Small v. Fleming & Anor [2003] ScotCS 86 (27 March 2003)
|
OUTER HOUSE, COURT OF SESSION
|
|
CA121/01
|
OPINION OF LORD MACFADYEN
in the cause
FREDRICK SMALL
Pursuer;
against
(FIRST) ROBERT FLEMING AND (SECOND) TARMAC LIMITED
Defenders:
________________
|
Pursuer: Wallace; Ledingham Chalmers,
First Defenders: J.R. Campbell, Q.C.; Ketchen & Stevens, W.S.
27 March 2003
Introduction
- The principal issues in this case are (1) whether the pursuer and the first defender entered into a binding contract forming a joint venture to acquire from the second defenders, and develop, certain land at Hillwood, Ratho; and (2) whether the first defender repudiated that agreement by making an offer to the second defenders to acquire the land in question on behalf of other parties. A proof before answer was allowed on those issues, reserving for future consideration the consequential question of the remedies to which the pursuer might be entitled if he succeeded in establishing the existence and breach of the contract.
The Subjects
- The second defenders, who have not entered the process, are the heritable proprietors of the farm of Hillwood, Ratho. The first defender and his father are the tenants of Hillwood, pursuant to a lease in their favour granted by the former proprietors, Wimpey Asphalt Limited, in 1985 (the third attachment to No. 7/7/28 of process). The lease was for a period of three years, but it is accepted that it continues by tacit relocation. Parts of the land originally let were subsequently acquired by the roads authority for construction of part of the junction of the M8 and M9 motorways. By 2001 the second defenders had decided to sell certain parts of Hillwood. The parts in question comprised two separate areas, the first extending to some 19.4 ha (Area A), and the second extending to some 2.9 ha (Area B). The two areas are shown outlined on the plan which is the first attachment to a letter of 1 June 2001 from the second defenders' agents, First City, to the pursuer (No. 6/3 of process). Area A is also shown in the aerial photograph which is No. 6/25 of process. On that photograph, the fields which make up Area A are marked (reading from west to east) "11", "7", "8" and "14". These figures represent the respective approximate acreage of each field, but it is also convenient to use the numbers to distinguish among the fields which make up Area A when it is necessary to do so.
The Negotiations
Background
- The pursuer is the heritable proprietor of Ratho Hall, the grounds of which lie immediately to the south of Area A. Ever since he acquired Ratho Hall in 1994 he has had an interest in acquiring at least part of Area A, namely field 7. He made his interest known to the second defenders in about 1994. Over the years there was, according to the pursuer, occasional contact between him and the second defenders or their agents. On 12 March 2001 a telephone conversation took place between Mr Fergus of First City and the pursuer. On the same day Mr Fergus wrote a letter (No. 6/1 of process) to confirm the conversation, indicating that First City had recently received an offer for the property comprising Areas A and B, and that bearing in mind the pursuer's previous interest they wished to confirm any other proposals before reporting to the second defenders. The letter mentioned that the land was tenanted. The pursuer replied by letter dated 15 March 2001 (No. 6/2 of process), confirming his interest and indicating that he was prepared to enter into negotiations either for outright purchase, subject to the existing tenancy, at "an enhanced agricultural value", or for acquisition at agricultural value with a development profit clawback "should I obtain detailed planning consent within say 5 years". In relation to the first basis, he indicated that he would expect to pay a purchase price of about £100,000.
- By letter dated 1 June 2001 (No. 6/3 of process), First City rejected those proposals. In the letter First City provided further information about their intentions. They enclosed a copy of the agricultural lease in favour of the first defender and his father. They indicated that the land was not being openly marketed, but that they had received three expressions of interest and one offer, which was under consideration. They enclosed "property terms" to reflect standard conditions which, they said, the second defenders included in sale contracts, and expected to apply to the sale of the land at Hillwood if they received an acceptable offer. These terms included, as Clause 10, a "development clause", providing that the second defenders would receive 50% of the value stemming from any development permitted on the property. First City invited the pursuer's proposals, and indicated, for guidance, that the interest they had received suggested a cumulo price for both areas of about £200,000.
- The letter of 1 June bears manuscript annotations, which the pursuer said were in his hand. He explained them as referring to a telephone call which he received from Mr Fergus on 11 July 2001, and recording points made by Mr Fergus in the course of that call. Those points were (1) a reiteration of the fact that the property was not being openly marketed; (2) that there were then three offers, all conditional; (3) that the current offers were in the region of £300,000 with the development clause excluded; and (4) that the first defender's tenancy was "agricultural protected".
- The pursuer's evidence was that Mr Fergus's next contact with him was by telephone at about 6 p.m. on Friday 20 July 2001. Mr Fergus told him that matters had progressed, and that, if he still wanted to bid for the property, his offer would require to reach Mr Fergus by close of business on Monday 23 July. Mr Fergus further indicated that the suggested price was now in excess of £350,000. The pursuer then discussed the matter with his wife. They felt that an offer of £350,000 was well beyond the amount which they themselves could finance on a speculative basis. They took the view that the first defender, as the agricultural tenant, was the key to the situation. They felt that nothing would be lost by contacting him. As the pursuer put it in cross-examination, because the first defender was the agricultural tenant, it was sensible to approach him to see where he stood; he was the natural additional party to bring in.
The first contact
- The pursuer telephoned the first defender on the morning of Saturday 21 July 2001. According to the pursuer's evidence, he asked the first defender if he knew that the second defenders were selling his fields, and he said that he did not. In evidence in chief, the pursuer then said: "I invited him to meet, which we organised to do on Sunday afternoon". In cross-examination, however, when that was put back to him, he said: "I didn't call the meeting. I phoned Robert [the first defender] and he asked to meet me." He said that, when he told the first defender of the possibility of sale of land of which he was tenant, the first defender said that it was a shock to him, and asked to meet the pursuer. The pursuer added: "I don't accept that the meeting was at my invitation." He said that he did not mention his proposals for development of the land on the telephone; what brought the first defender to the meeting was the fact that "his agricultural tenancy was being sold from under him". The first defender's evidence was that the pursuer telephoned him on the Saturday morning, told him that part of the farm was up for sale and that it included a piece of ground that he was interested in. The pursuer mentioned the ultimatum from First City setting the following Monday as the time limit for offers, and said that he would like to meet the first defender to discuss a proposal which he had to put to him. Time was of the essence because of the ultimatum. In cross-examination the first defender said that on 21 July he was surprised that the land was up for sale, but not concerned. He denied that he was so concerned that he wanted to come to see the pursuer.
- If no emphasis had been placed on the point, I would not have regarded it as of material importance whether it was the pursuer or the first defender who proposed the meeting at Ratho Hall on 22 July. Mr Wallace for the pursuer did, however, place some emphasis on the point and submitted that I should find that as a result of the news of the proposed sale the first defender asked for an urgent meeting with the pursuer. It is therefore necessary for me to deal with the point. I prefer the evidence of the first defender that the pursuer invited him to a meeting at Ratho Hall. Not only is that in accordance with what the pursuer himself said when he first mentioned the subject in evidence; it is also consistent with the undisputed facts that the first approach was made by the pursuer to the first defender, and that the meeting took place at the pursuer's house. It was the pursuer who was facing an ultimatum which forced him to decide by the Monday whether or not to make an offer for the land. On the other hand, I do not understand why the first defender should have been "shocked" or "concerned", as the pursuer suggested he was, at the news of the proposed sale. As agricultural tenant, he had security of tenure, irrespective of who the owner of the farm might be. I understand the first defender's surprise at the news. I understood him to mean that he would have expected to hear of the landlords' proposal by other means than through the pursuer. I accept his evidence, however, that he was neither shocked nor concerned. It makes more sense that the first defender was willing to attend a meeting at the pursuer's request, to hear what proposal the pursuer had to put to him, than that he should have taken the initiative in asking for a meeting. I therefore reject the version of the pursuer's evidence given in cross-examination, when he denied that the meeting took place at his invitation. I remain of the view that the point is of no intrinsic importance, but it may cast an unfavourable light on the pursuer's credibility and reliability.
The meeting on 22 July 2001
[9] The meeting between the pursuer and the first defender duly took place on 22 July. They were the only persons present. It was the first time they had met. In evidence in chief the pursuer gave an account of the meeting which may be summarised as follows. He showed the first defender the correspondence he had had with First City. The first defender expressed surprise that he had not been notified that the land was for sale. The pursuer told the first defender what the second defenders were looking for. He asked the first defender what he would like to do. He was aware from previous experience that there were three courses available to the first defender, namely (i) to grant the pursuer an option on the agricultural tenancy; (ii) to sell the agricultural tenancy to the pursuer outright; or (iii) to enter into some form of joint venture with the pursuer. The pursuer professed to be surprised when the first defender indicated that he was interested in a joint venture and indicated that he had personal resources of £150,000 to "put into the pot". The pursuer mentioned his idea that a small number of houses on field 7, linked to communal stables, would be a desirable development, which would be likely to obtain planning permission. It was agreed between the pursuer and the first defender (according to the pursuer) that development on fields 8 and 14, which the first defender's house overlooked, would not be desirable, but that the proposed development of field 7 would be. It was thought that David Taylor, the owner of Ratho Quarry, which lies to the west of field 11, would be interested in acquiring part of that field. The pursuer then did what he described as a "back of an envelope" calculation showing that a development of 8 houses should yield a profit of £2,000,000. That calculation, which is No. 6/72 of process, was in the following terms:
|
Land purchase |
£350.000 |
|
Sale of land to DT [David Taylor] |
100,000 |
| |
250,000 |
|
8 houses @ 500,000 |
4,000,000 |
|
Build cost 8 at 200[000] |
1,600,000 |
|
Prov[ision] |
400,000 |
| |
2,000,000 |
According to the pursuer, he and the first defender agreed that that "would repay their overdrafts and give them something extra". They were not greedy. That was more than sufficient. The first defender then explained that he was a farmer, not a businessman. He did not fully understand the project, but £1 million each "would be nice". He said that he would have to rely on the pursuer's expertise in business. The pursuer could not recall if he told the first defender what his business experience was. In fact he had been in practice as a chartered accountant for about twenty years, had held directorships in a number of companies, including one concerned with property development. He was now operating Ratho Hall as a high class bed and breakfast establishment. According to the pursuer, the first defender said that, because he was in negotiation with the second defenders on another matter, he did not wish his involvement with the pursuer to be known. The position reached by the end of the meeting was that the first defender wanted to be a 50/50 partner, but the pursuer was to "front" it without disclosing the first defender's interest. The pursuer did not think that the £150,000 which the first defender had said he had available would be required, because he had always in the past borrowed to fund developments. He understood that he and the first defender were to participate as equal partners, but that he was to conduct the negotiations with First City and the second defenders. The subject of the agricultural tenancy was touched upon, but the pursuer agreed that he was not qualified to discuss it. That was to be left to the respective land agents, Michael Reid Thomas for the first defender and Ian McCallum for the pursuer. It appears that throughout the negotiations the first defender regarded himself, and was regarded by the pursuer, as able to speak for his father who, although a joint tenant of the farm, had retired from active farming.
