the five flats in a condition equivalent to that which existed at the
commencement of the operation of the agreement in February 1998; or, in any event,
in a tenantable condition.
[11] Moving on, counsel considered the test which had to be applied
in the appeal. In that connection he
drew attention to Hamilton v Allied
Domecq plc 2006 SC 221. In that case
it had been held that the well-known constraints on matters of fact to which an
appellate court was subject did not absolve the court from its obligation to
reconsider the evidence and determine whether the findings of the judge of
first instance were justified; if findings of fact were unsupported
by the evidence and were critical to the decision of the case, it might be
incumbent upon the appellate court to reverse the decision made at first
instance. Counsel relied on the observations
of Lord Hamilton, as he then was, at paragraph [83]. It appeared from that case that an appellate
court could interfere only if the judge of first instance had plainly gone
wrong. An error of law would amount to
going plainly wrong. A decision of fact
in the face of the weight of the evidence would also amount to that. Reference was also made to paragraph 85.
[12] An important point was the question of the onus of proof of the
implied term alleged to have been part of the contract. The onus lay on the respondents. The case was not one where the determination
of the issue concerning the implied term could be based upon merely a
preference for the evidence of Mrs. Dunlop in comparison with that of Mr.
Rolland. The issue was more complex than
that. It was to be submitted that the
absence of what was contended to be crucial evidence regarding the implied term
led to the conclusion that the sheriff's decision to uphold the existence of
such a term was plainly wrong. The
crucial finding in fact of an implied term was unsupported by evidence.
[13] Counsel next proceeded to the third branch of his submissions,
concerned with the sheriff's findings-in-fact.
In this connection he drew attention to a note lodged on behalf of the
appellants setting forth alternative findings-in-fact, which, the appellants
argued, ought to be made by this court.
If the court favoured the appellants' contention that there had been no
implied term in the contract, effectively that would be an end of the
matter. It would not be necessary to
consider in detail the correspondence which had passed in 1999. The findings-in-fact of particular
significance in relation to the issue of the implied term were findings 14 to
26. In place of them, it was contended
that the court should find as follows:
"That the
defenders had no contractual basis for making deductions and for failing to pay
monthly instalments due to the pursuers under the Minute of Agreement from
August 1999 until the agreement's end in February 2001."
[14] Moving on to deal with evidential matters, counsel made four
points. First, no independent or
forensic accountant's report had been produced for the respondents, relating to
the two periods in respect of which loss was claimed, that is to say, from
February 1998 to November 1999, at the end of which period the respondents had
argued that a material breach of contract had occurred and that the appellants'
alleged repudiation of the contract had been accepted; and secondly the balance of time that
the agreement had to run, namely to 26 February 2001. Further, there was no accountant's report
from respondents' own accountants.
[15] Secondly, no accounts or tax returns had been produced by the
respondents for the period prior to the start of the operation of the agreement
in February 1998 when the flats had been owned by the respondents and let on a
short term basis. In addition, no such
documents had been produced for the period covered by the Minute of Agreement, 26 February 1998 to 26 February 2001.
[16] Thirdly, it was hardly surprising to see the terms of findings-in-fact
36 and 38, on pages 61 and 62 of the appeal print. In finding 36 the sheriff had found that:
"As a result of
the deterioration in the flats, the defenders suffered a loss of profits of an
undetermined amount between February 1998 and October 1999".
In finding in fact 38, the sheriff
had found:
"Had the
pursuers maintained the flats in an equivalent condition, the defenders would
have earned profits of an undetermined amount during the remaining period of
the agreement."
[17] Fourthly, it was submitted that the essential problem for the
respondents was that, in their productions, there was not a clear specification
or disclosure of what the total income and outlays had been for the five flats
during the period of the respondents' ownership and letting of them and also
during the period of operation of the Minute of Agreement from February 1998
until October or November 1999.
[18] Thus, in the absence of the kind of documentary evidence
desiderated, that the respondents should have produced, the sheriff was left in
a financial vacuum. In these
circumstances it was necessary to look at the evidence of the witnesses who
dealt with the situation. Evidence for
the respondents had come from Mrs. Hilary Dunlop, the third named respondent. It was to be found in section 15 of volume
III of the evidence. Reference was
particularly made to pages 94 and 95. It
was also relevant to consider production 6/17 at pages 94 to 95 of section 8 of
volume I of the appendix. There was no
clear evidence as to what was the purpose of production 6/17. This document, the high point of the
respondents' case, it was submitted could not be relied upon as an essential
basis in fact to entitle the sheriff to hold that an implied term was
necessary. Nor could the document, in
association with other evidence be a sufficient basis for any implied
term. For example, in production 6/17,
there was an entry relating to a sum of £7,000 in respect of repairs and
running costs. It was not clear to what
property that figure related, as appeared at page 98B-C of Mrs. Dunlop's
evidence. Counsel submitted that the
accounting and economic realities were of crucial importance in relation to the
business efficacy test for the existence of an implied term. At page 110 of her evidence Mrs. Dunlop
disputed the need for any economic analysis of the respondents' business. Her view, expressed at page 110 in volume III
of her evidence, was to the effect that the market was not relevant to the
determination of whether or not the business made a loss or profit. She did not consider that any accountant's
report was necessary, as appeared from pages 113 to 114 in the same volume.
[19] In examination of the respondents' case the evidence of Derek
Leslie McGuire, a property consultant and previously property letting agent,
was material. His evidence appeared at
section 16, volume III of the appendix.
The essential part of his evidence was at pages 60A to 62B, also at page
54 and following pages. He there dealt
with what might be called the conventional situation where a factor of property
took a commission. However, this was not
such an arrangement. There was no
evidence of the genesis of this particular Minute of Agreement, since it was
objected to. Mr. McGuire thought that
the Minute of Agreement was "madness", or a "penal agreement" at pages 92 to
94. He, however, accepted that, in order
to reach a specific answer as to the need for an implied term, it would be
necessary to do a proper economic analysis.
