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Cite as: [2007] ScotCS CSIH_12, [2007] CSIH 12

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EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

 

Lord Osborne

Lord Nimmo Smith

Lord Kingarth

 

 

 

 

 

 

[2007] CSIH 12

CA77/04

 

OPINION OF THE COURT

 

delivered by LORD OSBORNE

 

in

 

RECLAIMING MOTION

 

by

 

ARTHUR WILLIAM SIMMERS

Pursuer and Reclaimer;

 

against

 

JAMES GRIGOR INNES

Defender and Respondent:

 

_______

 

 

 

Act: J.J. Mitchell, Q.C., M.A. Stuart; Maclay Murray & Spens (Pursuer and Reclaimer)

Alt: Haddow, Q.C., Gardiner; Brodies (Defender and Respondent)

 

2 February 2007

 

The background circumstances

[1] In this action the pursuer and reclaimer seeks several remedies, concerned essentially with the implementation of certain provisions of a Shareholders' Agreement between the parties, dated 18 December 1998. The conclusions in the action, so far as material to this reclaiming motion, are in the following terms:

"1. For decree ordaining the defender forthwith to implement and fulfil his part of the Shareholders' Agreement entered into between the Pursuer and the Defender, Mrs. Simmers, Charles Simmers, Brian Simmers and Scotpigs Limited dated 18 December 1998 whereby pursuant to clause 10 thereof the defender agreed to sell and the pursuer agreed to purchase the Buy-out shares and the Buy-out properties defined therein at the Buy-out price being £400,000 for the Buy-out shares and £2,100,000 for the Buy-out properties and in particular to execute and deliver a valid disposition, a stock transfer form, warranty and discharges of the Buy-out properties securities in exchange for payment of said price.

2. Alternatively (in the event the Buy-out Valuation is invalid which is denied) for decree ordaining the Defender to implement and fulfil his part of the Shareholders' Agreement entered into between the Pursuer and the Defender, Mrs. Simmers, Charles Simmers, Brian Simmers and Scotpigs Limited dated 18 December 1998 whereby pursuant to clause 10 thereof the defender agreed to sell and the pursuer agreed to purchase the Buy-out shares and the Buy-out properties defined therein at the Buy-out price, being in respect of the Buy-out shares price £400,000 and in respect of the Buy-out properties price such figure as [is] validly determined, all within such time as the court may appoint from the date of decree, and in particular to join in instructing the valuer to determine the Buy-out Valuation, execute and deliver a valid disposition, a stock transfer form, warranty and discharges of the Buy-out properties securities in exchange for payment of the price.

3. For an order pursuant to section 47(2) of the Court of Session Act 1988 ordaining the Defender to execute and deliver (i) the disposition, stock transfer form and warranty provided to the Defender on 31 March 2004 under cover of the Pursuer's solicitor's letter of 31 March 2004 addressed to the Defenders' solicitors; (ii) the discharge of the securities over the Buy-out properties; all in exchange for payment by the pursuer of the Buy-out price being £400,000 for the Buy-out shares and £2,100,000 for the Buy-out properties. ... ".

[2] The present action was appointed to proceed as a commercial cause. On 7 September 2004, of consent, a proof before answer was allowed. However, on 31 January 2005, the Lord Ordinary, of new, allowed a proof before answer, restricted to those issues contained in the Agreed Joint Note of Issues, No. 36 of process. Proof was heard between 15 and 31 March 2005, on which latter date avizandum was made. On 11 July 2005 the Lord Ordinary pronounced an interlocutor by which he repelled the pursuer's second and third pleas-in-law, sustained the defender's second and third pleas-in-law and assoilzied the defender from the conclusions of the summons, reducing ope exceptionis the Report dated 22 March 2004 by John Rhind, and reserving questions of expenses. Against that interlocutor, the pursuer has now reclaimed.

[3] The background to the Shareholders' Agreement, entered into between the pursuer and the defender, Mrs. Simmers, Charles Simmers, Brian Simmers and Scotpigs Limited, dated 18 December 1998, which is at the heart of the dispute between the parties, is to be found in the pig farming industry. The pursuer had been engaged in pig farming since 1959. His business was to supply pigs to, among others, the family business of the defender. The pig farming industry, in general, suffered a recession in the years 1997 to 1998, as a result of which the pursuer's business was put into receivership. The pursuer then took advice from Messrs. Price Waterhouse Coopers and the Trustee Savings Bank about the possibility of buying back from the receivers the lands on which the business had been conducted, and the assets of the business. Such a proposal required the obtaining of finance. At that time the defender, who was anxious to secure a continuing supply of pigs for his business, proposed to the pursuer that he would assist in providing finance for the re-establishment of the pursuer's business. A new company would be set up, to be known as Scotpigs Limited. The shareholding in that company was to be split equally between the parties. The defender informed the pursuer that he would be obtaining the funding which he was to provide from his own bank. In the event, the defender invested £2,500,000. This sum was designed to pay for the purchase of the lands, on which the pursuer's business had been carried on, at £2,100,000 and at £400,000 for shares in the new company.

[4] In due course, on 18 December 1998, the Shareholders' Agreement was entered into between the pursuer, the defender, the pursuer's wife, Mrs. Myra Isobel Simmers, his two sons, Charles Alexander Simmers and Brian Arthur Simmers and Scotpigs Limited. It is No. 44/1 of process. In that agreement, Scotpigs Limited is referred to as "the company".

[5] Since the interpretation of certain parts of the Shareholders' Agreement is in controversy between the parties, it is necessary to examine the relevant terms in some detail. The preamble narrates:

"Whereas: (A) The Company has been formed by the parties for the purpose, inter alia of acquiring the Properties and the Business of the Simmers Companies, disposing of certain of the Properties and carrying on business in its own right. (B) The parties have agreed to subscribe for shares in the Company and wish to enter into this Agreement for the purpose of recording the terms and conditions of their Joint Venture and of regulating their relationship with each other and certain aspects of the affairs of, and their dealings with, the Company and the Company has agreed with the parties that it will comply with the terms and conditions of this Agreement in so far as they relate to the Company. Now therefore it is contracted upon and agreed between the parties as follows: ... ".

Clause 1 of the Shareholders' Agreement provides definitions of expressions used in it. For present purposes, it is necessary to notice the following:

"'the Base Properties Price' means two million one hundred thousand pounds (£2,100,000) sterling;

'the Business' means the business and undertaking of the Simmers Companies relating to pig, cattle and general farming, ownership and turning to account of properties and equipment for farming purposes and all related activities all as more particularly set out in the missives;

'the Buy-Out' means the simultaneous purchase by or on behalf [sic] Mr. Simmers of the Buy-Out Shares and of the Buy-Out Properties from Mr. Innes on the Buy-Out Date;

'the Buy-Out Date' means 31 March 2004;

'the Buy-Out Price' means the aggregate of the Buy-Out Shares Price and the Buy-Out Properties Price;

'the Buy-Out Properties' means the heritable subjects more particularly described in Part 2 of the Schedule less those or parts thereof that have been subject of a Part Sale;

'the Buy-Out Properties Price; means (a) the price payable by Mr. Simmers or his nominees to Mr. Innes on the Buy-Out Date being the higher of (i) the Base Properties Price; or (ii) the aggregate of the Base Properties Price and an amount equal to the figure brought out by the following formula: 1/2 x (Buy-Out Valuation - £2.1m) or (b) in the event that there has been a Part Sale, the Base Properties Price shall be adjusted as ascertained in clause 9 hereof;

'the Buy-Out Shares' means the 400,000 'A' Shares held by Mr. Innes and/or his permitted transferees in terms of the Articles;

'the Buy-Out Shares Price' means the price payable for the Buy-Out Shares being the higher of (i) four hundred thousand pounds (£400,000) sterling or (ii) four hundred thousand pounds (£400,000) sterling plus half [of] any [gain] in the net asset value of the Company as disclosed by the balance sheet produced to 31 March 2004 up to a maximum half share gain of four hundred thousand pounds (£400,000) sterling;

'the Buy-Out Valuation' means the valuation carried out by a valuer to be agreed between the 'A' Director [Mr Innes] and the 'B' Director [Mr Simmers] on or within one month prior to the Buy-Out Date; ...

'Joint Venture' means the joint venture created by this Agreement and as may be varied by any Agreement(s) supplemental to it executed by the parties; ...

'Joint Venture Objective's; means the objects set out at Part 1 of the Schedule;

'the Lease' means the lease to be entered into between Mr. Innes and the Limited Partnership a copy of which is reproduced at Part 4 of the Schedule;

'the Limited Partnership; means the Limited Partnership to be entered into between the Company and Mr. Innes at Completion, a copy of the Limited Partnership Agreement being reproduced in Part 5 of the Schedule; ...

'Valuation; means the valuation of the Properties carried out by Aberdeen & Northern Estates Limited on 2 December 1998 a copy of which is reproduced at Part 10 of the Schedule."

[6] The "Joint Venture Objectives" are set out in Part 1 of the Schedule to the agreement in the following terms:

"The objects of the Joint Venture are:

1. The acquisition of the Properties and the Business.

2. The sale by the Company of the Buy-Out Properties to Mr. Innes and the sale of other properties or parts thereof remaining in the ownership of the Company that the Directors of the Company agree from time to time.

3. Forming the Limited Partnership.

4. Leasing the Buy-Out Properties from the Limited Partnership.

5. Conducting the Business in a profitable manner.

6. Completing the Buy-Out.

7. The doing of such acts, matters and things as the Directors may consider incidental to the attainment of any of the foregoing objects."

[7] It is necessary to notice certain clauses of the Shareholders' Agreement, which are relevant to the resolution of the present dispute. These are:

"2(1) The parties hereby agree with one another to enter into the Joint Venture for the purposes of the Joint Venture Objectives and for no other purpose; no party shall hold out that the Joint Venture extends to any other property or business. None of the provisions of this Agreement shall be deemed to constitute a partnership between the parties hereto and no party hereto shall hold himself out as an agent or partner of any other party hereto. ...

4. Completion ...

(2) At Completion the parties shall do or procure the doing of the following:

(a) the parties shall subscribe at par for a total of 800,000 shares in the

following proportions:

 

Shareholder

Number and class of shares

Subscription price

James G Innes

400,000 'A' ordinary shares

£400,000

Arthur W. Simmers

21,000 'B' ordinary shares

£21,000

Mrs. Myra I Simmers

199,000 'B' ordinary shares

£199,000

Charles A Simmers

90,000 'B' ordinary shares

£90,000

Brian A Simmers

90,000 'B' ordinary shares

£90,000

Total

 

£800,000

 

...

5. Onward Purchase by Innes

On the Completion Date immediately following the acquisition by the Company of the Properties and the Business the parties shall procure that the Company shall sell the Buy-Out Properties to Mr. Innes or his nominees for the Base Properties Price and on the further terms and conditions set out in the Innes Missives ...

6. Limited Partnership

On the Completion Date, the parties shall procure that the Company and Mr. Innes shall enter into the Limited Partnership with the Company being the general partner and Mr Innes being the limited partner.

...

8 Part Sales

Mr. Innes or his nominees shall be entitled to effect a Part Sale at any time during this Agreement without requiring the consent of the Company provided he shall first offer the Part Sale Subjects to Mr. Simmers on the same terms and conditions as could be achieved on the open market ...

9. Part Sales Price Reduction

In the event that a Part Sale is effected prior to the Buy-Out Date then the Base Properties Price shall be reduced by (i) in the event of a Part Sale Profit, the Part Sale Price less half the Part Sale Profit and (ii) in the event of a Part Sale Loss, the Part Sale Price plus half the Part Sale Loss.

10. Buy-Out by Mr. Simmers

On the Buy-Out Date, Mr. Simmers shall be entitled to effect the Buy-Out and acquire the Buy-Out Shares and the Buy-Out Properties in exchange for payment by way of telegraphic transfer of the Buy-Out Price, and the Buy-Out Expenses to Mr. Innes or his nominees. In exchange Mr. Innes shall execute all transfers, conveyances, deeds, and documents as shall be reasonably required to constitute Mr. Simmers as owner of the 'A' Shares and the Properties. Mr. Simmers shall however amend at his own expense any defects in the title that exist at the date of conclusion of the Innes Missives and continue to exist as at the Buy-Out Date.

...

14. Auditors, Bankers, Registered Office etc

Unless otherwise agreed in writing between the Shareholders:-

(1) the Auditors of the Company shall be Ernst & Young,

Chartered Accountants, ...

(4) the Accounting Reference Date of the Company shall be 31st

March in each year, the first such date being 31st March 2000 ...

21. Duration and Winding-up

The terms of this Agreement shall remain in full force and effect for a period of five years expiring on 31st March 2004. If Mr. Simmers has not served on Mr. Innes a notice intimating his intention to effect the Buy-Out prior to the Buy-Out Date, then this Agreement shall terminate automatically without the requirement of any party to serve notice. Termination of this Agreement with respect to any or all of the parties shall be without prejudice to the rights of any party accrued prior to such termination or under any provision which is expressly stated not to be affected by such termination.

...

24. Good Faith

Each of the parties agree with each other that: (a) during the continuance of this Agreement, all transactions entered into between any of them on the one hand and the Company on the other shall be conducted in good faith and on the basis set out or referred to in this Agreement or, if not provided for in this Agreement as may be on an arms length basis; (b) each of them shall at all times act in good faith towards the others and shall use all reasonable endeavours to ensure the observance of this Agreement; (c) no party will seek to increase its profit or reduce its loss at the expense of another; and (d) each of them will do all things necessary or desirable to give effect to the spirit and intention of this Agreement. ... "

[8] Following the conclusion of the Shareholders' Agreement, the relationship between the parties soon broke down, becoming the subject of disputes between them. The company, Scotpigs Limited, ran into financial difficulties. Prior to 2003, the defender suggested, on more than one occasion, that the Buy-Out Properties should be bought back from him by the pursuer, but no agreement was reached about that. In late 2003, the pursuer began to explore the possibility of obtaining finance, in the region of £6,500,000, to enable a re-financing and reconstruction of the Company to take place, and also to provide consideration for purchasing the Buy-Out Properties.

[9] The contemplated contract of limited partnership between Scotpigs Limited and the defender was executed on 18 December 1998 and is No. 44/3 of process. The limited partnership was designed as Scotpigs & Company. A lease between the defender and the firm of Scotpigs & Company was executed on 18 December 1998 and was registered on 25 November 2003. On 26 March 2003 the defender served a notice of dissolution on the partnership. It is No. 44/4 of process. On 16 June 2003 a notice was served on the defender, on behalf of Scotpigs Limited, in which Scotpigs Limited, as general partner of the Limited Partnership, gave notice in terms of section 76(3) and (6) of the Agricultural Holdings (Scotland) Act 2003, that the company intended to become the tenant under the tenancy in its own right. That notice is No. 44/7 of process. Those notices now form the subject of proceedings under the 2003 Act which are pending before the Scottish Land Court. Certain other legal proceedings were brought, arising out of the relationship between the parties, details of which are set out in paragraphs [8] and [9] of the Opinion of the Lord Ordinary, which do not require to concern us now.

 

The events leading up to the present proceedings

[10] It is against the foregoing background that the present proceedings have been brought, which arise out of an attempt by the pursuer to exercise the Buy-Out option conferred upon the pursuer by clause 10 of the Shareholders' Agreement. That attempt commenced with a letter, dated 11 February 2004, to the defender from Messrs. Maclay Murray & Spens, solicitors acting for the pursuer. The terms of that letter, No. 44/12 of process, are these:

"On behalf of and as instructed by Arthur Simmers, we hereby give notice that in terms of clause 10 of the Shareholders' Agreement in respect of Scotpigs Limited dated 18 December 1998, Arthur Simmers intends to effect the buyout of the buyout Shares and buyout properties as at the buyout date being 31 March 2004 all in accordance with the terms of the Shareholders' Agreement.

Mr. Simmers proposes that James Galbraith of Messrs. C.K.D. Galbraith, Chartered Surveyors, be appointed Valuer to carry out the buyout valuation in terms of the Agreement. You are called upon to confirm your agreement to the said proposal as soon as possible."

The pursuer's solicitors also sent a copy of the formal intimation to the defender's solicitors, Messrs. Brodies, under cover of a letter, dated 10 February 2004, which is No. 44/11 of process. It is in the following terms:

"We attach a copy Notice served by us on behalf of Arthur Simmers on your client, James Innes in terms of the Shareholders' Agreement in respect of Scotpigs Limited dated 18 December 1998.

A Valuer requires to be appointed in terms of the Shareholders' Agreement to carry out the buyout valuation and a proposal is made on behalf of Mr. Simmers for agreement by Mr. Innes. It is further proposed that the company's auditors be instructed to prepare a balance sheet as at 31 March 2004 for calculation of the buyout shares price.

If the buyout is to be effected on 31 March 2004, in accordance with clause 10 of the Agreement, steps will require to be taken without delay to agree the terms of missives and prepare the necessary conveyancing documentation. Accordingly we would ask you to provide us with title deeds in respect of the buyout properties to enable work to get started."

