BURNSIDE AGAINST PROMONTORIA (CHESTNUT) LIMITED [2017] ScotCS CSOH_157 (28 December 2017)

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Cite as: [2017] CSOH 157, [2017] ScotCS CSOH_157

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OUTER HOUSE, COURT OF SESSION
[2017] CSOH 157
CA6/17
OPINION OF LORD CLARK
In the cause
WILLIAM JOHN BURNSIDE
against
PROMONTORIA (CHESTNUT) LIMITED
Pursuer
Defender
Pursuer: M S H Lindsay QC, Massaro; DAC Beachcroft Scotland LLP (for Dallas McMillan, Glasgow)
Defender: Duthie; Addleshaw Goddard
28 December 2017
Introduction
[1]       The pursuer is a property investor and developer. He is the owner of 26 properties
located in the Borders area of Scotland. Clydesdale Bank Plc (“Clydesdale”) provided the
pursuer with loan funding to enable him to purchase and develop those properties. The
properties were rented out to tenants. In 2012, the pursuer became obliged to repay the
loans. In August 2012, the amount due by the pursuer to Clydesdale in respect of the loans
was £2,688,325.
[2]       The pursuer and Clydesdale entered into an agreement, dated 24 and 31 August 2012
(“the Agreement”). Put broadly, in terms of the Agreement, Clydesdale was to arrange for
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the properties to be sold, with agents being jointly instructed, and the pursuer was to fully
co-operate in that regard. Clydesdale was then to retain the proceeds of sale in permanent
reduction of the debt owed by the pursuer. After the sale, the debt was to be held as
extinguished. Until the properties were sold, the pursuer was obliged to manage them and
to remit the rental income to Clydesdale, subject to deduction of maintenance costs.
[3]       In terms of an assignation in June 2015, Clydesdale assigned its rights in respect of
the Agreement to the defender. Clydesdale also assigned to the defender the benefit of the
standard securities held over the majority, if not all, of the properties.
[4]       The properties have not been sold. By letter dated 10 March 2016, the defender
purported to terminate the Agreement, on the basis that the pursuer had failed to account
for the rent which he had received for the properties.
[5]       In its Summons in this action, the pursuer seeks declarators to the effect that the
Agreement has not been validly terminated by the defender and remains in force, that the
debt referred to in the Agreement includes all sums (including interest) due to Clydesdale
and to the defender, and that after the sale of the properties that debt will be extinguished.
The pursuer also seeks specific implement of the defender’s obligation in respect of
arranging the sale of the properties.
[6]       The pursuer founds upon the existence of an implied term in the Agreement,
expressed in the pleadings as follows: “that the Properties would be marketed and then sold
within a reasonable time”. The pursuer contends that the failures by Clydesdale, and,
following the assignation, by the defender, to comply with this implied term constitute a
material breach of contract, entitling the pursuer to withhold performance of his obligations
under the Agreement. The pursuer further contends that the purported termination of the
Agreement by the defender had no effect, as it proceeded upon the basis of non-
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performance by the pursuer of obligations in respect of which he was entitled to withhold
performance, because of the defender’s breach of the implied term.
[7]       The defender’s position in its Defences is that no such term falls to be implied into
the Agreement and that the Agreement was validly terminated as a result of the pursuer
being in material breach of contract by failing to account for the rental income received.
[8]       In a Counterclaim, the defender seeks recovery of the outstanding debt, on the basis
that the defender has validly terminated the Agreement. In its Answers to the
Counterclaim, the pursuer denies that the Agreement has been validly terminated and avers
that it remains in full force and effect. Esto it had been validly terminated, the pursuer’s
position is that the sums sued for in the Counterclaim are excessive and that the defender is
personally barred from claiming interest.
[9]       The case called before me for debate in respect of the principal action. The defender
sought dismissal of the principal action, which failing the exclusion of certain averments
from probation, by the sustaining of the first and/or second pleas in law for the defender.
The central issue at debate was whether the Agreement contained the implied term founded
upon by the pursuer.
