DIVISIONAL COURT

(Sheriff MacLeod, J A Smith)

McCULLOCH v THE MOUNT STUART TRUST LIMITED

(Application RN SLC/228/04 – Order of 19 January 2007)

AGRICULTURAL HOLDINGS – APPLICATION FOR DETERMINATION OF RENT BY LAND COURT UNDER SECTION 13 OF THE AGRICULTURAL HOLDINGS (SCOTLAND) ACT 1991 AS AMENDED - WHETHER APPLICATION HAD BEEN CONTRACTUALLY COMPROMISED BY ALLEGED AGREEMENT BETWEEN THE PARTIES – WHETHER POINT HAD BEEN REACHED AT WHICH PARTIES HAD CONCLUDED THEIR NEGOTIATIONS AND HAD BECOME BOUND IN LAW

This application, being an application for the determination of the rent payable for an agricultural holding in the Isle of Bute brought under section 13 of the Agricultural Holdings (Scotland) Act 1991 as amended, was lodged by the tenant in November 2004 but subsequently sisted to allow negotiation on the matter between parties’ Land Agents. In November 2005 the landlords’ solicitors wrote to the tenant’s solicitors enclosing a draft Minute of Agreement setting out the landlords’ understanding of what had been agreed in said negotiations and also touching on certain other matters. Sundry correspondence having been exchanged in the interim, but no revisal of the draft Minute of Agreement having taken place, on 4th April 2006 the tenant’s solicitors wrote to the landlords’ solicitors intimating, in effect, that their client was not proceeding with the Minute of Agreement and was reverting to the Court to have the rent determined. The landlords then lodged a Minute with the Court averring that a concluded agreement had been reached as a result of said negotiations and that the subject matter of the application had therefore been contractually compromised by the parties, setting out the terms of that alleged agreement and asking the Court to interpone authority thereto. Answers having been lodged by the tenant, the Court held a hearing in the form of a debate based on the agreed terms of correspondence between the parties’ Land Agents and solicitors and restricted to the question of whether that correspondence disclosed a concluded agreement on the rent payable.

The Court held that although by the time of the tenant’s agents’ letter of 4th April 2006 the point had been reached where all matters relevant to the rent review had been agreed the point had not, nevertheless, been reached at which negotiations were closed and parties had assented to be bound in law, it always having been their intention to reduce their agreement to writing and the Court holding that they had not intended to bound until that writing had been executed by them both. (Dicta from Ridgway v Wharton 1857 6 Clark (H.L.) 238, Gordon’s Executors v Gordon 1918 SLT 407, Stobo, Limited v Morrisons (Gowns) Limited 1949 SC 184. Comex Houlder Diving Ltd v Colne Fishing Co Ltd 1986 SLT 250and W S Karoulias v The Drambuie Liqueur Co Ltd 2005 SLT 813 applied)

The Note appended to the Court’s Order is as follows:

Introduction

This is an application under section 13 of the Agricultural Holdings (Scotland) Act 1991 by the tenant of the holding of Kilmichael and Glecknabae Farms, Linniehullen on the Isle of Bute asking the Court to determine the rent payable for that holding as from Martinmas 2004. There is another application pending before the Court at the instance of the landlords, The Mount Stuart Trust Limited (Application RN SLC/222/04) asking the Court to do the same thing. When the present matter called before us on 14th December 2006 parties were agreed that whatever we decided at this stage in this application would apply equally to that other application.

The application called on that date for a debate in terms of the Court’s Order of 5th December 2006 on a Minute lodged by the landlord respondents seeking to have it declared, in effect, that parties had already agreed the rent payable and asking the Court to interpone authority to that agreement. The respondents, who led in the debate, were represented by Mr Lewis Kermack, solicitor, and the applicant by Sir Crispin Agnew of Lochnaw Q.C..

Statutes, authorities and texts referred to

Statutes

Agricultural Holdings (Scotland) Act 1991 as amended by the Agricultural Holdings (Scotland) Act 2003; section 13
Civil Evidence (Scotland) Act 1988; section 2
Requirements of Writing (Scotland) Act 1995; section 1(2)

Cases

Anderson v Dick (1901) 4 F 68
Anglo Petroleum Ltd v TFB Mortgages 2003 Current Law Cases
Chisholm and Anr v Wardrope and Ors 2005 SCLR 530
Comex Houlder Diving Ltd v Colne Fishing Co Ltd 1986 SLT 250
Daks Simpson Group plc v Kuiper 1994 SLT 689
Frogmore (Scotland) Ltd v Ardler Farms 2005 SLCR 1
Gordon’s Executors v Gordon 1918 SLT 407
Inglis v Lownie 1990 SLT (Sh. Ct.) 60
Irving v Hiddleston 1998 SLT 912
McArthur v Lowson 1877 4 R 1134
McCall’s Entertainments (Ayr) ltd v South Ayrshire
Council (No 1) 1998 SLT 1403
Richardson v Quercus Limited 1999 SLT 596
Ridgway v Wharton 1857 6 Clark (H.L.) 238
Scammell v Ouston 1941 1 All E.R. 14
Stobo, Ltd v Morrisons (Gowns) Ltd 1949 SC 184
W S Karoulias SA v The Drambuie Liqueur Co Ltd 2005 SLT 813

Texts

MacPhail Sheriff Court Practice 2nd edition
McBryde The Law of Contract in Scotland2nd edition
Stair Memorial Encyclopaedia of the Laws of Scotland Vol 1, Agency and Mandate
Walker & Walker The Law of Evidence in Scotland 2nd edition (“Walkers”)

Respondents’ submissions

In opening his submissions Mr Kermack, under reference to Frogmore (Scotland) Ltd v Ardler Farms, pointed out that a rent review application was a litigation like any other and, therefore, subject to the same rules, including the rules as to extra-judicial settlements and compromises. Where agreement was reached in the form of an extra-judicial settlement that was treated as a contract from which neither party was entitled to resile (MacPhailparas 14.31 and 14.66; Walkerspara 9.1.2; Civil Evidence Act 1988, section 2). Therefore, in accordance with usual practice as to extra-judicial settlements, it ought to be possible for the Court to interpone authority to any agreement it found established, even if one of the parties to that agreement had subsequently changed his mind. An order in terms of the motion contained in the Minute was, therefore, appropriate.