[11] On the evidence adduced at the proof, the Lord Ordinary was satisfied that the pursuer had begun, in late 2003, seriously to set out to acquire finance, not only in respect of the sum required to be paid for exercising the Buy-Out option, but also in respect of re-financing the company. However, on or about 10 February 2004, the defender presented a petition for the winding-up of the company. He did so in terms of section 122(i)(b) and (g) and section 123(i)(e) of the Insolvency Act 1986. A hearing for the appointment of provisional liquidators to the company took place on 12 and 13 February 2004, but it was not until 16 March 2004 that a Lord Ordinary appointed provisional liquidators to the company, having been satisfied in terms of section 122(i)(g) and section 123(e) that the company was unable to pay its debts as they fell due. Messrs. Maclay Murray & Spens acted for the pursuer and members of his family in relation to those proceedings as well as in relation to the matters already noted. However, at the same time, Aberdeen solicitors, Messrs. Stronachs, were also acting for the pursuer in relation to certain business affairs. As will be seen subsequently, at a critical period for the possible exercise of the Buy-Out option, the pursuer had no fewer than three different sets of solicitors acting in relation to that, a situation which did not facilitate matters and indeed caused confusion in the minds of some of his advisers as to who was responsible for what. A feature of the situation, to which the Lord Ordinary has adverted, was that, in the early months of 2004, both parties understood that clause 10 of the Shareholders' Agreement provided for the right to acquire the Buy-Out Shares and the Buy-Out Properties to be exercised on one day, and one day only, namely 31 March 2004, and that the transaction had to be completed on that day by the payment of the Buy-Out Price and the Buy-Out Expenses in exchange for the transfer of title to the pursuer of the Buy-Out Properties and the shares. It was considered that the timescale allowed for in the preparation for the exercise of the Buy-Out option was restricted by virtue of the provisions of the Shareholders' Agreement regarding the ascertainment of the price to be paid for the properties. The definition of "the Buy-Out Valuation" in clause 1 of the Shareholders' Agreement involved a valuation being carried out by an agreed valuer "on or within one month prior to the Buy-Out Date". Thus the Buy-Out Properties Price could only be ascertained, at the earliest, one month prior to 31 March 2004, affording the pursuer a relatively short period of time to discover, with any precision, what his funding requirements would be.

[12] Following the pursuer's intimation of his intention to exercise the Buy-Out option of 11 February 2004, a counter-proposal as regards an appropriate valuer came from the defender. He proposed Mr. Rhind of Aberdeen and Northern Marts. This counter-proposal was, in the event, accepted by the pursuer. Mr. James Galbraith had, however, in the meantime, been approached by the pursuer in respect of the proposed valuation. He had prepared a document headed "Instructions for the Valuations Known as Innes Farms, Aberdeenshire [sic]". It forms part of the bundle of documents No. 44/20 of process. The Lord Ordinary has found that, on or about 23 February 2004, the pursuer contacted Messrs. Stronachas. He spoke to Miss Carol Crowther, who dealt with conveyancing business in that firm. He informed her that it would be necessary to ask for the titles of the Buy-Out Properties from the defender's agents, in preparation for the execution of the Buy-Out option. It appears that this was the first intimation made by the pursuer to his Aberdeen solicitors that (a) he had, through Maclay Murray & Spens, intimated his wish to exercise the option, and (b) that the title deeds should be sought from the defender's solicitors. It should be noted that Messrs. Maclay Murray & Spens, in their letter of 11 February 2004 to Messrs. Brodies, had asked Messrs. Brodies to provide them with the title deeds. The Lord Ordinary records that there was no evidence that any request had been made directly by the pursuer, or on his behalf, to Messrs. Clark & Wallace, who acted for the defender, before the pursuer had his telephone conversation with Miss Carol Crowther on or about 23 February 2004. After having heard from the pursuer about this matter, Miss Crowther telephoned Messrs. Clark & Wallace. On 24 February 2004, a fax message from Mr. Neil Allan of Clark & Wallace was sent to Miss Crowther. This is No. 44/14 of process. It is in the following terms:

"We refer to your telephone call on Friday. The title numbers so far as can be made out at this stage are as undernoted. ... A copy of the lease identifying the subjects by their previous Sasine descriptions follows with the hard copy version of this letter.

Please note however that if the petition for winding up of Scotpigs Ltd. which is presently at avizandum following the hearing on 12 and 13 February is successful then the buyback option to your client falls as it is in a Shareholders' Agreement focused round the shares. If the company to which the Shareholders' Agreement relates has gone into liquidation then the option flies off.

The option is for a floor of £400,000 on the shares and £2.1 million plus half the gain on the valuation from that figure to now. If the valuation were say £4 million then the entitlement to our client would be £3.05 million for the properties, £400,000 for the shares and a retention of Pollswells Mill to which the option does not extend. The speculative development value of the rest of Ormiston would have to be valued.

Before we set about contingent implementation, the Shareholders' Agreement states that the parties must agree a valuer by 28 February 2004. Mr. Simmers has already proposed Cluttons through Maclay Murray & Spens. We propose Aberdeen and Northern Estates. A copy of their 1998 valuation is attached with the hard copy showing that they are familiar with the subjects, and of course they are familiar more so than any other valuers, with the north east market. Wording of a joint remit would require to be agreed.

In view of the difficulties that have attended the relationship between our respective clients up till now we are not prepared to enter into contractual and conveyancing details without sight of a clear and unequivocal letter of intent from Mr. Simmers' lenders referring to the winding-up petition and stating their awareness of the actions for debt against Scotpigs Ltd. and the inhibition or inhibitions lodged, but saying that they are nevertheless prepared in principle to lend."

The Lord Ordinary observes that, notwithstanding what was said in the first paragraph of the foregoing letter, the remainder of it advances a more conditional approach and, indeed, a view as to whether the Buy-Out option fell to operate, if the company went into liquidation. Whatever may have been the reason for the remainder of that letter being written in that way, it was departed from in a faxed letter of the following day, 25 February 2004, sent from Messrs. Clark & Wallace to Mr. Tim Edward, a partner in Messrs. Maclay Murray & Spens, acting for the pursuer, which is No. 44/16 of process. It states:

"I refer to a fax dated 24 February 2004 addressed to Carol Crowther at Stronachs, which my colleague wrote. Unfortunately, certain parts of that letter are inaccurate and do not represent our client's position. I would therefore ask you to completely disregard that letter save in so far as it identifies the Title which relates to the buyout properties. For the sake of completeness, we would confirm that agreement has been reached in relation to Aberdeen & Northern Marts subject to a remit and level of fee being agreed. We understand that you have been asked for a copy of any Valuation or Fee Quote from the surveyor that Mr. Simmers had intended to appoint. I look forward to hearing from you in early course. In the meantime, as indicated above, the letter of 24 February 2004 was written in error and should not be founded upon in any Court or other legal proceedings."

[13] Notwithstanding the last sentence of the letter just quoted, the letter of 24 February 2004, the Lord Ordinary informs us, formed part of a joint bundle of documents produced for the proof and was referred to by both parties at the proof, without objection. The position, therefore, as at 25 February 2004, was that there had been agreement between the parties as to who the valuer should be. The nature and basis of his remit remained to be agreed. The Lord Ordinary records that he considered it to be of some considerable importance that the pursuer, in his evidence in chief, said that the terms of a remit were never agreed between the parties.

[14] On 1 March 2004 Mr. Edward of Messrs. Maclay Murray & Spens sent a fax to Messrs. Brodies, which is No. 44/17 of process, in these terms:

"We attach a draft Remit for the agreed Valuer appointed in terms of the Shareholders' Agreement. Please confirm as soon as possible that the terms are agreed. You should have copies of all the Appendices. We would suggest that the Valuer makes a start on the Valuation as soon as possible and he is welcome to make contact directly with Mr. Simmers regarding access."

The draft remit referred to in that fax was the document already referred to prepared by Mr. Galbraith, part of No. 44/20 of process. Paragraph 4 of that draft remit, headed "The Interest to be Valued" stated:

"The interest to be valued is the freehold of the Buy-Out Properties subject to a lease in favour of the firm of Scotpigs and Company. The terms of the lease are incorporated into Appendix II attached to this instruction.

The firm of Scotpigs & Co. is a Limited Partnership between Mr. Innes and Scotpigs Ltd., a copy of which is attached at Appendix III to this instruction. Notice to terminate the Partnership has been served by the Limited Partner (Mr. Innes), a copy of which is attached at Appendix IV.

The General Partner has contested the Notice to Terminate the Partnership and the matter has been referred to the Land Court. A copy of the Proceedings is attached at Appendix V."

Paragraph 5 of the draft remit headed "Basis of Valuation", states:

"The basis of valuation is the Market Value as defined by the RICS Appraisal and Valuation standards (fifth edition) as follows: 'The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's-length transaction after proper marketing wherein the parties have acted knowledgably, prudently and without compulsion'."

Paragraph 6 of the same document provided that the date of valuation was to be within one month prior to 31 March 2004.

[15] On 4 March 2004, Mr. Edward of Messrs. Maclay Murray & Spens again sent a fax to Messrs. Brodies, No. 44/19 of process, in the following terms:

"We refer to our fax of 1 March 2004. In the absence of any response, we have sent the draft remit to John Rhind as agreed Valuer. Please let him have any comments as soon as possible. We attach Adjustments to the Land Court Defences which we shall be seeking to have incorporated in the Pleadings. We shall request a four week adjustment period to enable you to respond. We have provided these Adjustments with the remit to the Valuer."

On the same day, Mr. Edward sent a fax to Mr. John Rhind, the agreed valuer, No. 44/20 of process, in the following terms:

"We attach a draft Remit for Valuation. The terms have yet to be agreed by Mr. Innes' solicitors."

Accompanying that fax was Mr. Galbraith's document "Instructions for the Valuations Known as Innes Farms" and various appendices. Mr. Rhind himself sent a fax to the pursuer on 4 March 2004, No. 44/21 of process, in the following terms:

"Further to receipt of the valuation instructions this morning, I write to enclose summary I have prepared showing all the properties and land we are to inspect. Can you confirm that we have identified the subjects correctly? I assume that we will be valuing the land together with the subsidy entitlement. Have you worked out a rough figure for this? I look forward to receiving written instructions as to how we are to carry out the valuations. Do we value Mains of Cairnbrogle has [sic] a working pig farm? What is the planning position with regard to: (a) Mill of Cavil Steading? (b) Mineral extraction/reinstatement at Greendams?"

[16] Thereafter, Mr. Neil Allan of Messrs. Clark & Wallace, on behalf of the defender, telephoned Mr. Rhind on 5 March to say that the terms of the draft remit, the document prepared by Mr. Galbraith, were not agreed by his client and would require to be amended. Mr. Allan followed up this telephone conversation with a letter to Mr. Rhind, No. 44/25 of process, a copy of which he sent to Messrs. Maclay Murray & Spens. A copy was also sent to Messrs. Stronachas. This letter was in the following terms:

"I confirm my telephone call today that fax instructions you have had from Maclay Murray and Spens acting for Arthur Simmers, originally intended to be on a joint remit basis, for the valuation of the subjects at the above address, require to be augmented.

I confirm that their draft instructions were not assented to by us as a result of which the fax is unilateral from Arthur Simmers' side. I therefore confirm that so far as Jim Innes is concerned, the words 'the value is nevertheless the open market vacant possession value', should be added at the end of paragraph 4 ('The Interest to be Valued') of the instructions. At the end of paragraph 5 ('Basis of Valuation') again the words should be added 'For the avoidance of doubt, the valuation will be on a vacant possession basis.'

A valuation allowing any discount for tenants rights is incorrect in law so far as Mr. Innes is concerned. It is not our view in any case that Mr. Simmers has any authority to give instructions on behalf of Scotpigs Ltd., far less the limited partnership of Scotpigs and Co. which is the tenant, being a partnership of Mr. Innes (the limited partner) and of the company Scotpigs Limited."

[17] On 8 March 2004, Mr. Edward sent a fax to Mr. Allan, No. 44/26 of process, in the following terms:

"I acknowledge receipt of your fax of 5 March copying to me your letter of that date to John Rhind.

We have consulted with Senior Counsel on the issue of Valuation and although the Shareholders' Agreement does not clearly specify the basis of Valuation, it is our view that the proper interpretation of the buy-out Valuation in terms of the Agreement is a Valuation of your client's interest in the land as it exists at 31 March 2004.

Although clearly the issue is a matter of dispute before the Land Court, it remains the position of our client that there is an ongoing tenancy and that the buy-out Valuation must take account of this.

In any event, the priority is at this stage to move matters forward and the only sensible way to do so would seem to be to have the Valuation carried out on alternative bases as instructed by us and by you. If necessary, the issue of basis of Valuation can then be referred to the court for resolution. I attach a copy of a further letter I have sent to John Rhind providing this instruction and should be grateful if you would confirm your agreement with this course of action to him."

The copy fax sent by Mr. Edward to Mr. Rhind, No. 44/27 of process, was in the following terms:

"I refer to letter dated 5 March 2004 from Neil Allan of Clark & Wallace to you. For the avoidance of doubt it is the position of Mr. Simmers that the interest to be valued is Mr. Innes' interests in the property as it exists at 31 March 2004 or in other words, the interests subject to the existing tenancy. There is nothing in the Shareholders' Agreement which provides that the valuation will be on a vacant possession basis.

Clearly this issue is a legal issue which will require to be resolved in due course. With a view to progressing matters we would suggest that you should carry out the Valuation for the moment both on the basis set out in the remit which we provided and on a vacant possession basis. I am copying this letter to Clark & Wallace and I am going to ask them to confirm this to you."

[18] Following this correspondence, no further written instructions were given to Mr. Rhind on behalf of the defender regarding the basis of valuation, even though Messrs. Maclay Murray & Spens had initially considered that, standing the scheme of the Shareholders' Agreement, agreement would require to be reached between the parties as to the basis of the remit to the valuer and, in particular, the basis of the valuation to be employed by him. However, following Mr. Edward's faxes of 8 March 2004, Messrs. Maclay Murray & Spens changed their approach in correspondence with Mr. Rhind. In a fax dated 12 March 2004, No. 44/28 of process, to Mr. Rhind, Mr. Edward wrote as follows:

"I have discussed the issue of Valuation with Senior Counsel and he has confirmed that rather than providing alternative Valuations, you should proceed to provide one Valuation as stipulated in the Shareholders' Agreement, taking into account all factors. Clearly, the view expressed by Clark & Wallace that the Valuation must be on the basis of vacant possession would have to be taken into account, but equally the reality of the existing Tenancy (subject to the uncertainty of the Land Court proceedings), would have to be taken into account. I trust that this clarifies the situation. I look forward to receiving your Valuation as soon as possible."

The subject-matter of that fax was referred to in a file note of Mr. Edward, No. 44/29 of process, of a telephone conversation that he had had with Mr. Rhind on 12 March 2004. That note states:

"Telephone discussion with John Rhind of Aberdeen & Northern. I explained that rather than produce alternative Valuations what is required of him is to produce a single Valuation taking into account the contentions put forward by both parties. He would have to look at the position as it exists now with regard to the tenancy and the proceedings challenging the tenancy in the Land Court. He said that this would be a difficult task and I acknowledged that but indicated that nonetheless this is what he had to do. I said that if it would help he could speak to James Galbraith who had considered the matter and would provide his views on the remit."

[19] On 16 March 2004 provisional liquidators were appointed to Scotpigs Limited in the Court of Session. On 17 March 2004 Mr. Edward sent another fax message to Mr. Rhind, No. 44/31 of process. He stated that provisional liquidators had been appointed to Scotpigs Limited on the petition of the defender. He continued:

"Notwithstanding this, it is Mr. Simmers' instruction that you proceed with the valuation of the buy-out land as previously advised. His position is that the appointment of Provisional Liquidators does not affect the tenancy and this should be taken into account in the valuation."

That was, of course, a unilateral instruction given by Mr. Edward on behalf of the pursuer, which was never communicated to the defender, or to those acting on his behalf.

[20] On 19 March 2004, Mr. Rennie of Stronachs wrote to Messrs. Clark & Wallace, No. 44/32 of process, and, after having referred to the Shareholders' Agreement and the notice of 11 February 2004, sent by Messrs. Maclay Murray & Spens on behalf of the pursuer, indicating his intention to exercise the By-Out option, continued as follows:

"Our purpose in writing to you is to re-affirm Mr. Simmers' intention to effect the Buy-Out and to seek your confirmation that in exchange for the Buy-Out Price and the Buy-Out Expenses Mr. Innes will be in a position to deliver the following:

(i) executed Conveyances in favour of Mr. Simmers or his nominees of

the Buy-Out Properties;

(ii) executed Discharges of all securities affecting the Buy-Out Properties;

(iii) executed Transfers in favour of Mr. Simmers or his nominees of the

Buy-Out Shares;

(iv) the Share Certificate(s) representing the Buy-Out Shares (failing which

a Lost Share Certificate Indemnity in a form satisfactory to Mr. Simmers); and

(v) such other deeds and documents as Mr. Simmers shall reasonably

require to constitute him or his nominees as owners of the Buy-Out Properties and the Buy-Out Shares respectively.

We look forward to hearing from you."

[21] Mr. Allan of Messrs. Clark & Wallace responded to that letter by a letter dated 23 March 2004, No. 44/36 of process, raising several points:

"1. Buy-out Date

This is defined in the Shareholders' Agreement as being 31 March

2004. We do not consider that any other date is provided for. Do you agree?

2. Valuation of Buy-out Properties

(a) Please let us have a copy of the instruction by Maclay Murray & Spens

to John Rhind. This was referred to in Court last week, but we have not, as yet, received a copy.

(b) We submit that Mr. Rhind should finalise his report on the basis of an

open market value on a vacant possession basis.

(c) Mr. Rhind's Report will require to be paid by Mr. Simmers. We

understand that Mr. Rhind will not release the Report until he has been paid by Mr. Simmers. Do you have a note of his costs?

