Sheriff Appeal Court refuses appeal against dismissal of rectification claim in purchase option dispute

About this case:

• Citation:
  [2024] SAC (Civ) 40
• Judgment:
  External link
• Court:
  Sheriff Appeal Court
• Judge:
  Sheriff Principal N A Ross

Landowner Luke Wilkes originally raised an action against appellant Edward Wellington for declarator that, due to the lapse of the options agreements, two standard securities granted over the plots did not secure an extant obligation and required discharge. Mr Wellington counterclaimed for rectification of the agreements due to an alteration made when the original agreements were varied.

The appeal was heard by Sheriffs Principal Aisha Anwar and Nigel Ross, with Appeal Sheriff Derek Hamilton. Young, advocate, appeared for the defender and appellant and the Dean of Faculty, Dunlop KC, for the pursuer and respondent.

Gratuitous benefit

The pursuer was the heritable proprietor of two plots of land at Taymouth Castle, Kenmore, which the defender sought to purchase. In February and March of 2021, the parties entered into two options agreements, in near identical terms, which provided for payment of an Option Price of £5,000 to the pursuer in exchange for a three-year period in which the defender could purchase the relevant plot at the price of £150,000. These agreements contained a deadline for payment of the Option Price of 12 April 2021, which was not met by the defender for either agreement. To secure performance, the pursuer granted a standard security over each plot.

Shortly after this date, the defender contacted the pursuer with a view to resurrecting the options to purchase. After email correspondence, the defender’s agents sent two Variation Letters offering to amend and renew each of the original agreements, which the pursuer accepted on 15 July 2021. As drafted, these letters provided a 42-day period for exercise of the Option to purchase the property, rather than to pay the Option Price. The 42-day period expired without payment.

The sheriff heard the matter at debate on the basis that the entire action turned on the issue of rectification. He found a common intention to enter into the revised versions of the agreements based on the parties’ email correspondence, and refused the proposed rectification as it would lead to an outcome where the defender would receive a gratuitous benefit of the grant of the Option without the need to pay the Option Price.

Counsel for the defender submitted that it was plain that the Variation Letters, and therefore the amended agreements, were defectively expressed and failed to reflect the parties’ common intentions at the time they were signed. The original agreements correctly reflected an understanding that the options would be of three years’ duration. It was clear that something had gone wrong, and keeping the agreements as currently expressed would lead to an absurd result.

The Dean of Faculty submitted that the sheriff had found that there was no communication of any common intention to rectify the Original Agreements. There was therefore no basis to find an antecedent agreement which the document failed to reflect.

An agreement to agree

Delivering the opinion of the court, Sheriff Principal Ross said of the sheriff’s approach: “In our view, the sheriff’s analysis was flawed in that it did not recognise the clear distinction between the court’s approach to rectification of documents and the approach to construction of contracts, including the implication of terms. The evidence that the court may consider is not the same for each issue. The exercise of rectification is to remedy errors of expression, not to imply terms or to assess the reasonableness of what the parties agreed.”

He continued: “While logical tensions in the resulting contract may be relevant pieces of evidence in considering whether the parties did in fact reach agreement, they do not thereafter prevent the remedy of rectification, subject to the court’s discretionary powers of grant. It is always open to parties to make a bad bargain.”

Assessing whether the criteria for rectification were met, the Sheriff Principal said: “The emails must be construed on their bare terms, in the context of the admitted averments. They ended with the agreed position that the options agreements would be redrafted. The parties may or may not have had in mind the same structure as before. The emails do not, however, say that. In our view, what is clear is that the options agreements were to be redrafted and would be sent for signature.”

He added: “There was a common intention, but it was no more than an agreement to agree. The agreement would be contained in the formal document to come. The imprecise and selective nature of the contractual points discussed in the email exchange did not matter because it was understood that a final, professionally prepared, document would be circulated for approval, negotiated adjustment, and signature. That, in our view, is the only common intention discernible from the email exchanges.”

Sheriff Principal Ross concluded: “The email exchange ends with an expression by the pursuer that he was keen to get the purchase price of £150,000 per plot as soon as possible. The Amended Agreement, in substituting a much shorter period for exercise of the Option, was consistent with that intention, and inconsistent with granting an uncontrolled time for due diligence the defender. There are accordingly sound reasons for regarding the terms of the Variation Letters as quite deliberate.”

The appeal was therefore refused.