Turning to the correspondence from which he was inviting us to deduce an agreement, Mr Kermack said that the terms thereof were not contentious and amounted to “admitted facts” as that term is used in MacPhail at paragraph 14.66. He understood that it was not to be argued that the correspondence was privileged. So far as the use of the words “without prejudice” on some of the correspondence was concerned, Mr Kermack referred to Daks Simpson Group plc v Kuiper for the proposition that whereas concessions made in the course of negotiations were protected by that phrase from use against the person making them, unequivocal admissions of fact were not.

On the matter of onus, Mr Kermack accepted that the onus was on the landlords, as the party asserting that the case had been compromised, to prove it (Irving v Hiddleston). As to the approach the Court should take in deciding the matter he referred to paragraph 14 of Lord Emslie’s opinion in Chisholm and Anr v Wardrope and Ors for a summary of the relevant principles. Under reference to what Lord Emslie’s goes on to say at paragraph 16, Mr Kermack submitted that in the present case the landlords would be entitled to succeed even if they could not identify a particular point in time at which parties might have said “we are now agreed”. Following Lord Emslie’s approach, it was a matter of looking objectively at the correspondence as a whole to see if the point of agreement had been reached or whether there was still lack of consensus.

In Mr Kermack’s submission it was not open to the tenant to say that no agreement had been reached. That was precluded by the terms of the tenant’s solicitors’ letter to the Court of 27th October 2005 (production 20A) which said that a verbal agreement had been reached between the two Land Agents. At that point the parties had reached consensus on the substance (“the what” as Mr Kermack put it) of their agreement although not on how it was going to be implemented (“the how”). That being so the rest of the exercise we had to carry out was in the nature of establishing what that agreement was. As at the date of that letter parties were agreed on matters such as what the rent was to be following the setting aside of the Post Lease Agreement, the non-use by the tenant of the landlords’ JCB and a number of other matters. Beyond that date there had been discussion as to the best way of implementing the agreement but agreement had eventually been reached on that also.

There was no question of the agreement having to be in writing because this was not a variation of an interest in land for the purposes of section 1(2) of the Requirements of Writing (Scotland) Act 1995 but the variation of rent in a lease running on tacit relocation. In any event it was clear that a contract of compromise could be constituted by word of mouth (dictum of Sheriff Principal Ireland in Inglis v Lownie at page 61 and the case of Anderson v Dick referred to there). Therefore, when Messrs Dale & Marshall had written to the Court on 27th October 2005 stating that there was a verbal agreement, that verbal agreement was sufficient to constitute the compromise of this application and it thereafter became a matter of looking through the correspondence to find out what that compromise was.

It was clear from the context surrounding that letter that matters had moved on from negotiation and settlement to implementation of that settlement. Production 12A was a letter from the Court to Messrs Dale & Marshall dated 23rd September 2005 asking whether agreement had been reached. Production 15 was a letter from Messrs Turcan Connell, on behalf of the landlords, to the Court dated 20th October 2005 saying that agreement had been reached on the essentials. Production 27, dated 13th December 2005, was a letter from Messrs Dale & Marshall to Messrs Turcan Connell consenting to a further period of sist to allow inspection of the landlords’ fixed equipment on the holding. That showed that, by that time, things had moved on to the stage of discussion about how the agreement was to be implemented. So it was disingenuous of the tenant to suggest, in his agents’ letter to the Court of 10th February 2006 (production 36A), that negotiations were still ongoing at that point.

Mr Kermack then referred back to an earlier point in the correspondence, Messrs Dale & Marshall’s letter to Messrs Turcan Connell dated 27th September 2005 (production 12) in which it is stated that “The principals [sic] have been agreed and it is currently a question of figures.”. That was a reference to the respective Land Agents having decided that they should first agree the proper stocking level of the holding and calculate its ewe-equivalent, that they would then move on to agree a rent on a “per-ewe” basis and that finally they would produce two figures, one for the situation where the Post Lease Agreement remained in place and another for the situation in which the landlords took back their obligations in respect of the fixed equipment. That was what was meant by the reference to principles in that letter.

Following that approach, Mr Christopher Addison-Scott and Mr Colin Stewart, the landlords’ and tenant’s respective Land Agents, had held meetings at which the stock-carrying capacity of the holding had been discussed. Production 10A was a note of these meetings. Production 11 was an email from Mr Addison-Scott to Mr Stewart suggesting a rent of £16,300 on the basis of a carrying capacity of 1,630 units. By 6th October 2005 (production 14) agreement had been reached on a reduced stocking level of 1,478 units and a rent of £13,800 was being proposed for Martinmas 2004 and £16,700 for Martinmas 2005 and thereafter. Production 16 was an email from Mr Stewart to Mr Addison-Scott stating that his client would pay £16,700 as rent for the holding from 28th November 2005 on the basis of the Post Lease Agreement being nullified but stating that the rent payable at 28th November 2004 should remain at the then current level of £12,000. Following further emails and telephone calls between the agents that latter point had been agreed and the parties had what is referred to in production 18, an email from Mr Addison-Scott to Mr Mellish, the Estate Factor, and Mr Kermack dated 27th October 2005, as “provisional agreement” on various matters listed in that email.