...

5. Funding of Buy-out Price

(a) We assume that Mr. Simmers has procured the requisite funding?

Please confirm the identity of the lender(s).

(b) The Titles will require to be passed not only to yourselves, but also to

the lender's agents for consideration. We have the Title Deeds within our Office, with the exception of the Titles in respect of Mill of Caval [sic]. Please confirm the agents acting on behalf of the lenders, so that we can, if required, provide them with copies of the requisite Titles.

(c) The buy-out properties are currently secured to the Clydesdale Bank.

They are separately represented by Messrs. Dundas & Wilson in Glasgow. We understand that the Clydesdale Bank will not consent to the discharge of the properties, without repayment of all sums due in respect of those Securities. We await confirmation of exactly what is required to be repaid.

We look forward to hearing from you as soon as possible in relation to the points raised above, to enable us to consider matters and how best to progress matters for 31 March 2004."

[22] Subsequently, Mr. Rhind of Aberdeen & Northern (Estates) Limited furnished a valuation document, dated 26 March 2004, No. 44/34 of process. That document states, inter alia, as follows:

"Innes Farms, Mains of Cairnbrogie, Oldmeldrum, Little Woodlands, Mill of Cavil/Longbog

In accordance with instructions received from Messrs. Maclay Murray & Spens, Solicitors, Edinburgh dated 5 March, and instructions from Clark & Wallace, Solicitors, Aberdeen also dated 5 March, we have inspected the above properties and now write to advise you as to our opinion of value.

Our instructions

Our instructions are to value (the Buy-Out properties) as described in Appendix 1 attached to the instructions received from Messrs. Maclay Murray & Spens and also described in Appendix 1attached to this report.

Our instructions are also to carry out the valuation on the basis of the instructions set out in Appendix II attached to this report. This includes an instruction to value the properties subject to a lease in favour of the firm of Scotpigs & Co.

The basis of the valuation is to be the estimated amount for which a property should exchange on the day of valuation between a willing buyer and a willing seller, in an arms length transaction after proper marketing wherein the parties have acted knowledgeably, prudently and without compulsion.

...

Valuation

Our approach to the valuation of the properties has been to first work out how much each farm would realise if placed on the open market for sale. From this we have then deducted the cost of any tenants' improvements and fixtures and then applied an appropriate discount to the resultant value. Our discount figure is based on current market evidence. ... We therefore value the three farms as follows:

Vacant Possession Value

£000

Mains of Cairnbrogie (Appendix III)

3,040

Little Woodlands (Appendix IV)

450

Longbog (Appendix V)

441

 

3,931

Deduct

 

(1) tenants' improvements

(2) tenants' fixtures

 

 

(3) estimated value of single farm payment £80/acre x 1,415 acres x 2

 

 

 

Nil

Nil

 

3,931

 

226

 

3,705

 

Discount subject to tenancy

 

- 45%

 

 

 

 

 

1,667

 

Value subject to a lease in favour of the firm of Scotpigs & Co.

 

2,038

 

Note: Discount takes into account indication that a tenant right to buy may be introduced in May 2004 under the Agricultural Holdings (Scotland) Act 2003.

...

 

 

J.E. Rhind F.R.I.C.S.

...

Appendix II

Instructions for the valuations known as Innes Farms, Aberdeenshire

...

2. Purpose of Valuation

Whereas the subjects of valuation (referred to below) are currently owned by Mr. Innes, Mr. Simmers has an option to require [sic] the said subject at valuation as at 31 March 2004 (Buy-Out Date). Accordingly, the parties require a valuation to be carried out by a valuer on or within one month prior to the Buy-Out Date.

...

4. The interest to be valued

The interest to be valued is the freehold of the Buy-Out Properties subject to a lease in favour of The Firm of Scotpigs and Co. The terms of the lease are incorporated into Appendix II attached to this instruction.

The firm of Scotpigs & Co. is a Limited Partnership between Mr. Innes and Scotpigs Ltd., a copy of which is attached at Appendix III to this instruction. Notice to terminate the Partnership has been served by the limited partner (Mr. Innes), a copy of which is attached at Appendix IV.

The General Partner has contested the Notice to Terminate the Partnership and the matter has been referred to the Land Court. A copy of the proceedings is attached at appendix V.

... ".

[23] While the various communings regarding the valuation exercise to which we have referred were continuing, the pursuer was involved in sustained efforts to obtain finance for the Buy-Out transaction. These are described in detail in paragraphs [27] to [30] of the Lord Ordinary's Opinion. On the morning of 31 March 2004 Mr. Rennie sent a fax to Messrs. Clark & Wallace, No. 44/45 of process, in which he wrote, inter alia:

"We confirm Mr. Simmers intends to proceed with the Buy-Out in accordance with Clause 10 of the Shareholders' Agreement. We enclose the following

·        a Disposition of the Buy-Out Properties in favour of Mr. Simmers for execution by Mr. Innes ('the Disposition')

·        a Stock Transfer Form in respect of the Buy-Out Shares in favour of Mr. Simmers for execution by Mr. Innes ('the Stock Transfer Form')

We will forward to you within one hour the following:

·        a Warranty by Mr. Innes to Mr. Simmers in respect of the Buy-Out Properties and the Buy-Out Shares respectively for execution by Mr. Innes ('the Warranty').

As set out in our letter yesterday the Buy-Out Price is £2,500,000. You previously indicated you are not yet in possession of executed discharges of all securities affecting the Buy-Out Properties ('the Buy-Out Properties Securities'). Please clarify your position on this point by return fax and in any event no later than 10.45 am this morning. Any failure to do so may be founded upon. We still await from you a note of the Buy-Out Expenses - please provide this immediately today.

Mr. Simmers has finance available to complete the Buy-Out in exchange for delivery to us of the following items:

1. The Disposition duly executed by Mr. Innes;

2. The Stock Transfer Form duly executed by Mr. Innes;

3 The Warranty duly executed by Mr. Innes; and

4. Executed discharges of the Buy-Out Properties Securities.

As stated above, subject to and in exchange for delivery to us of the foregoing items 1-4. Mr. Simmers will pay the Buy-Out Price and the Buy-Out Expenses to Mr. Innes or his nominees. In terms of the Shareholders' Agreement payment is to be made by way of telegraphic transfer - please provide us with the bank account details of Mr. Innes or his nominees (as the case may be)."

[24] At some time later in the morning of 31 March 2004, Mr. Rennie had delivered to Messrs. Clark & Wallace a copy of the warranty referred to in the letter just quoted of that date, No. 44/46 of process. However, despite efforts to secure that the transaction settled on 30 March 2004, that did not happen. Funds were not actually available to the pursuer on that date. Furthermore, it has to be recorded that a reply to Mr. Rennie's letter of 31 March 2004, No. 44/45 of process, from Messrs. Clark & Wallace was delivered to Mr Rennie's office about lunchtime on the same day, No. 44/47 of process. It was in the following terms:

"We have your letters of 30 and 31 March. We do not propose to complete the transaction as we dispute the validity of the purported buyout valuation. We propose to raise legal proceedings to set it aside."

 

The decision of the Lord Ordinary

[25] In paragraph [55] and [56] of his Opinion, the Lord Ordinary considered the Rhind valuation and its consequences. He reached the clear conclusion that the document furnished by Mr Rhind, No. 44/34 of process, did not provide the prerequisite for a buy-out to be exercised. Before him, both parties were agreed that the agreed valuer was required to provide one figure, and one figure only, as the buy-out valuation, for the machinery for arriving at the Buy-Out Price to work. The Lord Ordinary considered that Mr Rhind did not provide one such figure. He never intended to do so and did not do so. Instead he produced two figures based on two different bases of valuation. The Lord Ordinary considered that Mr Rhind had not exercised a judgment as to which was the appropriate basis of valuation, far less express a preference for one over the other. Summing up this aspect of the case, the Lord Ordinary observed:

"It was clearly accepted up until 12 March by those acting for the pursuer, and in my judgment correctly, that the instructions to the valuer had to be on an agreed basis. For all the foregoing reasons it follows, in my judgement, that one of the essential prerequisites for the buy-out, namely the production of a single figure valuation by the agreed valuer never materialised by 31 March, and indeed has not materialised to this date. For that reason alone, the pursuer's claim in this action has a baseless foundation and the defender is entitled to be assoilzied."

[26] The Lord Ordinary, in paragraph [57] of his Opinion, went on to consider other matters which were the subject of submission before him. He concluded that:

"If, contrary to my clear view, as expressed above, 44/34 of process did provide, a single figure valuation, then I agree with the submissions made on behalf of the defender that it would, nevertheless, fall to be disregarded."

That conclusion was reached because the Lord Ordinary considered that Mr Rhind's arrival at a single figure must have involved his having adjudicated upon a legal dispute between the parties as to the proper basis of the valuation. In that situation, the Lord Ordinary was persuaded that the submission made to him on behalf of the defender was well founded, to the effect that Mr Rhind's decision could be set aside on what were described as "judicial review grounds". Considering those matters, the Lord Ordinary concluded that the valuation would fall to be set aside on account of Mr Rhind's failure to take into account relevant factors and on account of his taking into account irrelevant factors.

[27] In paragraph [58] of his Opinion the Lord Ordinary considered the issue of the pursuer's ability to complete the buy-out transaction on 31 March 2004. He reached the conclusion that, on the evidence, the pursuer was not in a position to do what he had to do in terms of Clause 10 of the Shareholders' Agreement to effect the buy-out. That position, he concluded was not created by any breach of contract on the part of the defender, but because of four reasons which he expressed thus:

"(1) The shareholders' agreement had placed a tight timetable upon the pursuer;

(2) The pursuer and his advisers left the commencement of the process somewhat late in the day;

(3) The process was not helped by

(a) the pursuer having no fewer than three sets of solicitors,

(b) the fact that there were other issues between the parties and

(c) the fact that there was confusion and overlap of roles as between the various solicitors acting for the pursuer;

(4) As a result of the foregoing, the pursuer did not have a concluded and binding unconditional agreement with lenders to provide him with the buy out price on 31 March 2004 to enable him to make a telegraphic transfer to the defender."

[28] The Lord Ordinary entirely rejects the suggestion that the pursuer found himself in that position because of the defender's agents allegedly delaying forwarding the principal title deeds to the property. Elaborating that aspect of his decision, the Lord Ordinary says:

"On the basis of the evidence the pursuer, in my judgment, could not have paid the buy out price (as he understood it to be) on 31 March 2004. That situation was not caused by any breach of contract by the defender, in particular in relation to any delay in the production of the principal title deeds or some more general failure in the duty to co-operate, as was suggested from time to time in the pursuer's case. The situation was that the parties' relationship had broken down completely by the time the buy out option fell to be exercised. The shareholders' agreement provides for strict requirements to be met for the buy out option to be exercised and I do not read the agreement as providing any room for any modification of those requirements due to the provisions which refer to co-operation and good faith. I am satisfied that the inability to pay the buy out price on 31 March meant that the right to exercise the buy out option, as a matter of contract, expired thereafter. I agree with the submissions of senior counsel for the defender that 31 March was a material date in terms of the contract and was of its essence. As senior counsel for the defender correctly observed, there was no submission made on behalf of the pursuer to the opposite effect. It was clear that all the various representatives of the pursuer were acting on the basis that 31 March was of the essence. It was the date on which Clause 10 required certain things to be carried out. It was a potential date for the termination of the limited partnership. It was the date for the termination of the shareholders' agreement if no notice of exercise of the option had been given (Clause 21 of the agreement). It was the date to which a balance sheet had to [be] produced to bring about the buy out price for the shares. I am satisfied, therefore, in all the circumstances of the present case, in particular having regard to the nature of the contractual provisions just referred to, the stipulation as to when the option exercise had to be carried out was material and required strict compliance if the option was to be validly exercised. - (See Visionhire Ltd per Lord President Hope page 888D-I.). The present case, in my judgment, is distinguishable from the position in Stone v McDonald. In the present case the agreement unequivocally, and unconditionally, provided that the option could be exercised on one day and one day only."

 

Grounds of Appeal for the Pursuer and Reclaimer

[29] Grounds of appeal were lodged for the pursuer and reclaimer in the ordinary way, No. 50 or process. On 18 August 2006 a minute of amendment relating to those grounds of appeal was lodged and a motion enrolled to allow the grounds of appeal to be amended in terms of that minute of amendment. That motion came before the court on 24 August 2006 when it was continued to 26 September 2006, the opening day of the diet for the reclaiming motion. When this case came before us on that day senior counsel for the pursuer moved us to allow the amendments to the grounds of appeal. The principal alterations sought to be made in the grounds of appeal was to introduce a contention that the Lord Ordinary had erred in holding at paragraph [58] of his Opinion that it was of the essence of the contract that the buy-out had to be carried out on 31 March 2004; on a sound construction of the Shareholders' Agreement, the Buy-Out Date, namely 31 March 2004, was not of the essence of the contract. Time was not of the essence. Senior counsel recalled that there had been a debate in the action in September 2004. No concession had been made that time was of the essence of the Shareholders' Agreement. It was suggested on behalf of the defender that the proof had been conducted on the basis that time was of the essence. However that was not an accurate assessment. The Lord Ordinary's narrative of the pursuer's submissions following proof, at page 74 of the reclaiming print, demonstrated a contention on behalf of the pursuer that time was not of the essence. The position had been misunderstood by the defender's advisers, as appeared from the defender's submissions at page 82 of that print. Senior counsel contended that there would be no prejudice to the defender in allowing the amendment. The issue of whether time was of the essence of the contract or not depended on the interpretation of the Shareholders' Agreement, not on evidence led at the proof. The court had a discretion to allow the amendment, as appeared from Rule of Court 38.16(4).

[30] Senior counsel for the defender contended that the amendment should not be allowed. There was prejudice likely to follow from the proposed amendment, since the proof had been conducted upon the basis that 31 March 2004 was the date for performance of the buy-out provisions of the Shareholders' Agreement. No evidence had been led for the defender at proof. This matter had been a factor in that decision. A number of witnesses could have been led who were not led in evidence.

[31] Having heard the submissions we decided to allow the amendment of the pursuer's grounds of appeal. It appeared to us that no significant prejudice would result from that course. The issue regarding time being of the essence of the contract or not was essentially a matter of interpretation.

[32] In their amended form, the grounds of appeal for the pursuer are as follows:

"1. The Lord Ordinary erred in holding at paragraph 58 that it was of the essence of the contract that the Buy Out had to be carried out on 31 March 2004. On a sound construction of the Shareholders' Agreement, the Buy-Out Date, namely 31 March 2004, was not of the essence of the contract. Time was not of the essence.

2. The Lord Ordinary erred in holding that the Shareholders' Agreement provided no basis for a valuation to be carried out unless parties entered into an agreed remit. A correct interpretation of Clause 10 and the relative definitions does not provide [that] such an agreed remit is a prerequisite to a valid valuation.

3. The Lord Ordinary erred in holding at paragraph 56 that the Rhind valuation did not contain a single valuation figure as stipulated for in the Shareholders' Agreement and as instructed by the Maclay Murray & Spens letter of 12 March 2004.

4. The Lord Ordinary erred in holding at paragraph 57 that a single figure valuation must have involved Mr Rhind adjudicating upon a legal dispute. Such a view is not consistent with the basis of his instruction nor the actual content of the Rhind valuation. Mr Rhind in his evidence gave no basis for such a conclusion by the Lord Ordinary.

5. The Lord Ordinary erred at paragraph 58 in giving no apparent weight to the defender's inability to complete the buy-out on 31 March 2004 due to the presence of securities over the Buy-Out Properties. As a result of the defender's absence of any attempt to obtain a discharge and the defender's inability to obtain discharge of the securities over the Buy-Out Properties, the defender was in breach of his obligations in respect of the Buy-Out. The defender has declined to operate the contractually provided mechanism for the Buy-Out.

6. The Lord Ordinary erred at paragraph 60 in holding that no price was arrived at for the Buy-Out Properties pursuant to the Shareholders' Agreement and at paragraph 61 that the pursuer ran out of time on 31 March 2004. The contractually stipulated price for the Buy-Out Properties was set by the Rhind valuation and the failure of the completion of the buy-out was precipitated by the defender. Accordingly the Lord Ordinary erred in granting absolvitor. Decree in favour of the pursuer should have been pronounced.

7. The Lord Ordinary, in reducing Mr Rhind's Report (44/32 [sic] of process) ope exceptionis, erred in law by taking into account evidence, other than the Report itself, relating to (a) the approach to the valuation exercise, and (b) the findings and reasoning contained in the Report. In determining the validity of the Report, he ought, in relation to these matters, to have confined himself to the terms of the Report. (Paragraphs 20-26 and 55-57). The Report fell within the requirements of the Shareholders' Agreement (44/1 of process). The correct subjects were valued and a fair and reasonable valuation was produced. Any dispute about the precise terms of Mr Rhind's instructions was irrelevant.

8. If the valuation was invalid, the consequence was that, in the absence of agreement between the parties, the sale of the Buy-Out Properties and the Buy-Out Shares could not be completed on 31 March 2004. The contract machinery for determining the price of the Buy-Out Properties had broken down. In these circumstances, the court should have fixed (and still can fix) a fair price by one means or another, and the time for payment of the price so fixed.

9. If the valuation is valid, the pursuer is entitled to implement including delivery of the Buy-Out Shares and a valid disposition of the Buy-Out Properties, containing all the usual and necessary clauses, and all other necessary documents, all adjusted at the sight of the court, within such reasonable time as the court specifies, in exchange for payment of the price of £2.5 m.."