The Relevant Terms of the Agreement
[10]       In the Agreement, the pursuer is referred to as “the Debtor” and Clydesdale as “the
Bank”. The terms of the Agreement which are of relevance for present purposes are as
follows:
“2. UNDERTAKINGS OF THE DEBTOR
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2.1.3 to maintain and repair each of the Properties so that the same are at all times
kept in good condition; …
2.1.5 that all rental income received in respect of the Properties will continue to be
paid directly to the Bank in reduction of his debt to the Bank until transfer of title of
all Properties has passed from the Debtor;
2.1.6 to observe and perform all covenants, requirements and obligations from
time to time imposed on, applicable to or otherwise, affecting the Properties and/or
the use, ownership, occupation, possession, operation, repair, maintenance or other
enjoyment or exploitation of the Properties whether imposed by statute, law or
regulation, contract, grant or otherwise, carry out all registrations or renewals and
generally do all other acts and things (including the taking of legal proceedings)
necessary or desirable to maintain, defend or preserve his right, title and interest to
and in the Properties without infringement by any third party;…
2.2 At the sole discretion of the Bank, the Bank shall permit the release of the
Rental Maintenance Costs to the Debtor from the rental income sums received in
accordance with Clause 2.1.5 of this Agreement. Such release is conditional upon the
Debtor providing the Bank with a schedule evidencing the Rental Maintenance Costs
required and invoices as evidence of the level of the Rental Maintenance Costs
required to be paid. The Bank shall, within 5 business days of receipt of such
schedule and invoices, advise the Debtor whether the Bank will permit the release of
the Rental Maintenance Costs. The Debtor will require written consent from the Bank
before incurring any costs, other than the Rental Maintenance Costs, such consent
not to be unreasonably withheld or delayed.
2.3 The Debtor acknowledges that agents jointly instructed in the interests of
both parties will market the sale of the Properties as a portfolio sale and/or
individually and/or in parts as agreed by the parties both acting reasonably. The
agents will then recommend to the parties the preferred disposal strategy for the
Properties. The parties will irrevocably consent to proceed with the disposal strategy
based on the agent’s recommendations…
3 UNDERTAKINGS OF THE BANK
The Bank, and the Bank’s agents, shall arrange and facilitate the sale of the
Properties. The Proceeds received from the sale of the Properties shall belong to the
Bank in permanent reduction of the Debt. Once all the Properties have sold and the
Proceeds received by the Bank, the Bank acknowledges that the Debt shall be held as
extinguished…
5. REMEDIES FOR BREACH
In the event that the Debtor does not, to the complete satisfaction of the Bank,
comply with its undertakings in Clause 2.1, the Bank shall be entitled to pursue the
Debtor in respect of the whole amount of the balance of the Debt due to the Bank
together with all accrued interest, charges and any other amounts due by the Debtor
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and take all and any action to enforce to the fullest extent permitted by law, its rights
against the Debtor in respect of such balance…
8 ENTIRE AGREEMENT
This Agreement forms the entire agreement between the parties relating to the
subject matter of this Agreement. It is agreed that any future variation hereof may
only take the form of a formal variation of this Agreement, referring in terms to this
Agreement. In particular it is agreed that this Agreement supersedes all earlier
meetings, discussions, correspondence, facsimile transmissions, letters and
communications, understandings and arrangements of any kind in relation to its
subject matter and that there are no collateral or supplemental agreements in relation
to its subject matter at the time of conclusion of this Agreement.
9 SPIRIT, AIMS AND INTENT
The parties to this Agreement undertake to do all acts and things and deliver all
documents necessary to expedite or desirable to give effect to the provisions of this
Agreement and the spirit, meaning and intent of the arrangements contemplated
herein.”
Submissions for the Defender
[11]       In summary, the submissions on behalf of the defender were as follows. The
pursuer’s case was founded upon the pursuer being able to retain rental payments received
by him in respect of the properties, notwithstanding clause 2.1.5 of the Agreement, which
required him to remit such payments to the defender.
[12]       The suggested implied term which the pursuer relied upon did not fall to be implied.
Reference was made to the case of Exxonmobil Sales and Supply Corporation v Texaco Limited
[2003] EWHC 1964 (Comm), in which it was held that the entire agreement clause was
sufficient to exclude implied terms based upon usage or custom. The entire agreement
clause in clause 8 of the Agreement in the present case excluded the possibility of implying
the term founded upon by the pursuer.
[13]       The implication of this term would very significantly change the nature of the
Agreement. Such a term should not be considered to be intrinsic to the Agreement.
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[14]       The basis for the implied term was not stated on averment but it was understood that
it was said to be implied as a matter of law. It was accepted that the court will often imply a
reasonable period for the performance of an obligation, in quite a variety of contracts.
However, in the present case the entire agreement clause in clause 8 of the Agreement
excluded the implied term argument given that the implication of the term would change
the nature of the agreement. In that regard, reliance was placed on Marks and Spencer Plc v
BNP Paribas Securities Services Trust Co (Jersey) Ltd [2016] AC 742, and its reference to the
five-point test expressed in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180
CLR 266. It was argued that none of the five criteria identified in the latter case was met in
the present case.
[15]       The Agreement was about reallocation of risk in the context of a compromise. The
pursuer had no substantial interest in the timescales for performance. The risk of any
shortfall under the Agreement fell upon the Bank and the defender, while the risk of the
Bank or the defender getting more from the sales than was due by the pursuer lay with the
pursuer. In either event the debt would be discharged.