[10] In cross-examination the pursuer was challenged as to whether he had a more ambitious scheme in mind than the mere development of eight houses with communal stables on field 7. There was put to him a plan (within No. 7/8 of process, marked BH Proj-X March 99) which illustrated an hotel on field 11 and a caravan park on field 14. He initially professed no recollection of it, then explained that it had been done by an architect friend of his, Bill Henderson, on his own initiative. Since it was recovered from the files of his solicitors, Ledingham Chalmers, he accepted that he must have passed it to them at some stage, but did not explain when or why he had done so. When Iain McCallum came to give evidence, however, it was evident that he was aware of the proposals outlined in the plan, and had been involved in discussion of them. In the circumstances I am not prepared to accept the pursuer's attempt to dissociate himself from the more elaborate plan involving an hotel and caravan park, although I do accept that the matter was not taken forward when first mooted. It was not discussed with the first defender, and may or may not still have been in the pursuer's mind at that stage.
- In cross-examination as to the discussions on 22 July, the pursuer said that of the three options he put forward, the first defender wanted to be a joint venture partner on a 50/50 share; and that since that was all right by him, he was happy to go along with it. The concept of developing eight houses with communal stables on field 7 was discussed. There was also discussion of the possibility that the first defender's agricultural contracting business would service the stables, but nothing was agreed about that. So far as the agricultural tenancy was concerned, neither of them had the necessary professional qualifications to deal with it, and it was agreed that the matter would be referred to their respective land agents. There was no agreement as to the terms on which the tenancy was to be given up. It was the pursuer's belief, however, that it was agreed that the tenancy would be given up to the joint venture. No mechanism for doing so was set in place. The pursuer accepted that the giving up of the tenancy was crucial to getting the joint venture "off the ground". As he put it in re-examination, it was inconceivable that they could have agreed upon an equal joint venture without agreeing that the agricultural tenancy would be surrendered. There was no mention, at the meeting on 22 July, of the cash contribution to the joint venture of £50,000 which, according to the pursuer, was agreed at the subsequent meeting on 5 August. Nothing was agreed as to the price to be offered to the second defenders for the land. It was left to the pursuer to deal with "the business side of things". He believed he had a mandate to acquire the property. Things might have been different if, at the next meeting, the first defender had said that the pursuer had offered too much, but that did not happen. It was put to the pursuer that he had not set out three options for the first defender's consideration, but had mentioned only the loosely defined possibility of some form of joint venture. The pursuer replied that he had set out all three options "professionally". The cost of holding the land while an application for planning permission was made was not discussed. The pursuer professed to have no recollection of whether the matter of planning permission was discussed at all. There had been no discussion of possible delays in obtaining planning permission.
- The first defender's account of the meeting was that the pursuer made a proposal for the development of one area of land, namely field 7. He used the words "joint venture". That was not a concept with which the first defender was familiar. The pursuer's proposal was that field 7 would be developed by building six to eight expensive, or luxury, or "up-market" houses. The idea of the shared livery stable was mentioned, but in no great detail. There was no discussion of where the paddock would be. The first defender recognised No. 6/72 of process as the sheet of paper on which the pursuer made a rough calculation in the course of the meeting. There was discussion of an access road to the proposed new houses, but no agreement was reached on that point. The first defender thought that the existing track on the northern boundary of the pursuer's land would do, but the pursuer was not keen on that. The first defender could not recollect what the pursuer's alternative route was; possibly through field 14. The pursuer said that he was going to put in an offer in his name. He asked how much the first defender was prepared to contribute to the development. The first defender had not, until then, applied his mind to the point, but gave the figures of £100,000 to £150,000. The pursuer's idea was that the first defender would give up his tenancy.
- The first defender said that in attending the meeting he just wanted to hear the pursuer's proposal. It was a first meeting. He was not going to give up anything at that stage. He wanted to see a business plan; something more by way of projections than the rough calculation in No. 6/72 of process. He needed to take advice from his land agent, and from his accountant. Mr Reid-Thomas had been his land agent for as long as he could recall. His accountant, Mr Anderson, had been advising him for over twenty years. He would also in due course have consulted his solicitors, Ketchen & Stevens. When asked how matters stood at the end of the meeting, he said that he and the pursuer had had informal discussions. He expected there to be more discussions. He thought that the pursuer would find out more about financing the development. He expected a business plan to be prepared, to see what return there was going to be. He had not, prior to the meeting, applied his mind to the implications of further reduction of the size of the agricultural holding, already reduced by the land taken for motorway construction. When asked if he considered himself contractually bound at the end of the meeting, he said: "Definitely not".
- Under cross-examination, the first defender denied that the pursuer had put three possible courses to him. The only proposal had been a joint venture. There was no mention at that stage of equal sharing of profit. The pursuer did say, "£1,000,000 would be nice", and "£1,000,000 is enough for anybody". No mention was made of how much would have to be invested to earn £2,000,000. He accepted that the implication of the reference to "£1,000,000 each" was that equal sharing was proposed. He accepted further that the pursuer said that he would make an offer for the land. He had raised no objection to the pursuer's doing so. But he had not agreed to be involved in a joint venture to do so. It was the first time he had met the pursuer. There was "no way" that he would "do a deal" the first time he met a person. He accepted that he held himself out as a farmer with no knowledge of property development. He in fact had no experience of property development. The question of how to deal with the agricultural tenancy was left over for later discussion.
Events between 23 July and 4 August
- Following the meeting on 22 July the first defender contacted Mr Reid-Thomas the next day and asked him to make inquiries to verify the pursuer's assertion that the land was for sale. Mr Reid-Thomas did so by contacting First City. The first defender also accepted that the pursuer might have contacted him on more than one occasion, and that there might have been discussion of how the pursuer's inquiries into sources of funding were progressing.
- On 23 July the pursuer contacted his solicitor, Gavin Farquhar of Ledingham Chalmers, and instructed him to register his interest in the land at Hillwood with First City. There is no dispute that such contact took place, but there is in Mr Farquhar's file (No. 7/7 of process) no file note or other record of the detail of what the pursuer told Mr Farquhar. Mr Farquhar was unable to recall whether at that stage any mention was made of a joint venture. At 4.42 that afternoon, Mr Farquhar sent a fax (No. 7/7/27 of process) to Mr Fergus for the purpose of noting the pursuer's interest. Although the reason for his doing so was not clearly explained in evidence, Mr Farquhar identified his client as Ratho Hall Ltd (a company owned by the pursuer and his wife) rather than the pursuer. He made reference, however, to First City's letter of 1 June to the pursuer. He raised an issue concerning the development clause in the second defenders' standard terms. He then continued:
"Fred Small was advised of a deadline of 5 pm this evening for offers per your telephone call to him at 6.30 pm on Friday last. We hope that in the circumstances this can be extended so that we can prepare the appropriate legal offer and submit it to your solicitors. Please telephone on receipt of this fax to confirm."
The point was not expressly covered in evidence, but it seems reasonable to infer from subsequent events that such confirmation was given.
- Nevertheless, the pursuer does not appear to have been content to leave the matter in the hands of his solicitor. On 25 July he wrote to Mr Fergus (by fax and post) a letter (No. 6/4 of process), which was in inter alia the following terms:
"I refer to your letter of 1 June and our subsequent telephone conversation and write to confirm what is my final and best offer for the ... land.
Having given detailed consideration I am prepared to offer £444,444.44 ... subject to the "Draft Property Heads of Terms" as per your letter subject to no restriction on permitted use other than your User Restriction and NO Development Clause.
If this is acceptable to your clients, I will instruct Gavin Farquhar of Ledingham Chalmers, Solicitors to formally submit a legal offer.
Should you wish to take up a financial reference I undernote my own bank manager who has been briefed of the situation."
The pursuer stated in evidence that the price offered was just a figure he had decided to submit. He had hit upon it between 24 and 25 July. In cross examination, he first said that he did not know when he first advised the first defender of the price; then that he did not mention it to the first defender until the meeting, discussed below, on 5 August. In re-examination, his position was that it was possible, but unlikely, that he did not mention the offer to the first defender before that meeting. The offer was not copied to the first defender. The pursuer maintained that he had a "carte blanche mandate" to acquire the subjects, with no price limit. The increase from £350,000 (the figure mentioned by Mr Fergus on 20 July) to £444,444.44 was "needed to secure the subjects". Despite his reference in the letter to having given the matter "detailed consideration", the pursuer advanced no rational explanation for his decision to offer that particular figure, or why he judged that such a substantial increase was necessary. The first defender's recollection was that he had been advised of the offer price on the telephone. He did not recall its coming as a surprise at the meeting on 5 August.
- Mr Fergus replied to the fax of 25 July by fax of 30 July (No. 6/5 of process) in which he intimated that he had the second defenders' instructions that they would accept the pursuer's offer. He indicated that the formal offer from the pursuer's solicitors should be sent to the second defenders' solicitors, McGrigor Donald. The following day, the pursuer faxed the informal offer and acceptance to Mr Farquhar. In his fax (No. 7/7/24 of process) he said:
"I would like to see if we could get completed missives as soon as possible as I am aware of some dirty tricks going on".
He asked Mr Farquhar to telephone him. It appears that Mr Farquhar did so, and made notes of the telephone conversation on the fax. These notes include the following:
"* Agricultural tenancy
*jv co 50:50 - funding to be".
There follows reference to the pursuer lunching with his banker. Mr Farquhar could not, in evidence, recall the exact terms of the conversation. He said that "funding to be" meant that the funding of the joint venture remained to be worked out. That would have been the answer to a question which he would have asked the pursuer, concerning the source of funding for the purchase. He understood the reference to a joint venture to be to a joint venture with the agricultural tenant. Mr Farquhar's evidence did not go so far as to bear out that the pursuer had told him that he already had an agreement with the first defender that they would undertake a joint venture, rather than that that was what the pursuer wished to achieve.