 

Submissions of Junior Counsel for the Pursuer

[33] Junior counsel for the pursuer indicated that his submissions would fall into six chapters (1) the history of the action; (2) the factual background to the action; (3) a summary of the Lord Ordinary's reasons and of the grounds of appeal; (4) a summary of the pursuer and reclaimer's propositions concerning what the Lord Ordinary ought to have done; (5) propositions of law; and (6) the orders sought. His motion was to recall the interlocutor of the Lord Ordinary of 11 July 2005 and grant decree in terms of conclusion 1 of the summons.

[34] Junior counsel went on to elaborate chapters (1) and (2) of his submissions. These matters have already been narrated by us and so need not be repeated. Junior counsel emphasised that the court had to be concerned with the particular parts of the Shareholders' Agreement, which related to the Buy-Out. In particular, the Buy-Out Valuation of the properties would be important. Clause 21 of the Shareholders' Agreement required service of a notice, if a Buy-Out was to occur. Such a notice had been timeously served. It was number 44/12 of process. The intention of the pursuer to effect a buy-out had been affirmed in the letter dated 19 March 2004 to Messrs. Clark & Wallace, 44/32 of process. Counsel drew attention to the terms of the Contract of Limited Partnership, 44/3 of process, and, in particular, clause (ten) which provided for the termination of the Limited Partnership as at 31 March 2004 or at any anniversary thereof upon the expiry of the specified notice. The Limited Partnership was the tenant of the properties, a situation which was capable of continuing even after a buy-out.

[35] Junior counsel then turned to chapter 3 of his submissions, a summary of the Lord Ordinary's decision, with which we have already dealt. He made it clear that he was not going to argue that the Lord Ordinary had been wrong in concluding that the pursuer had not been in a position to pay the necessary funds to effect the buy-out on 31 March 2004, but it would be contended that that was not the end of the matter. He referred to grounds of appeal 7, 8 and 9.

[36] Junior counsel elaborated the position relating to Scotpigs Ltd. Provisional liquidators had been appointed on 16 March 2004. Liquidators were now in office. The court had pronounced an interlocutor on 30 March 2004, 44/43 of process finding and declaring that any transfer of shares in Scotpigs Ltd pursuant to the Buy Out provisions of the Shareholders' Agreement would not be void under the provisions of Section 127 of the Insolvency Act 1986 in the event of the winding up of the company. Accordingly, the liquidation of the company created no problems for the pursuer.

[37] Counsel next proceeded to chapter 4 of his submissions. It consisted in a submission as to the findings which the pursuer contended the Lord Ordinary should have made. These were:

(1) That the defender had withdrawn from the Shareholders' Agreement and, in doing so, was in material breach of it;

(2) That the pursuer's counter obligations were "suspended" until the defender indicated that he was prepared to perform his obligations;

(3) That the Rhind valuation was valid under the Shareholders' Agreement and hence determined the price to be paid under it;

(4) Accordingly specific implement of the Shareholders' Agreement should be ordered;

(5) Upon the assumption that the Rhind valuation was not valid, that the machinery for the fixing of a price provided for the in the Shareholders' Agreement had broken down, with the consequence that the court should now provide suitable machinery, following the operation of which, specific implement should be ordered; and

(6) That time was not of the essence of the Shareholders' Agreement.

[38] Counsel then entered upon chapter 5 of his submissions, consisting of certain propositions of law. In the first place, the starting point was that, on a proper interpretation of the Shareholders' Agreement, it had been designed to create binding rights and obligations. It was plainly a document intended to have contractual effect. The central proposition of the defender was that there had to have been agreement between the parties regarding the basis of the valuation. The pursuer contended that that was not so. In support of the pursuer's position in this respect counsel relied upon a number of cases. The first of these was Melville Dundas Ltd v Hotel Corporation of Edinburgh Ltd [2006] CSOH 136. In paragraph 17 of the Opinion of Lord Drummond Young the general principles of interpretation of a commercial contract were set out. It had to be recognised that the Buy-Out was to be seen in context as part of a wider contractual transaction. Counsel next relied upon R & J Dempster Ltd v Motherwell Bridge & Engineering Ltd 1964 S.C. 308, at pages 327-328. That case demonstrated that, where a commercial arrangement appeared to create binding rights and obligations, the court should find a way of carrying it into effect. If there was ambiguity or doubt, the contract ought to be interpreted so as to give effect to those binding rights and obligations.

[39] Counsel next drew attention to G Percy Trentham Ltd v Archital Luxfer Ltd and Others [1993] 1 Lloyd's Rep 25. Where a contract had been performed in whole or in part, the argument that there was no evidence on which a judge could find a contract proved was implausible.

[40] In the letter dated 31 March 2004, No. 44/47 of process, the defender had stated that he did not propose to perform the contract for the reason stated. However, in the circumstances of this case, he was not entitled to withdraw from the transaction as he did. In doing so, he was in material breach of contract.

[41] Counsel submitted that the method provided for in the Shareholder's Agreement for the fixing of the price of the properties to be bought was a non-essential part of it. In that connection he relied on Erskine, Institute, IV. iii.86 and on Sudbrook Trading Estate Ltd v Eggleton and Others, [1983] A.C. 444, a case which, although not binding on the court, was highly persuasive. It was held there that, on its true construction, the agreement under consideration was for sale, at a fair and reasonable price, by the application of objective standards and once the options had been exercised in accordance with the necessary preconditions, since the price was capable of being ascertained and was therefore certain, a complete contract for the sale and purchase of the freehold reversion was constituted. Counsel contended that where the parties had agreed that a price should be fixed by a valuer, in the context of this case, they were agreeing a fair and reasonable price. He drew attention to what was said at pages 474-475, 482, 483-484.

[42] Counsel went on to rely on Scottish Wholefoods Collective Warehouse Ltd v Raye Investments Ltd 1994 S.C.65 at pages 66-71. There the court had held that the parties had intended the rights and obligations should be created by the clause in contention and that, although the parties had not agreed on a specific price, they had agreed upon the price being the current open market price, which would, in the absence of agreement between the parties, be determined by the court.

[43] At this stage in his submissions counsel emphasised certain matters of fact. It was important to recognise what was not in dispute. Clause 21 of the Shareholders' Agreement provided for the service of a notice by the pursuer on the defender prior to the Buy-Out Date intimating his intention to effect the Buy-Out. There was no dispute that that step had been taken. The giving of the necessary notice was the subject of averment in Condescendence 2 and was admitted in Answer 2. The Lord Ordinary accepted that position in paragraph [10] of his Opinion. Turning to the matter of the price for the Buy-Out and the associated valuation, counsel pointed out that a mechanism for the ascertainment of the price had been agreed in the Shareholders' Agreement and there was no dispute about it now, as appeared from the terms of Condescendence and Answer 3. The only matter in dispute was a component in the mechanism for ascertainment of the price, namely the Buy-Out Valuation. Under the mechanism provided, the valuer had to be agreed and that had been done. The sole difficulty arose from the form and nature of the valuation. Counsel then reverted to consideration of further authorities including Money v Ven-Lu-Ree Ltd [1989] 3 N.Z.L.R.129, in which the principle in Sudbrook Trading Estate Ltd v Eggleton was applied. Counsel went on to rely on The Queensland Electricity Generating Board v New Hope Collieries Pty Ltd [1989] 1 Lloyds Rep 205.

[44] At this point in his submission counsel drew attention to what had been said by the Lord Ordinary in paragraph 58 of his opinion. In that paragraph he dealt with the decision in the Sudbrook Trading Estate Ltd v Eggleton, saying that it could not be relied upon in the circumstances of the present case. That view was unsound. In particular, the Lord Ordinary was wrong in maintaining that there had been no breach of contract. On a proper view of the present case, the principle in the Sudbrook Trading Estate Ltd v Eggleton did apply.

[45] Counsel for the pursuer next turned to consider the issue of whether time was of the essence in relation to the Shareholders' Agreement. His starting point was to acknowledge that time that might be considered to be of the essence of the requirement regarding intimation of an intention to effect a buy-out in terms of clauses 10 and 21 of the Agreement. However, if that were so, the pursuer had obtempered that requirement of the Agreement. That had been averred and admitted.

[46] In connection with the more general question of whether time was of the essence, counsel relied upon Rodger (Builders) Ltd v Fawdry and Others 1950 S.C.483, at page 492. In a contract for the sale of heritage, payment of the price on an appointed date was not, in general, an essential condition of the contract. It could of course be made essential by express stipulation. Counsel also relied on Burns v Garscadden (1901) 8 S.L.T. (Notes) 321 at page 322. Reliance was also placed on Visionhire Ltd v Britel Fund Trustees Ltd 1991 S.L.T.883 at page 886. The mere stipulation of a date for payment did not of itself make time of the essence in a contract. It was, of course, possible for a party to a contract in which time was not of the essence to make it so by the use of the so called ultimatum procedure. Reliance was also placed on Starmark Enterprises Ltd v CPL Distribution Ltd [2001] EWCA Civ 1252.

[47] Counsel indicated that the cases which he had just cited demonstrated the existence of a general principle of interpretation, but that that principle would yield to contra-indications in a particular contract, which might have the effect of making time of the essence. His submission was that, in the circumstances of this Shareholders' Agreement, there were no contra-indications which had that effect. In that connection he pointed out that the Buy-Out was the final step in the contractual arrangements between the parties. Further, there was nothing in clause 21 of the Shareholders' Agreement which bore upon the issue currently under consideration. However, the Joint Venture Objectives set out in Part 1 of the Schedule to the Shareholders' Agreement were relevant, demonstrating that the completion of the Buy-Out was the last stage of the joint venture. Counsel went on to maintain that the Land Court proceedings initiated by the defender for an order under section 72(8) of the Agricultural Holdings (Scotland) Act 2003 were significant in this context. That action had been sisted to await developments elsewhere, the precise nature of which were uncertain. However, in the light of those proceedings, it was not possible to say whether vacant possession of the properties was or was not available as at 26 March 2004, the date of the valuation. As at that date a tenant was in possession whom the defender sought to dislodge.

[48] Counsel went on to deal with circumstances which, contrary to his submission, might be thought to indicate that time was of the essence of the Shareholders' Agreement, so far as a Buy-Out was concerned. Clause 21 of that Agreement might be thought to be of that nature, but, in reality, was not. It was accepted that the service of the notice referred to in that clause had to be effected prior to the Buy-Out Date, otherwise the Agreement would terminate automatically. However, it was clear from that clause, in the context of the other provisions of the Shareholders' Agreement, that, if a notice of intention to effect a Buy-Out had been timeously given, the Buy-Out procedure had been initiated. The overall purpose of the Shareholders' Agreement was to furnish the pursuer with an opportunity to recover the property that had been his; that militated against time being of the essence. Accordingly, the observations of the Lord Ordinary in paragraph 58 of his opinion on the effect of the passage of time on the contract were erroneous.

[49] Clause 10 of the Shareholder's Agreement used the words "On the Buy-Out Date, Mr Simmers shall be entitled to effect the Buy-Out ... " However, the use of those words did not indicate that time was of the essence. They indicated merely that that date was the contemplated date of the transaction. That language was, in its nature, no different from that used in Rodger (Builders) Ltd v Fawdry and Others. There was no language in the contract inhibiting action after that date.

[50] The definition of the expression "the Buy-Out Valuation" militated against the idea of time being of the essence, since it contemplated the valuation being carried out "On" "the Buy-Out Date"; plainly settlement of the transaction could not be effected on that date if the valuation itself was only obtained at that time. Likewise, Clause 21 contemplated that a notice of intention to effect the Buy-Out could be given as late as 30 March 2004. Once again, if that were contemplated, settlement of transaction would be impossible on 31 March 2004 in practical terms. Clause (TEN)(a) of the Contract of Limited Partnership between Scotpigs Limited and James Grigor Innes also pointed away from time being of the essence of the contract. The lease of the buy-out properties, in Clause (SECOND) pointed in the same direction. Tacit relocation might continue indefinitely. One of the most powerful indications that time was not of the essence of the contract was to be found in the definition of "the Buy-Out Shares Price". That definition required that "the balance sheet produced to 31 March 2004" should be used in the calculation of the relevant price. There could not be a balance sheet to 31 March 2004 until, at the very earliest, 1 April 2004. Thus the relevant price could not be calculated until after 31 March 2004, a situation incompatible with the notion that time was of the essence of the contract. The Lord Ordinary had not made reference to these considerations, or to the general proposition that time was not of the essence of the contract, although, to be fair to him, the case had been presented to him in a rather different way.

[51] Concluding this chapter of his submissions, counsel for the pursuer submitted that a contract could be rescinded only in the face of a material breach. However, the reason given by the defender for his refusal to complete the transaction was not such a breach, but that he disputed the validity of the purported By-Out Valuation, as appeared from the letter of 31 March 2004, No. 44/47 of process. In this connection the counsel relied upon The Law of Contract in Scotland, McBryde, Second Edition paragraphs 20.47 and 48; and Bank of East Asia Ltd. v Scottish Enterprise 1997 S.L.T. 1213, at pages 1216 and 1217. Reverting to the letter of 31 March 2004 from the defender, his position could be summarised as being that, since the valuation was allegedly bad, he would proceed no further. The correct position would have been that, if he was contending that the valuation was bad, he should have suggested that another one should have been obtained. What he had done was to take an erroneous view of the law and of the provisions of the Shareholders' Agreement.

[52] Counsel indicated at this point, following an adjournment, that it was now common ground between the parties that, under the Shareholders' Agreement, the parties had not been required to agree upon the remit to the valuer. It followed that, since the pursuer had no obligation to agree that remit, he was not in breach of the Shareholders' Agreement in having failed to do so. Thus the statement by the Lord Ordinary in paragraph 56 of his opinion, to the effect that "It was clearly accepted up until 12 March by those acting for the pursuer, and in my judgement correctly, that the instructions to the valuer had to be on an agreed basis." , was wrong. It was submitted that the basis of valuation was a matter for decision by the valuer.

[53] In relation to the determination of value, counsel relied upon Sweeney v Sweeney 2004 S.C.372, a case concerned with the ascertainment of the net value of matrimonial property under the Family Law (Scotland) Act 1985. At page 380, it was made clear that, as a matter of ordinary language the "value" of any property which was realisable for money was the price which a hypothetical willing purchaser would pay, and a hypothetical willing seller receive from him, for that property on a hypothetical sale at the date in question. On that approach, the Buy-Out Properties would require to be valued subject to tenancy. Reliance was also placed on McConnell v McConnell [1997] Fam LR 97 at paragraph 19.08.

[54] In considering whether the valuation in question here was a valid valuation, counsel said that his submissions would be made in two chapters. The first would be concerned with the question of whether the valuation was valid in terms of the Shareholders' Agreement. The second would be concerned with the issue of the circumstances in which it might be challenged. Turning to the first chapter of these submissions, counsel pointed out that the Shareholders' Agreement made reference to "The Buy-Out Valuation". He submitted that, once the identity of the valuer had been agreed, as it had here, then the matter of the valuation was one for the valuer. No point was made concerning the terms of the letter from Messrs. Clark and Wallace, dated 5 March 2004, No. 44/22 of process. It was contended that the valuation was either valid or invalid as at the date which it bore, 26 March 2004; accordingly, subsequent correspondence was inadmissible in explanation of it. It was important to note that the valuation, No. 44/34 of process, took into account the circumstances existing at the date it bore. At page 10 of that document a value was brought out of £2,038,000; that was the valuation produced by the valuer, albeit that he had developed that figure in a process involving two stages. It was apparent that, in arriving at the figure mentioned as the valuation, the valuer had been aware of the context, being the existence of a dispute, as described in paragraph 4 of Appendix II to the valuation, before the Scottish Land Court. That Appendix disclosed the instructions which the valuer had received. Looking at the valuation overall, it was apparent that the valuer had produced one value which was valid. That figure could then be utilised in the contractual machinery provided by the Shareholders' Agreement. Approaching the matter in another way, as at 26 March 2004, there was in fact a tenancy in favour of Scotpigs & Co., although that tenancy was the subject of challenge.

[55] It was apparent from page 10 of the valuation, No. 44/34 of process, that the valuer had made a discount from a vacant possession value, in respect of the tenancy. That was a correct course, since the lease had not by then been declared to be at an end. Counsel recognised, however, that another view might be taken, to the effect that the Shareholders' Agreement contemplated a valuation on a vacant possession basis. That might be inferred from the machinery provided in that Agreement in respect of the "Buy-Out Properties Price". It might be thought that that machinery contemplated a sharing of any augmentation in the value of the properties. Nevertheless, a willing buyer might be in the position of not being able to terminate the limited partnership that the Shareholders' Agreement had created, the tenancy of which would have been continued by tacit relocation after 31 March 2000, the end of the period of the lease specified in Clause (SECOND). It was recognised that the view might be taken that the valuation for the purposes of the Buy-Out should be undertaken on the same basis as the valuation of the properties at the commencement of the arrangement, when there was no tenancy. However, the figure for the cash paid for the properties and the shares at that time was a reflection of business need rather than the value of the properties then. The circumstances demonstrated that the defender had lent capital to the pursuer, for which he was being rewarded with rent. The assumption should not be made that, because there was no tenancy at the commencement of the arrangement there was no tenancy at the end of it, because the "Base Properties Price" of £2.1 million did not represent the value of the land at the time when it was acquired by the defender. In all these circumstances, the valuation relied upon was valid.