[16]       In relation to the pursuer’s argument that he remains subject to an onerous
obligation to maintain the property, any prejudice in that respect was met by the application
of clause 2.2 which permits maintenance costs to be deducted from the rent. The only
obligations on the pursuer were those in clause 2. There were no onerous obligations.
[17]       Any delay by the defender in not disposing of the properties was not of any real
consequence to the pursuer. In cases in which a reasonable time for the performance of an
obligation was implied, it was for the benefit of the party who was seeking to imply the
term. That was not the position here. The sale of the properties would not give a benefit to
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the pursuer. The purpose of the Agreement was to allow the defender to dispose of the
properties and recover so far as possible to the extent of the pursuer’s debt.
[18]       Even if the court was prepared to imply the term, the pursuer’s averments remained
irrelevant for two reasons. Firstly, there were no averments of what a reasonable time
would have been. The pursuer could not lead evidence about an unspecified breach, still
less that this was material. The proposed implied term was therefore too nebulous.
Secondly, on the pursuer’s own averments the period during which he was entitled to
withhold the rent ended in July 2016 (see Article 12 of Condescendence). That was so
because it was clear from the letter produced by the defender, dated 14 July 2016, that the
defender was taking steps to market the property. It was also plain on the pursuer’s own
averments that on 14 July 2016 marketing steps were under way. The continued retention of
rental sums for two months by the pursuer occurred despite the pursuer being aware that
the property would now be marketed. It was acknowledged that the appointment of the
property agent at that time was not a joint one, but this made no real difference.
Accordingly there was a material breach by the pursuer and no breach by the defender.
[19]       The pursuer in its Note of Argument refers to interest potentially accruing and being
due by him, and this therefore being one of the reasons why the term should be implied.
The defender does, in the Counterclaim, seek interest but on the basis that the Agreement
was validly terminated, not on the basis that the Agreement is continuing. Interest is
therefore not relevant to the question of implication of the proposed implied term. In its
Note of Argument the pursuer refers to the fact that no ultimatum was given to the pursuer.
However, the letter of 14 July 2016 was a sufficient ultimatum. The pursuer was
demonstrably in material breach of contract.
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[20]       The pursuer’s averments were therefore irrelevant and the action should be
dismissed.
Submissions for the Pursuer
[21]       In summary, the submissions on behalf of the pursuer were as follows. The court
should refuse the defender’s motion for dismissal and allow a proof before answer on all
averments, repelling the defender’s first plea in law.
[22]       In relation to the implied term, the pursuer’s averments were relevant. Terms of that
nature were consistently implied by the courts at common law into all contracts where there
was no express timescale for the performance of an obligation. The basis for the implied
term was the common law. What is a reasonable time was to be judged retrospectively. The
question of the period of a reasonable time depended on the particular facts and
circumstances and the relationship between the parties. The obligation in the implied term
was a counterpart to the pursuer’s obligation to remit rent to the defender and the principle
of mutuality therefore applied. The innocent party could refrain from performing his
obligations until the party in breach recommenced performance of his obligation. This
allowed the pursuer to retain the rent. The defender’s breach of the implied term was of
sufficient materiality for that purpose.
[23]       There was no obligation to account for rent which had been lawfully withheld if
there was a period of time during which the defender was not performing its obligation. If a
person could be in breach and eventually get round to performing his obligation, there
would be no incentive to perform within a set timescale if re-engaging with the contractual
obligations resulted in the other party having then to perform all of his obligations,
including payment during the period when the defender was not performing. If the
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defender had remedied its breach, going forward the rent would require to have been
remitted, but there was no obligation to pay the arrears up to that date.
[24]       However, senior counsel also submitted, in clarification of the pursuer’s position,
that at no point had the sums received in rent been sufficient to pay for the pursuer’s costs in
maintaining the properties in terms of the Agreement. There was therefore no sum which
fell to be remitted to the defender.
[25]       There was nothing in the Agreement which would exclude the implication of the
term relied upon by the pursuer. The Agreement contained no express term that was
contradicted by the proposed implied term. There was similarly nothing which would
exclude the implied term by inference from any express terms. Reference was made to the
speeches of Lord Watson and Lord Ashbourne in Hick v Raymond & Reid [1893] AC 22. The
implication of such a term was of general application.
[26]       The point that was made on behalf of the defender about the possibility of a collapse
of the market, so that the defender had to have the time to select when to market the
properties, was of no relevance, because the reasonableness of the time depends upon the
whole circumstances, including any such circumstance. If marketing had been delayed
because of matters beyond the defender’s control, such as a poor market, there would be no
breach of the obligation. A reasonable time period was a flexible concept and the court can
take into account all relevant circumstances.
