Interpretation of a Minute of Agreement

Kennedy and others for suspension and interdict, 21 July 2015

Outer House case concerning the interpretation of a minute of agreement in respect of professional fees relating to a planned development.

Background

Mr Kennedy and others (the trustees) were the owners of a 6.293 acre site in Ayr which they agreed to sell to a house builder (DMH). The missives of sale included a term which allowed DMH to resile from the bargain on the payment of an “abort fee”. DMH paid the fee and resiled. The parties then entered a minute of agreement which provided for the trustees to reimburse DMH for professional fees of just over £165k in certain circumstances if the trustees agreed to sell the site to a third party.

When the trustees agreed to sell the site to Miller Homes, DMH served charges on the trustees for payment of the professional fees. The trustees denied liability to pay and sought suspension of the charges. The question for the court was whether, in terms of the minute of agreement, there was a liability to pay the fees in the situation where DMH had not obtained planning consent for the development.

Interpretation of the Contract

On the interpretation of the contract, Lady Stacy said:

“I accept the submissions made by both counsel to the effect that the task of the court is to consider what the reasonable person, armed with the information that the parties reasonably had at the time of entering into the contract, would consider was meant by the words of the contract. I accept that the construction should, if there is a choice, favour a commercially sensible outcome. I am bound by the case of Grove Investments to proceed in that fashion. The words of the contract are to be read as a whole, and if possible meaning given to all of them. I am not concerned to find out what the parties intended to agree, but rather what in the context of the facts agreed or proved, their words show that they did agree. I have reached my view by considering all of the circumstances known to both parties. I have not relied on internal communications known to only one of them.”

On that basis, and after noting that the minute of agreement was not easy to construe, Lady Stacy accepted DMH’s arguments to the effect that the trustees were liable to pay the fees even where planning permission was not obtained and refused the trustees’ petition. In coming to that conclusion Lady Stacey found that, although the trustees commercial intention had been hard to ascertain, they had entered the agreement and agreed to make the payment because they wished to encourage DMH to proceed with their planning application during the period when the trustees were looking for a third party to purchase the site. If, however, the intention had been that the payment would only be made if DMH were successful in obtaining planning permission, it would not have been drafted in the way it had been drafted. It would not have been difficult to draft an agreement which stated plainly that payment was dependent on DMH obtaining planning permission and the minute of agreement did not do so.

The full judgement is available from Scottish Courts here.

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