[56] The next issue to be considered was whether, in applying the discount of 45 per cent in respect of the tenancy, the valuer had determined a legal dispute. If that were the case, the valuation might be open to criticism. However, the valuer had done no such thing; he had merely assumed the existence of factors that affected market value. Relevant to this area of consideration was the decision in Jones and Others v Sherwood Computer Services plc [1992] 1 W.L.R. 277, in which it was held that, where parties had agreed to be bound by the report of an expert, the report, whether or not it contained reasons for the conclusion in it, could not be challenged in the courts on the ground that mistakes had been made in its preparation, unless it could be shown that the expert had departed from the instructions given to him in a material respect. Reliance was place particularly on what was said at pages 281-287. In the present case the valuer had not failed in any way, or materially departed from his instructions. It was agreed that, if he had produced two valuations, that would be a material departure from his instructions. The "judicial review grounds", referred to in paragraph [57] of the Lord Ordinary's Opinion, had no part to play in the assessment of the valuation. For reasons already explained, the valuer had not adjudicated upon a legal dispute. In the face of instructions from the parties which were not reconcilable, he had performed a valuation.

[57] In the event of the pursuer being found to be in error concerning the appropriateness of the tenanted value of the properties, as a basis for valuation, his position was that he continued to desire to effect the Buy-Out. It might be that there would require to be an adjustment of the conclusions in the action, depending upon the conclusion reached by the court. Referring to the skeleton argument for the pursuer, counsel invited the court to conclude that the first issue should be answered in the affirmative. The second issue should be answered in the negative. If that were done, the issues raised in the succeeding parts of that document fell away. If it were to be concluded that the valuation obtained was invalid, then the court should determine an appropriate valuation on the basis of evidence, or, alternatively remit to a valuer to undertake that task. If there were any practical difficulties associated with the course to be taken, following upon the court reaching its conclusions, the case could be discussed in the By Order Roll.

 

Submissions by junior counsel for the defender

[58] Counsel moved the court to refuse the reclaiming motion and to adhere to the interlocutor of the Lord Ordinary, dated 11 July 2005. He said that his submissions would fall into six chapters: (1) the proper approach of an appeal court to findings in fact made by the judge of first instance; (2) the issue of whether the Buy-Out option was exercisable only on 31 March 2004; in other words whether time was of the essence; (3) whether the Rhind valuation report was "the Buy-Out Valuation" in terms of the Shareholders' Agreement; the submission would be that it was not; (4) whether the Lord Ordinary was plainly wrong to hold that the reason that the pursuer was unable to complete the Buy-Out was his own delay in attempting to obtain the necessary finance; (5) the issue of whether the Rhind valuation report could be challenged as the decision of an arbiter; and (6) the matter of remedies.

[59] Turning to chapter (1), counsel posed the question of what were the important findings of fact. His answer was that there were five (i) that Mr Rhind did not see the Shareholders' Agreement before making his valuation report, as found in paragraph [55] of the Lord Ordinary's Opinion at page 84 of the Reclaiming Print; (ii) that Mr Rhind disregarded the final instruction received from Messrs. Maclay Murray & Spens, dated 12 March 2004, No. 44/28 of process, but embarked upon an exercise to provide two such values on two different bases, as found by the Lord Ordinary in paragraph [56]; (iii) that the pursuer did not have finance available on 31 March 2004 to effect the Buy-Out, as found in paragraph [58] of the Lord Ordinary's Opinion; (iv) that the reason why the pursuer did not have finance in place on 31 March 2004 was because he had delayed in seeking the finance necessary to effect the Buy-Out, as found by the Lord Ordinary in paragraph [61]; and (v) that Mr Rhind did not take into account the question of rent payable on the Buy-Out Properties, or the existence, or potential existence of an agricultural tenancy, or the fact that Scotpigs Ltd was in provisional liquidation at the time of his valuation report, as found by the Lord Ordinary in paragraph [57]. At this point in the debate, senior counsel for the pursuer helpfully indicated his position on the foregoing findings in fact. He said that (i) was not disputed; (ii) might be disputed; (iii) was not now disputed; (iv) the description by the Lord Ordinary at paragraph [58] of his Opinion of the situation was not disputed; and (v) this finding might be disputed.

[60] Counsel for the defender thereafter went on to deal with the proper approach of an appeal court to findings of fact. Such findings should not be disturbed unless they could be shown to be plainly wrong. It was agreed that inferences made from primary findings of fact were in a different situation. In connection with this submission counsel relied upon Thomson v Kvaerner Govan Ltd 2004 S.C.(H.L.) 1, particularly the observations of Lord Hope of Craighead in paragraphs 16-19. the approach set forth there ought to be applied to the matter of why the pursuer was unable to complete the Buy-Out and also the matter of whether the Rhind valuation report was "the Buy-Out Valuation" for the purposes of the Shareholders' Agreement, in particular.

[61] Moving on to the second chapter of his submissions, counsel submitted that the Buy-Out option was exercisable only on 31 March 2004, since time was of the essence of the contract, so far as it related to the obligations of the pursuer. That submission was based upon the provisions of the Shareholders' Agreement as understood in the context in which that agreement was made. In general, it was accepted that one of the reasons why the defender entered into the agreement was as an investor making an investment. Having regard to the definition of "the Buy-Out Properties Price" the defender would share in any augmentation in the price of those properties and of the shares. Looking at the terms of the Shareholders' Agreement, the date of 31 March 2004 was mentioned again and again. Those references indicated that, after that date, a line could be drawn. The terms of the Shareholders' Agreement suggested that the defender's involvement ended on that date. The same implication could be taken from Clause (TEN)(a) of the Contract of Limited Partnership. Perhaps the clearest contractual indication of the significance of the date was to be found in Clause 10 of the Shareholders' Agreement, which provided that "On the Buy-Out Date, Mr  Simmers shall be entitled to effect the Buy-Out ...". Also of importance were the words in that clause "... in exchange for payment by way of telegraphic transfer of the Buy-Out Price ...". That phraseology indicated that the intention was that the transaction was to take place in its entirety on 31 March 2004. Reverting to the contention based upon the appearance of the reference to the balance sheet produced to 31 March 2004, in the definition of "the Buy-Out Shares Price", counsel submitted that a balance sheet could be produced prior to the date to which it related on a "projected" basis. In this connection reference was made to the evidence of Mr M J M Reid on day 4 of the proof, at page 555 of the transcript. Counsel also relied on what he called the "factual matrix", in particular, the evidence of the pursuer on day 1 of the proof at page 21. It showed that time was of the essence of the contract. The words of Clause 10 of the Shareholders' Agreement indicated clearly that the exercise of the option had to occur on 31 March 2004, when payment of the price was due. That had not happened. It was appropriate to look at the Shareholders' Agreement as involving a conditional sale, a vital condition of which had not been satisfied. The service of the notice required by Clause 21 of the Shareholders' Agreement was not, of itself, the exercise of the option. It was a feature of the Shareholders' Agreement that, while the pursuer required to have paid the Buy-Out Price on 31 March 2004, it did not follow that all of the consequential documentation required to be completed on or before that date.

[62] Counsel went on to review a number of cases, which, he contended, supported his position in relation to the exercise of the option. The first of these was Stone v Macdonald 1979 S.C. 363, in which the court, on the interpretation of the documentation involved in that case, held that the notice of intention to exercise the option was not a condition precedent for the exercise of it, but that intimation of an intention to exercise the option was the method for the exercise of the option itself. That case had been before the Lord Ordinary, who appeared to have accepted the defender's contention that it did not govern the present case. In the end, much depended on the construction of the documentation of any particular contract.

[63] Counsel then submitted that, when a conditional contract of sale fixed the date by which the condition was to be fulfilled, then the date so fixed had to be strictly adhered to; the time provided for could not be extended by reference to equitable principles. For that proposition counsel relied upon Aberfoyle Plantations Ltd v Khaw Bian Cheng [1960] A.C. 115, particularly at pages 124-125. He also relied on T. Boland & Co Ltd v Dundas's Trustees 1975 S.L.T.(Notes) 80; Ford Sellar Morris Properties plc v E. W. Hutchison Ltd 1990 S.C. 34, particularly at page 37. Counsel next contended that Ahmed v Akhtar 1997 S.L.T. 218 supported his submissions. That was also true of Visionhire Ltd v Britel Fund Trustees Ltd 1991 S.L.T. 883 and Charisma Properties Ltd v Grayling (1994) Ltd. 1997 S.L.T. 449.

[64] Counsel then moved on to chapter (3) of his submissions, concerned with the issue of whether the Rhind Report could be accepted as "the Buy-Out Valuation". A subsidiary issue also arose, which was whether the court should take into account evidence other than the terms of the report itself, in interpreting it, in particular, the instructions given to the valuer. The rationale of Jones and Others v Sherwood Computer Services plc was that parties were only bound by a valuation that they had contracted to be bound by. Accordingly the court was entitled to look at what the valuer had been asked to do. The defender's proposition was that the parties to a contract could not be bound by a valuation that had not been carried out in the way provided for by the contract. That proposition was supported by Veba Oil Supply & Trading GmbH v Petrotrade Inc [2002] 1 All E.R. 703; that case demonstrated that a departure from instructions was material unless it could truly be characterised as trivial or de minimis, in the sense of it being obvious that it could make no possible difference to either party. In these circumstances it was necessary to consider what the instructions were here for the valuation. That involved looking at material outwith the report itself. A question also rose as to whether any instructions given coincided with the requirements of the contract. In this context the important finding in fact was that Mr Rhind did not have the Shareholders' Agreement available to him and was thus not aware of its terms when he produced his valuation report, a situation characterised as "remarkable" by the Lord Ordinary in paragraph [55] of his Opinion. It was essential that Mr Rhind should have seen the contract prior to formulating his valuation, because (1) he had to understand that he was being asked for a single figure; and (2) if it were possible, he required to know the basis upon which he had to prepare his valuation. In the circumstances existing prior to 31 March 2004, the parties had tried to plug a perceived gap in the Shareholders' Agreement by issuing instructions. It was the contention of the defender that the Shareholders' Agreement would have shown that the appropriate basis for valuation was an open market valuation of the property in an untenanted condition. Counsel submitted that (1) the Buy-Out Valuation was born flawed, because it did not produce what the contract required, since there were two alternative values stated; and (2) standing the conflicting instructions of the parties, it could never have been Buy-Out Valuation. The position was that Mr Rhind should have declined to produce a valuation, in the face of the inability of the parties to agree upon instructions to him. That was the effect of the evidence of Mr James Galbraith. He considered that no valuer could resolve a dispute between parties as to the proper basis for valuation. Reference was made to pages 113-137 of his evidence. The problem was that Mr Rhind had produced a report containing two valuations, which was not what was envisaged in the contract. In all the circumstances the court should uphold the analysis of the Lord Ordinary at paragraphs [55]-[57] of his Opinion.

[65] Counsel next dealt with chapter (4) of his submissions by saying that there was now no dispute about the matter concerned; the Lord Ordinary was not plainly wrong to have held as he did regarding this topic.

[66] Counsel for the defender then turned to deal with chapter (5) of his submissions, concerned with the issue of whether the Rhind Report could be challenged as being the decision of an arbiter. He submitted that if the court was satisfied that the valuation was a contractual valuation, Mr Rhind must have adjudicated on a legal dispute. If he had done that, his decision was open to challenge on what might be called "judicial review grounds". In that connection reliance was placed on A. G .E. Ltd v Kwik Save Stores Ltd 2001 S.C. 144, particularly at pages 148-149. The case contained a helpful discussion as to when an expert might become an arbiter. It was contended that if Mr Rhind had produced "the Buy-Out Valuation", he must have adjudicated upon matters which were before the Land Court. In other words, he must have moved into an area in which only lawyers were competent to make a decision. If that was what he had done, then his decision was open to criticism in a number of respects. In particular, he had ignored relevant material, for example: (1) the duration of the lease of the properties; (2) the payments made under it; and (3) the implications of the provisional liquidation of Scotpigs Ltd and its effect on the tenancy of the limited partnership. These complicated matters had been ignored. Mr Galbraith gave evidence to the effect that Mr Rhind should have looked at those matters, but the latter agreed that he had not done so. Accordingly, for that reason alone, the Rhind Report fell to be reduced. It was accepted that, if Mr Rhind had produced a single valuation on what might be called a mixed basis, the foregoing submission would not possess force. In any event, to the extent that the Rhind Report contained a valuation of the properties on a tenanted basis, it was defective since it had ignored certain matters pertinent to such a valuation.

[67] Counsel finally passed on to deal with chapter (6) of his submissions, the matter of remedies. These were inevitably related to the two main issues in the case, which were (1) whether time was of the essence of the contract; and (2) whether the Rhind report was the Buy-Out Valuation. If time was of the essence of the contract, the Buy-Out option had had to be exercised by payment on 31 March 2004. Since no payment had been made on that date, the option had not been exercised and the reclaiming motion had to fail. There was no longer any contention regarding the cause of the lack of funds to effect the buy-out on 31 March 2004. If the Rhind report was not the Buy-Out Valuation, then the defender could not be required to surrender his title to the properties for payment, since there was no valuation. If the court was not persuaded that time was of the essence of the contract, then it followed that it had to consider the question of valuation and whether it was possible now to provide a valuation. There were two possibilities. The first was that it was not possible to operate the machinery provided in the contract. As regards that, the case of Gillatt v Sky Television Ltd &c [2000] 2 B.C.L.C. 103 was of assistance. The ratio of that case could be applied here, because, on one view, the machinery provided by the Shareholders' Agreement had not been operated. While the parties had agreed upon a valuer, they had not instructed him to do what was required by the Shareholders' Agreement. The parties could not now be ordained to agree upon a new valuer. A practical difficulty was that there was no plea in law to support conclusion 2 of the summons. The second possibility was that the court might interpret the contract in such a way as to enable it to fill the gap in the basis on which "the Buy-Out Valuation" should have been carried out.

[68] At this point in the hearing an overnight adjournment took place. When the hearing recommenced, counsel put before the court a document containing a list of possible disposals, which he explained. He then went on to make certain further points. Within the Shareholders' Agreement, there was a valuation of "the Buy-Out Properties" as at the time of the signature of that agreement which was to be found in Part 10 of the Schedule. It was plain from the second paragraph of that valuation that it had been made on the basis of an open market value of the holdings with vacant possession. It was submitted that that was a powerful factor pointing to the appropriate basis for the "Buy-Out Valuation" being also a valuation on an open market basis with vacant possession. In this connection reference was made to No. 44/48 of process, a letter sent on 31 March 2004, in which the defender suggested that the appropriate valuation figure was £3.931 million, arrived at on a vacant possession basis. At the time of writing of that letter the defender had been prepared to enter into a transaction with that consideration. A similar view as regards consideration had been expressed in a letter dated 21 April 2004 from Messrs. Maclay Murray & Spens to Messrs. Brodies, which accompanied a copy of the summons in the present action. So, in that context, there had been a substantial level of agreement.

[69] Counsel went on at this stage to revert to the document setting out possible remedies, which he had produced. He drew attention to the fact that, in his pleadings, the pursuer had perilled his case upon the contention that he had not been able to obtain finance as at 31 March 2004 to effect the Buy-Out because of an alleged breach of contract on the part of the defender in relation to the discharge of certain securities. He also averred that a Buy-Out Valuation could still be made, if the Rhind report was invalid. These averments made clear the nature of the case which had been put before the Lord Ordinary. That contention had been answered by the Lord Ordinary's findings in fact to the effect that the pursuer had not in fact started early enough in obtaining finance to effect the buy-out. The arguments now being presented to the court on behalf of the pursuer had substantially changed the focus of the pursuer's case. It had to be borne in mind that there were now two main issues in controversy (1) whether time was of the essence of the contract; and (2) whether the Rhind report was the Buy-Out Valuation.

[70] If time was of the essence of the contract, it was submitted that the option was not exercised on 31 March 2004, in consequence of which bilateral obligations had not been created. If the Rhind report was not the Buy-Out Valuation, then the Buy-Out Properties Price had not been produced by the contractual mechanism. The result of this situation was that decree of absolvitor should be pronounced. If the Rhind report was the Buy-Out Valuation, it was necessary to consider the significance of the first fax sent by Messrs. Clark & Wallace at 12.28pm on 31 March 2004, in which fax was said that the defender was not prepared to complete the transaction, No. 44/47 of process. The defender's contention was that that fax did not amount to repudiation of the contract, following the rationale of Vaswani v Italian Motors (Sales & Services) Ltd [1996] 1 W.L.R. 270. If that position were correct, decree of absolvitor should be pronounced. Alternatively, if that fax were an anticipatory breach of the Shareholders' Agreement in relation to the properties, that gave the pursuer the option of (1) accepting the breach and suing for damages, or (2) seeking to proceed with the contract and enforcing performance of it by exercising the option. The pursuer did not follow either of those courses. Accordingly he was not entitled to specific implement and decree of absolvitor should be pronounced. In this connection counsel relied upon Gloag on Contract, 2nd Ed. pages 598-599 and McBride op. cit. at pages 485-489.