[27]       The Agreement did not have any express timescale. The five points referred to in
BP Refinery (Westernport) Pty Ltd v Shire of Hastings simply didn’t apply. The context in that
case was the implication of a term based upon business efficacy. In the present case the
basis was implication at common law. That distinction was explained by Lord Neuberger in
Marks and Spencer Plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd (at para 15).
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[28]       The implied term argued for in the present case was not expressly excluded nor was
it excluded by necessary implication. Every obligation must be performed within a
reasonable time unless that was expressly or impliedly excluded. This was an agreement for
the sale of properties, that sale being fundamental. The marketing of properties for sale was
not a perpetual obligation - it was a fundamental purpose of entering into the Agreement.
[29]       The pursuer did have an interest in the properties being marketed and sold within a
reasonable period of time. Clause 5 was the proverbial sword of Damocles hanging over the
pursuer. If he defaulted on his obligation under clause 2.1, accrued interest would be
payable. An inadvertent breach by the pursuer could give rise to say, £1,000,000 of
additional interest due by him. That was one reason why performance within a reasonable
time was important to him. Further, he was effectively acting as the unpaid managing agent
of the properties. This management of some 26 properties was a time-consuming and
onerous task for the pursuer to undertake. This was another reason why it was very much
in the pursuer’s interests for the properties to be marketed and sold within a reasonable
period.
[30]       There was nothing in the structure or underlying purpose of the Agreement that
would exclude the common law implied term to market the properties within a reasonable
time. On the contrary the pursuer had a strong interest in not being exposed to the
consequences of default in the form of additional interest and in not having to continue to
manage and maintain the properties.
[31]       Some of the express terms in the Agreement were in fact consistent with marketing
within a reasonable time. For example, clause 9 speaks of things that are necessary to
expedite the performance of the obligations. In Whuan Ocean Economic & Technical
Cooperation Company Ltd and others v Schiffahrts-Gesellschaft “Hansa Murcia” mbH and Co KG
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[2012] EWHC 3104, it was said (at para 24) that the obligation in question in that case had a
temporal content, with the result that any time limit had to be implied. The court added that
where parties impose a unilateral obligation, without specifying the limit in which it is to be
done, there must be some implication of the time when it is to be done, because the parties
cannot have intended the obligation to be of perpetual or indefinite duration. The unilateral
obligation in that case was to extend the validity of a guarantee. Similarly in the present
case the parties cannot have intended the obligation to be perpetual or indefinite. There
must be some restriction implied by the common law: it was performance within a
reasonable period of time.
[32]       Turning to the question of whether the defender was in material breach of the
implied term such as to justify retention, the obligations were plainly the counterparts of one
another and the breach was of sufficient materiality. Reference was made to Hoult v Turpie
2004 SLT 308 (at paras 9 and 10), the presumption being that one obligation is the
counterpart of the other and that there should be no artificial attempt to break up the unity
of the contract. The obligation on the part of the pursuer to remit the rent was a counterpart
of the defender’s obligation to market and sell the property within a reasonable period of
time, under the implied term.
[33]       In relation to materiality, reference was made to Inveresk Plc v Tullis Russell
Papermakers Ltd [2010] UKSC 19; 2010 SC 106 (per Lord Hope at para 43) and to the
authorities quoted in McBryde, The Law of Contract in Scotland, 3rd ed, at 20.60. The concept
of marketing properties encompassed the obligation to make the joint instruction for selling.
The proposed implied term was wide enough to cover the commencement of marketing by
making a joint instruction. The proposed implied term effectively mirrored the obligation
on the defender in clause 3. That obligation was wider than simply sale; it was to arrange
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and facilitate the sale. This tied in with the joint instructions for marketing, as referred to in
clause 2.3, which set out what was to be done to arrange and facilitate the sale. In the
present case the defender had done nothing. Jointly instructing the agent should have
occurred very shortly after the contract was entered into. There was no reason why the
process of joint instruction could not have been started at some earlier point. There was no
need in the context of retention to meet the high threshold of materiality which the law
required for the purposes of rescission.
[34]       The question of whether a reasonable time had been exceeded required a broad
consideration, with the benefit of hindsight (Peregrine Systems Ltd v Steria Ltd [2005] EWCA
Civ 239, per Maurice Kay LJ at para 15).
[35]       As to the alleged breaches, the pursuer adhered to the position referred to in Article 6
of Condescendence, that at no time was any balance of rent due to the defender, the repair
and maintenance costs having consumed the sums received in rent. There was therefore no
breach of any kind by the pursuer. Articles 12 and 13 of Condescendence explained why the
engagement of the company Cairn as agents did not remedy the defender’s breach. In any
event Cairn had done nothing. These were matters which required to go to proof. Taking
the pursuer’s averments pro veritate, they did not show the defender no longer to be in
breach.