- Just after 8.00 a.m. on the following day (1 August) Mr Farquhar faxed the pursuer (No. 7/7/23 of process) advising him that another partner in Ledingham Chalmers, Derek Hogg, was drafting a formal offer. He suggested a meeting on 2 August to discuss the draft. He added:
"You mentioned that Robert Fleming was going to get back to you later this week with a view to a meeting. Clearly it is important to tie up a deal with him soonest or you are in danger of buying a property with all the agricultural tenancy security of tenure issues."
That tends to suggest that at that stage Mr Farquhar was under the impression that no agreement on a joint venture had been concluded. That elicited no response from the pursuer telling him that that impression was wrong. Later on 1 August, Mr Hogg drafted a formal offer (No. 7/7/21 of process), and e-mailed it to the pursuer along with an explanatory letter (No. 7/8/29 of process) in which he warned inter alia of the risks involved "Unless you agree something specific with the tenants of the land". It seems clear that by that stage nothing had been said to Mr Hogg to suggest that there was already an agreement for a joint venture with the first defender. He said in evidence that he was aware the pursuer was seeking to negotiate a joint venture with the first defender. The pursuer commented on the draft offer by e-mail, and in light of his comments, the draft was revised. Arrangements were made for Mr Farquhar and Mr Hogg to attend a breakfast-time meeting at Ratho Hall on 3 August. At that meeting the pursuer instructed his solicitors to submit a formal offer as soon as possible. The offer (No. 6/6 of process) was faxed to the second defender's solicitors later that day. A copy was sent to the pursuer under cover of a letter (No. 7/8/28 of process) which contained a paragraph in the following terms:
"Just so that we are all clear as to the background to the submission of the offer, you have confirmed that you wish us to conclude the Missives as quickly as possible, notwithstanding that you have not yet reached any firm agreement with any of your prospective joint venture partners including, in particular, the Agricultural Tenant. You understand that, as things presently stand, the tenants will have security of tenure of the ground."
In evidence, Mr Hogg glossed the reference to "firm agreement" as meaning a legally constituted agreement. He explained the reference to "joint venture partners" by reference to mention made by the pursuer at the meeting that morning of other landowners, such as the Brewsters (who were neighbouring landowners). He had been talking about possibly including other people in his plans.
- The pursuer said in evidence that it was his solicitors' concern about the position of the agricultural tenant that prompted him to arrange another meeting with the first defender. Although the pursuer initially said that he contacted the first defender on 5 August to arrange the meeting, that must, I think, have been a slip of the tongue. The meeting took place on that date, and the weight of the evidence was that it was arranged on 3 August. The pursuer arranged for Iain McCallum to attend the meeting. His evidence as to the capacity in which Mr McCallum was to attend was equivocal. At times, he presented Mr McCallum as being his land agent, there to advise him in relation to the terms of surrender of the agricultural tenancy. At another stage, in cross examination, he said that Iain McCallum was not his land agent, although he attended the meeting in that capacity; there was no question of formal instructions. He said that he did not know what he said to Mr McCallum about the meeting other than that Mr Reid-Thomas was coming and that the agricultural tenancy was to be discussed. He had not briefed him in detail about the agreement he had reached with the first defender. Mr McCallum's position was that he was instructed to attend the meeting in a professional capacity, "to deal with the agricultural tenancy". On his evidence, he had been deeply involved in discussing the possible acquisition of the land with the pursuer over a period of time and in particular in the period immediately prior to the meeting. He claimed to have made the suggestion that the earlier meeting on 22 July should be between the pursuer and the first defender on a "principal to principal" basis. He said that his understanding was that at that meeting "the principle had been established"; the first defender "wanted to get involved in the development". According to the first defender's evidence, he was contacted by the pursuer on 3 August to arrange the meeting. It was the pursuer's idea that the land agents should attend. He took it that what was to be discussed was how to deal with the agricultural tenancy. He arranged for Mr Reid-Thomas to attend, and had a short discussion with him before they went to Ratho Hall. That was confirmed by Mr Reid-Thomas.
The meeting on 5 August
- There exists a document, prepared by the pursuer and entitled "Heads of Agreement", which purports to be a record of the meeting held on 5 August. Since much of the evidence about what took place at the meeting was expressed in terms of whether that document (No. 6/7 of process) was an accurate record of the meeting, it is convenient to set out its terms in full.
| |
"Heads of Agreement relative to Land at Hillwood Farm Ratho |
| |
Held at Ratho Hall on Sunday 5 august (sic) 2001 at 12 noon |
| |
Present |
Robert Fleming |
(RF) |
| |
|
Freddie Small |
(FS) |
| |
In Attendance |
Michael Reid-Thomas |
(MRT) |
| |
|
Iain McCallum |
(IMC) |
| |
Introduction |
|
|
| |
FS thanked those for attending at short notice on a Sunday and narrated the background requiring the present meeting. It was noted that following an ultimatum from Tarmac Northern Ltd an offer had been submitted in his name to acquire 55.1 acres of land at Hillwood farm currently under an agricultural tenancy to RF for £444,444.44 and that missives were in the process of being concluded for this acquisition. It was further noted that following discussions between FS and RF it had been agreed that an equal joint venture company should be formed to develop the land. After discussion the following was agreed:- |
| |
Agreement |
| |
1. |
A new company (newco) be formed to act as the development company |
| |
2. |
That FS and RF subscribe £50,000 in £1 shares each in Newco |
| |
3. |
RF and FS be appointed the Directors of Newco |
| |
4. |
RF agrees that in exchange for participating equally in the development and profits of Newco that he agrees to relinquish his rights under his agricultural tenancy as and when required by the development programme of the land. |
| |
5. |
FS to be responsible for securing suitable funding for settling the land acquisition from Tarmac Northern on terms to be agreed by the Board of Newco |
| |
6. |
That the above terms are to be incorporated in a legal contract to be executed by FS and RF prior to FS concluding missives with Tarmac Northern. |
| |
We acknowledge the above to be a true and accurate record of the meeting and our agreement there at (sic):- |
| |
|
| |
Fredrick Small |
Robert Fleming" |
The document was not in the event signed by either party.
- The pursuer gave his evidence in chief about the meeting by reference to the Heads of Agreement. He said that they accurately reflected what was said and agreed at the meeting. The Introduction was an accurate record of what he said in opening the meeting. No issue was taken with what he said. Discussion then proceeded about the value of the agricultural tenancy. Mr Reid-Thomas's "opening bid" was that it was worth 25% of the acquisition price. Mr McCallum disagreed with that percentage, and said that if a figure was agreed, it should be for relinquishing the tenancy, and should give no right to share in the development. According to the pursuer, he intervened at that point and said that he and the first defender were equal partners, and that should be an end of the matter, with no payment due for the agricultural tenancy. Again according to the pursuer, the first defender then said that he agreed with that. The result, said the pursuer, was that the first defender was putting his agricultural tenancy in to the joint venture in return for a 50% share in it. The pursuer said that that accorded totally with what had been agreed on 22 July. He undertook (although not at Mr Reid-Thomas's suggestion) to prepare Heads of Agreement to reflect what was settled at the meeting on 5 August. At the end of the meeting those present toasted the joint venture in Glenkinchie single malt whisky (it seemed to be of significance to the pursuer that it was that particular malt) and shook hands. He presented that in his evidence as symbolic of the conclusion of a binding agreement. After the meeting, he prepared the Heads of Agreement and faxed them to the other participants in the meeting. The copy sent to the first defender bore to be for his signature.
- According to Mr McCallum, the meeting began with discussion of the agricultural tenancy. Mr Reid-Thomas said, rightly, that it had to be dealt with. He suggested that the agricultural tenant's interest was worth one quarter of the acquisition price. Mr McCallum countered by referring to various alleged flaws in the tenant's position which were said to affect the value of the tenancy. The two land agents proceeded into negotiation. The pursuer then interjected to say that what they were discussing was not relevant because he and the first defender had come to an agreement about a joint venture. They were to develop the site "on a 50/50 basis, a true joint venture". He said that he could not remember anything about the first defender's reaction to that intervention on the part of the pursuer. Mr McCallum said that the pursuer informed the meeting that the offer of £444,444.44 had been accepted. No one expressed surprise, except at the nature of the figure. No one suggested that it was too much. The discussion then turned to the development process and likely values; what planning permission would be applied for. There was discussion of how the agricultural tenancy would be relinquished as the development proceeded, with the first defender continuing to farm the land at nil rental until it was needed. According to Mr McCallum, the first defender said that that was acceptable. Funding was discussed at length. In general, it was to be left to the pursuer and his team. Mention was made of the fact that the Brewsters had discussed the possibility of their offering the pursuer £444,444.44 for fields 8 and 14. It was thought that their interest would be a comfort to funders. There was discussion of setting up a joint venture company with the pursuer and the first defender as equal shareholders. There was reference to each of them contributing £50,000. The first defender said that he could find that amount. According to Mr McCallum, Mr Reid-Thomas expressed doubts about the viability of the first defender's becoming involved to that extent, and suggested that he might be better simply to surrender his tenancy for £110,000. That point was, however, disposed of when the view was expressed that the net profit from Phase 1 of the development (ten to fourteen houses, plus an equestrian centre) would be £1,500,000. Confidence was expressed that planning permission could be obtained for such a development. The first defender said that he was very busy with the harvest, and would not be available for meetings in the immediate future. The conclusion of the offer was to be effected in the pursuer's name. There was some discussion of the titles to the land between Mr McCallum and Mr Reid-Thomas, who was to pass plans he had to Mr McCallum. At the conclusion of the meeting, according to Mr McCallum, the pursuer said, "Great! We have a deal", and welcomed the first defender as a joint venturer. The pursuer fetched the whisky and proposed a toast, "Here's to a prosperous future for us all". There was no dissent. When he was shown the Heads of Agreement, Mr McCallum thought that the order in which the matters were recorded was not right. The discussion of the agricultural tenancy came before the reference to the equal joint venture. He had no recollection of discussion of the point dealt with in the sixth numbered paragraph.