[71] Counsel proceeded next to consider the situation where it was held that time was not of the essence of the contract, and the option was exercised by the sending of the notice on 11 February 2004, in consequence of which bilateral obligations were created. Once again there were two possibilities. If the Rhind report was the Buy-Out Valuation, then it was submitted that the defender was no longer bound by the contract on account of the inordinate delay which had ensued. The pursuer had urged reliance on Rodger (Builders) Ltd. v Fawdry and Others, but the defender had not operated the ultimatum procedure. In connection with this submission, it was pointed out to counsel that there was no reflection of this contention in the defender's pleadings. There was no plea of personal bar, nor was there a plea of prescription. Accordingly he was pressed to explain upon what principle the contract might no longer have effect on account of the passage of time. He then relied upon George Packman & Sons v Dunbar's Trustees 1977 S.L.T. 140. However, counsel recognised that the court in that case had not decided whether a contract might become unenforceable through the passage of time, leaving aside issues of prescription and personal bar. The alternative view was that the defender was still bound by the contract and the court would dispose of the case by granting decree in terms of the first conclusion of the summons.

[72] If it were held that time was not of the essence of the contract, but that the Rhind report was not the Buy-Out Valuation, the court could decide that the defender was obliged to sell the properties at the Buy-Out Properties Price, which had still to be produced. In that situation the court might decide that it was not possible to produce such a valuation, on the basis that the Shareholders' Agreement was so vague and uncertain as to indicate no basis upon which a valuation was to be completed. In such a case, Sudbrook Trading Estate Ltd v Eggleton did not provide an answer, because, where parties had not agreed a basis for valuation, the court could not innovate on the contract. In that connection counsel relied on Lonergan v McCartney [1983] N.I. 129. The Shareholders' Agreement here was just as much shrouded in ambiguity as was the contract considered in that case. If that submission were wrong and if the court could identify a basis for the development of the Buy-Out Valuation, it was submitted that the untenanted basis should be used. That would be consistent with the original valuation having been effected on that basis and the defender properly being seen as an investor in the properties. It might be feasible for the court to use the Rhind report to produce such a figure. However, it had to be recognised that, since the properties passed into the ownership of the defender, improvements had been effected to them, which could give rise to an issue regarding the defender's right to recover the cost of those improvements. Furthermore, an issue might arise regarding interest on the price, having regard to the fact that the defender had had the use of the land in the period since 31 March 2004. An alternative course would be for the court to contemplate that the proper basis of valuation was that the land should be treated as tenanted, or, at least, that it should be recognised that there was an issue regarding tenancy and that a valuation should reflect a compromise on that issue. If that course were favoured, there would have to be a proof. The Rhind report could not be used in such a situation, because it did not take into account those complexities.


Submissions by senior counsel for the pursuer

[73] By way of introduction senior counsel said that there were two principal questions to be addressed: (1) whether Clause 10 of the Shareholders' Agreement gave a right to the pursuer to acquire the properties; and (2) if so, at what price. If issues of principle were dealt with, it might be appropriate for the issue of price to be held over for further consideration. The pursuer's primary position was that he was entitled to rely on the Rhind report, but it was recognised that other views could be entertained. If the court had to provide the Buy-Out Valuation, ultimately it might wish to afford the parties an opportunity to reach agreement, although it should be appreciated that there was a "floor" and a "ceiling" price here. The "floor" was £2.1 million, together with £400,000 for the shares. The highest figure was £3.705 million for the properties. Adopting a common-sense approach, there was the possibility that a figure might emerge within this range, as happened in relation to the furniture in McConnell v McConnell. However, the primary concern was the need to resolve issues of principle.

[74] Turning then to the primary issue of whether Clause 10 of the Shareholders' Agreement conferred an enforceable right to implement, that issue gave rise to the subsidiary question of whether time was of the essence of the contract. If it were not, it was submitted that there could inevitably be a Buy-Out Valuation. Before coming to that issue, it had been submitted that the pursuer could never have been entitled to implement because the Shareholders' Agreement was hopelessly uncertain. On that view, unless the pursuer were to concede a basis for valuation advanced by the defender, the contract could not be enforced because of the lack of a valuation. That position came close to saying that the contract was void from uncertainty. The true position was that the giving of notice under clause 21 of the Shareholders' Agreement transmuted a conditional agreement into an unconditional one. The defender's interpretation of the contract in this regard was ludicrous and had never been advanced before the Lord Ordinary. If the proper approach indeed were that, in the absence of agreement, there could be no ascertainable value for the properties, the defence stated was incomprehensible, as appeared from Answer 2 and Answer 3 of the defences, so it was plainly wrong to say that the basis of valuation had to be agreed. The basis of valuation was inherent in the contract. The case that went to proof was not that no sensible meaning could be given to the expression "the Buy-Out Valuation", or that there was no binding contract. The arguments now advanced for the defender were self-contradictory and, in some respects, inconsistent with his pleadings. The Lord Ordinary had made no decision on the issue of whether the contract was incapable of enforcement because of uncertainty. The uncertainty argument was contrary to the decision in Sudbrook Trading Estate Ltd v Eggleton and, furthermore, was contrary to the principle of contractual interpretation that the court should strive to give commercial efficacy to a contract. The interpretation of the contract apparently now advanced by the defender was a mirage. The court should be slow to conclude that that was the position, as opposed to holding that there was a workable agreement. The position of the pursuer was that it was for the valuer to adopt and determine a fair and objective valuation. Failing that, the tenanted value was appropriate. If that submission were wrong and the vacant possession basis were appropriate, the Rhind Report had stated the value on that basis at £3.705 million. The submission was that the matter was essentially for the valuer, but, in any event, the contract contained sufficient guidance as to the proper approach.

[75] Sudbrook Trading Estate Ltd v Eggleton was of assistance, although in paragraph [58]of his Opinion the Lord Ordinary had distinguished it. The argument against the position ultimately taken up by the House of Lords was to be seen at pages 472-473. However, the Judicial Committee rejected those arguments and made the order set forth at page 480. A similar course could properly be followed here.

[76] Elaborating his position on the issue of whether time was of the essence, senior counsel contended that the exercise of the option was analogous to the sale and purchase of heritage. In such a situation, the presumption was that time was not of the essence. In Ahmed v Akhtar that presumption was displaced by the particular circumstances of the contract, as appeared from pages 223-224 of the report.

[77] Before looking at the tenuous factors relied upon by the defender as showing that time was of the essence, senior counsel pointed to factors which made the contract unworkable, if that position were adopted. The first of these was the definition of "the Buy-Out Shares Price" in the definition clause of the Shareholders' Agreement. It incorporated the necessity for reference to "the balance sheet produced to 31 March 2004". It had to be recognised from the terms of Clause 14 of the Agreement that the balance sheet would require to be audited. Clause 20 of the Agreement had no bearing on this matter. The evidence of Mr Michael Reid, heard on day 4 of the proof at pages 548, 557 and 564 of the transcript, was important. He was a chartered accountant who had been engaged by the pursuer to make projections for the purposes of obtaining finance. If time were indeed of the essence of the contract, its provisions would be unworkable, since the pursuer would be unable to identify "the Buy-Out Shares Price" as at close of business on 31 March 2004. The terms of Clause 10 of the Shareholders' Agreement could not be operated. The acquisition of "the Buy-Out Shares" and the "the Buy-Out Properties" was inseparable having regard to the definition of "the Buy-Out Price".

[78] In the same context Clause 21 of the Shareholders' Agreement was important. Under its terms, a notice of intention to effect the Buy-Out could be served upon the defender, at the latest, on 30 March 2004. If time were of the essence, there would be no time for the completion of the transaction following service of such a notice on that date. That was an extraordinary notion, when the giving of that notice was, in fact, the exercise of the option. The service of such a notice was the condition that had to be performed to effect the Buy-Out; if a notice were not served timeously, the Shareholders' Agreement would be terminated and there could be no Buy-Out. Of course, more was required for the full exercise of the Buy-Out option than service of the notice. Furthermore, no practical difficulty arose from concluding that time was not of the essence of the contract, since the defender had available to him the ultimatum procedure.

[79] A third factor of importance in the context was the language of clause 10 of the shareholders' Agreement itself. It opened with the words: "On the Buy-Out Date, Mr Simmers shall be entitled ...". Plainly the pursuer was not entitled to effect the buy-out before that date. The question was whether this language was consistent with a one-day entitlement, or a continuing entitlement starting on "the Buy-Out Date". It was submitted that the latter was what was involved. One could ask the question what was the entitlement. The answer was "... to effect the Buy-Out and acquire the Buy-Out Shares and the Buy-Out Properties in exchange for payment ...". If the defender had no obligation related to that date, there could be no acquisition on that basis. The idea of the pursuer being obliged to make a payment for nothing given in return on that date was bizarre. The acquisition had to be on the basis of the ordinary principles of mutuality. There would be no opportunity for the pursuer to use an ultimatum procedure, in the event of his having paid the requisite money. That was very strange. He would simply be a personal creditor of the defender, if the obligations of the latter had not been performed. It was most unlikely that any such arrangement had been contemplated. On the matter of the alleged significance of the words "telegraphic transfer", the pursuer's position was that they had no definite fixed modern meaning.

[80] Finally, while it would make good sense to impose on a party who had it in his power to do something, an obligation to do it timeously, it would make much less sense to do so if the person did not have that power. In this connection, on the defender's argument, the pursuer would have been at risk, since he would have been expected to perform his part of the bargain on 31 March 2004, but the defender would not.

[81] Senior counsel went on to consider in this context the factors which had been relied upon by the defender and which were said to stand in the way of the success of the pursuer's submissions. The first of these was the language in clause 10 of the Shareholders' Agreement, with which senior counsel had already dealt. The second was the expression "telegraphic transfer", which was in the same position. The third factor was the circumstance that the pursuer had intended to pay the Buy-Out Price on 31 March 2004. On the pursuer's interpretation of the contract that was incompetent evidence, but was, in any event, unhelpful. Again, it had been argued that the completion of the contract here was conditional upon payment. However, no case had been cited which contained conditions such as those present in the Shareholders' Agreement. The defender's position was that no legal obligation came into being until payment of the price was made, in other words that performance of the contract by the pursuer created binding obligations. That was bizarre. In any event, the contact contained no means whereby payment might be made. No details of a bank account had been furnished. That pointed to time not being of the essence of the contract. The condition for the performance of the contract could not be payment, but was rather the serving of notice in terms of clause 21 of the Shareholders'

Agreement.

[82] Senior counsel next embarked upon a review of the authorities which had been relied upon in the course of argument. In Aberfoyle Plantations Ltd v Khaw Bian Cheng the purchase had been made conditional on the renewal of certain leases. Accordingly the successful negotiation of those renewals with a third party had been made a condition of the contract. The consequences of failure had been spelt out in detail. As was pointed out at page 124, everything depended upon the true construction of the agreement in question. Until the condition was purified, there was no contract of sale to be completed. In the present case, it could not be correct to regard payment of the price as a condition upon which the contract was dependent; the payment of the price amounted to performance of the contract. In T. Boland & Co Ltd v Dundas's Trustees once again the contract was conditional upon the actions of a third party, the issuing by the National Coal Board of clearance. That was not comparable to the circumstances of the present case. In Ford Sellar Morris Properties plc v E. W. Hutchison Ltd, it was common ground that time had been made of the essence of the contract by express provision. The requisite date had not been met, in consequence of which the contract was not binding. The circumstances there were in no way comparable to those of the present case. There might be an issue regarding the soundness of the decision in Charisma Properties Ltd v Grayling (1994) Ltd. In any event, in the contract involved there was a provision spelling out the consequences of breach of the time provisions. Nothing in that case provided assistance here.

[83] If time were not of the essence of the contract, attention then had to be focused on the Rhind report. Senior counsel submitted that this was the Buy-Out Valuation. In consequence, decree ought to be pronounced in terms of conclusion 1. If that submission were not correct, the case should be considered in the By Order Roll after the court had made its position clear on the issues of principle. However, reverting to a consideration of the situation if time was of the essence, senior counsel submitted that the defender's actions on 31 March 2004, prior to the expiry of the pursuer's entitlement to pay, had the effect that the defender could not complain that payment was not made. The defender's position appeared to be that, because time was of the essence of the contract and it was not performed on 31 March 2004, all obligations disappeared. It appeared to be his position that it did not matter how that had happened. It followed that, if the defender had said earlier what he said on 31 March 2004 in the first fax timed at 12.28pm, that he was refusing to co-operate, he would not have been in breach of any obligation. That was so extraordinary a proposition that the premise upon which it was based must be wrong.

[84] Some assistance could be got from British & Benningtons Ltd v North Western Cachar Tea Co Ltd [1923] A.C. 48. It was held in it that, the buyers of certain consignments of tea having wrongfully repudiated the contracts, the sellers were not bound to prove that they were ready and willing at the date of repudiation to perform their part of the contract by delivery of the teas in London. Accordingly an award of damages against the buyers would stand.

[85] Senior counsel went on to make certain further points. Significance lay in the definition of "the Buy-Out Valuation" in the Shareholders' Agreement. It was clear that that definition contemplated that the valuation had to be carried out on or within one month prior to "the Buy-Out Date". The purpose was to ensure that what was an element in the Buy-Out Price was the value of the properties as at March 2004. Questions did not arise relating to interest, because the defender was and remained in possession of the land. Improvements were a quite separate issue that was no part of the present litigation.

[86] The case of Gillatt v Sky Television Ltd and Another did not assist here. The pursuer in the present case had done all that he could to operate the agreed mechanism. Whether that mechanism had in fact operated successfully would be addressed in connection with the valuation. It appeared that the underlying problem envisaged by the defender was the idea that no valuer could assess value when there existed a dispute as to the basis of valuation; one could not value a doubt or a chance. It was submitted that that was wrong. Such things were done every day. There was no conceptual problem in making such a valuation, in other words, assessing how a market might evaluate a doubtful prospect. There was no artificial exclusion of any particular facts from the valuation process. Jones and Others v Sherwood Computer Services plc showed that, where parties had agreed to be bound by the report of an expert, it could not be challenged on the ground that mistakes had been made in its preparation, unless it could be shown that the expert had departed from the instructions given to him in a material respect. A reference was made to pages 284-288. Reference was also made to Veba Oil Supply & Trading GmbH v Petrotrade Inc.

[87] Senior counsel went on to consider the second main issue in the case, that of the valuation. In regard to it, the question arose of what were the instructions that preceded it. The answer to that question was the Shareholders' Agreement itself. It constituted the agreement between the parties in relation to "the Buy-Out Valuation". It was not necessary to look at the terms of letters of instruction sent to the valuer which conflicted. Nor did it matter that the Shareholders' Agreement had not been sent to Mr Rhind. It was accepted that the document constituting Appendix 2 to the Rhind report, No. 44/34 of process, did not amount to the relevant instructions. That document had been drafted by Mr Galbraith and had been sent by Messrs. Maclay Murray & Spens to Mr Rhind. It was contended however that Mr Rhind had been instructed to value the properties in terms of the Shareholders' Agreement. Different approaches might be taken to the Rhind Report. At pages 9 and 10, different values were brought out, a vacant possession value and a discounted value on the basis of the properties being subject to a lease in favour of Scotpigs & Co. The Lord Ordinary had found, in paragraph [54], that Mr Rhind had intended to provide in his report two separate values for "the Buy-Out Properties".

[88] If the court were satisfied that the Rhind report could be looked at on its own and that instructions had been followed, the pursuer should succeed. However, if the court considered that the situation was comparable to that in Sudbrook Trading Estate Ltd v Eggleton, but that it was possible to develop a vacant possession value which could be applied, the pursuer could also succeed, but conclusion 2 would require to be amended.

[89] The pursuer's primary position was that it was clear from the Rhind Report that the valuer had carried through his instructions and had reached a value of £2.038 million. If that were wrong, the entitlement of the pursuer was to purchase at a fair and reasonable price. However, there was no material available to enable the court to reach a figure for that. Accordingly the court should so find and hold that the pursuer had a continuing entitlement to effect the buy-out and to acquire the buy-out shares and properties in exchange for the buy-out price; while the buy-out price had to be a fair and reasonable price, what that actually was remained to be determined. However, the court might reach a conclusion on this aspect of the matter on the basis of its own interpretation of the contract.

[90] Senior counsel finally went on to consider the matter of possible disposals. If the court were to conclude that implement was available, there were a number of options. First, a remedy could be granted on the basis of the Rhind valuation, if it considered that a single figure arrived at on an appropriate basis emerged from it. Second, the court might reach the conclusion that the pursuer had an entitlement to buy at a fair and reasonable price. That would mean that the court was in the position which existed in Sudbrook Trading Estate Ltd v Eggleton. If the court took the view that such a price could not be other than the vacant possession of value, in the case of the heritable properties, then the figure of £3.705 million could be used as a component in the Buy-Out Price. Since the pursuer was most anxious to avoid further litigation, if the court were not prepared to accept the pursuer's primary position, then the pursuer was prepared to accept that that figure was appropriate in respect of the heritable properties. On that basis, the Buy-Out Price would be £3.3025 million, being the sum of £2.1 million, together with half of the uplift in value of the heritable properties, £802,500, together with the price of the shares. If that approach commended itself to the court, it would be necessary for the first conclusion of the summons to be amended to substitute £2.9025 million for the figure of £2.1 million at present standing in that conclusion. Alternatively, conclusion 2 of the summons could be appropriately amended. Decree was not sought in terms of conclusion 3. Currently there was standing an interim interdict pronounced in terms of conclusion 4, which would remain in place at the present time, until the resolution of the issues. Senior counsel concluded his submission by moving the court to recall the interlocutor of the Lord Ordinary and to grant decree in appropriate terms. Plea-in-law 3 for the pursuer should be sustained with a substitution of the first conclusion for the reference to conclusions in that plea.