He had not done that.
[20] Counsel next referred to evidence led for the appellants. He relied particularly on that of Mr. James
Grant Honeyman. His curriculum vitae appeared in production 5/45. The key part of his evidence was to be found
at page 49D and following pages in section 12 of volume II of the
appendix. His view was that the
landlord's obligation was to keep the property wind and watertight, but that he
would not have an obligation to redecorate the property during the period of
the lease. However, counsel reverted to
the point that there was an economic vacuum in this case. There was no evidence as to the actual
potential of the property;
how easily the rental income could fall below a point where the
£39,000 per annum could be paid. At this
point, counsel reminded the court that a Mr. Guy Bailey had given evidence for
the defenders. He intended to deal with
his evidence in connection with the grounds of appeal.
[21] Fifthly, counsel then did indeed proceed to examine the
appellants' grounds of appeal, dealing first with ground 2.1. Counsel said that he accepted the sheriff's
finding in fact 11, which followed the wording of clause 7 of the Minute of
Agreement. However, counsel challenged
the sheriff's conclusion regarding "fair wear and tear". He submitted that "wear and tear" might
become "destruction and damage" in the end.
It was necessary to look at the whole clause. It provided for an obligation to incur
expenditure not exceeding £750 per flat per annum on repairs and renewals. Counsel submitted that, if his interpretation
of clause 7 were correct, that would be inconsistent with the implication of a
term such as had been affirmed by the sheriff in finding in fact and law
2. In this connection, counsel drew
attention to the note of submissions for the appellants, item 2 in volume I of
the appendix, where five principles relevant to the construction of clause 7
were set out.
[22] Counsel moved on to deal with ground of appeal 2.2.1. The sheriff had erred in holding in finding-in-fact-and-law
2 that the implied term there set forth was part of the contract, because there
was an absence of economic evidence or financial evidence justifying that
conclusion. The findings-in-fact
contained insufficient material to support it.
Proceeding on to ground of appeal 2.2.2, looking at the evidence as a
whole the same was the position. The
terms of the agreement were unusual and accordingly evidence as to the practice
in the holiday letting industry as a whole was not material.
[23] In connection with these submissions counsel relied upon B.P. Refinery (Westernport) Pty Limited v
President and Others of the Shire of
Hastings [1977] 180 CLR 266, a decision of the Privy Council. The Board had held that, in order to justify
the implication of a term in a contract, which the parties had not thought fit
to express, the following conditions had to be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business
efficacy to the contract so that no term will be implied if the contract is
effective without it; (3) it must be so
obvious that "it goes without saying";
(4) it must be capable of clear expression; and (5) it must not contradict any express
term of the contract. Reference was made
in particular to page 283.
[24] Counsel also relied on Crawford
v Bruce 1992 S.L.T. 524, which
was concerned with rent review.
Reference was made to page 531D-F.
Reliance was also placed on Rockcliffe
Estates plc v Co-operative Wholesale
Society Limited 1994 S.L.T. 592, which contained a useful summary of the
law at page 594J-L. What emerged from
that case was that the term to be implied had to be "necessary in order to
produce the result that both parties to the contract must have intended". Unless the court were acquainted with the economic
context against which the contract had to operate, it would be impossible to
judge whether that requirement was met or not.
[25] Reverting to ground of appeal 2.2.1, looking at paragraph 17 of
the sheriff's Note at page 71 of the appeal print, counsel accepted that the
sheriff was correct as regards his view concerning the onus of proof of an
implied term. The problem was that the
sheriff had been placed in an evidential vacuum regarding the pertinent
considerations for the implication of a term.
The heart of the sheriff's decision regarding the implied term was
paragraph 20 of his Note. It appeared
from that paragraph that the sheriff regarded Mr. Bailey's evidence as of
limited value, but that he found Mr. McGuire's evidence important and preferred
it to that of the appellants' witness Mr. Honeyman. At page 74 of the appeal print the sheriff
observed that the appellants' return was "much greater than the norm" in terms
of the Minute of Agreement, but that was not a complete basis for implication of
a term such as that desiderated. The
important feature of the situation was that the Minute of Agreement was a
special type of contract, not a conventional one. It was submitted the sheriff was not entitled
to conclude that the respondents' return in relation to turnover was low in
terms of the industry. The sheriff was
not entitled to reach such a conclusion in any event the problem in the present
case had been that the letting figures fell off through time because of lack of
maintenance, which the appellants regarded as the responsibility of the
respondents, who refused to do it. The
essential difficulty was that the parties adopted different interpretations of
the contract. To say, as the sheriff
did, that the respondents' return was low was simply to say that the
respondents had made a bad bargain, which could not be the basis for
implication of a term. Findings-in-fact
17 and 20 were important in this context.
However, the court ought to look at the necessity test in relation to
this contract, not in relation to the holiday letting industry as a whole.
[26] Counsel next addressed ground of appeal 2.3. It was submitted that, assuming that the
implied term desiderated had been proved, the sheriff had erred in making
finding-in-fact-and-law 3, to the effect that the appellants were in material
breach of the applied term;
also in paragraph 26 of his Note.
In this connection it was relevant to look at findings-in-fact 21 to
32. Little significance could be
attached to the categorisation of the flats by the Scottish Tourist Board. There was no witness from the Scottish
Tourist Board and no evidence as to how its grading system operated. There was no evidence that the grading had
had an economic impact. Finally, in this
connection, it was submitted that at no stage had there been a clear call upon
the appellants by the respondents (a) to operate any implied obligation; and
(b) holding the appellants in material breach of contract. At best there was a series of increasingly
acrimonious letters exchanged between the parties.
[27] Counsel for the appellants next turned to ground of appeal
2.4. It was concerned with whether the
respondents had established the date on which they accepted the pursuers'
alleged repudiation of the Minute of Agreement.