- As I have already mentioned, the first defender understood that the question of the agricultural tenancy was to be discussed at the meeting on 5 August. In evidence, he said that he also expected to hear further details of the pursuer's proposal. In the event, he was not given the details he was looking for. There was no business plan, no projection of cash flow, no estimate of the likely return and nothing by which he might judge what his financial exposure might be. If such material had been provided, he would have wanted to take it away to discuss with his accountant, and probably also his banker. One of the first things mentioned at the meeting, as recorded in the Heads of Agreement document subsequently prepared by the pursuer, was the amount of the offer which the pursuer had made. He was given to understand that the pursuer had made the offer in his own name, and that it might be accepted. The first defender also agreed that there was discussion of the formation of "Newco". Contributions of £50,000 were discussed, but not agreed. The question of the value of the agricultural tenancy was raised by Mr Reid-Thomas, who said that the tenancy was worth one quarter of the capital value of the land. The first defender accepted that the pursuer had said that they had agreed that they should contribute on a 50/50 basis, but maintained the pursuer was not correct in saying that. That had not been agreed. Up to that point it had just been the subject of discussion. The first defender said that he could not believe what he was hearing. He said that he "would have" responded just to say that he had not agreed to 50/50 sharing. He felt that the pursuer "had his ideas set about what was going to happen". The subject of who should be directors of Newco was not discussed (c.f. point 3 of the Heads of Agreement). The first defender said that he did not agree to point 4 of the Heads of Agreement. He pointed out that the Heads of Agreement were silent as to the scope of the proposed development. The possible sale of Area B was discussed, although he did not recall the details. There was no discussion of selling off field 14. His impression was that the pursuer was not keen to sell it, because he regarded it as a buffer between Ratho Hall and development, but he could not recall when that had been discussed. So far as funding was concerned (c.f. point 5 of the Heads of Agreement), the pursuer was trying to get funding to finance the purchase of the land. The first defender was unaware of whether the pursuer had obtained such funding. He did not recall discussion of where funding might be obtained. The pursuer had said that he had "a number of irons in the fire". Legal documentation was not discussed in the terms set out in point 6. By the end of the meeting, the first defender did not think that they were much further forward than they had been on 22 July. He agreed that the pursuer proposed a toast to the joint venture. He was not happy with that, since he did not consider that anything had been finalised. He said that he responded: "We'll see". (The pursuer did not accept that that was said; Mr McCallum said that if it had been, he would have asked what he meant; Mr Reid-Thomas did not deal with the point). When he received the Heads of Agreement, he took the view that they were not something to which he could or would agree.
- In cross-examination the first defender was firmer about his rejection of the pursuer's interjection to the effect that they had agreed 50/50 sharing. He said that he expressed dissent, although he could not remember the words in which he did so. He said something to the effect that he had not agreed that. He thought the pursuer would have heard him. The pursuer was, however, very enthusiastic; he never seemed to listen to what the first defender was saying. The first defender accepted that the pursuer had said he would produce a record of the meeting; its arrival by fax was not unexpected. The six numbered points in the Heads of Agreement were discussed, but not agreed. The first defender accepted that the pursuer appeared to have been under the impression that agreement had been reached, but that was not his own view. When asked why he had not, on receipt of the fax, immediately telephoned the pursuer challenging its accuracy, he said that that did not occur to him. Instead he had discussed the matter with his accountant. He denied that he was "stringing the pursuer along".
- The fourth person who attended the meeting on 5 August, Mr Reid-Thomas, made notes at the time (No. 7/5 of process) and subsequently made a fuller written record of his recollection of what transpired at the meeting (No. 7/6 of process). The latter document bears to have been compiled on 17 October 2001. Mr Reid-Thomas said that his recollection at that time was "pretty good". The document was composed in preparation for being interviewed by solicitors for the purpose of this case. It was thus his own best recollection, some ten weeks after the event, unprompted by specific questions. Before the meeting, he knew only that the pursuer was to be making proposals for a joint venture deal. He was to listen, and give the first defender his reaction afterwards. He knew the land in question, and was aware that the first defender was the agricultural tenant. He was surprised when at the outset the pursuer mentioned the sum he had offered for the land, taking the view that that weakened the pursuer's negotiating position. The pursuer went on to explain that what he was proposing was to form a joint venture company with the first defender to develop the land. It appeared that most of the funding was to be borrowed, but the pursuer said that he would put up £50,000 and would expect the first defender to do likewise. Mr Reid-Thomas, knowing that the first defender was a secure agricultural tenant, put forward the proposition that the tenant's interest represented one quarter of the value of the land. He thought it was "a bit steep" that the first defender should be expected to fund a further £50,000, and suggested that the value of the tenancy should be treated as the first defender's contribution to the joint venture. In No. 7/6 of process he recorded that at that point "Mr Small and Mr McCallum both made the point that they thought that I was confusing the question of funding with the business of the proposed company". It became evident, however, that neither at the time nor subsequently did Mr Reid-Thomas really understand what their point was, and I am inclined to agree that it was obscure. Other points reflected in Mr Reid-Thomas's later notes (and mostly mentioned in his contemporaneous notes) included that other interested parties included Mr Taylor (the owner of the Climbing Centre in the quarry to the west of field 11) and the Brewsters; that the Bank of Scotland might become a venture partner (the pursuer denied that he had said this); that the first defender would have the use of the land free of charge until it was required for development; that some of the land could be sold off at once (this in response to Mr Reid-Thomas's expressed concern at the first defender's financial exposure); and that Mr McCallum mentioned the possibility of his taking an equity share in the proposed company (this too the pursuer denied, but Mr McCallum confirmed that he had discussed the possibility with the pursuer before the meeting). Mr Reid-Thomas was adamant that in the course of the meeting he had asked that draft heads of agreement should be prepared so that the first defender might submit them to his solicitors (but Mr McCallum supported the pursuer in denying this). He was concerned that the pursuer seemed to be "plunging ahead" when there was still a lot of work to be done. The deal would be an important one for the first defender, since he stood to make a substantial sum of money. Mr Reid-Thomas was uncomfortable with the joint venture company aspect of the matter, in which he was not an expert. In any event, in any property transaction, he would expect the client's solicitors to see heads of terms before a final agreement was reached. He said that he did not see how the pursuer could take it from the meeting that agreement had been reached, especially since the question of funding was left "hanging in the air". He thought the pursuer must have understood that whatever heads of terms were drafted, they were going to be scrutinised by the first defender's solicitors. The numbered points in the Heads of Agreement were discussed but not agreed. He did not think that, by the end of the meeting, a joint venture had been concluded.
After the meeting on 5 August
- After the meeting, the pursuer drew up the Heads of Agreement and faxed them to the other participants in the meeting under cover of a message (No. 6/8 of process) referring to the document as "my proposed minute to be submitted to our respective lawyers for a simple agreement to be drawn up" and asking "Do you all agree?" None of them replied. Mr Reid-Thomas, who said that after they left the meeting he indicated to the first defender that he was particularly concerned about the joint venture company and that he should consult his solicitors and accountant, thought that the Heads of Agreement were very brief. He telephoned the first defender, who had been in touch with Ketchen & Stevens and had arranged a meeting with Mr Anderson. He told Mr Reid-Thomas that he should do nothing more. In his evidence the first defender did not mention contacting Ketchen & Stevens, and Mr Boyd of that firm did not recall seeing the Heads of Agreement at that time. The first defender did, however, confirm that he arranged a meeting with Mr Anderson, which he and his wife attended.
- In one respect Mr Anderson's evidence about what took place at that meeting was plainly mistaken. In describing his briefing about the events which had taken place before he became involved, he was adamant that he had been told that the proposal was that the first defender should put up £50,000 for the joint venture while the pursuer was to make no cash contribution. Aside from that matter, he indicated that he had been shown the Heads of Agreement, and had been given to understand that they reflected matters which had been discussed but not yet agreed, and were being referred to him for his professional input. He said that his initial reaction was that the first defender should not proceed with the proposal. He felt, however, that there would be no harm in discussing the matter further with the pursuer. Following that meeting, the first defender telephoned the pursuer and arranged a meeting at Ratho Hall on either Wednesday 8 or Thursday 9 August (there was some evidence to support each date), to be attended by the pursuer and the first defender and Mr Anderson.
- On 6 August the pursuer sent a fax (No. 7/7/16 of process) to Gavin Farquhar, saying that he had had "a very productive meeting with RF on Sunday morning" and attaching the Heads of Agreement, which he described as "my notes of the basis agreed for the JV". He asked Mr Farquhar to "give some thought as to what will be required by way of formal agreement". He added (perhaps somewhat at odds with the view that the Heads of Agreement expressed an already concluded and binding agreement), "I am hoping no news is good news as I have heard nothing so far today". Mr Farquhar replied on the same day, advising that a shelf company had already been reserved for the joint venture, and proposing that he should begin drafting a joint venture agreement. He added the query (also somewhat at odds with the view that there was already a binding commitment to a joint venture): "I am assuming Fleming would not simply take a payment to give up the tenancy?" He emphasised the need for legal advice on the agricultural tenancy. Mr Farquhar subsequently prepared a draft Shareholders Agreement among the pursuer, the first defender and the proposed joint venture company (No. 7/7/30 of process). On the cover of the draft there appear a number of notes of outstanding matters, including "1. Subject to further clients instructions", "3. What if no planning permission obtained?", "4. Will there be a Bank Facility for Development? Ranking of security with acquisition funders?", and "5. Agricultural lease issues?".
The meeting on 8 or 9 August
- The first defender described the purpose of the meeting on 8 or 9 August as being "to say thank you, but no thank you" to the pursuer. In that respect his evidence was somewhat at odds with that of Mr Anderson, who appeared to suggest that the meeting was approached with an open mind, to see if better information, which might affect his professional judgment, could be obtained. It may be, however, that the first defender and Mr Anderson simply did approach the meeting with somewhat different aims. According to the first defender, he had already decided, before the meeting, that he did not wish to proceed with the pursuer's proposal. He was concerned about the financial exposure which would be involved. He had been given no accurate estimate of the financial returns he would receive from the project. The only figures he had been given were those in No. 6/72 of process. He had no idea who the financial backers would be. He knew it was a long-term project. There had been no discussion of planning permission. What the pursuer was holding out seemed too good to be true. He arranged for Mr Anderson to do the talking at the meeting, and by the end of it his potential involvement in the project was at an end. He was sure that the pursuer would be aware of that. There was no room for doubt.