[36]       Turning next to the entire agreement clause, the authority relied upon by the
defender (Exxonmobil Sales and Supply Corporation v Texaco Limited) did not support the
proposition made that the entire agreement clause (in clause 8 of the Agreement) excluded
the implied term. The implied term was an intrinsic part of the Agreement. Clause 8
referred to collateral or supplementary agreements, which were things extrinsic to the
Agreement. In order to exclude the proposed implied term, the wording of any entire
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agreement clause must make clear that the term cannot be implied on the basis sought, in
this case the common law. In Exxonmobil Sales and Supply Corporation v Texaco Limited the
express terms of the entire agreement clause prevented anything being implied of the kind
argued for, which was to do with usage. Here, the entire agreement clause had nothing in it
to prevent the term being implied by operation of the law. The authorities made clear that
an implied term of this kind was an intrinsic part of the Agreement and express provision
within the entire agreement clause is needed in order to exclude the implied term. In that
regard, reference was made to AXA Sun Life Services Plc v Campbell Martin Ltd and others
[2012] Bus L R 203 (per Stanley Brunton LJ at paras 13, 34, 35 and 36), to support the
proposition that the question of whether an entire agreement clause excluded the implied
term depended upon the precise wording of the clause. Reference was also made to Barden
v Commodities Research Unit International (Holdings) Ltd and others [2013] EWHC 1633 (Ch)
(per Vos J at paras 16 and 47) and to Lewison, The Interpretation of Contracts, 6th ed, at 3.16,
which, it was said, summed up the position.
[37]       In the present case the reference in clause 8 to collateral or supplemental agreements
did not cover the implied term, which was not collateral or supplemental. It was intrinsic; it
was part of the agreement. Clause 8 of the Agreement was no answer to the pursuer’s case.
Reply for the Defender
[38]       In reply, counsel for the defender explained that he had taken the pursuer’s
pleadings to mean that the pursuer was indeed withholding payment of rent, from 2014. In
any event, there were no averments that the pursuer had satisfied the terms of clause 2.2 in
the Agreement which provided that the release of sums was at the sole discretion of the
defender, after the pursuer had undertaken the procedure laid down. Retention was not
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available as of right. It was clear from Article 6 of Condescendence that the schedules
required in terms of clause 2.2 were no longer provided by the pursuer after 2014. The
pursuer was therefore in breach of contract.
[39]       The cases of AXA Sun Life Services Plc v Campbell Martin Ltd and others and Barden v
Commodities Research Unit International (Holdings) Ltd and others did not assist the pursuer.
AXA was about collateral warranties and misrepresentations whereas the present case was
about the implication of a timescale which fundamentally changed the nature of the
agreement. Barden concerned the construction of a clause in a way that avoided absurdity,
not the implication of a clause which would change the nature of the agreement.
The Issues
[40]       The central issue raised in submissions is whether or not the implied term contended
for by the pursuer forms part of the Agreement. As can be seen from the summary I have
given of the submissions, the parties also raised related points. The defender argued that
there was no specification of the duration of a reasonable time and also that the implied
term changed the nature of the Agreement. Further, the defender argued that it had in fact,
in July 2016, taken steps to market the property, with the result that, even if there had been
breaches of the implied term prior to that date, they ceased at that point. The defender also
contended that even if the pursuer was correct that there were no sums to be remitted to the
defender because of the costs of maintenance, the pursuer was still in breach of clause 2.2 of
the Agreement. The pursuer argued that the defender’s breach of the implied term was of
sufficient materiality to justify retention and that the obligations were counterparts of one
another, so that any withholding of performance by the pursuer (had that occurred) was
justified. The pursuer further contended that the purported termination of the Agreement
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based on the alleged breach by the pursuer was invalid, in light of the pursuer’s right to
withhold performance.
[41]       In my opinion, only the issues relating to the proposed implied term can be
determined at this stage. The other points raised (alleged breaches of contract by either
party and the effects of any such breach) cannot be determined on the pleadings alone. In
relation to its purported termination of the Agreement, the defender avers (in Answer 11)
that the specific breach of contract by the pursuer founded upon was the failure by the
pursuer to pay all rental income received by him, as required by clause 2.1.5 of the
Agreement. On the pursuer’s averments, there is a factual issue as to whether there were
any sums received in rent to be remitted to the defender, in light of the maintenance costs.
There are no specific averments by the defender about an alleged breach of clause 2.2. It is
therefore not surprising that the pursuer makes no averments of compliance with this
obligation. In any event, the question of whether the pursuer met the terms of clause 2.2
and, if not, the effect of any such breach (in particular, whether it would justify rescission by
the defender) must in my view be a matter for proof. Similarly, on the question of whether,
if the term contended for by the pursuer indeed fell to be implied, a breach of it by the
defender was of sufficient materiality to justify withholding of the pursuer’s obligations, it
will be necessary to hear evidence about the nature and circumstances of that breach in
order to assess its materiality or otherwise. The question of whether the events in July 2016
(the instruction of Cairn estate agents and what, if anything, followed) amounted to
performance of obligations under the implied term and the Agreement is also a matter for
proof.