At this point we enquired of Mr Kermack what he was saying as to the extent of the Land Agents’ authority in these negotiations, given the reference to Mr Stewart’s “ostensible authority” in his Minute. He replied that he was saying that Mr Stewart had authority not only to negotiate on behalf of Mr McCulloch but also to bind him. Mr Stewart had never asserted the contrary. The position was different with Mr Addison-Scott, however. He had always made it clear that he was negotiating subject to the approval of the Mount Stuart Trust Limited. There was a practical difference between their situations: Mr McCulloch, being an individual, was always readily available to Mr Stewart in a way in which his principals, being, in effect, a number of company directors, were not readily available to Mr Addison-Scott. Productions 20 and 20A, letters from Messrs Dale & Marshall dated 8th November (to Messrs Turcan Connell) and 27th October 2005 (to the Court), showed that Mr Stewart had not been depending on his principals’ instructions. Unlike the landlords’ position throughout, at no stage did anything from the tenant’s side say “this is subject to the tenant’s approval”. Production 22, a letter from Messrs Turcan Connell to Messrs Dale & Marshall dated 17th November 2005, referred to the writers having received their clients’ instructions. This showed how matters on the landlords’ side had been subject to the landlords’ approval.

We discussed with Mr Kermack the final paragraph of that letter. It reads:-

“In the meantime, this letter and the draft Minute of Agreement are written purely for the purposes of exploring the possibility of a negotiated settlement of the rent review and are entirely without prejudice to our clients whole rights and pleas and, as such, may not be founded upon in any proceedings between our respective clients except with our clients express consent in writing.”

Mr Kermack referred to the effect of the term “without prejudice” as discussed in Daks Simpson plc v Kuiper and explained that the paragraph had been inserted so as to exclude the draft Minute of Agreement from being founded on as something the landlords had been prepared to agree to in the event that the agreement between the parties broke down and they had to have the rent fixed by the Court. In any event, borrowing the language of Lord Johnston in Richardson v Quercus Ltd at page 604, this was a situation in which the surrounding circumstances “obliterated the effect of such a docquet”.

Reverting to his submission on the extent of the respective Land Agents’ authority, Mr Kermack said that there was no suggestion on the tenant’s side, as the correspondence unfolded, that Mr Stewart did not have authority to bind his client whereas it was clear from the correspondence that any agreement arrived at by Mr Addison-Scott was always subject to the approval of the company directors, which approval had in due course been obtained.

Continuing his examination of the correspondence, Mr Kermack turned to the draft Minute of Agreement sent by him to Messrs Dale & Marshall under cover of his letter of 17th November 2005 (production 22). In sending that draft he had not been saying “here is a proposal”. Rather the draft Minute was his expression of the agreement already arrived at and the reason for sending it had been to allow the tenant’s solicitors to satisfy themselves that it accurately expressed that agreement. That was clear from the terms of his letter of 10th November 2005 to Messrs Dale & Marshall (production 21). Reverting momentarily to his comments on the “without prejudice” aspect of the letter of 17th November, Mr Kermack said that it was also part of its purpose to prevent any inaccuracies of expression in the draft Minute being held against the landlords. Mr Kermack then took us through the contents of the draft Minute of Amendment but its terms speak for themselves and we need not repeat them here.

Production 23, dated 30th November, was Messrs Dale & Marshall’s response. It said that they were taking instructions. Production 24, dated 6th December, was their fuller response. It was fair to assume that they had obtained Mr McCulloch’s instructions in the interim. It was also fair to assume that the second letter contained all matters with which Mr McCulloch was not happy as of that date. These were as follows:-

(1) It complained that the Minute of Agreement was being made suspensive upon examination of the landlords’ fixed equipment by Mr Addison-Scott. That, however, was a matter of “how” rather than “what”.

(2) There was a technical point as to whether the Post Lease Agreement could be set aside other than as a consequence of the rent having been determined by the Land Court. That again, however, was a matter of “how” rather than “what”.

(3) There was then a justifiable objection to the matter of resumption, not previously mentioned, being included in the draft Minute of Agreement (at Clause Ninth).

(4) It included a request from the tenant to be allowed to erect fixed equipment in replacement for two buildings which had been removed.

(5) It suggested that the inspection of the landlords’ fixed equipment should be carried out by an independent surveyor.

All of these points were matters of how the agreement was going to be implemented.

There was no objection to the stocking level, nor to the rent, nor to the abatement of rent at Martinmas 2004, nor to the increase in rent once the Post Lease Agreement had been set aside. In short there was no repudiation of the agreement at that stage sufficient to prejudice the compromising of the two applications before the Court. The first the landlords had heard of any intention to repudiate was the letter from Messrs Dale & Marshall to Messrs Turcan Connell on 4th April 2006 (production 43). That letter said that Mr McCulloch was dissatisfied with the stocking figures but nothing had been said about stocking figures or rent at any time from November 2005 until April 2006 and the question of rent was not mentioned even then.

All of this disclosed an agreement, which Mr McCulloch had accepted, as to:-

(1) the proper stocking level;

(2) the new rent payable from Martinmas 2004;

(3) the abatement of that rent in respect of the Martinmas 2004 payment;

(4) the principle that the Post Lease Agreement should be set aside; and

(5) the rent payable by the tenant once the Post Lease Agreement had been set aside.