- Mr Anderson described the discussions which took place at the meeting. He said that he first raised the question of how far the purchase of the land had proceeded. His interest was in funding. The pursuer stated that he did not have the cash, but hoped to raise it. Mention was made of some connection in the North of England. The pursuer also indicated that he had a meeting arranged with a developer, James Glass, through whose contacts he hoped to raise finance. Mr Anderson said that he asked if the pursuer had a business plan. He was surprised to be told that he did not, because such matters are complex. Planning is a long-drawn-out process. He expected there to be some plans for the development: what was proposed to be done; when planning permission was to be applied for. However, the pursuer had no such plans. Venture capital was not mentioned; the impression given was that the whole capital (presumably aside from the £50,000 each proposed to be contributed by the pursuer and the first defender) was to be borrowed. After these matters had been discussed, the pursuer asked if the first defender and Mr Anderson wished an opportunity of a private discussion, but they indicated that they did not. Mr Anderson expressed the view that he had heard nothing to change his advice that the first defender should not proceed, The first defender agreed and indicated that that was his decision. The pursuer could have been in no doubt about the position. He indicated that he would proceed by himself.
- The pursuer's account of the meeting itself was in some respects not substantially at variance with the account given by the first defender and Mr Anderson. He confirmed that there was discussion of funding, including mention of various routes on which he was working, including one involving James Glass. He agreed that Mr Anderson advised the first defender against investing in the joint venture. He denied, however, that the first defender himself said that he was not going to proceed with the joint venture. More importantly, by his account, there was an important tailpiece to the meeting. According to him, Mr Anderson left the meeting, and as the pursuer and the first defender stood by themselves on the front door steps of Ratho Hall, the pursuer asked the first defender:
"Where does that leave us?"
to which the first defender replied:
"Don't worry, Freddie. I dinnae tell my accountant everything. We still have our deal".
They then shook hands. The pursuer said that he had been concerned when Mr Anderson advised the first defender against becoming involved in the joint venture, but that he was reassured by what the first defender said on the doorstep. He understood him to be indicating that he had resources of which Mr Anderson was not aware.
- Both the first defender and Mr Anderson gave evidence contradicting the pursuer's account of a post-meeting exchange on the doorstep. The first defender's evidence was that he and Mr Anderson had arrived in one car and also left together. Mr Anderson did not go off, leaving the pursuer and the first defender together. There was no exchange on the doorstep of the sort described by the pursuer. According to Mr Anderson the car was parked within a few steps of the front door. He and the first defender went together to the car, and left in it. The first defender did not lag behind in conversation with the pursuer. There was no opportunity for them to exchange words outwith his hearing.
- The first defender accepted that he did use the words "I dinnae tell my accountant everything", but at a later stage and in a different context. That came after he had made the offer for the land which he subsequently did on behalf of the Brewsters. The fact of that offer came to the knowledge of James Glass, who accused Mr Anderson (who had other business dealings with him) of impropriety in being involved in the making of that offer. Mr Anderson, who was not in fact in any way involved, asked the first defender to confirm that fact to Mr Glass. It was, according to the first defender, in the course of speaking to Mr Glass for that purpose that he said, "I dinnae tell my accountant everything".
After the meeting on 8 or 9 August
- The negotiation of the missives between the pursuer and the second defenders, through their respective solicitors continued. A minor problem was encountered in connection with the agricultural lease, in that the second defenders were concerned about creating a situation in which two parties shared the landlord's interest in the lease. On 24 August the pursuer e-mailed Mr Hogg and Mr Farquhar in inter alia the following terms:
"We are nearing the end of another week and I wondered if we are any nearer completing the purchase of the fields. I was visited by the Brewster brothers yesterday ... Possible JV with them. Can you please update me ...?"
Mr Farquhar replied on 27 August:
"I know from Derek [Hogg] the agricultural lease aspect is exercising Tarmacs mind but if you wanted to use this time to progress the detail of a jv with the Brewsters just let me know."
The pursuer in turn replied on the same day:
"Met with Fleming at the week end and JV may be back in other form - poor man is exhausted trying to get the harvest in but said he would phone me early this week. The JV with Brewsters would then follow on. ..."
(see No. 7/7/4 of process for all three e-mails).
- In evidence the pursuer explained that one of the Brewster brothers, Alex Brewster had telephoned him and offered to pay him, for the land other than field 7, the same sum as he was going to pay the second defenders for the whole of Areas A and B. The pursuer tried to keep him at arms length until missives with the second defenders were concluded, but agreed to meet him at his request. Two meetings took place, both at Ratho Hall, the first attended by Alex Brewster, and the second by both him and his brother David. The pursuer explained in evidence that the reference to a "possible JV" with them in his e-mail was to the possibility that after missives had been concluded, there might be a joint venture between the joint venture company and the Brewsters. The reference in the e-mail of 27 August to meeting the first defender at the weekend was a reference to a chance meeting at Ratho Post Office on a Sunday morning. He said that on that occasion he mentioned the possible joint venture with the Brewsters to the first defender. The wording of his e-mail was "quite loose"; when it said that the "jv may be back in other form", it did not mean that the original joint venture had gone away. The first defender had no real recollection of a meeting in the Post Office, although he accepted that a casual encounter might have taken place. In re-examination he said that he would have remembered reference to the joint venture if any such reference had been made on that occasion.
- At some stage the pursuer had a conversation about the project with Councillor John Longstaff, the local councillor on the City of Edinburgh Council for the Dalmeny/Kirkliston ward (which included Ratho). The purpose of the discussion was to obtain Councillor Longstaff's advice in connection with applying for planning permission for development of the land to be acquired from the second defenders. When he gave evidence, Counciller Longstaff was unable to recall the date of the conversation more precisely than to place it in August or early September 2001. He had been asked by the pursuer in March 2002 to commit his recollection of the conversation to writing, and the resultant e-mail was produced (No. 7/4 of process). In it, Councillor Longstaff recorded inter alia the following recollection:
"Late last summer you [the pursuer] invited me to the Hall to seek my advice about a deal you had struck, in association with local farmer Robert Fleming, to purchase lands owned by Tarmac to the north of Ratho Hall ... Long before this you had advised me that you had been in contact with Tarmac with regard to these lands with a view to purchasing them.
Clearly elated, you told me that at a meeting with Robert and his agent at Ratho Hall you had shaken hands on the deal. You explained that you needed to have Robert Fleming 'on board' as he held an agricultural tenancy with respect to the lands. You asked my advice on how to proceed as you wished to develop some part of the land."
The document then sets out the steps which Councillor Longstaff took in advising the pursuer on how to proceed with a planning application. In evidence Councillor Longstaff, in describing what the pursuer told him of the "deal", said "Freddie was cock-a-hoop". In light of that, and the reference in No. 7/4 of process to the pursuer being "clearly elated", it seems to me to be likely that the pursuer's conversation with Councillor Longstaff took place very soon after the meeting on 5 August.
The telephone conversation of 17 September
- On 15 (or 17) September Mr Fergus informed the pursuer that First City had received a competing offer. He declined to say who the offeror was. The pursuer telephoned the first defender on 17 September "to tell him the joint venture was in peril". He said that he did not at that stage suspect that the first defender was involved in the competing offer. The first defender, however, openly admitted that he had put in the other offer. It is unnecessary at this stage to recount the evidence about how it had come to pass that he did so. The pursuer said in evidence that he asked the first defender: "What about our agreement", and the first defender responded; "You're naïve, Freddie, you've got nothing in writing". The first defender denied that he described the pursuer as naïve, but agreed that he said that they had no deal, that nothing had been finalised in writing. Thereafter the pursuer raised the present action.
The Law
- In narrating the evidence about the course of the negotiations between the pursuer and the first defender, I have made a number of incidental findings in fact, but have for the most part reserved my opinion on the sharper conflicts of evidence. It is convenient, before expressing my conclusions on matters of disputed fact, to record the submissions that were made as to the law which forms the context in which the factual disputes between the parties require to be resolved.
Joint Venture
- It is not disputed that joint venture is a species of partnership. Mr Wallace therefore began his submissions on the applicable law by referring to sections 1 (definition of partnership) and 2 (rules for determining existence of partnership) of the Partnership Act 1890. Section 1(1) in particular provides:
"Partnership is the relation which subsists between persons carrying on a business in common with a view of profit".
He then referred to Mair v Wood 1948 SC 83, in which Lord President Cooper said (at 86):
"A joint venture is simply a species of the genus partnership, differentiated by its limited purpose and duration (which necessarily affect the extent of the rights and liabilities flowing from the relationship), but in all other essential respects indistinguishable from any other partnership."
He also referred to Dollar Land (Cumbernauld) Ltd v CIN Properties Ltd 1996 SLT 186, in which Lord Coulsfield said (at 191J):
"There is no simple or single test which can be applied in every case so as to establish or negative the existence of a partnership. All the relevant features of the parties' relationship must be examined and a view reached on the basis of all such features."
Mr Campbell for the first defender did not dispute the relevance or soundness of those observations.
Consensus in idem
- Mr Campbell submitted that the issue between the parties in the present case was not whether the relationship between the parties was or was not a joint venture, but rather whether there was consensus in idem between the parties on the terms essential for the constitution of a contract of the sort contended for. He referred to the well-known passage in the speech of Viscount Dunedin in May & Butcher Ltd v The King [1934] 2 KB 17 at 21:
"To be a good contract there must be a concluded bargain, and a concluded contract is one which settles everything that is necessary to be settled and leaves nothing to be settled by agreement between the parties. Of course it may leave something which still has to be determined, but then that determination must be a determination which does not depend upon the agreement between the parties. In the system of law in which I was brought up, that was expressed by one of those brocards of which perhaps we have been too fond, but which often express very neatly what is wanted: 'Certum est quod certum reddi potest'. ... What are the essentials may vary according to the particular contract under consideration."
The pursuer's submissions
- For the pursuer, Mr Wallace submitted that at the two main meetings, namely those on 22 July and 5 August 2001, agreement was reached on certain matters which were sufficient to bring into existence a joint venture between the pursuer and the first defender. It was necessary to look at the whole circumstances of the relationship between the pursuer and the first defender, as it developed over the period. By 5 August at the latest, a binding contract had been concluded. Mr Wallace also placed considerable reliance on what he described as the "actings" of the pursuer. What I think he meant by that was that the pursuer undertook certain activities, to the knowledge of the first defender, which were said to be consistent with a joint venture. The first defender's "acquiescence" in those actings was prayed in aid as evidence of his agreement to the joint venture. Mr Wallace submitted that it was enough, for the purpose of constituting the joint venture, that the pursuer and the first defender were agreed that the land should be bought, that part of it should be developed, and that they should share the "profit" equally between them. It did not matter if there was no agreement as to the amounts which they should respectively contribute to the capital of the joint venture. It did not matter that there was no agreement in advance on the amount to be offered to the second defenders. Given the importance of the position of the first defender as the agricultural tenant, the fact that the pursuer was prepared to make the offer in his own name favoured the conclusion that he had a binding agreement with the first defender.