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Decision and Reasons
Subject to the effect of the entire agreement clause (clause 8), does the implied term contended for
otherwise fall to be implied?
[42]       In Hick v Raymond & Reid the decision of the court was that where a bill of lading is
silent as to the time within which the consignee is to discharge the ship’s cargo, his
obligation is to discharge it within a reasonable time. In his speech, Lord Watson stated (at
page 32):
“Where the language of a contract does not expressly, or by necessary implication,
fix any time for the performance of a contractual obligation, the law implies that it
shall be performed within a reasonable time. The rule is of general application, and it
is not confined to contracts for the carriage of goods by sea.”
This succinct statement explains the circumstances in which such a term falls to be implied,
and also makes clear that it is implied as a matter of law, the rule being of general
application. Lord Watson’s dictum has not, so far as I am aware, been the subject of criticism
or been departed from in later decisions.
[43]       As was pointed out by Lord Neuberger in Marks and Spencer Plc v BNP Paribas
Securities Services Trust Co (Jersey) Ltd (at para 15):
“… there are two types of contractual implied term. The first, with which this case is
concerned, is a term which is implied into a particular contract, in light of the express
terms, commercial common sense, and the facts known to both parties at the time the
contract was made. The second type of implied term arises because, unless such a
term is expressly excluded, the law (sometimes by statute, sometimes through the
common law) effectively imposes certain terms into certain classes of relationship.”
Similarly, in Geys v Société Générale London Branch [2012] UKSC 63; [2013] 1 All ER 1061 at
para [55], Lady Hale stated:
“In this connection, it is important to distinguish between two different kinds of
implied terms. First, there are those terms which are implied into a particular
contract because, on its proper construction, the parties must have intended to
include them: see Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10,
[2009] 2 All ER 1127, [2009] 1 WLR 1988. Such terms are only implied where it is necessary
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to give business efficacy to the particular contract in question. Second, there are those
terms which are implied into a class of contractual relationship, such as that between
landlord and tenant or between employer and employee, where the parties may have
left a good deal unsaid, but the courts have implied the term as a necessary incident
of the relationship concerned, unless the parties have expressly excluded it: see Lister
v Romford Ice & Cold Storage Co Ltd [1957] AC 555, [1957] 1 All ER 125, [1957] 2 WLR
158; Liverpool City Council v Irwin [1977] AC 239, [1976] 2 All ER 39, 74 LGR 392.”
[44]       While these comments about terms which are implied as a matter of law, rather than
implied by fact, refer to certain classes of relationship, as Lord Watson makes clear the
implied term of performance within a reasonable time is a term applied generally in
contracts (absent express contrary provision). In any event, the idea of classes of contractual
relationship for this purpose simply means a defined type of contract (one of a genus rather
than being sui generis: Ashmore v Corpn of Lloyd’s (No 2) [1992] 2 Lloyds Rep 620). There are
plainly examples of contractual relationships which very regularly occur and where terms
are implied by law (such as employment, carriage, sale of goods) but there are others of a
particular class or type where the implication of the term will arise. The present case is one
in which one party has agreed to arrange for the sale of certain property, in payment of a
debt owed by the other party. That could in my view properly be regarded as a class or type
of relationship for the purposes of implication of a term requiring performance within a
reasonable time. However, the existence of such a class or type, is not, in terms of Lord
Watson’s dictum, a requirement for the implication of that particular implied term.
[45]       Plainly, the law on the implication of terms has developed since the decision in Hick
v Raymond & Reid but those developments have not affected the principle enunciated and
applied by Lord Watson. The discussion in Marks and Spencer Plc v BNP Paribas Securities
Services Trust Co (Jersey) Ltd about the implied term in that case, and its reference to the five
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points stated in BP Refinery (Westernport) Pty Ltd v Shire of Hastings, is in the context of terms
implied in fact.
[46]       Where an obligation is to act within a reasonable period of time, that is an
implication of law and it is then a matter of construction as to what is the duration of the
reasonable time: see CSSA Chartering and Shipping Services SA v Mitsui OSK Lines Ltd
[2017] EWHC 2579 (Comm), Popplewell J at para 21 J; Evera SA Commercial v North
Shipping Company Ltd (The North Anglia) [1956] 2 Lloyd's Rep 367 (Devlin J at 375). I accept
that the question of whether a reasonable time has been exceeded is a matter for broad
consideration, to be viewed with the benefit of hindsight when the issue of alleged breach
arises for determination, in all of the relevant circumstances of the case (Peregrine Systems
Ltd v Steria Ltd [2005] EWCA Civ 239, per Maurice Kay LJ at para 15).