These matters had been conclusively agreed.

Production 25 dealt with the question of resumption. It had only been included in the draft Minute as a matter of convenience and could be dealt with separately. Production 41 confirmed Messrs Turcan Connell’s willingness to excise it from the draft.

The other ancillary matter which had been raised was the tenant’s wish to carry out improvements. It had originally been raised in the email from Mr Stewart to Mr Addison-Scott which is part of production 17. That had not contained any specification as to what the improvements were to be. Mr Stewart’s introduction of the subject with the words “I do not wish to muddy the waters further” showed it to be very much an ancillary matter. Production 19, an email from Mr Stewart to Mr Addison-Scott dated 26th October 2005, did contain a list of improvement but gave no notice of the manner in which they were to be carried out. The landlords’ response had been that they would look at each of the items on its merits once more information was forthcoming from the tenant. Until the tenant gave formal notice of intention to carry out improvements there could be no formal consent on the part of the landlords. That point not having been reached, the improvements were not an appropriate subject for inclusion in the draft Minute of Agreement.

On both resumption and improvements the principles listed second and third by Lord Emslie in Chisholm and Anr v Wardrope and Others were relevant. The inclusion of resumption was plainly “collateral to and severable from the ambit of an unconditionally accepted offer” and the request for consent to improvements was “a mere request for indulgence”. Neither, therefore, stood in the way of the agreement which, Mr Kermack, submitted produced a compromise of these applications. Resumption and improvements were clearly severable matters and the correspondence overall did not have the flavour of conditional negotiations but of unconditional agreement. Resumption was entirely a matter in the hands of the landlords. The initiation of the improvements procedure was entirely in the hands of the tenant. Neither required the consent of the other party and neither, on the facts of this particular case, had to do with rent.

That the tenant would no longer have the use of the landlords’ JCB for three days in each year, agreed between the Land Agents, had been carried through into the draft Minute of Agreement and nothing more need be said about that.

So far as the setting aside of the Post Lease Agreement was concerned, it had been agreed at a very early stage that that was to happen. Later a difference had arisen between Mr Kermack and Messrs Dale & Marshall as to how that was to be achieved. Messrs Dale & Marshall thought it could be done only consequent upon a determination of the rent payable having been made by this Court under section 13 of the 1991 Act as amended (see their letter of 6th December 2005, production 24) whereas Mr Kermack considered that it was always open to a landlord and tenant to set aside a Post Lease Agreement without resort to the Court (see his letter of 7th December, production 25). By 13th December 2005, however, matters had moved on towards arranging an inspection of the landlords’ fixed equipment and the discussion was as to who was to carry out that inspection (production 26). Agreement on that person being Mr Dougal Evans of Allied G M Thomson had, however, subsequently been reached (production 29). Before Mr Evans could be instructed, however, a list of the fixed equipment to be inspected was required (production 31). And that was as far as parties got because such a list had never been produced by the tenant. All of the points relating to the setting-aside of the Post Lease Agreement had, however, been questions as to how it was to be achieved: they related to the mechanics, not to the substantive decision that the Post Lease Agreement was to be set aside and eventually a point had been reached in relation to these where the only thing preventing implementation of the agreement was the tenant’s failure to produce a list of fixed equipment. By 4th April 2006 (the date of production 43), therefore, the tenant was too far down the road to assert that there was no agreement.

Mr Kermack then dealt with the various matters which the tenant’s Answers to the respondents’ Minute said were still to be agreed. Answer 4 lists nine of these. Mr Kermack dealt with them as follows:-

(1) He had demonstrated that an agreement on the carrying capacity of the holding had been arrived at by Mr Stewart and Mr Addison-Scott which had never been departed from by the parties’ law agents.

(2) The draft Minute of Agreement merely recorded the terms already agreed.

(3) So far as the extent and condition of the landlords’ fixed equipment on the holding was concerned, the means of agreeing that were in place and the only thing holding it up was the tenant’s failure to produce said list.

(4) The previous stock carrying capacity of the holding was not relevant because the issue was to find out what the capacity was after discounting the tenant’s improvements and agreement had been reached on that.

(5) The tenant executing any works effecting replacement or renewal of any of the fixed equipment on the holding merely entailed that the tenant may have to bring things up to order, by putting the fixed equipment into no worse a state of repair than it had been in at the start of the tenancy.

(6) This was the same point as item (5).

(7) The rent payable after the fixed equipment had been put in a thorough state of repair had been agreed in terms of Mr Stewart’s email to Mr Addison-Scott of 19th October 2005 (production 16).

(8) The non-use by the tenant of the landlords’ JCB had also been accepted by the tenant in terms of the last-mentioned email.

(9) The point in time when the landlords were to assume responsibility for the repairing provisions of the Post Lease Agreement was clearly to have been once Mr Evans had reported on the condition of the fixed equipment and the tenant had carried out any work found to be necessary as a result thereof.

On the face of it the present application was only about the rent payable from Martinmas 2004 and Answer 4 did not say that that was not agreed. Furthermore there was no qualification in any of the correspondence from Messrs Dale & Marshall, except where “without prejudice” was used, such as was suggested by the final sentence of Answer 4.

Mr Kermack invited us to issue an Order in the terms sought in his Minute.

Applicant’s submissions

Sir Crispin invited us to refuse the respondents’ motion, allow the adjustments intimated on behalf of the applicant on 5th April 2006 to be given effect to, allow a period of adjustment and fix an early hearing.

He dealt first with some matters arising out of Mr Kermack’s submission.