- Mr Wallace submitted that I should accept in its entirety the evidence of the pursuer. He was, he suggested, a wholly credible and reliable witness. He had been consistent in the position he had adopted from the outset. On the other hand, Mr Wallace mounted an attack on the honesty of the first defender. He suggested that he had pretended to be inexperienced in business, "a simple farmer", but had betrayed that image by the desire which he expressed in evidence for "business plans" and "projections". The first defender had led the pursuer to believe that he had agreed to a joint venture, but had at some stage taken a decision to "ditch" him, in favour of the Brewsters. This attitude was exemplified (i) in the first defender's evidence that he reserved his position at the end of the meeting of 5 August by "sceptically" or "cynically" saying "We'll see" in response to the toast (Mr Wallace seemed in some doubt as to which adverb to apply - the first defender would, I think have accepted the former but rejected the latter); (ii) by his remark on 9 August that "I dinnae tell my accountant everything"; and (iii) by his remark on 17 September that "You're naïve, Freddie". The attack on the first defender's honesty was formulated in a letter which the pursuer wrote to the first defender's father on 19 October 2001 (No. 7/3 of process).
- In brief summary, Mr Wallace's submissions on the evolution of the agreement between the parties were:
(1) that on 22 July it was agreed that they would form a joint venture to purchase and develop the land at Hillwood, with a view to sharing the profit thereof equally between them, that the pursuer would purchase the subjects on behalf of the joint venture, that the first defender's involvement would not be disclosed to the second defenders, and that the first defender would surrender his agricultural tenancy to the joint venture;
(2) that in reliance on that agreement the pursuer informally offered to buy the land for £444,444.44, and instructed his solicitors in connection with the making of a formal offer; given the first defender's position as the agricultural tenant, the pursuer would not have done that if he had not had an agreement with the first defender;
(3) that on 5 August the agreement was supplemented by agreement (a) that no payment would be made for the first defender's surrender of the agricultural tenancy (but that he would continue to farm the land rent-free until it was required for development); (b) that the pursuer and the first defender would each contribute £50,000 of capital to a joint venture company, in which they would each hold 50,000 shares of £1 each and of which they would each be a director; and (c) that the pursuer would be responsible for securing funding for the land acquisition.
(4) that thereafter the pursuer, in further reliance on that agreement, pursued the question of funding, and sought advice on planning matters from Councillor Longstaff;
(5) that despite what was said by Mr Anderson at the meeting on 9 August to the effect that he could not advise the first defender to take part in the joint venture, the first defender privately reassured the pursuer that they still had a deal; and
- that matters continued on that basis until 17 September, when the pursuer learned that the first defender had involved himself in a competing offer.
The first defender's submissions
- For the first defender, Mr Campbell submitted that neither on 22 July nor on 5 August did the parties reach sufficient agreement to constitute a binding joint venture. That contention was advanced at two levels. Mr Campbell invited me to prefer the evidence of the first defender that he had not committed himself to the joint venture at either meeting. But he also submitted that even if the pursuer's account was accepted, it did not instruct the conclusion of a binding joint venture. On the pursuer's own account, the parties had not agreed enough to cover the essentials of the contract. The absence of agreement on how to deal with the agricultural tenancy was fatal to the contention that a joint venture had been concluded on 22 July. Similarly, the absence of any agreement as to how the purchase of the land was to be funded, and what capital contributions the pursuer and the first defender would respectively make to the joint venture, precluded any inference of concluded agreement as at 22 July. The matters that were claimed by the pursuer to have been agreed on 5 August demonstrated that there was no sufficient agreement on 22 July. Although, if the pursuer's evidence was accepted, the matters of the agricultural tenancy and the capital contributions to be made by the parties were resolved on 5 August, there remained at that stage a range of important matters which in real commercial terms would have had to be agreed before it could be said that the parties had agreed on all the essentials of a joint venture to acquire and develop the land. There was no agreement on funding of the acquisition, or funding of the development, or on the scope of the proposed development, or on what should happen if the subjects were acquired then development funding could not be obtained, or if planning permission could not be obtained. The uncertainties were such that the few points on which the pursuer maintained the parties had reached agreement were insufficient to support the conclusion that a binding joint venture had been brought into existence.
- Mr Campbell challenged the soundness of Mr Wallace's submission that the first defender had embarked on a deliberate course of duplicity in his dealings with the pursuer. There was no pretence in the first defender's saying that he was inexperienced in the area of activity proposed by the pursuer. He was a farmer and agricultural contractor, but had no experience of property development. The fact that he knew enough about business to be concerned at the absence of a business plan or financial projections for the proposed joint venture did not belie his lack of property development experience. There was no basis for the suggestion that he had used the pursuer as a tool to achieve a long term desire to acquire the land himself. There was no evidence that he had harboured such a desire. There was no inconsistency in his evidence that he was unwilling to commit himself to the pursuer's proposal, yet subsequently committed himself to making an offer on behalf of the Brewsters. As he pointed out, until 22 July he had never met the pursuer, whereas he had a long term business relationship with the Brewsters and trusted them. Moreover, their proposal to him, unlike the pursuer's, did not require him to put up a capital contribution. The charge of duplicity was unfounded.
- The notion that there was a "developing relationship" between the pursuer and the first defender, on which Mr Wallace placed some reliance, was also challenged by Mr Campbell. Between the two meetings, on 22 July and 5 August, there was little communication between the parties. Neither of them had a clear recollection of the content of any discussions during that period. That did not point to a developing relationship. The pursuer decided on the price to offer without discussing it with the first defender (despite the fact that it was between 25% and 30% higher than the amount discussed on 22 July), and it seems uncertain whether he even advised him, before 5 August, what the amount of the offer was. Although the pursuer had various discussions with his solicitors, no attempt was made to bring the first defender into these. After the meeting on 9 August, during a period when the pursuer maintained that a binding joint venture subsisted between them, he had scarcely any contact with the first defender (apart from the vague meeting at the Post Office), and there was no real attempt to keep the first defender informed about progress in obtaining funding. The lack of communication between the parties was inconsistent with their being a developing commercial relationship between them.
- Mr Campbell also challenged the validity of Mr Wallace's submission that the existence of a binding joint venture was supported by evidence that the pursuer acted in reliance on it. In making the informal offer to the second defenders, the pursuer did not in fact put himself at risk. Even the making of the formal offer on his behalf did not by itself commit him to the purchase. It did not necessarily evidence binding agreement on the joint venture. It was consistent with the pursuer merely having sufficient optimism that the negotiations would ultimately come to fruition to feel able to make the offer. Given the advice which the pursuer was receiving, in the period between 22 July and 3 August, about the need to reach agreement with the first defender as agricultural tenant, and the fact that it was that advice that led to the meeting on 5 August, it could not be said that the formal offer was made on the latter date in reliance on the view that there was already a binding joint venture. The other actings relied upon, the search for funding (such as it was) and the seeking of advice on planning matters from Councillor Longstaff (at the superficial level at which that was undertaken), could more readily be viewed as matters that required to be clarified in order to clear the way to agreement than as matters undertaken in reliance on there already being an agreement.
- Dealing with the 5 August meeting, Mr Campbell submitted that the pursuer's account of what occurred was curious. On his account the reason for the meeting was the need to resolve the terms on which the agricultural tenancy would be surrendered. That matter had been left over on 22 July, because the pursuer and the first defender did not regard themselves as competent to deal with it. The need to have the input of their respective land agents had been acknowledged. The pursuer's solicitors had also identified the need to settle that issue. Both parties had brought their land agents to the meeting. Yet when the land agents began to discuss that very issue, the pursuer broke in to say that he and the first defender were equal partners and that should be an end to the matter, and the first defender expressed agreement. It made no sense that the first defender, having brought his land agent to negotiate on his behalf, should immediately have agreed to the pursuer's interjection. If the pursuer's account was correct, it was hard to see what the point of the meeting had been. Admittedly other matters were discussed, but there was no evidence that the need to discuss those other matters had been identified in advance of the meeting. In so far as reference was made at the meeting to contributions of £50,000 of capital by each joint venture partner, Mr Campbell submitted that there might well have been a total failure of mutual understanding of what that meant. As at 5 August matters which remained unresolved included the source of funding for the acquisition and for the development, the scope and extent of the development, the extent to which parts of the land should be resold rather than developed by the joint venture, and the whole question of planning permission for the development. There were too many loose ends. It could not be said that the parties had agreed on all the elements essential to the constitution of a binding and enforceable joint venture.
- So far as Mr McCallum's evidence about the 5 August meeting was concerned, Mr Campbell highlighted inter alia the fact that he did not actually say that, when the pursuer interrupted the land agents' discussion to say that it was not relevant because the parties had agreed to develop the site on a 50/50 basis - "a true joint venture," the first defender made an affirmative response. On the contrary, he could not remember anything about the first defender's reaction on that point. Yet at a later stage in the meeting he put the matter much more emphatically than the pursuer had done; he said that the pursuer, in proposing the toast to the joint venture, said: "Great! We have a deal." Mr Campbell also drew attention to the conflict between the pursuer and Mr McCallum over the more elaborate "hotel and caravan park" development proposal. When taken with the fact that Councillor Longstaff also said that the pursuer had in 1999 discussed a caravan park development on field 14, that cast doubt on the veracity of the pursuer about his lack of involvement in that proposal and the extent to which he was being open with the first defender about his development intentions.
- Mr Campbell accepted that on receipt of the Heads of Agreement the first defender did not immediately telephone the pursuer and say that they were nonsense. What he did was consult with Mr Anderson, then set up a meeting with Mr Anderson and the pursuer. It was accepted by the pursuer that in the course of that meeting it was made clear that the first defender was being advised against participation in the joint venture. In order to be able to maintain that he thought that there was still agreement on the joint venture, the pursuer was forced to rely on the private reassurance which he said the first defender offered him on the doorstep after Mr Anderson had left. Mr Campbell invited me to accept Mr Anderson as an honest witness, reliable on that point, and to prefer his and the first defender's denial that any such reassurance was offered. After that meeting, the only contact between the parties was the encounter at Ratho Post Office, as to which the evidence was very vague. The terms of the e-mail of 27 August to the pursuer's solicitors - "JV may be back in other form" - was at least consistent with his knowing that he did not have a deal with the first defender.
