The price of breach

One of the side effects of the recession and consequent dip in the property market has been the increasing ingenuity of arguments employed by those involved in litigation concerning heritage, seeking to avoid their obligations under missives. The writer has experience of arguments being formulated on the basis that dates of entry never arrive under contractual mechanisms, on the suitability of insurance guarantees provided, on issues of implied terms of “expeditious progress”, and many similar points which are often taken in an effort to negotiate a settlement.

The case of AMA (New Town) Ltd v McKenna, Sheriff Principal Bowen, Edinburgh Sheriff Court, 28 February 2011, unreported (available on www.scotcourts.gov.uk), is different and important for a number of reasons. First, not many, comparatively speaking, of the recession cases, if they may be called that, have actually made it to proof. Secondly, rather than a defender coming up with inventive arguments, the interest in this case centres around an argument employed on behalf of the pursuers.

Unusual choice

Broadly speaking the factual background in this case was very similar to many others affected by the recession. The defender had entered into missives with the pursuers to purchase a property in Edinburgh. In terms of the bargain he agreed to pay a certain amount on conclusion of missives and a further £141,850 on the date of entry. The date of entry was calculated (and the mechanism does not seem to have been challenged), as 23 December 2009. At some stage before that date, it appears that the defender intimated to the pursuers that he was not in a position to proceed with the purchase.

A few years ago in a rising market we would have had sellers looking for any opportunity to resile and resell at a higher price. In the writer’s experience these days, one normally would expect to find the sellers, following such an intimation, either raising an action of implement, or alternatively raising an action for damages in respect of losses incurred as a result of the purchaser’s breach of contract.

It can be said very generally that in Scots law a pursuer in such a case has the right to elect whether to sue for damages or alternatively for implement. Equally, however, it is highly unlikely that a court would compel implement on the part of a defender if that party was unable (so in this case, for example, had insufficient funds) to obtemper their obligations under the contract.

In this case, the pursuers elected to follow neither of the normal courses of action. Instead they raised an action for payment in the sum of £141,850, being the balance of the price claimed still to be due. This raises an interesting legal point. After argument Sheriff Holligan accepted that it was competent for the pursuers to adopt such a course. The defender appealed.

As Sheriff Principal Bowen put it: “The question which arises in this appeal, which I perceive to be both controversial and one of general importance, is whether someone in the position of the pursuers – that is to say the seller of heritable property who is told that the purchaser does not intend to proceed with the bargain – has the right to obtain decree for the price in unqualified terms.”

Implement or payment

In the event the sheriff principal disagreed with the sheriff’s view that, properly interpreted, there was little difference between a crave for payment of price and a crave for implement.

The sheriff principal began by looking at the basis of the action. He identified that for that action to be successful there would have to be some contractual right to payment. However, in his view, while there was a contract between the parties, it remained an uncompleted contract given the fact that notwithstanding performance had been offered by the pursuers in exchange for payment of the price, delivery of the disposition had not actually been effected.

The sheriff principal went on to consider the relevant background law, and in particular the fact that while a non-repudiating party in Scotland had the right to disregard repudiation and insist that the defaulting party implement the contract, his right to do so was limited in cases where the defaulting party was contractually due to pay money. The sheriff principal said:

“It is against that legal background that the normal practice in cases where a purchase price has not been forthcoming in a contract for the sale of heritage is for an action to be raised seeking an order for implement of the contract by payment within a specified period in exchange for a valid disposition of the subjects, with an alternative demand for damages in the event of non-payment.”

A case distinguished

The sheriff principal then considered the case of Bosco Design Services Ltd v Plastic Sealant Services Ltd 1979 SC 189. The sheriff had to a great extent based his decision on Bosco where, it was said for the pursuers and respondents, the First Division had “endorsed” the approach and tactic taken in the present litigation. That is to say it was argued that suing for payment of the price rather than implement, which failing damages, was perfectly competent.

In Bosco, missives had been concluded for the purchase of office premises. However, in that case the defenders had taken entry at settlement and also delivered a cheque apparently obtempering their obligation to pay the purchase price, but which was in due course dishonoured by the bank. An action was then raised seeking payment of the price and also damages in relation to the pursuers’ estimated loss on resale. It appears that in the Outer House it was held that such an approach was incompetent, with a party only being able to take one approach or the other. However, in the division an observation was made that “decrees in terms similar to those in conclusions 1 and 2 of this action [referring to the crave for payment] are frequently sought and granted”.

The pursuers in the present action therefore argued that their approach and crave had been endorsed by the division. The sheriff principal disagreed that this was the ratio of Bosco. He said: “taking the decision as a correct one – which I am bound to do – it does not appear to me to be authority for more than the proposition that the pursuers were entitled to proceed to the alternative remedies when they had failed to recover the purchase price. Whatever may have been said about the practice of obtaining decree in terms ‘similar’ to the first conclusion I do not consider the case to be authority for the proposition that one can sue for the contract price on the basis of an uncompleted contract”.

The sheriff principal thereafter went on in very brief and straightforward terms to distinguish Bosco as set out in his quote above (for example, he concluded that it was relevant in Bosco that the defenders had taken entry to the property), and thereafter to hold that it was not open for pursuers to seek a “straightforward decree for payment in circumstances such as the present”. He held that no contractual debt upon which action had been raised had been relevantly averred. Thereafter, he allowed the defender’s appeal, holding effectively that the approach employed could not succeed here.

Consequences

Where then does that leave us? In the writer’s view, the sheriff principal’s decision is the correct one. If the sheriff’s decision had been upheld, all sorts of consequences might have flowed from it. For example, if a pursuer in a case such as this had obtained a decree for payment, and it had been satisfied by the defender, presumably a disposition would have been delivered (in terms of the contract). On the other hand, if the defender had not been in a position to obtemper the decree then potentially they might have been subject to insolvency proceedings when hypothetically it is possible (for example in a rising market) that the pursuer had not actually suffered any loss.

Another difficulty with the approach adopted by the sheriff in the current case is that the position would not, in the writer’s view, be clear if a decree was obtained and remained unsatisfied, and meantime the pursuers sold the property. At that stage theoretically they would be in a position to enforce a decree, which would, certainly initially, result in a windfall to them.

Given the rising numbers of breach of missive cases the writer is encountering, it is helpful to have some further clarity on the correct approach pursuers ought to be taking. It now seems clear from the sheriff principal’s judgment that the settled and traditional remedy and approach is the correct one. So the answer to the question identified by the sheriff principal is implement, not payment.