Firstly, parties’ discussions had concerned not only rent but a whole range of variations to the lease, so what the Court was concerned with was whether settlement and consensus had been reached on all of these issues.

Secondly, it was wrong to approach the matter on the basis of a distinction between what had been agreed and how it was to be implemented. The issues could not be divided up in that way and one had to see whether there had been consensus on all issues.

Thirdly, letters to the Court could not be founded upon in relation to whether or not agreement had in fact been reached. These may be an indication of what parties thought from time to time but it was for the Court to objectively assess all the evidence of what had passed between the parties to see whether consensus had been reached.

Fourthly, the extent of the concession he was making in relation to the correspondence was that the correspondence was what it bore to be but he was not necessarily accepting the accuracy of documents which had not passed between the parties.

Fifthly, whereas Mr Kermack had said that resumption and improvements were matters which did not require to be agreed, these were matters which often were agreed in order to avoid litigation and that was commonly done in the course of rent review negotiations.

The motion should be refused because parties had never reached a concluded agreement, firstly because they never intended to be bound until the Minute of Agreement had been executed, or, if that was not right, because it was clear from the documentation that no consensus had in fact been reached in respect of all of the matters in contention. Furthermore, even if the Court considered that an agreement might be construed on the basis of the informal documentation it could not in fact make a decision to that effect without a proof before answer.

Sir Crispin then made two further points, again by way of preliminary points.

Firstly, with reference to the respondents’ averments as to ostensible authority, it was in his submission quite clear that both parties knew that each Land Agent and each solicitor had to refer back to his principal for authority to conclude any agreement. That was clear from productions 14, 15, 16, 18-23, 25, 39, 63 and 64. Broadly, what one saw from these was the Land Agents and solicitors saying “I have to take instructions” or “I have taken instructions”.

Secondly, the words “agreement in principle” were often used by people to indicate that there was no concluded agreement.

Finally, in terms of setting out the respondents’ position, Sir Crispin submitted that if we were against him in his submission that there was no concluded agreement, the Minute did not accurately reflect any such agreement.

Turning to the relevant law, Sir Crispin referred to Comex Houlder Diving Ltd v Colne Fishing Co Ltd and in particular to Lord Mackay of Clashfern’s discussion (at pages 258E to 259L), as to whether the pursuers in that case had lost the right to pursue part of the action as a result of correspondence which had previously passed between solicitors. In that discussion his Lordship adopts a passage from the opinion of Lord President Cooper in Stobo Ltd v Morrisons (Gowns) Ltd (at page 197). Lord President Cooper had said that “In each instance it is a matter of the construction of the correspondence in the light of the facts, proved or averred, on which side of the border-line the case lies”. For a fuller and more elaborate treatment of the relevant issues Sir Crispin referred to the opinions of all three judges (Lord Chancellor Findlay, Viscount Haldane and Lord Shaw of Dunfermline) in Gordon’s Executors v Gordon.

The draft Joint Minute in the present case was akin to a paper sent to a solicitor to be put into form, in the words of Lord Wensleydale in Ridgway v Wharton quoted by the Lord Chancellor in Gordon’s Executors v Gordon (at page 409). Where that happened, again in the words of Lord Wensleydale, “The act of sending such a paper to a solicitor to have the matter reduced to form, affords generally cogent evidence that the parties do not intend to bind themselves till it is reduced into form”. That applied to this case. In terms of the foregoing authorities, in order to escape that conclusion the landlords’ agents would have had to make it clear when sending the draft Minute of Agreement that they were closing negotiations at that point. Otherwise the inference was that parties were still in negotiation.

Per Viscount Haldane in Gordon’s Executors v Gordon (at page 411) one had to look at the whole process to see if there was in fact a closing of negotiations. One had to look at all of the evidence and all of the circumstances to see on which side of the line referred to by Lord President Cooper in Stobo, Ltd v Morrisons (Gowns) Ltd (at page 192) the issue fell but the sending by one party to the other of a document to be reduced to form was a strong indication that parties did not intend to be bound until that had happened and the resulting document had been signed.

The agreement being negotiated was one which would have varied the lease and Post Lease Agreements in a number of respects. All of the lease documentation which he had seen was in probative form. (At this point Mr Kermack interjected to say that the Minute incorporating Glecknabae had never been signed.) The foundation documents were, therefore, formal, written documents. The draft Minute of Agreement ended by saying that except as thereby varied the landlords and tenant confirmed the lease, as subsequently varied, in all respects. So it sought to vary the formal foundation document. In general a writing could only be varied by another writing. It was, therefore, fair to conclude that the parties intended the agreement to be concluded when the formal document was signed.

The majority of the letters and emails were “without prejudice” and many referred to telephone conversations and meetings. They really represented notes of what each party thought had been agreed at such meetings. So it was almost the same situation as in Gordon’s Executors v Gordon. The fact that they were sent “without prejudice” indicated that parties thought that they were still negotiating.

If we were against him on that argument, Scammell v Ouston showed how we should approach the task of looking at the correspondence to see if agreement had been reached. Sir Crispin relied in particular on the following passage from the speech of Viscount Maugham (at pages 16-17):-

“My Lords, it is beyond dispute that, if an alleged contract is partly verbal and partly in writing, it is necessary to take the whole of the negotiations into consideration for the purpose of seeing whether the parties are truly agreed on all material points, for, if they are not, there is no binding contract. Nor is it right to construe a letter or other document forming a part of the negotiations in such a case without regard to the verbal statements which also form a part of them. To construe the language of such a letter, so to speak, in vacuo might easily result in giving to the words, as used by the writer, a meaning which, in the circumstances of the case, he did not intend the words to bear, or one which the recipient of the letter did not attribute to them.”