Discussion
- In my view the appropriate starting point for consideration of whether the evidence has established that the pursuer and the first defender entered into a binding joint venture for the acquisition and development of the land at Hillwood is to be found in the history of the parties' involvement with the site. The first defender had been, with his father, the agricultural tenant of Hillwood since 1985. The farm had been reduced in acreage by compulsory acquisition of land to accommodate the M8/M9 junction. There was, however, no evidence that, prior to 22 July 2001, the first defender had had any interest in acquiring any part of Hillwood for development. In contrast, the pursuer had had an interest in acquiring part of Hillwood since 1994. The picture which the pursuer put forward of the extent of his interest was, in my view, deliberately understated. Although I accept that one possible development in which he had an interest was a development of a small number of up-market houses with shared stabling on field 7, I take the view, in the light of the evidence of Mr McCallum and Councillor Longstaff, that the pursuer had at one stage or another contemplated a much more elaborate development including a hotel on field 11 and a caravan park on field 14. His attempt in evidence to distance himself from that proposal was not in my view candid. I accept that when he came to put a proposal to the first defender, all that he mentioned was the small housing and stables development. I am unable, however, to make a firm finding that by that stage he had abandoned all thought of the more ambitious development.
- Between March and July 2001 various communications took place between Mr Fergus of First City, the second defenders' agents, and the pursuer about the possible sale of the land forming Areas A and B. The pursuer first mentioned an interest of acquiring it for a price of about £100,000, but by 20 July, the figure which the second defenders were said to be expecting had risen to £350,000. At that stage the second defenders set 23 July as a deadline for offers. I accept that the pursuer realised at that stage that it would be advantageous to combine forces with the agricultural tenant. Mr Campbell suggested that the need to involve the agricultural tenant had been apparent for some time, and that the pursuer delayed his approach to the first defender until 21 July in order to put pressure on him with a view to "bouncing" him into agreement to become involved. I do not consider, however, that that would be a fair inference in the circumstances.
- As I have already indicated (see paragraph [8] above), I do not find acceptable the pursuer's evidence that when he contacted the first defender by telephone on 21 July it was the first defender who asked for a meeting to discuss the matter. I take the view that the approach came from the pursuer, and that it was he who wished a meeting in order to put to the first defender a proposal drawing him into involvement in making an offer for the land which the second defenders were contemplating selling.
- It is, I think, instructive to note the relationship (or rather the absence of a relationship) between the pursuer and the first defender at that stage. They were, of course, aware of each other's existence as fellow residents of the village of Ratho. They had not, however, met. They did not know each other. I accept that in the course of the meeting on 22 July the first defender presented himself as having no experience of property development. That was true. If, as the pursuer suggested, the first defender presented himself as having no business experience, that was going too far, because he had carried on business as a farmer and agricultural contractor for a number of years. But I do not consider that the first defender was attempting to mislead the pursuer. The significant point, which was true, was that he knew nothing about property development. The pursuer did not recall explaining his business credentials to the first defender, and the first defender did not say that the pursuer did so. That strikes me as surprising. One would have thought that if involvement in a substantial business project was being proposed between strangers, the proposer would be at pains to explain his experience and "track record". It may be merely a matter of degree, because the first defender does seem to have understood that the pursuer claimed to be familiar with property development. I accept, however, that it was reasonable for the first defender to approach the pursuer's proposal on the basis that the pursuer was not automatically entitled to his trust.
- The parties were at odds as to whether the pursuer laid three possible courses before the first defender, or only the proposal that they should enter into a joint venture. When cross-examined on the point, the pursuer asserted indignantly that all three options had been set out "professionally". If No. 6/72 of process can be taken as a guide, that is an exaggeration. In the end, however, I do not think that much turns on the point. It seems clear that, whether it was the only proposal, or one of a range of three options, it was the proposal that the parties should enter into a joint venture that was taken forward.
- There is a reasonable amount of common ground between the parties as to what was said about the proposed joint venture at the meeting on 22 July. It is common ground that the development that was mentioned was a development of a small number of houses on field 7, together with shared stables. Nothing turns, in my view, on whether the proposal was eight houses (as the pursuer said) or six to eight houses (as the first defender said). No. 6/72 of process refers to eight houses. The arithmetic set out in that document is somewhat lacking in sophistication. The first three lines deal with land costs. Against the price of £350,000 (derived presumably from what Mr Fergus had said on 20 July) is set a figure of £100,000 to be obtained from the sale of land (presumably field 11) to David Taylor, the owner of the climbing centre in the quarry to the west of that field. Where the figure of £100,000 came from was not explained. The net land cost brought out by that subtraction (£250,000) then vanishes from the calculation. It is not brought into account in the remainder of the document when the development profit of £2,000,000 is calculated. In that latter calculation what is set out is simply the notional sale value of the houses once built, less the notional cost of building them. The pursuer in evidence gave some vague account of knowledge, derived some years earlier, of the cost of building such houses, but the whole calculation is manifestly crude and superficial, and not such as to form a basis on which it would be wise to enter into a substantial commercial contract. Although the first defender did not say so in evidence, I think it is reasonable to accept that the proposal put to him by the pursuer was, as the pursuer maintained, that they should be equal partners in the joint venture. The first defender agreed that he mentioned a figure of £150,000 as one which he might be able to contribute to the joint venture. As he explained, it was not a matter to which he had given any thought in advance. It is common ground that the question of the agricultural tenancy was discussed. I accept that it must have been implicit in the proposal under discussion that the joint venture required to acquire the agricultural tenant's interest in the land. What is, however, clear is that no agreement was reached at that stage as to the terms on which the agricultural tenancy should be surrendered, and that at that stage that was seen as a matter the resolution of which required the professional knowledge and skill of the parties' respective land agents. I accept that it was understood at the end of the meeting that the pursuer would make an offer for the land. It was not suggested that there was agreement in advance on the price he would offer. I do not feel able to accept that it was expressly agreed that the first defender should not be named in the offer because he had other dealings with the second defenders and therefore did not want his involvement disclosed. There was no clear identification of what those other dealings were. I prefer the first defender's account that he simply raised no objection when the pursuer said that he would make an offer.
- While there was, to the extent which I have just examined, common ground as to what was discussed on 22 July, there was radical disagreement as to whether the first defender had committed himself to a joint venture. In my view it is necessary, in evaluating the pursuer's evidence on this matter, to take account of the general approach which he adopted to the formation of contractual relations. He held himself out as a man whose "word was his bond". He appeared, however, unable to distinguish between a situation in which progress towards agreement had been made but agreement had not been reached, and a situation in which all necessary matters had been agreed to finalise a contract. He expressed the view that in his experience it was always possible to reach agreement if parties negotiated in good faith. The result was, in my view, that he tended to perceive concluded agreement in a situation in which all that had in fact happened was that the parties had agreed as to the nature of the project to be discussed. In effect, he took the view that, once parties had agreed to discuss a joint venture to acquire and develop the land and to share the resultant profit, the joint venture was in existence, whatever level of detail remained to be resolved. To a material extent, it seems to me, the pursuer's perception of the course of negotiations between him and the first defender was distorted by these views. In addition, there was evidence of excessive enthusiasm on the pursuer's part, as well as a failure to listen to what others were saying. Of the meeting on 5 August Mr Reid-Thomas said, "Freddie Small seemed to be plunging ahead when there was a lot of work still to be done". The first defender referred to the pursuer being in "runaway train mode". Having seen and heard the pursuer giving evidence, I am inclined to accept that his approach to negotiations would be self-centred, and that he would be inclined to assume that silence was agreement rather than detachment.
- In evaluating the evidence of what happened at the meeting on 22 July, I also take into account the first defender's description of his approach to the meeting. He went to hear what the pursuer had to propose. It was an initial meeting. He was not going to give up anything at that stage. He wanted more information than the pursuer was offering, particularly about the financial aspects of the proposal. He required to discuss matters with his professional advisers. There was "no way" he would "do a deal" the first time he met a person. I accept all of that as a sensible approach, and the one which the first defender adopted at the meeting.
- In the result I am of opinion that at the meeting on 22 July the pursuer put forward his proposal that there should be an equal joint venture between him and the first defender to acquire the land offered for sale by the second defenders, and to develop field 7. It was implicit in the proposal that if a joint venture was entered into it should be on the basis that the agricultural tenancy would be surrendered to the joint venture. The defender expressed interest in the proposal. A very rough and ready calculation of possible profit was made. The first defender indicated that the contemplated level of profit would be acceptable. He also indicated that he could contribute up to £150,000 to such a joint venture. The pursuer said that he would put in an offer for the land. There the matter lay. I am not able to accept that the first defender went beyond an expression of interest in the proposal, and committed himself to becoming party to the proposed joint venture. I prefer his evidence to the effect that he would not commit himself at such an early stage on the vague information available to the pursuer's evidence that the first defender did give such an unequivocal commitment. The first defender's position is in my view the rational one. He was dealing with a man he did not know. An extremely vague proposition, involving substantial financial commitment and inadequately forecast financial return, had been made to him. A wide range of considerations which would be material to the commercial viability of the proposal had not been addressed, including at that stage funding sources, proper financial projections, the terms on which his agricultural tenancy was to be surrendered, and the prospects of obtaining planning permission for the projected development. The contention that there was a concluded joint venture at that stage fails, in my opinion, at two levels. First, on the view which I take of the evidence, I do not accept that the first defender had in fact said anything which committed him to a joint venture. In any event, had I held otherwise, I would have taken the view that what was agreed at that stage fell far short of all that would have had to be agreed to constitute an enforceable joint venture.
- What followed does not in my view help the pursuer. He instructed his solicitors to intimate his interest in the land to the second defenders' solicitors. For some unexplained reason, that was done in name of Ratho Hall Ltd. At all events, however, there is no clear evidence that at that stage there was any mention of a joint venture in his instructions to his solicitors. He made the informal offer to the second defenders in his own name. He decided to offer substantially more than the price he had discussed with the first defender. He certainly did not discuss the price with the first defender before he made the offer. It is unclear whether he even mentioned it to the first defender before the meeting of 5 August. He claimed to have a "carte blanche mandate" to decide upon the price. I cannot accept that. It seems to me to be quite incredible that the first defender should have given the pursuer such authority. The lack of hostile response from the first defender when he did discover the price that had been offered seems to me to be at least as consistent with the first defender's position as with the pursuer's. If the first defender had been committed to the joint venture, I cannot envisage that he would have let the greatly increased price pass without comment or demand for an explanation. On the other hand, if he remained wholly uncommitted, the price was truly a matter for the pursuer.