The sheriff had held that the respondents had accepted the appellants'
repudiation by sending their letter of 7
December 1999, 6/13 of process.
Paragraph 2 of that letter was an indication of a future intent, nothing
more than that. At the end of January or
beginning of February 2000, the appellants recovered possession of the
flats. There was a letter dated 7 February 2000 relating to that
matter. That was the last possible date
for rescission of the contract by the respondents in the face of the pursuers'
alleged repudiation. Reference was made
to 6/29 of process. Counsel said that he
would accept a date of 1 February 2000. The consequence of this error was that the
appellants should be entitled to two months payments for December 1999 and
January 2000.
[28] Counsel for the appellants turned finally to ground of appeal
2.5, to the effect that the sheriff had erred in making an award of damages to
the respondents in the sum of £12,500, under reference to finding-in-fact-and-law
10. The background to this was findings-in-fact
36 and 38, which referred to a loss of profits of an "undetermined amount"
between February 1998 and October 1999 and in the remaining period of the
operation of the Minute of Agreement.
This sum was made up of £4,000 in relation to head 1 of the heads set
forth in paragraph 35 of the sheriff's Note and £8,500 in relation to head 3.
[29] In connection with these submissions counsel relied upon Dowling and Rutter v Abacus Frozen Foods Limited 2002 S.L.T.
491 where the court, in the face of difficulties regarding quantification of
what was an acknowledged loss, stated that it would have made a "nominal award
of £5,000." Counsel made three
points. First, given the state of the
financial evidence in the present case, there was no basis for holding that
there had been a loss of profit for either of the periods concerned. The sheriff had referred to "undetermined
amounts". In these circumstances there
was no basis for making any award at all.
Second, the sheriff was required to give reasons for any award. He had not done so. However, in Dowling and Rutter v Abacus
Frozen Foods Limited, the contemplated award of £5,000 would have been in
connection with disruption costs associated with withdrawal of labour. That was a comprehensible basis. Third, the absence of reasons given by the
sheriff opened up the issue for this court.
In these circumstances the submission was made that the figures selected
by the sheriff were grossly excessive.
They were respectively 50% and 56% of the sums sought at the stage of
submission. Such sums could not be seen
as nominal.
[30] Summarising his position, counsel said that if the court was
with him in relation to the issue of the implied term, the appellants would
succeed in relation to the principle action and the counter-claim. On that scenario it would be possible to deal
with the expenses without difficulty, by awarding them to the appellants. Counsel moved the court to alter the award
made to the appellants from £13,676.07 to one of £47,511.51. In that situation the court would also recall
the interlocutor of the sheriff to the extent that it made an award of damages
of £12,500 to the respondents.
Submissions of the respondents
[31] Senior counsel for the respondents moved the court to refuse
the appellants' appeal and adhere to the sheriff's interlocutor to the extent
that it was challenged by the appellants; further he moved the court to sustain
the cross-appeal by repelling the appellants' second, third and fourth pleas in
law and sustaining the respondents fourth plea in law; that would involve decree of absolvitor being
pronounced in the principal action.
[32] Senior counsel then set out his response to the appellants'
appeal. He said that he would begin by
considering the approach which the court should take in an appeal in which
review of decisions of fact was sought.
Then he would consider and respond to the individual submissions made on
behalf of the appellants;
finally he would make submissions on the cross-appeal.
[33] In developing the first part of his submissions senior counsel
drew attention to Thomas v Thomas 1947 S.C. (H.L) 45. The case set forth the principles which an
appellate court should follow where there was a challenge to a finding in fact
made by a court of first instance. There
was no dispute about these principles.
He relied particularly on what was said by Viscount Simon at pages 47 to
48 and Lord Thankerton at pages 53 to 55.
He agreed that an appeal court had greater freedom where what was
involved was a review of inferences drawn from primary facts as opposed to
findings of primary fact. He also relied
upon what was said by Lord Macmillan at page 59. It had to be demonstrated that the judge of
first instance in making findings of fact had gone "plainly wrong". He submitted that it had not been
demonstrated that the sheriff in the present case had done that. He went on to rely on the observations of
Lord Hope of Craighead in Thomson v Kvaerner Govan Limited, 2004 SC (HL) 1 at pages 16 and 17. Senior counsel
also drew our attention to Simmons v British Steel Plc 2004 SC (HL) 94,
on which he relied. Reliance was also
placed on Hamilton v
Allied Domecq Plc, at paragraphs 83 to 85.
The principles of interpretation set out in these cases were of particular
importance here because credibility and reliability of witnesses were prominent
issues. The sheriff had preferred the
evidence of the third named respondent to that of Mr. Rolland, where there was
a conflict of evidence. He had also
preferred the respondents' expert, Mr. McGuire. In this connection reference was made to page
66 of the appeal print, paragraph 4 of the sheriff's Note.
[34] So, if there was evidence supporting the existence of the
implied term found by the sheriff, it was submitted that it was virtually
impossible for this court to interfere with the finding that it existed. The "plainly wrong" test was a very high and demanding
test indeed. The sheriff's preference for
the respondents' expert was to be seen in paragraph 20 of his Note, at the
bottom of page 73 to page 74 of the appeal print. Mr. Guy Bailey was found by the sheriff
to be of assistance, as was Mr. McGuire.
The latter was preferred to Mr. Honeyman. It ought to be noted that the sheriff gave
details for his views on the evidence of witnesses.
[35] Senior counsel next turned to his individual submissions on the
pursuers' grounds of appeal. He began by
dealing with ground 2.1, the issue of construction of clause 7 of the Minute of
Agreement. On any plain reading of this clause
it was obvious that there was a distinction between "destruction and damage"
and "fair wear and tear". The latter
could not merge into the former. The
second part of clause 7 was of an operational nature and related to the first
part of the clause. It was quite obvious
that the expenditure for which the agent was liable,
up to the extent of £750 per annum, was expenditure on items destroyed or
damaged. "Renewals" did not relate to
items required to be renewed because of "fair wear and tear", in the
context. It would cover the replacement
of items completely destroyed. In any
event, clause 7 did not cover decorative finishes; the agreement was silent on that. No particular significance attached to the
word "preserve" in the first line of clause 7.