Many of the emails in the present case referred to telephone conversations and to people’s “understanding”. In the absence of evidence we did not know what the content of these conversations or what these “understandings” had been.

Sir Crispin also founded on this case for another reason. Under reference to a passage from the speech of Lord Wright (at page 25D ff) he submitted that where there was no concluded bargain a party could refuse to proceed for any reason, whether or not it was his stated reason for refusing to proceed. It will suffice for present purposes to quote the following section of the passage referred to:-

“It is true that, when the appellants broke off the affair, they gave reasons for doing so which they could not justify, but, when they were sued for breach of contract, they were entitled to resist the claim on any good ground which was available, regardless of reasons which they had previously given. As Lord Sumner pointed out in British & Bennintons v North Western Cacher Tea Co., etc (4), at p. 71, if a party repudiated a contract giving no reasons at all, all reasons and all defences in the action, partial or complete, would be open to him. Equally would this be so, I think, if he gave reasons which he could not substantiate. If there never was a contract they could not be made liable for breach of contract.”

Sir Crispin then referred to the Current Law synopsis of the case of Anglo Petroleum Ltd v TFB Mortgages Ltd and to McCall’s Entertainments (Ayr) Ltd v South Ayrshire Council (No 1) for examples of the use of the phrase “agreement in principle” to mean something which was not binding. That was a common usage of the term.

Having set that context, Sir Crispin turned to a chronological consideration of the correspondence. Production 14, an email from Mr Addison-Scott to Mr Mellish and Mr Kermack dated 6th October 2005, referred to having reached “agreement in principle”, spoke of “Rent proposed”, and the need for the landlords to agree that the buildings were in a reasonable state of repair and went on to say “This provisional agreement is subject to Trustee/Directors approval”. In production 15 Messrs Turcan Connell were awaiting instructions to put things into writing. Production 16, again an email from Mr Addison-Scott to Mr Mellish and Mr Kermack, dated only three days before 27th October, made it clear that negotiations were still ongoing at that stage. The email from Mr Stewart to Mr Addison-Scott, dated 19th October, also part of production 16, showed that any agreement was conditional on nullification of the Post Lease Agreement and went on to contain a stipulation as to the landlords consenting to improvements proposed by the tenant. That last matter had been put into the negotiations at that point and no agreement had subsequently been reached on it. In terms of number 4 of the principles identified in Chisholm & Anr v Wardrope & Ors that was not a conditional acceptance of an offer but a new term which required acceptance. Number 17, an emailed response from Mr Addison-Scott to Mr Stewart on the day before 27th October, referred to a telephone conversation between them and spoke of Mr Addison-Scott looking forward to Mr Stewart’s “further thoughts on the compromise proposed”. Number 18, the email of 27th October from Mr Addison-Scott to Mr Mellish and Mr Kermack, referred to “provisional agreement” having been reached and made the proposed increase in rent subject to a number of other matters being agreed. Point 7 of that email made it clear that the improvements which the tenant wished to have carried out would have to be agreed as part of the overall agreement.

The effect of what that email said about nullification of the Post Lease Agreement was to give the landlord an option, following inspection, as to whether the Post Lease Agreement would be nullified or not. There was nothing, Sir Crispin submitted, in that email or in any other to suggest that parties had agreed that there would be an inspection by the landlord after which the tenant would have to bring equipment up to the required standard. If the state of the fixed equipment proved unacceptable to the landlord the whole agreement would fall because the tenant would want to have the rent determined by this Court so that he could get rid of the Post Lease Agreement under section 5(4A) and (4B) of the 1991 Act as amended. Therefore, as at 27th October 2005 there existed only a provisional agreement subject to other things which still had to be agreed.

One of these other things to be agreed was the improvements desired by the tenant but, although production 19 incorporated a list of these prepared by Mr Stewart, negotiations on this aspect of matters eventually petered out without agreement having been reached.

Looking at matters in the context of the foregoing emails, it was clear that as at 17th November 2006 (the date of the letter from Messrs Turcan Connell to Messrs Dale & Marshall enclosing the draft Minute of Agreement) it could not be said that there was a concluded agreement which the Minute of Amendment was intended to reflect. That letter itself referred to “the terms of the agreement as we understand them” and sought Messrs Dale & Marshall’s “views”. It also made clear that matters were still subject to Mr McCulloch’s instructions. Finally, in relation to this letter, the final paragraph contained a statement of fact to the effect that the letter and draft Minute of Agreement were written “purely for the purposes of exploring the possibility of a negotiated settlement of the rent review”. The rest of that paragraph was a slightly expanded version of the standard “without prejudice” proviso but the foregoing statement of fact was one which, objectively read and disregarding Mr Kermack’s “evidence” as to how and why it had come to be made, showed that at that time the parties were still at the stage of negotiation. The very fact that a clause dealing with resumption – a matter not previously touched on in negotiations – had been included in the draft Minute of Agreement was indicative of the fact that negotiations were still open at this stage.

Under reference to what was said by Lord PresidentInglis in McArthur v Lawson (at page 1136) a contract which could not be enforced by specific implement was no contract at all. Applying that to this case, how could point 7 of the email of 27th October be enforced by specific implement? Production 19 showed that parties were not even agreed that all of the matters listed by Mr Stewart in his email of that date were improvements.