- The pursuer's position is also not assisted by the terms in which the proposed joint venture was discussed by his solicitors once he mentioned it to them. The several times repeated emphasis on the need to tie up a deal with the agricultural tenant seems to me to indicate that the solicitors' understanding was that the first defender was not yet contractually bound.
- The background to the meeting on 5 August was therefore, in my opinion, that the projected joint venture had been discussed, that the first defender had expressed interest in it, but that much necessary detail had not been resolved or even discussed, and that the first defender had not passed from interest to commitment. The specific purpose for which the meeting was convened was to discuss the terms on which the agricultural tenancy would be surrendered if the joint venture proceeded, and to that end each party's land agent was present. I do not consider that the Heads of Agreement can be taken as an accurate record of what was said or agreed at the meeting. It is, in my view, necessary to weigh the evidence of all the participants in the meeting. There was agreement among all the witnesses that the pursuer announced that he had offered £444,444.44 for the land at Hillwood. It is also agreed that the pursuer asserted that there was to be an equal joint venture between the parties. Weighing the four accounts of the meeting as best I can, I do not consider that that point was laid out at the outset of the meeting, in the way that is implied by its inclusion in the "Introduction" section of the Heads of Agreement. I think it more likely that it only emerged when the pursuer interrupted the discussion between the land agents as to the value of the tenant's interest in the land. It seems clear that such a discussion, which was after all the declared purpose of the meeting, began. It is also common ground that the pursuer did intervene to cut that discussion short with his assertion of an equal joint venture. I do not understand why it should have been thought by the pursuer that agreement on an equal joint venture necessarily implied that the first defender should receive nothing in return for surrendering the agricultural tenancy. Indeed, if it was his position that there was an agreement on an equal joint venture and that it followed from that that there should be no payment for surrender of the tenancy, I do not understand what he thought the purpose of the meeting was. Nevertheless, the evidence from all participants was that he made such an assertion. The evidence about the first defender's response is much more equivocal. According to the pursuer, the first defender said that he agreed with that. Mr McCallum, somewhat curiously, said that he could not remember anything about the first defender's reaction. I am doubtful about the candour of that answer, but on no view does it assist the pursuer to make out assent on the first defender's part. Mr Reid-Thomas did not speak to any affirmative response from the first defender. I regard him as a credible and on the whole reliable witness. He had gone to the trouble of committing his recollection of the meeting to paper just over two months later. He did so in preparation for being precognosced, but at a stage when his attention had not been pointed in a particular direction by specific questions. I think that if the first defender had positively assented to the proposition that there was concluded agreement on an equal joint venture, Mr Reid-Thomas would have included reference to that in his note (No. 7/5 of process). The first defender's evidence on his response to the pursuer's assertion of an equal joint venture was not, in my view, satisfactory. In evidence in chief he said that he "would have" responded by saying that he had not agreed to an equal joint venture. In cross-examination, he said that he did express dissent, although he could not remember the words he had used. There is no support for that in the evidence of the other witnesses, and I do not consider that I can accept it. I am inclined to the view that the first defender simply let the pursuer say what he said without response. There were indications in other parts of his evidence that that was the approach he adopted, and it seems to me that the proper conclusion is that the first defender neither expressly assented to the proposition that he and the pursuer were agreed on an equal joint venture, nor expressly dissented from it.
- It seems to me that that is the critical issue about the meeting on 5 August. If it is correct that the first defender did not express assent to the proposition that there was agreement on an equal joint venture, the rest of the content of the Heads of Agreement falls into place. It is concerned, not with what was agreed as part of an already agreed joint venture, but with what was discussed, and very possibly agreed, about individual aspects of the proposed joint venture. It seems to me to be entirely plausible that parties who were discussing a proposal that they should enter into a joint venture should, without reaching the stage at which they committed themselves to entering into the proposed joint venture, discuss and perhaps agree on a hypothetical basis how individual aspects of the proposal should be treated. I see no improbability in parties who have not yet reached agreement that they will form a joint venture agreeing that if they do so, they will adopt the vehicle of a joint venture company through which the development will be carried out (Heads of Agreement, point 1), that the two individuals concerned should each contribute a certain amount of capital to the company (point 2), and that they should each become a director of the company (point 3). The position is somewhat different when it comes to whether there was agreement on a capital contribution of £50,000 each (point 2) or that the agricultural tenancy should be surrendered to the company on the basis that the tenant will continue to farm the land until it is required for development, and that in return, the tenant will share equally in the development profits (point 4). In the light of the evidence of the four participants I have no doubt that these points were proposed by the pursuer. I am not, however, persuaded that the first defender has been proved to have agreed to them. I reach that conclusion not only on the basis of what was actually said by the four participants, but also in light of what I have concluded about the approach to negotiation adopted by the two parties (see paragraphs [57] and [58] above).
- I also take into account the improbability, as I see it, that the first defender would be prepared to commit himself to a binding contract on the basis of such vague information as was available and without discussion or resolution of so many important aspects of the project. By 5 August, matters were no further forward on the important questions of (1) whether, from what source and in what amount funding for the acquisition of the land and for any development could be obtained; (2) what precisely the development was to be and what was to be done with the land in Areas A and B which was redundant to the development plan; (3) whether planning permission was likely to be obtainable for the proposed development; and (4) what was to happen if funding or planning permission was not forthcoming. Some of these matters had been touched upon in discussion. I accept that a party in the first defender's position might have been prepared to take a risk on one or more of them. But taking a broad view of the matter, I find it highly persuasive that in the absence of any clear way forward on these matters a person in the first defender's position would be unlikely to be prepared to commit himself to a binding joint venture contract. I therefore prefer the evidence of the first defender that he gave no binding commitment at the meeting. I accept that what he and Mr Reid-Thomas expected of the Heads of Agreement which the pursuer was to prepare was that they would set out proposals which the first defender might discuss with his professional advisers before coming to a decision on whether or not to enter into a joint venture.
- I do not feel able to attach to the toast drunk at the end of the meeting the significance that the pursuer in evidence attached to it. I do not see why such a toast might not have been proposed by the pursuer on the basis that the discussions, although not resulting in a concluded agreement, had gone well. In view of the fact that the first defender had not articulated his reservations about the proposal, the pursuer would, I think, have been entitled to feel a measure of optimism that the negotiations would eventually result in agreement. Whether the first defender expressed his reservations by responding "We'll see" to the toast does not appear to me to be a critical issue. I do not feel able to find positively that he did speak those words. But even if he did not, that does not afford a proper basis for a conclusion that he had agreed to the pursuer's proposal.
- Even if I had held that the first defender had, at the meeting on 5 August, expressed his agreement to everything that the pursuer claimed he had agreed to, I would not have regarded that as sufficient to set up a binding joint venture. I would not have regarded the agreement as "settling everything that is necessary to be settled" (May & Butcher Ltd v The King, per Viscount Dunedin at 21). What are the essentials of a contract will vary according to the contract under consideration (loc. cit.), but in my view it is clear that if a commercially realistic view is taken of a joint venture to acquire and develop land there was, as at 5 August, much that still had to be determined and that could not be determined without the further agreement of the parties. The measure of agreement that the pursuer claims had been reached by the end of the meeting on 5 August was not, in my view, sufficient to constitute an enforceable contract of joint venture.
- Mr Wallace accepted that if there was no agreement by 5 August there was no agreement at all. The events following the meeting on 5 August are therefore less important. I require, however, to deal with the meeting on 8 or 9 August. I do not think that anything turns on whether the first defender attended that meeting simply to tell the pursuer "thank you, but no thank you" (as the first defender said), or in the hope that fuller information might have been provided that would have altered Mr Anderson's advice (as Mr Anderson said). What is clear is that at the meeting nothing was said that was new or might have led to a change in Mr Anderson's advice. It was made clear that Mr Anderson was advising the first defender against becoming involved. There remains, however, the curious episode described by the pursuer as having taken place on the doorstep as the first defender left, in which he asked how matters stood, and was reassured by the first defender that they still had a deal. The pursuer's evidence about that stands alone. It is contradicted by both the first defender and Mr Anderson. I found Mr Anderson a credible witness who, while he was plainly mistaken about the point that the pursuer's proposal was that only the first defender was to contribute £50,000 to the proposed joint venture, was unshaken in cross-examination in his certainty that no doorstep words of reassurance could have escaped his notice. Mr Wallace submitted that Mr Anderson was a witness with an ulterior agenda, but I see no foundation for such criticism. Mr Anderson was loquacious and pedantic in his evidence, but I believe he was doing his best, with some care, to give accurate evidence. In addition, I fail to understand what the point would have been in the first defender arranging the meeting and allowing it to follow the course it did, then telling the pursuer that, contrary to Mr Anderson's professional advice, he was committed to the proposed joint venture. The position might have been different is something new and important had been said at the meeting which persuaded the first defender (but not Mr Anderson) in favour of the joint venture. The evidence, however, did not suggest that any such new material was disclosed at the meeting. I therefore reject the pursuer's evidence about the doorstep reassurance. In my opinion the pursuer knew by 8 or 9 August that the first defender was not going to enter into the joint venture.
- For the reasons which I have set out I have come to the conclusion that the evidence does not establish that the first defender entered into a binding contract of joint venture with the pursuer for the purpose of acquiring and developing the land at Hillwood.
Repudiation
- In view of my conclusion that there was no binding agreement to enter into a joint venture, the question of whether the first defender repudiated such an agreement does not arise. It is therefore unnecessary for me to enter upon discussion of the circumstances that led to the first defender making on 12 September 2001 an offer in name of his farming partnership, Cochrane & Fleming, but actually on behalf of the Brewsters, to purchase the land at Hillwood for £475,000. I should record, however, that Mr Campbell accepted that, if I had concluded that the first defender had entered into a binding joint venture with the pursuer to acquire and develop the land at Hillwood, his making the subsequent offer on behalf of the Brewsters would have constituted a repudiatory breach of his contract with the pursuer.
Result
- For the reasons which I have set out I shall sustain the first defender's fourth, fifth and sixth pleas-in-law, repel the pursuer's first and second pleas-in-law, and assoilzie the first defender from the conclusions of the summons. I shall reserve the question of expenses.