The interpretation of clause 7 was of importance, since an implied
condition could not conflict with an express provision of a contract.
[36] Turning to the evidence, Mr. Guy Bailey at page 5 and following
pages of his evidence in volume III of the evidence dealt with "fair wear and
tear". While the Minute of Agreement was
unusual, Mr. Bailey stated that he had never encountered a factoring agreement
in which the agent had accepted responsibility for the consequences of fair
wear and tear. The distinction between
fair wear and tear and injury or dilapidation was of long standing and
reflected in Bell's Principles, 10th
edition paragraph 1254. There was in
effect a moral obligation on an owner to face the consequences of fair wear and
tear. The sheriff had been criticised
for not making a well reasoned finding in relation to these matters. However, in finding-in-fact 11 and paragraph
11 of the sheriff's Note at page 69 of the appeal print, the sheriff had
clearly explained the basis of his view, which was correct.
[37] Senior counsel next proceeded to consider ground of appeal
2.2.1 of the appellants. What the
appellants' contention amounted to, in relation to this ground, was that there
was only one way in which it could be established that there was an implied
term, as contended for by the respondents; the appellants' contention was that
the only means was by the leading of financial or economic evidence. It was submitted for the respondents that
there was no authority to that effect whatsoever. The proposition was unsound.
[38] It was appropriate to look at the authorities concerning the
implication of contractual terms. The
first of these was the Moorcock 1889
XIV P.D. 64. At page 68, the requirements for the
implication of a contractual term, where necessary to give business efficacy to
a transaction, were set out. If the
appellants' arguments were correct, they would have isolated themselves from
all risk attached to the transaction.
That was not what business efficacy was about. It was to be assumed that two business
persons would not agree to all risks being faced by one party to the
transaction and all benefits available to the other. Senior counsel went on to draw attention to Rockcliffe Estates plc v Co-operative Wholesale Society Limited,
at page 594; and B.P. Refinery (Westernport) Pty Limited v The President etc. of the Shire of Hastings, at page 282. There was no dispute concerning the relevant
principles regarding implied terms; the difficulty was in their
application to particular circumstances.
[39] It was submitted that the sheriff's treatment of the case had
been appropriate. In findings-in-fact 14
to 20 and finding-in-fact-and-law 2 he had reached a conclusion which was
justified in the light of the evidence and a proper interpretation of clause 7
of the Minute of Agreement. It was
accepted that there was some ambiguity in the terms of finding-in-fact-and-law
2, in respect that it referred only to tenantable condition, but, on the
evidence, there was no problem. Findings-in-fact
14 to 20 were based on the evidence before the sheriff and, in making those
findings, it could not be said that the sheriff had gone "plainly wrong". The sheriff's reasoning underlying his
decision was to be found in paragraphs 17 to 22 of his Note. While there had been some difficulty over the
availability of accountancy evidence, the fact was that all of the respondents'
relevant paperwork was before the court and it was not suggested that the
material which it contained was erroneous.
[40] As regards the suggestion that a property graded 1 star could
be let for a holiday let, the answer lay in finding in fact 31 to the effect
that "by about October 1999 the flats had deteriorated below a tenantable
standard for holiday letting." The
progression down from a 3 star rating to a 1 star rating had taken place in the
period ending June 1999. It was evident
from paragraph 20 of the sheriff's Note that he had relied upon the evidence of
Mr. McGuire as well as that of the third named respondent. At this point in his submissions senior
counsel referred in detail to the evidence of Mr. McGuire in section 16 of
volume III of the evidence, at pages 52 and following, 72, 85, 98, 99 and
118. These passages constituted an
evidential basis for the sheriff's conclusion, which could not be said to be
plainly wrong.
[41] Turning to the evidence of Mr. Douglas Rolland, on a proper
reading, he had actually accepted the need for an implied term in the course of
his evidence. He agreed, at pages 57 to
58 of section 11 of volume II of the evidence, that
any reasonable landlord would have agreed to the obligation to keep the
property up to the original standard, though not to improve it. However, the appellants undertook no work of
repair or renewal at all. In summary,
the sheriff's decision on the existence of the implied term was justified by
the evidence and could not be said to be "plainly wrong". No separate issue was raised by the
appellants' ground of appeal 2.2.2.
[42] Senior counsel moved on to deal with the appellants' ground of
appeal 2.3, which raised the issue of whether the implied term, if established,
had been shown to have been breached. He
submitted that, having regard to finding-in-fact 28, to the effect that the
appellants had carried out no repairs or renewals, with the result that the
level of the respondents' bookings declined and their rental income was
reduced, there could be no real dispute about this issue. The result was described in finding-in-fact
31, already mentioned. The sheriff's overall
conclusion in this regard was expressed in finding-in-fact-and-law 3. These findings were sound and could not
effectively be criticised. Reference was
also made to paragraph 26 of the sheriff's Note. It was eloquent of the deterioration in
condition which had occurred. The
sheriff's decision did not rest merely on grading; there was more evidence of
deterioration from Mr. Taylor and the third named respondent. In short, there was a wealth of material
demonstrating a breach of the implied term on the part of the appellants. Reference was made to findings in fact 23 to
33 which clearly demonstrated a repudiatory breach of contract on the part of
the appellants, reflected in findings-in-fact-and-law 3 and 4. Accordingly there was no substance in this
ground of appeal. No submission had been
made in support of the point made in the last paragraph of ground 2.3.