Reverting to the draft Minute of Agreement, Sir Crispin took us to some of its terms. Paragraph Five taken with Clause Second was important because whereas these provided for the disposal of the Land Court applications, there had been no discussion between Mr Addison-Scott and Mr Stewart as to these applications. How an action was to be disposed of – for instance with regard to expenses – was a material part of any compromise and that had not been agreed between these agents. Instead these matters were being raised for the first time in the draft Minute of Agreement itself. It proposed that that be done by way of dismissal. But Messrs Dale & Marshall had already expressed themselves unhappy about dismissal, so clearly the matter was still at the stage of negotiation.

Clause Fourth also introduced new material. It said that the tenant understood that the landlords would seek to use the rent agreed in relation to rents of other agricultural holdings and that the tenant consented to such use. That had never been discussed. Had it been, it was possible that the tenant would have wanted a confidentiality clause. There was no agreement on the matter.

Clause Fifth also introduced new material. Reference to the fixed equipment being in a reasonable state of repair did not accord with production 14 which gave the option of the buildings being “in no worse state of repair than at the outset of the agreement”. One could see from the Minute of Agreement between the parties which was production 5 that the second part of that was quite important to the tenant.

Clause Sixth was wholly new. It was beginning to introduce a responsibility on the tenant to do the work necessary to bring the fixed equipment into a reasonable state of repair. That was not what had been provided for in productions 14-18. In terms of the emails represented by these productions, there had been no agreement that either party would carry out the necessary works. The agreement had rather been that the landlords would inspect the condition of the fixed equipment and would then have the option of saying “ye or nay” to the nullification of the Post Lease Agreement. Clause Sixth of the draft Minute of Agreement, however, expanded that option into an obligation on the tenant to put the buildings and other fixed equipment into a reasonable state of repair.

Clause Seventh referred to Mr Addison-Scott as the person who would prepare the record of the condition of the fixed equipment. That had never been agreed by the tenant.

Clause Ninth introduced the wholly new matter of resumption.

Fairly read, therefore, the draft Minute of Agreement made clear that the parties were still negotiating at this point in time and, in any event, the covering letter which accompanied it expressly said so.

Resuming the narrative of matters after the sending of the draft Minute of Agreement, production 23 made clear that the tenant’s solicitors had to take his detailed instructions. Therefore it was clear that they had no authority to bind their client. Production 24, being the fuller, more detailed, response from the tenant’s solicitors made it clear that there were fundamental difficulties with the Minute. One was the suspensive condition. They contended that the inspection by the landlords should take place immediately rather than after the agreement had been entered into. Then there was the ongoing issue as to how the Land Court applications were to be disposed of. Whether Messrs Dale & Marshall’s understanding of the effect of the new statutory provisions in terms of getting rid of the Post Lease Agreement was right or wrong, it appeared that they were, at this stage, still envisaging that the Land Court would pronounce decree as to the rent so that the Post Lease Agreement could be nullified under these provisions. Thirdly, there was the complaint as to the inclusion of the resumption clause and fourthly a reference back to the tenant’s wish to carry out improvements.

Production 26 made clear that, from Messrs Dale & Marshall’s point of view, the landlords’ inspection was to be carried out before they revised the draft Minute. That position had never been departed from. There was still, at this stage, ongoing discussion as to who was to inspect.

Productions 30 and 31 represented ongoing negotiations related to nullification of the Post Lease Agreement. What was to happen if the tenant produced a list of the fixed equipment and the landlords then disagreed with that lease? This was critical in deciding what obligations were being nullified and whether there was a duty on the tenant to put the relevant equipment into a state of repair before the landlords took over.

Productions 34 and 35 disclosed a dispute between the two firms of solicitors as to the status of a previous Record which was to be used as a basis for Mr Evans to confirm the state of the landlords’ fixed equipment but it appeared that any agreement to use this earlier record proceeded upon an innocent misrepresentation to the effect that it covered the whole of the holding and not just Kilmichael. This was of some importance since production 70, at paragraph 4, showed the original holding of Kilmichael to have been augmented by the addition of, as well as the areas of ground comprising Glecknabae, Lenihuline and Lenihall, a cottage known as Kilmichael Cottage. Sir Crispin referred us to McBryde on Contract at paragraph 15-72 for the effect of misrepresentation.

The final paragraph of production 38, a letter from Messrs Dale & Marshall to Messrs Turcan Connell dated 15th February 2006, wherein it is said that the tenant would not be proceeding with the Minute of Agreement until it had been agreed that the landlords would be assuming responsibility for the repairing provisions contained within the Post Lease Agreement without caveat or exception, was a reiteration of what had been said in production 26. The tenant’s position had not changed. In production 38 the tenant was also expressing his fear that were things done the other way round he would find himself having entered into the new agreement, the revised rent being payable and then being presented with a list of outstanding issues and repairs to be carried out before the landlords would resume responsibility for the repairing provisions of the Post Lease Agreement. What the tenant was doing in this letter was calling upon the landlords to inspect the fixed equipment immediately, then tell him what he had to do as a result of that inspection at which point he would consider his position.

When one looked at the whole correspondence, therefore, it could not be said that the parties had reached a concluded agreement. In particular no agreement had been reached on:-

(1) the tenant’s desired improvements;

(2) nullification of the Post Lease Agreement; and

(3) the landlords’ fixed equipment, liability for which was to be taken back upon nullification of the Post Lease Agreement.

These were the principal issues on which there was no agreement but there was also the procedural question of how the applications to this Court were to be concluded, whether by dismissal or decree pronouncing the new rent. The Answers lodged to the landlords’ Minute were therefore correct in saying that any concessions or agreements were in the context of other matters having to be agreed.