[47]       Lord Watson’s dictum does not, in terms, refer to the possibility of the implied term
being excluded, for example by an entire agreement clause, but it is plain from the
observations of the Supreme Court in Marks and Spencer Plc v BNP Paribas Securities Services
Trust Co (Jersey) Ltd and Geys v Société Générale London Branch that exclusion by an express
term is possible.
[48]       Applying the authorities, the first issue is to consider whether (to use Lord Watson’s
words) the language of the Agreement does not expressly, or by necessary implication, fix
any time for the performance of the obligation in question. This involves construction of the
terms of the Agreement, on the well-established principles, including consideration of the
natural and ordinary meaning of the language, having regard to the context and background
as known to both parties and, where appropriate, considerations of business common sense.
The Agreement does not contain any terms which indicate that it is perpetual or indefinite.
Equally there is nothing in the Agreement or in the context or background, or indeed based
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upon business common sense, which could indicate that the parties had left it entirely in the
discretion of the defender as to when the defender wished to arrange for the sale of the
properties. There is nothing to indicate that the parties intended to allow that the defender
could take a period of time that was in all of the circumstances unreasonable for the
performance of the obligation in clause 3.
[49]       In short, there is no provision which, expressly or by necessary implication, fixes a
time for the performance of the obligation, in clause 3 of the Agreement, to arrange for and
facilitate the sale of the properties. The suggested implied term therefore meets the
requirement stated in Hick v Raymond & Reid.
[50]       There is no need, on the authorities, positively to identify features of the contract, or
its context or background, or business common sense, which point towards the existence of
such an implied term. But had it been necessary to do so, such features can plainly be
identified. As it was put on the pursuer’s behalf, he requires, in effect, to act as the manager
of 26 properties and to perform a wide range of tasks in respect of them, all as encompassed
within the terms of clauses 2.1.3 and 2.1.6 of the Agreement. He remains subject to those
obligations for as long as the properties are not sold. He also remains subject to his other
obligations, and there is some force in the pursuer’s contention that in the event of an
inadvertent breach of contract the pursuer could become exposed to a claim for additional
interest. On the pursuer’s averments, this could involve substantial sums. It is in his
interests to become free from that possible liability and it is also of course very much in his
interests to become free from the debt. From the defender’s perspective, the debt requires to
be paid off and it has accepted that the proceeds of the sale of the properties will suffice for
that purpose. Clause 9 of the Agreement involves a mutual undertaking to do everything
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“necessary to expedite or desirable to give effect to the provisions of this Agreement”, which
suggests that there is some form of temporal dimension to performance of the obligations.
[51]       It is important to recognise that what is a reasonable period of time will depend
upon all of the circumstances, as was made clear in Hick v Raymond & Reid. In an
appropriate case, a reasonable time can be a period of years (see eg McCall's Entertainments
(Ayr) Ltd v South Ayrshire Council (No 2) 1998 SLT 1421, at 1428 K-L). The factors noted in the
previous paragraph may be relevant to the determination of that issue, but that is a matter
for the court hearing the proof. If a party has averred reasons for having delayed in
performance, these will certainly be considered. From the point of view of the defender,
there may well be factors that point towards the duration of a reasonable period of time in
which to perform its obligations, one possibility being market conditions. However, at
present, the defender has no averments on such matters.
[52]       As I have noted above, the averment by the pursuer in relation to the implied term
contended for is in the following terms: “that the Properties would be marketed and then
sold within a reasonable time”. Clause 3 of the Agreement imposed on the defender the
obligation that it “…shall arrange and facilitate the sale of the Properties…”. Clause 2.3
refers to the properties being marketed for sale by agents jointly instructed by the parties,
who would recommend the disposal strategy, to which the parties would be required to
consent. On the face of it, it might be said that the proposed implied term introduces not
only a requirement to perform an obligation stated in the Agreement within a reasonable
time but an alteration to the language of the Agreement by requiring the defender to market
and sell the properties within such a time.
[53]       However, in the Summons, the pursuer concludes for specific implement “in terms
of clause 3.1” of the Agreement (which must be reference to clause 3, there being no
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clause 3.1) and refers to the appointment of jointly instructed agents. It therefore appears
that the words “would be marketed and sold” in the proposed implied term are not being
suggested by the pursuer to themselves form part of the contractual obligation. Rather, in
my view, this averment as to the content of the implied term must be taken to mean that the
obligation on the defender in terms of clause 3 falls to be performed within a reasonable
time. Hick v Raymond & Reid, upon which the pursuer founds, of course contemplates an
implied term as to performance of an existing obligation rather than alteration of the terms
of that obligation.