[43] Senior counsel then turned to deal with the appellants' ground
of appeal 2.4, which raised the issue whether the respondents had established
the date on which they accepted the pursuers' repudiation of the Minute of
Agreement. In this connection he
referred to the evidence of Mr. Rolland in volume II, section 11, pages 18 to
19. It was quite obvious from the terms
of the letter written on behalf of the respondents, dated 7 December 1999 (6/13 of process) that the
respondents had rescinded the contract at that time, as found by the sheriff in
finding in fact and law 5.
[44] Senior counsel moved on to consider the appellants' ground of
appeal 2.5, alleging an error on the part of the sheriff in awarding to the
respondents the sum of £12,500 by way of damages. Findings-in-fact-and-law 10 and 11 were
pertinent to this matter. The figure of
£12,500 was made up of £4,000 in respect of the period from February 1998 to
October 1999 and £8,500 in respect of the period from October 1999 to February
2001, the date at which the Minute of Agreement would naturally have
ended. It was perhaps not appropriate to
refer to these sums as nominal, but rather to refer to them as the sheriff had
done in finding-in-fact-and-law 10 as "a reasonable estimate". It was appropriate to look at the sheriff's
findings-in-fact 36 and 38, in which he referred to profits of an "undetermined
amount". In developing his submission
senior counsel drew attention to paragraphs 35 to 37 of the sheriff's Note; he did not seek to
challenge what was said in paragraph 36.
Reference had been made in the course of the debate to Dowling & Rutter v Abacus Frozen Foods Limited. In that case there had been, by way of
evidential material, only a spreadsheet.
In the present case there had been a mass of evidential material, which
made the present case different from that cited. What the sheriff had done here was not to
make a "nominal award", but to proceed upon a very broad brush approach, in the
light of the material available to him.
That approach could not be criticised.
What the sheriff was saying in paragraph 37 of his Note was that there
must have been some loss of profit, which he had estimated.
[45] Senior counsel endeavoured to support his position by reference
to the outline submissions for the respondents which had been made to the
sheriff, which now appeared as item 5 in volume I of the appendix. The figures contained in those submissions
were based on material before the court.
The ten flats referred to therein included the
five involved in the present litigation.
While the sheriff had not accepted the figures contained in these
submissions the point was that he could be satisfied that there was in fact a
loss of profit, which he could then estimate.
He had not been simply plucking figures out of the air. The material set forth in the outline
submissions had in fact been derived from the documentary material which was
available to the court. From time to
time the court had to make estimates of loss, which could not be precise, as
appeared from Mack v Glasgow City Council (30 March 2006;
unreported), paragraph [7].
[46] In summary it was submitted the sheriff was entitled to take
the course which he did. He adopted a
broad brush approach, but against a background of evidence from which it could
be inferred that an actual loss of profit had occurred. It could not be said that the sheriff, in
taking the course he did, had gone "plainly wrong".
[47] Senior counsel then proceeded to make submissions in relation
to the grounds of cross-appeal for the respondents. These involved the contention that the
sheriff had erred in sustaining the appellants' third and fourth pleas in law,
repelling the appellants' fourth plea in law and granting decree for the sum of
£13,676.07 with interest at 8 per cent per annum from 10 April 2002 until
payment; and in failing to sustain the respondents' fourth plea in law and to
grant decree of absolvitor in the
principal action. He made clear that he
did not intend to argue the proposition contained in paragraph (iii) of the
grounds of appeal; his
submissions would be confined to the contents of paragraphs (i) and (ii) of the
grounds. The sheriff had awarded
£13,676.07, the basis of the award being seen in findings-in-fact-and-law 6, 7
and 8. However, the appellants' case had
been one for damages for the respondents' wrongful repudiation of the contract
on 7 February 2000, as
appeared from Condescendence 3 and Condescendence 4 of their pleadings. Accordingly, if damages were to be awarded,
they had to relate to matters following the date of the breach. However, the sheriff found that the
appellants had repudiated the contract on 21 October 1999, which had been terminated by the
respondents' rescission, in the face of that repudiation, on 7 December 1999. On that basis, the only case pled by the
appellants for damages failed and accordingly no award should have been
made. The appellants' claim for unpaid
contractual payments should have been stated, not as a claim for damages, but
as a claim for payment of contractual payments.
In paragraph 31 of his Note the sheriff stated that he found the
respondents to be in breach of their contractual obligation to make monthly
payments; yet
that was not part of the case pled by the appellants. In support of this submission, senior counsel
referred to Morrison's Associated
Companies Limited v James Rome &
Sons Limited 1964 S.C. 161 at page 190 per Lord Guthrie. Notice required to be given in pleadings
before damages for breach of contract could be obtained on some particular
grounds.
[48] The result was that the interlocutor of the sheriff should be
altered. Pleas in law 2, 3 and 4 for the
appellants should be repelled and plea 4 for the respondents should be
sustained. Decree of absolvitor in the
principal action should be pronounced.
[49] Senior counsel finally commented upon certain proposed findings
in fact set before the court by the appellants.
As regards the proposed findings 14 to 26, these were rather more
detailed than the findings made by the sheriff; senior counsel had no difficulty with
that in principle. However, as regards
findings proposed as 27 onwards, the court should not make such findings. There had been no submissions made as to why
those findings should be substituted for the findings made by the sheriff. No evidence was cited to show why such findings
should be made.
Reply by counsel for the appellants
[50] Counsel accepted that as regards findings of fact made by the
sheriff, the test which he had to pass was that of showing that the sheriff was
"plainly wrong". Nevertheless, the court
had to consider the evidence and consider whether he was entitled to make
findings in fact and the finding in fact and law on the implied term. That latter question did not involve matters
of credibility or reliability, but the application of legal principles. The evidence of the third named respondent
alone was insufficient to justify the finding of an implied term. The court should give proper scrutiny to the
evidence of Mr. McGuire. Counsel
reiterated the submission previously made that there was a lack of financial
and economic evidence.