 

Submissions of Senior Counsel for the Defender

[91] Senior counsel began by accepting the arithmetic contained in the concluding submission of senior counsel for the pursuer. He said that there were three important issues involved. First, whether the Rhind valuation was "the Buy-Out Valuation" as defined in the Shareholders' Agreement. As to that, the defender's position was that it was not. Second, how the option was to be exercised, and, in particular, whether it was to be exercised under clause 10 of that agreement. Third, if the option was still available, what were the pertinent remedies.

[92] As regards the first of these matters, senior counsel adopted the submissions made by his junior. In addition he had certain further points to make. First, the parties appear to be agreed that, having regard to the terms of the Shareholders' Agreement, the definition of "the Buy-Out Valuation" required a single figure. What was in dispute was the valuation. The contractual machinery was quite capable of working with a valuation figure, as appeared from what was said by the Lord Ordinary in paragraph [55] of his opinion. The justification for that view was simple, a single figure was needed for the calculation required by the terms of the contract. It was for that reason that the valuation report had been produced. The pursuer appreciated that if he was to exercise his option, there was a need for that preliminary step to be taken. To that end, the parties had agreed upon the identity of the valuer. They had also agreed upon a figure for the Buy-Out Shares Price. Unfortunately the report had not been produced by giving to Mr. Rhind the Shareholders' Agreement and its Schedules, or even instructing him as to their contents. That surprising circumstance had been the subject of comment by the Lord Ordinary in paragraph [55] of his opinion. What had been sent to the valuer was the document No. 44/20 of process, the instructions drafted by Mr Galbraith. Although an agreed basis for the valuation was never achieved, the parties, particularly the pursuer's advisers had endeavoured to achieve such a basis, as appeared from Nos. 44/17 and 19 of process, dated 1 and 4 March 2004 respectively. While both parties anticipated that there would be an agreed remit to the valuer, that was never achieved. The valuer had had put before him the documentation already referred to, along with No. 44/22 of process, and the letter of Messrs. Clark & Wallace, dated 5 March 2004, in which it was claimed that a valuation allowing any discount for tenants rights was incorrect in law, so far as the defender was concerned.

[93] A straightforward reading of the Rhind report in the light of the two possible bases of valuation alluded to indicated that that report in fact contained two valuations for the heritable properties: (1) an open market value on the basis of vacant possession; (2) an open market value on the basis of the tenancy. Thus, without knowledge of the terms of the Shareholders' Agreement, there was nothing on the face of the Rhind report to show that it contained a decision to adopt one basis of valuation, as opposed to the other. There was no suggestion in the report of any compromise of value, taking into account the alternative bases of valuation. The only factor that could have enabled the report to be interpreted as producing one figure was knowledge of the Shareholders' Agreement which Mr Rhind did not have. The outcome of the valuation was essentially a consequence of the conflicting instructions given to him. However, it might be possible for the court to take a view as to which basis of valuation was required by the terms of the Shareholders Agreement, but that did not resolve all difficulties, since the pursuer had contended that the parties had agreed to be bound by a single valuation. It was evident that what had happened was that the report had been produced by Mr Rhind on his interpretation of his instructions, which was in accordance with the terms of the letter from Messrs. Maclay, Murray and Spens, dated 8 March 2004 to him, No. 44/27 of process; in other words, Mr Rhind had produced two values in one valuation. These matter were the subject of findings by the Lord Ordinary in paragraphs [55] and [56] of his opinion. If it were relevant, it was submitted that Mr Rhind had not considered that it was his task or intention to indicate a preference for one basis of valuation over another. The foregoing points were relevant, since the Court was entitled to examine the "factual matrix" of a contract. In this connection senior counsel relied upon Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1W.L.R.896, particularly the remarks of Lord Hoffmann at pages 912-913.

[94] In relation to the criticism of the Rhind valuation to the effect that the Mr Rhind had acted as an arbiter, the submissions already made were adopted. In summary, the Rhind valuation was not "the Buy-Out Valuation" in terms of the Shareholders' Agreement. There had been no breach of the terms of the Shareholders' Agreement on the part of the defender that had brought that about.

[95] Senior counsel then moved on to consider the second main issue arising in the case, concerning how the option in the Shareholders' Agreement was to be exercised. This issue embraced the question of whether time was of the essence in relation to that Agreement. It was accepted by both parties that whether or not time was of the essence could be implied from the facts and circumstances of this particular contract, from its factual matrix and the words used in it. It was also accepted that the language of the contract could have dealt with that question specifically, but did not. Some significance might be found in the circumstances of the execution of the Shareholders' Agreement described by the pursuer at page 9 of the transcript of his evidence. Senior counsel accepted that the main purpose of the Agreement had been to involve the defender as an investor for the medium term. Accordingly the Agreement contained provisions designed to "lock him in" for a minimum period of five years and to enable the pursuer to buy out the defender. It was important that that latter provision applied to a single occasion. The pursuer's evidence at pages 21-22 of the transcript showed that he had desired recurring annual opportunities to effect a buy-out, but the Agreement had not provided for that.

[96] It was proper to characterise the position of the defender as that of an investor. One might ask the question what was the return on his investment. The answer to that was that rent was to be paid for the use of the land; also there was the possibility that the defender would benefit from a share in the appreciation of the value of the land up to the time of the Buy-Out. It was submitted that the intention of the parties as demonstrated by the Shareholders' Agreement, was that it would operate until 31 March 2004, on which date the Buy-Out option could be exercised. The pursuer had accepted that that date was crucial and that preparations for it had to be made beforehand. The notice referred to in Clause 21 of the Agreement was an expression of intention. The pursuer's argument, to the effect that the Clause 21 notice was the exercise of the option, was erroneous.

[97] Furthermore, the date of 31 March 2004 had been portrayed in Clause 10 of the Agreement as a crucial date. The language of Clause 10 referred to the effecting of the Buy-Out on that date, not at any other time. Clause 21 itself referred to the requisite notice being one "intimating his intention to effect the Buy-Out". It was also of significance that the words of Clause 10 referred to payment by way of telegraphic transfer of the Buy-Out Price. There was nothing in Clause 10 which suggested that prior notice of an intention to effect a Buy-Out was necessary to its exercise. Clause 21, in fact, had very little part to play, save that it provided for a situation where no notice had been given. The notice prevented automatic termination. In this connection, Stone v MacDonald 1979 S.C.363 was instructive. It was held there that, on interpretation of the option created by the minute of agreement in that case, notice of intention to exercise the option was not a condition precedent for its exercise; the intimation of an intention to exercise the option was the method selected for its exercise. Senior counsel accepted that, in many cases, options were indeed exercised by the use of a notice procedure, followed by completion.

[98] The pursuer's counsel had founded upon the alleged risk to the pursuer if money were to have been transferred on the Buy-Out Date, but there were other risks inherent in the transaction. In particular, the defender might find himself with shares of no value. However, the contract ought not to be re-written for the parties. In this connection senior counsel relied on Aberfoyle Plantations Ltd. v Khaw Bian Cheng, particularly in the opinion of Lord Jenkins at pages 124-127.

[99] It was Clause 10 and nothing else that created obligations in relation to the buy-out. Payment was not made by the pursuer; accordingly no contract effecting the buy-out was made. In the pleadings and at the proof much consideration was given to the pursuer's allegation that the Buy-Out was incapable of being effected by the pursuer because of the defender's alleged breach of contract. However, the defender was not in breach of contract because there was no "Buy-Out Valuation". The reality was that the pursuer had had insufficient funds available to effect the Buy-Out. Senior counsel relied upon Sudbrook Trading Estate Ltd. v Eggleton in this connection, particularly on the speech of Lord Diplock at page 476. In that case there was a contract, the mechanism of which had failed. However, in the present case there had been no contractual obligation since the option had not been exercised in the appropriate way.

[100] The pursuer had relied upon the reference in the definition of "the Buy-Out Shares Price" to the balance sheet produced to 31 March 2004. In reality, that definition was not a serious obstacle to the success of the defender's argument. A balance sheet could be produced in advance of that date, upon an agreed basis. What was important was not the balance sheet itself, but the net asset value of the company; there was no need for the production of an audited balance sheet, which might have taken some time. In all the circumstances, the Court should conclude that time was of the essence of the contract. Before the Lord Ordinary, that issue had not been disputed.

[101] Senior counsel next dealt with the matter of appropriate remedies. Once again, he alluded to the details of the remedies document to which we have already referred. In particular, he considered in detail the position if the Rhind report was not to be treated as "the Buy-Out Valuation", but that time was not of the essence of the contract. The question would then arise whether the ratio of Sudbrook Trading Estate Ltd v Eggleton would apply. His position was that it would not; this case was similar to Lonergan v McCartney in that this contract did not unambiguously point to an objective standard of valuation devoid of personal considerations. He also relied on Gillatt v Sky Television Ltd. There was a distinction between cases where the method of ascertaining the price was an essential term and cases where the method of ascertainment was subsidiary and non-essential. While it might be that in the Shareholders' Agreement there was material to show that the appropriate basis of valuation was open market value with vacant possession, the selection of the basis of valuation had been left to the valuer. The position of the defender now was that the contractual machinery had not been used. Instead, there had been an unsuccessful attempt to innovate upon it and give an agreed basis of valuation to the valuer. It had been contended by the counsel for the pursuer that the parties were bound by a proper expression of "the Buy-Out Valuation" even if the expert valuer had been left to determine the basis of the valuation, something plainly beyond his expertise. But a consequence of that approach would be that the Buy-Out Valuation would have been unpredictable. A perfect expert might select the vacant possession value, but that was not inevitable. What was contended for by the pursuer would amount to an innovation upon the contract. As in Lonergan v McCartney, insufficient had been agreed between the parties to the Shareholders' Agreement to enable an appropriate valuation now to be obtained. Senior counsel for the pursuer had accepted that the higher figure brought in the Rhind report might be selected, but that would involve an attempt to re-write the contract, which ought to be resisted.

 

The Decision

[102] In the light of the acknowledged facts and of the foregoing arguments, it appears to us that there are two crucial areas of controversy which we must consider. These are: (1) The proper interpretation of the Shareholders' Agreement as regards the time of performance on the exercise by the pursuer of the Buy-Out option created by Clause 10 of the Agreement; and (2) Whether the Rhind report, dated 26 March 2004, can properly be regarded as "the Buy-Out Valuation" for the purposes of the Shareholders' Agreement. These questions are crucial because there is no doubt that the Buy-Out was not effected on the Buy-Out Date, 31 March 2004 by the pursuer, if for no other reason, because payment to an appropriate extent was not made by the pursuer on that date to the defender, or his nominees. So, if on a proper interpretation of the contract the Buy-Out could have been effected only upon that date, the result must be that the Buy-Out cannot now be effected at all and that no remedies can be granted to the pursuer in the present proceedings. If, however, on a proper interpretation of the contract, the Buy-Out can be effected subsequently to 31 March 2004, an appropriate remedy may be available to the pursuer. Whether it could, or not, would then depend, in the first instance, upon the issue of whether the Rhind report can properly be regarded as "the Buy-Out Valuation" for the purposes of the Shareholders' Agreement. If it can, then an appropriate remedy may be granted to the pursuer. If it cannot, there would open up a further question of whether the court could furnish means whereby the Buy-Out Price could now be ascertained and the Buy-Out could be effected. We now turn then to consider these two crucial questions.

 

The proper interpretation of the Shareholders' Agreement as regards the time for performance on the exercise of the buy-out option

[103] In Rodger (Builders) Ltd v Fawdry and Others, at page 492 the court was concerned with the significance of the failure of a purchaser of heritable property to pay a balance of the purchase price on the date of entry. At page 492, the Lord Ordinary, Lord Sorn, said this:

"The law which governs the question at issue was not to any material extent in dispute and may be shortly stated. In a contract for the sale of heritage, where it is stipulated that the price is to be paid on a particular date, payment of the price on the appointed date is not, in general, an essential condition of the contract, and failure to pay on that date does not entitle the seller to rescind. But payment of the price by a fixed date may be made an essential condition of such contract. If there is unnecessary or unjustifiable delay on the part of the purchaser in paying the price, the seller may limit a time within which payment must be made, and, provided the time limited is a reasonable one in the circumstances, failure to pay within that time will be treated as breach of an essential condition entitling the seller to rescind."

That part of the Lord Ordinary's judgment was not challenged on appeal, nor, in the opinion of the Second Division expressed at page 498, could it have been. The presumption that time was not of the essence for the performance of contractual obligations was considered in Visionhire Limited v Britel Fund Trustees Ltd at page 886. That case was concerned with certain rent review provisions in a lease, in a situation where the landlords had failed to make application within the timetable set out in the rent review clause for the appointment of an arbiter. The Court decided that the general rule of construction in Scots Law, as in English Law, was that contractual stipulations as to time, including the particular instance of rent review clauses in commercial long leases, were not intended to be strictly enforced unless the wording of the contract indicated expressly, or by necessary implication, that this was intended by the parties. The nature of the rule was described by Lord President Hope, as he then was, at page 888 in this way;

"It seems to me, therefore, that there is no essential difference between the positions adopted in the two countries and that the rules which according to English law are stated as presumptions are really to be seen as rules of construction which take their place along with various other rules in order to ascertain what the intention of the parties truly was in order that the contract which they had made should be enforced."

Accordingly, in any particular case, such as this, the question must be whether the particular wording of the contract under consideration, either expressly or by necessary implication, would displace the rule of construction just referred to. It is upon that enquiry that we now enter. In doing so, we do, of course, follow the principles of the modern construction of contractual documents described by Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society at pages 912 to 913.

[104] Perhaps the appropriate starting point for our enquiry is Clause 21 of the Shareholders' Agreement, which deals with its duration and winding-up. We regard these words as of importance in the context:

"If Mr Simmers has not served on Mr Innes a notice intimating his intention to effect the Buy-Out prior to the Buy-Out Date, then this Agreement shall terminate automatically without the requirement of any party to serve notice."

Two points seem to us to emerge from this provision. First, the parties contemplated that Mr Simmers might serve a notice intimating his intention to effect the Buy-Out at any time prior to the 31 March 2004, that is to say at any time up to and including 30 March 2004. If that is what was contemplated by the parties, it seems to us to be inevitable that the Buy-Out transaction could not be completed on 31 March 2004, the Buy-Out Date. The second point of importance is that, in the absence of such a notice served by the pursuer, the Agreement was provided to terminate automatically. If such a notice had been timeously served, as happened here on 11 February 2004, we read this clause as providing that the Shareholders' Agreement would not terminate automatically on 31 March 2004. The implication is that the Agreement would survive beyond 31 March 2004, as we would see it, for the purpose of enabling the Buy-Out transaction to be completed. So we regard the terms of Clause 21 as confirming the operation of the rule of interpretation to which we have referred in relation to the Agreement. It appears to us further that the notice to be given by the pursuer in terms of Clause 21 must be seen as an act having legal consequences, not merely an indication of intention; the consequence being that, by service of the notice, the pursuer has exercised the option available to him and thus prevented the automatic termination of the Agreement. We refer to this last point again at paragraph [109] below.

[105] Turning to Clause 1(1) of the Agreement, that part of it which furnishes definitions for use throughout, we consider that certain provisions are of importance in the present context as confirming the application of the rule of interpretation to which we have referred to the Shareholders' Agreement. In particular, the definition of "the Buy-Out Valuation" is of this nature. It is defined as the valuation carried out by the agreed valuer "on or within one month prior to the Buy-Out Date". Thus the parties to the Agreement, in this provision, have contemplated that the valuation might be undertaken as late as the Buy-Out Date itself. Plainly, if that were done, it would be quite impossible in practical terms for the buy-out transaction to be completed on the same date. Settlement of the transaction must therefore be supposed to have been contemplated as taking place at some later date.

[106] A further definition of importance is that of "the Buy-Out Shares Price". It is contemplated in this quite elaborate definition that an element in this price will be half of any increase in the net asset value of the company "as disclosed by the balance sheet produced to 31 March 2004". We cannot accept the contention advanced on behalf of the defender that such a balance sheet could, in any meaningful way, be produced prior to 31 March 2004. Indeed, having regard to the fact that the Shareholders' Agreement contemplates that the company will have auditors of its accounts, as appears from Clause 20(2)(e), we consider that it would be quite impracticable for an audited balance sheet to be produced up to and including 31 March 2004 until some material time after that date. Yet the contents of that balance sheet are agreed to form an element in the calculation of "the Buy-Out Shares Price". Plainly if that element could not be calculated until after 31 March 2004, "the Buy-Out Shares Price" could not be paid on that date.

[107] In the context of this part of our considerations, it is necessary also to consider the implications of Clause 10 of the Shareholders' Agreement. It opens with the words "On the Buy-Out Date, Mr Simmers shall be entitled to effect the Buy-Out ...". It was argued that these words demonstrated that the buy-out option could be exercised only on that date. We do not accept that contention. The words are, we think, reasonably capable of being read as referring, rather, to an entitlement arising on that day. In any event, in cases such as Rodger (Builders) Ltd v Fawdry and Others and in many contracts for the purchase of heritable property, it is provided that payment is to be made on a specified date. Yet that form of words has not of itself given rise to the inference that time is of the essence in relation to that matter. We do not see why any different approach should be taken to the words quoted in Clause 10 here. In the same clause, there is a reference to "payment by way of telegraphic transfer of the Buy-Out Price". These words gave rise to an argument that time was of the essence of the transaction. We cannot accept that contention. It is far from clear to us as to what exactly is meant by "telegraphic transfer", particularly in a context in which no indication is given as to the identity of the recipient of such a transfer, or the means by which it was intended to be effected.