[54]       I conclude therefore, subject to the entire agreement clause, that the implied term
contended for by the pursuer, to the effect that the obligation in clause 3 is to be performed
within a reasonable time, would fall to be implied into the Agreement.
What is the effect of the entire agreement clause (clause 8)?
[55]       It is obvious that the precise language of the entire agreement clause has to be
considered and that, for the defender’s submissions to be upheld, it requires to exclude the
implied term, or at least the basis upon which it is sought to be implied (see eg AXA Sun Life
Services Plc v Campbell Martin Ltd and others). Here, the language of the entire agreement
clause in clause 8 of the Agreement simply does not do so.
[56]       The statement in clause 8 that “This Agreement forms the entire agreement between
the parties relating to the subject matter of this Agreement” of itself does not affect the
implied term, the whole point of the implication of the term contended for being that it
would already form part of the contract. Similarly, the reference to it being agreed that
“…any future variation hereof may only take the form of a formal variation of this
Agreement, referring in terms to this Agreement” doesn’t affect an existing implied term.
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This is followed by the reference in clause 8 to it being agreed, in particular, that “…this
Agreement supersedes all earlier meetings, discussions, correspondence, facsimile
transmissions, letters and communications, understandings and arrangements of any kind
in relation to its subject matter and that there are no collateral or supplemental agreements
in relation to its subject matter at the time of the conclusion of this Agreement”. The implied
term plainly does not constitute an earlier understanding or arrangement, nor is it a
collateral or supplemental agreement, for the reason that it is intrinsic to and forms part of
the Agreement.
[57]       Accordingly, the implied term is not excluded by the terms of the entire agreement
clause in clause 8 of the Agreement.
What is the effect of the absence of specification by the pursuer of the duration of a reasonable period of
time?
[58]       As is noted above, the pursuer avers that for each month since the Agreement was
signed, the rent paid to the pursuer was less than the costs allowed to be deducted by him.
The pursuer’s position is that the Summons does not therefore proceed upon the factual
basis that the pursuer is withholding performance of the obligation to account for rent.
There are other indications in the pursuer’s pleadings which might be taken to suggest the
contrary (for example in Articles 12 and 14 of Condescendence) and he avers (in Article 6 of
Condescendence) that clause 2.2 of the Agreement did not require him to pay over the rent if
Clydesdale (and by implication the defender) did not comply with clause 3. Nonetheless,
the pursuer maintains his position that no sum was in fact being withheld.
[59]       The pursuer avers that Clydesdale and the defender breached the Agreement by
failing to comply with their obligations in clause 3 within a reasonable time. It would
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appear that the reliance upon this alleged breach is to support an argument that any
subsequent alleged breach by the pursuer (which as I have indicated is not accepted by the
pursuer to have occurred) was justified on the basis of mutuality. The pursuer also seeks
implement of the obligations in clause 3, again on the basis that a reasonable time has
elapsed.
[60]       The pursuer does not aver the point in time at which Clydesdale or the defender
breached the implied term, nor does he otherwise specify the duration of a reasonable time.
His averment (in Article 8 of Condescendence) as to Clydesdale being in breach is as
follows: “By failing to take any substantive steps to implement clause 3.1 of the Sales
Agreement, Clydesdale was in breach of the Sales Agreement from 2012”. In relation to the
defender, it is averred (in Article 12 of Condescendence) that
“Since the assignations, the Defender has taken no substantive steps to implement
the obligations imposed on Clydesdale under the Sales Agreement. The Defender
therefore continues to be in breach of the Sales Agreement”.
[61]       By inference from these averments, the pursuer offers to prove that a reasonable time
has elapsed. He does not aver the duration of that period, but where that issue is one to be
determined by the court in light of all of the relevant circumstances, I see no requirement for
him to do so. He is effectively saying, at least in respect of the present defender, that
however long such a period might be held to have extended, it is now over. The court can
determine at proof whether that is correct. If it turns out to be the case that the sums of
money received in rent were not lawfully retained by the pursuer (for example, because the
rental maintenance costs did not exceed the rental income), the issue of precisely when the
implied term was breached may well be relevant. Again, however, that is a matter to be
determined by the court, at proof, in the whole circumstances. I do not consider that the
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pursuer can be held to have failed to make out a relevant case by not averring the duration
of the period of a reasonable time.
Conclusion
[62]       For the reasons given, I conclude that the obligation in terms of clause 3 of the
Agreement required to be performed within a reasonable time, by virtue of the existence of
the implied term.
[63]       Accordingly I shall exclude from probation the defender’s averments to the effect
that no such term fell to be implied (in Answer 4, from “Explained and averred…” to the
end of the Answer), and I shall also repel the first and second pleas-in- law for the defender
and appoint the cause to a proof before answer on the whole remaining averments of the
parties.



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