[51] In relation to ground of appeal 2.2.1, while it was necessary
to bear in mind Mr. Rolland's evidence at page 57 in section 11 of volume II,
regard should be had also to what he said at pages 82 to 83 and at pages 111 to
112. It had to be noted that the sheriff
himself had not relied upon what had been described as Mr. Rolland's concession
at page 57 of his evidence. The terms of
clause 7 of the Minute of Agreement were complicated. Much of the questioning of witnesses at the
proof unfortunately did not get to grips with the terms of that clause. As regards the implication of a term, it was
the facts of this particular case which were critical. Counsel agreed that there was no authority to
the effect that economic or financial evidence was necessary before a term
could be implied on the basis of business efficacy. However, the basis on which it was alleged in
this case that term should be implied was an economic one. Thus it would have been appropriate for such
evidence to have been led.
[52] Turning to the respondents' claim for damages, it was submitted
that the sheriff had no basis for holding that there had been loss of profits
for either of the two periods involved.
The case was not comparable to that of Dowling and Rutter v Abacus
Frozen Foods Limited. Counsel then
went on to seek to justify the alterations to findings in fact which he had
proposed.
[53] Turning to the cross-appeal, counsel accepted the principles
enunciated in Morrison's Associated
Companies Limited v James Rome &
Sons Limited. In this connection the
respondents' reading of the pleadings was excessively narrow. It was accepted that there were no pleas in
law stated for the appellants regarding contractual payments. However, there were sufficient averments to
give notice that the appellants were seeking payment of contractual sums. At this point in the argument counsel sought
a short adjournment to consider whether he should seek leave to amend by adding
a plea in law relating to contractual payment.
Thereafter he moved the court to allow amendment by the addition of a plea
in law No. 8 for the appellants to the following effect:
"8. Separatim
the pursuers being entitled to payment in respect of the unpaid monthly
instalments from August 1999 until the date of determination, decree should be
pronounced as craved."
There followed discussion as to
whether this amendment should be allowed.
The court decided that it was appropriate that it should be.
The decision
The general approach
[54] In this case, this court has been invited to disturb the
findings of the sheriff following upon the proof. That makes it necessary for us to recognise
the general approach which, in a situation such as that, this court ought to
take. It is right to point out that, in
the debate before us, there was no dispute over that matter. In Thomas
v Thomas and a series of
succeeding cases, the most recent of which is Hamilton v Allied Domecq Plc, that approach has been explained. Plainly respect must be accorded to the
decision of the judge of first instance, who has seen and heard the witnesses
and observed their demeanour, advantages which are not available to an appeal
court. However, as Lord Hamilton,
as he then was, observed in Hamilton v Allied Domecq Plc, at
paragraph 84:
"But the
existence of these constraints does not absolve this court from its obligation
as a court of appeal on matters of fact to reconsider the evidence led before
the Lord Ordinary and to determine upon such reconsideration whether critical
findings of fact, both primary and secondary, made by the Lord Ordinary were
justified. ... Moreover, in so far as concerns the evaluative exercise of
drawing, or declining to draw, factual inferences from primary facts, an
appellate court should exercise due caution before reversing such an
evaluation."
The proper interpretation of clause 7 of the Minute of Agreement
[55] It will be apparent from our narrative of the submissions made
to us that the parties were in dispute concerning the proper interpretation of
clause 7 of the Minute of Agreement.
Having regard to the principle that any implied condition in a contract
must not be inconsistent with its express provisions, it is necessary, at the
outset, to reach a view upon the proper interpretation of that clause. The position of the appellants was that fair
wear and tear would, in due course, reach such a degree that it amounted to
"destruction and damage", within the meaning of the clause. While it is undoubtedly the case that clause
7 is not a model of lucidity, we are unable to accept that contention. It is provided in the opening sentence of the
clause:
"The agent shall
preserve the furniture, fixtures and fittings specified in the attached
inventory from destruction and damage and make good, repair or restore the
same, fair wear and tear excepted, ... ".
The appearance of the words "fair
wear and tear excepted" in that sentence appears to us
to militate against the appellants' contention.
If it had been the intention of the draftsman of this clause that "fair
wear and tear" could reach such a degree that it amounted to "destruction and
damage", then the reference to "fair wear and tear" in that sentence would, we
consider, have been inappropriate.
Furthermore, we think that the appellants' interpretation is in conflict
with the well-known categorisation to be found in Bell's Principles, paragraph 1254, where the learned author refers
to the distinction between the two kinds of disrepair:
"One allied to injury or dilapidation, and arising from negligence
or hard usage; the other from the inevitable and imperceptible tendency of all
the works of man to decay and destruction by use."
In addition, we note that clause 7
relates only to the manner of the handling of "furniture, fixtures and fittings
specified in the attached inventory". The clause does not purport
to deal at all with, for example, decorative finishes in the properties
concerned, which were an important feature in the present case.
[56] In
these circumstances we conclude that the Minute of Agreement was in fact silent
upon responsibility for fair wear and tear in relation to furniture, fixtures,
fittings, decorative finishes and other features material to tenantability. Thus, as we see it, there were no express
conditions in the Minute of Agreement which would be in conflict with the term
which the sheriff decided should be implied in it.
The implied term
[57] We are happy to record that, in
the debate before us, there was no issue between the parties in relation to the
legal principles which have to be applied in relation to the implication of a
term in a contract. They were set out in
the majority judgment of the Privy Council in BP Refinery (Western Port) Pty
Limited v The President Etc. of the
Shire of Hastings, at pages 282-283.