[108] No doubt, in recognition of the practical difficulties of completion of the buy-out transaction which we have mentioned, it was argued for the defender that, while the "Buy-Out Price" had to be paid on 31 March 2004, the requisite "transfers, conveyances, deeds and documents" referred to in Clause 10 did not require to be delivered then in exchange for the price. We find such an interpretation of the Shareholders' Agreement implausible. Quite apart from the fact that these documents are provided in Clause 10 to be executed by the defender in exchange for the payment of the price, we consider that it is not to be reasonably supposed that a party to a contract such as this would hold himself bound to pay the substantial price involved in the transactions in contemplation other than in exchange for the documentary material that would constitute him as owner in the full sense of the assets being acquired. If he were to do so, he would expose himself to the risk that his payment might be lost without return, in the event of the defender's sequestration, or other misadventure.

[109] Looking at the form of the Shareholders' Agreement more generally, it appears to us that the service of the notice contemplated in Clause 21 amounts, in effect, to the exercise of the pursuer's option, which act created bilateral obligations, which, no doubt, were intended to be performed on 31 March 2004, if practicable, but otherwise might be performed thereafter. That view of the contract was rejected by counsel for the defender, who argued that it was the performance of the obligations specified in Clause 10 that amounted to the exercise of the option. The corollary of that was that counsel appeared to us to be unable to give a meaningful explanation as to the purpose of the notice to be served in terms of Clause 21. For our part, we see a broad similarity between the features of the Shareholders' Agreement here and the contract under consideration in Stone v Macdonald, where it was held that the intimation of an intention to exercise the option in question was in fact the method selected for the exercise of the option. Even if service of the notice were not to be understood as the exercise of the option, we would, however, have reached the same view on the question of whether time was of the essence for its exercise, having regard to all the other factors previously mentioned.

[110] It is appropriate that we should comment on the relevance of certain of the authorities which were the subject of discussion in connection with this part of the case. Aberfoyle Plantations Ltd v Khaw Bian Cheng was relied upon by the defender, a case involving a purchase which was made to be conditional upon the vendor obtaining renewal of certain leases so as to be in a position to transfer them to the purchaser. It was specifically provided that, if for any cause whatsoever, the vendor was unable to fulfil this condition, the agreement should become null and void. Completion was to take place on a specified date. The Privy Council held that, on the true construction of the contract, the condition had to be performed by the specified date. They took the view that until the condition was fulfilled there was no contract of sale to be completed. We are of the view that that case is not of assistance in the present context, since it can be distinguished on a number bases. Perhaps most important in the present case is that, while Clause 21 of the Shareholders' Agreement created a condition for the exercise of the Buy-Out, in fact the pursuer purified that condition timeously by giving notice under that clause to the defender on 11 February 2004. Thereafter, there emerged, on our approach, bilateral obligations upon the parties to undertake the Buy-Out transaction. Likewise we do not consider that T. Boland & Co Ltd v Dundas's Trustees is of assistance. The contract under consideration in that case was subject to a suspensive condition, which was never purified. There is no such feature in the present case. Ford Sellar Morris Properties plc v E. W. Hutchison Ltd was also relied upon by the defender. Once again the contract involved there was conditional upon certain consents being obtained by a stipulated dated, failing which either party would be entitled to resile without penalty. The consents were not obtained by the stipulated date. It was held that where a date had been fixed and made of the essence of the contract that date had to be adhered to. We do not consider that the factual circumstances of that case are comparable with those of the present. It was shown that in that case adherence to the stipulated date was material and that time was of the essence of the contract. That contrasts with the position in this case. In Ahmed v Akhtar, a case concerned with the sale of a business and the goodwill of shop premises, of which the sellers were tenants, the issue was whether time was of the essence of the contract. For reasons arising from the particular circumstances of the case, it was held that time was of the essence. Because those circumstances differ from those of the present case we do not consider that the case is of assistance to us. Finally, Charisma Properties Ltd v Grayling (1994) Ltd was relied upon by the defender. We consider that the decision in that case depended wholly upon the terms of the particular contract which was before the court for consideration, the terms of which do not resemble those of the Shareholders' Agreement. Accordingly, we do not consider that that decision is of assistance to us. Whether time is, or is not, of the essence of a contract must depend upon the terms of the particular contract, as interpreted by the court according to the settled rules of interpretation. Bearing that in mind, we conclude that time was not of the essence of that part of the Shareholders' Agreement relating to the performance of the obligations of the parties in the completion of the buy-out transaction, the pursuer having given timeous notice to the defender in terms of Clause 21 of his intention to effect the Buy-Out.


Whether the Rhind Report can properly be regarded as "the Buy-Out Valuation" for the purposes of the Shareholders' Agreement

[111] In our opinion, the broad question of whether the Rhind report can properly be regarded as "the Buy-Out Valuation" for the purposes of the Shareholders' Agreement necessarily raises three more particular issues. These are: (i) what was the correct basis upon which "the Buy-Out Valuation" had to be made; (ii) whether the Rhind report sets forth a valuation undertaken on that basis; and (iii) whether, if the Rhind report does contain a valuation undertaken on a correct basis, it is vitiated by virtue of the fact that it contains a valuation made upon another basis. These questions we shall now address.

[112] Having regard to the fact that "the Buy-Out Valuation" is a concept meaningful only in the context of the Shareholders' Agreement, and is a creature of it, we consider that it is necessary to turn to that Agreement in order to obtain elucidation as to the nature of such a valuation. That valuation must be a valuation conducted in accordance with the contractual intention of the parties, as demonstrated by the terms of the Shareholders' Agreement. It is immediately evident from the definition of "the Buy-Out Valuation" that that definition itself does not provide elucidation as to the nature of the valuation intended. Accordingly, it is necessary to examine such parts of the Shareholders' Agreement as may bear upon that issue, with a view to inferring what was in fact intended by the parties. The starting point of the examination, in our view, must be the definition of "the Buy-Out Properties Price". It can be seen from that definition that that price is to be the higher of:

"(i) the Base Properties Price; or (ii) the aggregate of the Base Properties Price and an amount equal to the figure brought out by the following formula:
1/2 x (Buy-Out Valuation - £2.1 million) ...".

The "Base Properties Price" is, of course, specified as being £2.1 million. That figure is derived from the valuation that was conducted by Mr Rhind, who was responsible for the valuation dated 22 December 1998, to be found in the Appendix to the Shareholders' Agreement. That valuation was conducted on the basis that it was to be the "current open market value of the above holdings with vacant possession, as between a willing buyer and willing seller as at today's date". Having regard to the provisions particularly of Clauses 5, 6 and 7 of the Shareholders' Agreement, it was inevitable that the Base Properties Price should be based upon the value of the properties with vacant possession, since Clauses 5, 6 and 7 contemplated a sequence of events involving the acquisition of the Buy-Out Properties by the defender, or his nominees, for the Base Properties Price, then the subsequent formation of the limited partnership referred to in Clause 6, and thereafter the leasing by the defender of the Buy-Out Properties to the limited partnership. Plainly in order to achieve such an arrangement, vacant possession of the properties must have been available to the defender.

[113] Reverting now to the contractual definition of "the Buy-Out Properties Price", and looking at the purpose enshrined in that definition, that is to say an equal sharing of any augmentation in value of the Buy-Out Properties, over the period of operation of the Shareholders' Agreement, in our opinion, that purpose could be achieved only if the Buy-Out Valuation were to be conducted upon the same basis as was the ascertainment of the Base Properties Price at the commencement of the operation of the Agreement. Accordingly we infer from the contractual provisions to which we have referred that the contractual intention of the parties, as expressed in the Shareholders' Agreement, was that the Buy-Out Valuation should be conducted upon the basis of open market value of the properties with vacant possession. If the Buy-Out Valuation were to be conducted on the basis of a tenanted value, the purpose enshrined in the definition of "the Buy-Out Properties Price" would plainly be frustrated. We consider that that cannot have been intended by the parties.

[114] We now turn to consider the second particular question posed, of whether the Rhind report sets forth a valuation undertaken on the basis of what we have held to be one that reflects the contractual intention of the parties. In considering the Rhind report it is appropriate to look at the circumstances in which it was prepared. To say the least, it is evident that those circumstances involved a substantial level of confusion. Following upon the service of the notice by the pursuer on the defender, in terms of Clause 21 of the Shareholders' Agreement, dated 11 February 2004, and the agreement of the parties upon a valuer, Messrs. Maclay Murray & Spens, on behalf of the pursuer, proposed a remit, to be found in No. 44/17 of process, that the properties should be valued "subject to a lease in favour of The Firm of Scotpigs & Co." That remit was in fact sent to Mr Rhind, as appears from Nos. 44/19 and 20 of process, dated 4 March 2004. However, that position was not accepted by Messrs. Clark & Wallace, on behalf of the defender, who wrote to Mr Rhind on 5 March 2004 contending that the valuation was to be on a vacant possession basis, any valuation allowing discount for tenants' rights being incorrect in law. That position was stated to Mr Rhind himself by letter dated 5 March 2004, No. 44/25 of process. On 8 March 2004, Messrs. Maclay Murray & Spens for the pursuer wrote to Messrs. Clark & Wallace for the defender reiterating their position that the valuation had to take account of the ongoing tenancy. The writer continued:

"In any event, the priority is at this stage to move matters forward and the only sensible way to do so would seem to be to have the Valuation carried out on alternative bases as instructed by us and by you. If necessary, the issue of basis of Valuation can then be referred to the court for resolution."

That document is No. 44/26 of process. At the same time the same view was communicated to Mr Rhind in No. 44/27 of process, suggesting a valuation both on the basis of the pursuer's original remit and also on a vacant possession basis. However, that position was modified in the communication from Messrs. Maclay Murray and Spens to Mr Rhind, dated 12 March 2004, No. 44/28 of process in which the writer said:

"I have discussed the issue of Valuation with Senior Counsel and he has confirmed that rather than providing alternative Valuations, you should proceed to provide one Valuation as stipulated in the Shareholders' Agreement, taking into account all factors. Clearly, the view expressed by Clark & Wallace that the Valuation must be on the basis of vacant possession would have to be taken into account, but equally the reality of the existing Tenancy (subject to the uncertainty of the Land Court proceedings), would have to be taken into account."

[115] Against that very confused and unsatisfactory background, Mr Rhind undertook the unenviable task of proceeding to compile the valuation report No. 44/34 of process. Understandably, he did not attempt to follow the impossible request set forth in No. 44/28 of process but, having considered the characteristics of the properties involved, at page 9 of his report formulated a valuation on a vacant possession basis, arriving at the figure of £3.705 million. Thereafter, as can be seen from page 10 of his report, he applied a discount of 45% to that figure arriving at a separate figure for value, subject to the lease in favour of the firm of Scotpigs & Co, of £2.038 million. Thus, despite the difficulties which he faced, Mr Rhind did in fact value the properties involved in such a way that the basis of his valuation coincided with the basis of valuation which, as we have held, was intended by the parties to the Shareholders' Agreement.

[116] During the course of argument before us, it was contended on behalf of the defender that the Rhind Report would be open to criticism if in fact Mr Rhind had constituted himself as an arbiter and resolved legal issues. It may well be that that is what he was invited to do by Messrs. Maclay Murray & Spens in their communication to him of 12 March 2004, No. 44/28 of process. However, in our opinion, and as the Lord Ordinary found after hearing evidence, it is quite clear that he declined to undertake such an impossible exercise. He did not produce a single valuation taking into account all of the factors referred to in that document. By contrast, as we read his valuation, he assessed the value of the properties on a vacant possession basis and subsequently gave a value upon the assumption that they were to be valued as subject to the lease in favour of the firm of Scotpigs & Co. In our opinion, having taken that approach, there is no question of Mr Rhind having acted as an arbiter and having resolved legal issues. Accordingly the criticisms of his report, based upon the assumption that he had done so, disappear. It is perhaps appropriate to say at this stage that we do not find that anything in the decision in Sweeney v Sweeney is helpful in the context of the present case. It was concerned with the issue of value of matrimonial property for the purposes of the Family Law (Scotland) Act 1985, sections 8, 9 and 10.

[117] During the course of argument before us reliance was placed on Jones and Others v Sherwood Computer Services plc, in which it was held that, where parties had agreed to be bound by the report of an expert, the report, whether or not it contained reasons for the conclusions in it, could not be challenged in the courts on the ground that mistakes had been made in its preparation unless it could be shown that the expert had departed from the instructions given to him in a material respect. In considering the significance of that case, it is necessary to have regard to the circumstances here. Mr Rhind, prior to his completion of his valuation report, did not receive any agreed instructions from parties. As we have narrated, he was assailed with conflicting and, indeed, varying instructions. At no time did he have the benefit of the parties' agreement as to the basis of valuation which he should adopt. However, as we have held, in following the course which he did, in the difficult situation in which he found himself, he did compile a valuation on the basis which the Shareholders' Agreement required. In these circumstances, no question arises of his having departed from instructions. In the Shareholders' Agreement, the parties had agreed to be bound by the Buy-Out Valuation which, as we have held, required to be undertaken on an open market vacant possession basis. Mr Rhind formulated such a valuation. It is a consequence of that and of the terms of the Shareholders' Agreement that, as we see it, the parties are bound by the outcome. Thus we do not consider that the principle enunciated in Jones and Others v Sherwood Computer Services plc has any application to the circumstances of this case. Against this background, the fact that Mr Rhind did not see the terms of the Shareholders' Agreement before preparing his valuation report, though perhaps surprising, does not appear to us to be of importance, provided that the valuation which he prepared was in fact in accordance with the requirements of that agreement, as we have held that it was. For similar reasons we do not consider that Veba Oil Supply and Trading GmbH v Petrotrade Inc. is of assistance. There is no question here of Mr Rhind having departed from agreed instructions. The only agreed criterion by which his valuation must be tested is that which emerges from consideration of the terms of the Shareholders' Agreement.

[118] We turn next to consider the third question that must be addressed, whether the valuation contained in the Rhind report on an open market vacant possession basis is vitiated by virtue of the fact that, in the report, it is associated with a valuation on another basis, that is to say that of value subject to a lease in favour of the firm of Scotpigs & Co. In our opinion, the appearance of that valuation on that alternative basis in the Rhind report does not vitiate in any way the valuation reached on the former basis. In principle, we can see no reason why, where the valuer has undertaken a valuation on the correct contractual basis, the fact that he has proffered an alternative valuation on another basis, in the face of the conflicting and confused instructions that he received, should undermine the validity of the former. Plainly, before the Lord Ordinary, and in argument before us, much was made of the fact that the Shareholders' Agreement refers to "the Buy-Out Valuation", which necessarily must consist in a valuation containing a single figure. The Rhind report, on our view of it, it contains two figures, one appearing at page 9 being the vacant possession value, the other appearing at page 10 being the tenanted value. However, where it can be affirmed that one of these figures is the valuation made on the correct contractual basis, the fact that the other also appears in juxtaposition to it seems to us to be of no importance. We consider that the valuation produced on the erroneous basis can simply be ignored. If that is done, one is left with a single figure valuation upon the contractually correct basis. No doubt the fact that Mr Rhind proffered two valuations on different bases is the unsurprising consequence of his having been instructed by the parties in the manner that he was. Plainly he could not provide a valuation upon the basis suggested in Messrs. Maclay Murray & Spens's communication of 12 March 2004, which would indeed have required him to adjudicate upon matters of law, some of which were subject to the proceedings in the Scottish Land Court and would thus have resulted in his assuming the role of an arbiter and resolving a legal dispute. Faced with this difficult situation, in which he might well have taken the view that he could not act, having regard to the conflicting instructions, he chose the only other possible course of providing valuations on the basis of the competing contentions. By doing so he has in fact enabled this court to select the contractually appropriate valuation.

[119] The approach which we have taken to the matter of Mr Rhind's valuation differs greatly from that adopted by the Lord Ordinary. He appears to have been persuaded that the difference of view between the parties as to the basis of valuation made it impossible for a single figure valuation to be produced. However, he appears to have overlooked the possibility that, in the end, the difference of view as to the basis of the valuation might require to be resolved by the court, which, if it was provided with appropriate material, could select a single figure from alternatives provided by the valuer. No doubt that position was reached as a result of the submissions made to him following the proof. As regards that, we think it right to observe that the manner in which this case was presented to us differed fundamentally from that in which it was presented to the Lord Ordinary, not only on this matter, but also, inter alia, on the question, as we have already noted, of whether time was of the essence.

[120] For all these reasons, we have reached the conclusion that the valuation made by Mr Rhind on the basis of open market value with vacant possession is in no way vitiated by its association in the same report with the other value formulated on the alternative tenanted basis. We therefore conclude that the Shareholders' Agreement can be operated as regards the Buy-Out upon the appropriate basis of valuation using the appropriate value identified in the Rhind Report. In other words, "the Buy-Out Valuation" must be taken to be £3.705 million. It follows that there is no need for us to consider the possibility of whether, following Sudbrook Trading Estate Ltd v Eggleton, the Shareholders' Agreement, as regards the buy-out provisions, might be operated on any other basis.

[121] Since none of the pursuer's conclusions in this action, as they stand, enable us to pronounce a decree in conformity with the decisions which we have reached in relation to the controversial issues in this case, it will be necessary for appropriate amendments to be made to the pursuer's conclusions. In that connection, we refer to paragraph [90] hereof. To that end, following the issue of this Opinion, the case will be put out in the By Order Roll to enable arrangements for such amendments to be made.


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