In relation to the concept of "business efficacy" Lord President Hope,
as he then was, in Crawford v Bruce, at page 531 said:
"The concept of giving such
efficacy to the transaction as both parties must have intended it to have is of
wide application, as Lord McLaren said in Morton
v Muir Brothers (1970) 15 S.L.T.,
page 255:
'The conception of an
implied condition is one with which we are familiar in relation to contracts of
every description, and if we seek to trace such implied conditions to their
sources, it will be found that in almost every instance they are founded either
on universal custom or in the nature of the contract itself. If the condition is such that every
reasonable man, on the one part, would desire for his own protection to
stipulate for the condition, and that no reasonable man, on the other part,
would refuse to accede to it, then it is not unnatural that the condition
should be taken for granted in all contracts of the class without the necessity
of giving it formal expression.'"
In Rockcliff
Estates plc v Co-operative Wholesale
Society Limited, at page 594, Lord MacLean elaborated the requirements
in this way:
"The parties seeking such an
implication must aver that the contract is incapable of practicable performance
without the implied term, and that both parties would have agreed to the
inclusion of such an implied term when regard is had to the other express terms
of the contract. It follows, also, that
the terms cannot be implied that are contradictory of the express terms of the
contract. It is always a question of
construction of each contract whether a term can be implied, and it has further
to be borne in mind that it is more difficult to imply a term in a written
contract than in an oral one. If the
parties have simply made a bad bargain, at least in the view of one of them,
the court will not accede to a submission that a term should be implied in
order to remedy that position."
[58] The
sheriff deals with these principles among other matters in paragraphs 17-22 of
his Note. It was not submitted to us
that he had erred in law in any way in relation to the principles
themselves. The appellants' criticism of
the sheriff was concerning his application of them to the particular
circumstances of this case. It was also
common ground between parties that the onus of establishing the existence of an
implied term lay upon the party who sought to
establish its existence, in this case the respondents. One of the principal points made on behalf of
the appellants was that the sheriff had not been entitled to conclude that a
term should be implied in the Minute of Agreement on account of the lack of
what was described as financial or economic evidence. We are not persuaded that the existence of
such evidence is a sine qua non for
the establishment of an implied term. We
are unaware of any authority to that effect.
None was cited to us.
[59] The
sheriff's conclusion that a term was to be employed in the Minute of Agreement
in terms of finding-in-fact-and-law 2 is to be found in findings-in-fact
14-20. His reasoning in relation to
these matters appears in paragraph 17-22 of his Note. In particular, in paragraph 20, he
considers the issues relating to the implied term in detail. It is evident from what the sheriff there
says that his conclusion was substantially based upon the evidence of
Mr. Maguire, which evidence the sheriff found "particularly pertinent and
useful". Having carefully considered the
sheriff's findings and reasoning, we cannot conclude that his decision to hold
that the circumstances demanded the implication of the term upon which he
decided was plainly wrong. In the light
of the evidence to which he referred, we consider that he was quite entitled to
reach the conclusion that he did. Having
regard to the terms of the Minute of Agreement and the appellants' attitude
towards maintenance, as ultimately exemplified in the letter of 21 October 1999, we can well understand why the sheriff concluded
that the basis of the operation of the contract collapsed. Indeed we note that, at least at one point in
his evidence, Mr. Rolland appeared to agree. We refer to his evidence in vol. II
section 11 at pages 57-58 of the evidence. In all these circumstances, we consider that
the sheriff's conclusion in relation to the existence of the implied term in
the Minute of Agreement must stand.
The issue of
material breach of the implied term
[60] The findings-in-fact made by the sheriff
in relation to the relevant matters are findings 21-33. In that section of his findings, the pursuer
concludes that in fact during the course of the operation of the Minute of
Agreement the appellants carried out no repairs or renewals at all. As a result of that, the level of the
respondents' bookings declined and their rental income was reduced. By about October 1999 the flats had
deteriorated to such an extent that they were below a tenantable standard for
holiday letting. It appears to us that
these findings, which we consider that the sheriff was entitled to make, fully
justify his conclusion in finding in fact and law 3 that the appellants were in
material breach of the implied term.
[61] During
the course of the appellants' submissions the point was made that the evidence
did not explain the significance of the star ratings accorded to the flats by
the Scottish Tourist Board. They were,
at the outset, rated with 3 stars, but, during the first year of the agreement,
the flats were downgraded from 3 to 2 stars.
In about June 1999 they were downgraded further from 2 stars to 1 star,
which was said to be a rating too low for the purposes of holiday letting. While it may be that the detailed criteria
applied by the Scottish Tourist Board in connection with categorisation of let
property was not the subject of evidence, we are satisfied that the evidence
did in general set forth the significance of the ratings. In any event, be that as it may, over the
period of the operation of the agreement the pursuers carried out no repairs or
renewals and, as is found in finding-in-fact 31, by about October 1999 the
flats had deteriorated below a tenantable standard for holiday letting. That state of affairs, in itself, appears to
us to justify the conclusion which the sheriff reached.
The date of
the respondents' acceptance of the appellants' repudiation
[62] In ground of appeal 2.4, the appellants
have raised a point concerning the alleged uncertainty of the date on which the
respondents accepted the appellants' repudiation of the agreement and rescinded
the contract. That ground of appeal was
developed in argument. In essence, the
point seemed to amount to the suggestion that the letter from the respondents'
solicitors to the appellants' solicitors, dated 7 December 1999, No.6/13
of process, did not indicate that any actual decision to rescind the contract
had been arrived at by the respondents, or that any such decision would be
implemented by them at a future specified time.
We consider that there is no substance whatever in this point. In the letter it is said:
"...we are advised that no
monies will be remitted to your client unless in exchange for the executed
agreement which your client has so far refused to return.
Our client's intention is to
remove all of your client's properties from their agency and remitting all
future council tax bills to his home as a result of his failure to maintain the
flats to a reasonable standard. This
letter is entirely without prejudice to our client's future rights and pleas."
It is quite clear to us that the terms of that letter
show that, as at the date of it, the respondents were holding themselves no
longer bound by the terms of the Minute of Agreement. In our view, that amounts to rescission by
them, in the face of a material breach of contract by the appellants. We consider that the sheriff was therefore
quite entitled to make finding-in-fact-and-law 5. Indeed, we note that in the cross-examination
of Mr. Rolland at page 19 of section 11 of vol.II of the Notes
of Evidence, he accepted that nothing could be clearer than that the
respondents were indicating that, so far as they were concerned, the Minute of
Agreement was at an end and that they were not going to be bound by their
obligations in terms of it.
The award of
damages to the respondents
[63] Before us there was considerable
discussion of the decision of the sheriff to award £12,500 to the defenders as
damages, reflected in finding-in-fact-and-law 10. It is clear from paragraphs 35 to 37 of
the sheriff's Note that the sum of £12,500 was made up of £4,000 in relation to
the period between February 1998 and October 1999 and £8,500 in relation to the
period from October 1999 to February 2001, the date on which the Minute of
Agreement expired. It is necessary to
recognise that in findings in fact 36 and 38 the sheriff held that the
respondents had suffered a loss of profits of an "undetermined amount" between
February 1998 and October 1999 and that, had the appellants maintained the
flats in an equivalent condition, the respondents would have earned profits of
an "undetermined amount" during the remaining period of the agreement. Against this background it was contended that
the sheriff should have declined to make any award in favour of the respondents
for either of the periods concerned, even on a nominal basis. It was submitted that there was no evidence
or, in any event, insufficient evidence that established, or was capable of
establishing, that any loss of profit had been suffered by the respondents
during either period. The sheriff's
reasoning in connection with the award which he made is to be found in
paragraph 37 of his Note. There he
observes that, with regard to the period between February 1998 and October
1999, no proper accounts or tax returns were produced and there was no report
from an accountant. What was presented
was a mass of material relating to a variety of properties, including those the subject of this litigation. The difficulties were even greater in
relation to the period from October 1999 to February 2001. During that period, no income was received
and no expenses were incurred by the respondents, because the contract had been
terminated. The sheriff was therefore
faced with a calculation based solely on estimates where the previous record
was subject to the difficulties indicated in relation to the first period. The sheriff goes on to observe that he
considered the evidential position in the present case to be similar to that in
Dowling and Rutter v Abacus Frozen Foods Limited, where a
"nominal award" of £5,000 would have been appropriate. However, he goes on:
"I think it appropriate to
make nominal awards under both heads in acknowledgement of the fact that it is
clear that there was some loss of actual profit in the period up to the
termination and that further profit would have been gained had the agreement
run its full course."
[64] While
we recognise the difficulty the sheriff faced in this part of the case, the
conclusion which we have reached is that his award ought to stand. What is clear is that there was put before
the sheriff a substantial amount of documentary material relating to the flats
which were the subject of this litigation, along with others, although a
coherent picture was not presented in the form of accounts or tax returns for
the earlier period. In addition to that,
the respondents did formulate their claims for loss in the schedule attached to
the outlined submissions which was put before the sheriff in writing. In these circumstances, while we take issue
with the sheriff's description of the awards which he made as "nominal", we do
not consider that it can be said that he was plainly wrong in making those
awards. The selection of an appropriate
award, if any, was very much a matter for him, in the light of such material as
had been put before him. In these
circumstances, we shall not interfere with the award which he made. Finally, in this connection, we should make
clear that we did not find the observations in the case of Dowling and Rutter v Abacus
Frozen Foods Limited of particular significance in the circumstances of the
present case. What was described as a
"nominal award" of £5,000 would have been made in that case; however, we consider that the
circumstances there were so different from those of the present case that that
observation is not of assistance. In the
business of awarding damages, the court must, in every case, proceed upon the
material available to it in the particular case before it.
The cross
appeal
[65] The cross appeal was focused upon the
decision of the sheriff to sustain the appellants' third and fourth
pleas-in-law, repelling the respondents' fourth plea-in-law, and granting
decree for the sum of £13,676.07, with interest. Two points were made,
first, there was no claim on record for damages in respect of a breach of the
respondents' obligations to make payments.
The appellants' sole case on record was that they were entitled to
damages flowing from the respondents' alleged material breach of contract on 7 February 2000. That breach had not been proved. Secondly, it was submitted that a failure or
delay to make contractual payments did not give rise to a claim for damages. Monies due ex contractu were recoverable by a claim for payment, not
damages. There was no such claim for
payment on record. As regards the first
of these points, it is undoubtedly the case that the basis of the appellant's
claim for damages was as described in the respondents' submissions. However, there was never any doubt on the
averments that the appellants were claiming for lost revenue in respect of
unpaid monthly payments due from 1 August 1999 until the date of
termination on 7 February 2000, as appears from Condescendence
4. Thus, fair notice was given of the
extent of the appellants' claims. As
regards the second point made it is, of course, correct that a claim for sums
due in terms of a contract cannot properly be seen as a claim for damages; it is a claim for
payment in terms of the contract. No
doubt recognising that, counsel for the appellants moved us to grant leave to
amend by the addition of a plea-in-law No.8, in terms which we have described. Leave to amend was given. In these circumstances, in our view, what
amounts to a technical objection to the sum decerned for by the sheriff in
favour of the appellants disappears.
Proposed
findings in fact tendered by the appellants
[66] As already narrated, during the course of
the hearing before us, a note of proposed findings in fact was set before the
court on behalf of the appellants.
Having regard to the views which we have formed, explained above,
particularly in relation to the sheriff's decision on the implied term, we do
not propose to give effect to those findings in fact, which are inconsistent
with the decision of the sheriff, which we uphold, concluding that there was an
implied term in the contract.
[67] In all
these circumstances, we shall refuse the appeal and adhere to the interlocutor
of the sheriff dated 11 May 2005, save that we shall recall that
interlocutor to the extent that it sustained the appellants' third and fourth
pleas-in-law, which fall to be repelled; however we shall sustain the
appellants' new eighth plea-in-law as a basis for the award which the sheriff
made in their favour.