In questioning by the Court Sir Crispin accepted that the new rental levels which had been negotiated between Mr Addison-Scott and Mr Stewart had never been questioned or departed from in subsequent correspondence. He submitted, however, that parties had decided to put a lot of other issues into the melting pot and agreement had never been reached on some of these. Agreement as to rent was conditional on all these other matters being agreed. It was impossible to construe an agreement from the correspondence. Any agreement which might exist could only be construed from evidence. A proof before answer would therefore be necessary unless we were simply to hold that there was no agreement sufficient to compromise these applications.

Even if we decided that the correspondence did disclose agreement, the landlords’ Minute did not accurately reflect the agreement said to have been reached. Thus, there had certainly never been an agreement to put the fixed equipment into a “thorough state of repair” as stipulated in paragraph C of the crave of the Minute. If agreement had been reached on 27th October 2005 it was to the effect that the landlords would have an option to nullify or not to nullify after inspection of the fixed equipment. If they decided to nullify the rent would go up, if they decided not nullify the rent would stay as it was.

The reference to a list of improvements in the first line of paragraph E should be a reference to a list of fixed equipment. A question arose as to who was to determine the contents of that list failing agreement. The same difficulty arose in connection with paragraph G of the crave.

Were we to hold that there was an agreement we should also include in our findings the matter of the tenant’s desired improvements. Sir Crispin’s motion was, however, that the Minute should be refused. Expenses should be reserved and the cause certified as suitable for the employment of Senior Counsel.

Response by Mr Kermack

In the course of Mr Kermack’s response there was further discussion about the scope of Mr Stewart’s authority as agent. Again that arose from the averment, in Statement of Fact 2, that Mr Stewart had the “ostensible authority” of the tenant. Mr Kermack referred us to the Stair Memorial Encyclopaedia title on Agency and Mandate at paragraphs 625 and 649, the latter of which says:-

“Independent of actual authority (but often overlapping with it) is apparent or ostensible authority. Here the authority arises from the conduct of the principal towards the third party. Either by words, documents or actings the principal holds out to the third party that the agent has the required authority.”

In the present case the tenant had held out Mr Stewart as having the authority to bind him in relation to the matters he had discussed with Mr Addison-Scott. It was said in the Answers that he was the agent appointed by the tenant. The Answers referred to “discussions”. These were not hypothetical discussions. Mr Stewart was being paid, after all. It was clear from his emails that he was holding himself out as acting on Mr McCulloch’s instructions and that what he did was intended to be binding on Mr McCulloch. Mr Stewart had had ostensible authority to agree what he had agreed and therefore what he had agreed was binding upon his principal.

Further, and in any event, Mr McCulloch had ratified what had been done by Mr Stewart. When what Mr Stewart had agreed had been put to Mr McCulloch he had not disputed it: he had not said “If Mr Stewart agreed that about the rent he did not have authority to do so.”

Thereafter Mr Kermack dealt with a miscellany of matters. The historical record which had been proposed for Mr Evans’ use was simply that: an adminicle of evidence for his use. What value it had as a baseline as to the condition of the fixed equipments was largely a matter for him.

As to the alleged absence of agreement as to how the Post Lease Agreement was to be got rid of, Mr Kermack submitted that parties had agreed that that would be done by agreement rather than pursuant upon a Land Court determination of the rent.

As to the absence of agreement as to what fixed equipment was to be taken back by the landlords, that question had not arisen until 6th December and it had thereafter been the tenant’s wish that he should be the person to draw up the list of that equipment. Mr Kermack’s reading of the agreement was that the higher rent was not to be payable until the Post Lease Agreement had been set aside. The landlords did not have the option to block the setting aside of the Post Lease Agreement. It was not the landlords’ position that the agreement reached gave them an option as between retention of the Post Lease Agreement, on the one hand, and the higher rent, on the other. The landlords had accepted from a very early stage in negotiations that the Post Lease Agreement was to go.

The only reason for matters not going ahead was that Mr McCulloch had come to the view that he had made a bad bargain. His declared reasons for not proceeding were “illusory”.

Finally, Mr Kermack explained the use of the word “thorough” in relation to the state of repair into which the tenant was to put the fixed equipment in paragraph C of the Minute as reflecting the terms of the Post Lease Agreement. The Post Lease Agreement referred to a “thorough state of repair” and all paragraph C did was to seek to hold the tenant to the terms of the Post Lease Agreement until it had been nullified.

Expenses and Sir Crispin’s motion for certification of the cause as suitable for the employment of Senior Counsel should be reserved.

Sir Crispin’s response on “ostensible authority”

Sir Crispin commented briefly on what Mr Kermack had said about ostensible authority. In Sir Crispin’s submission ostensible authority was a question of fact, arising from all the surrounding circumstances. If there was an issue as to the existence of such authority here then a proof would be required. It was, however, clear from the correspondence, in Sir Crispin’s submission, that the scope of Mr Stewart’s authority had been to discuss settlement of the rent issues and that he had to go back to his client for each step to be agreed. It was clear from the correspondence that there had been a reference back to the tenant at various stages and it was accordingly also clear that Mr Stewart’s only ostensible authority had been to negotiate and that he could conclude a deal only where he had instructions to do so. Reviewing the emails comprised in productions 14, 16, 17 and 19, one never got to the point where Mr Stewart said “my client has instructed me to agree all points”.

Discussion and Decision

The approach to be taken

We accept that the correct approach for us to take is to view the whole correspondence objectively so as to decide whether a point was reached at which there was an agreement, negotiations were closed and parties had agreed to be bound.

The first task will accordingly be to find out if there was an agreement on the matters referred to the Court in this application. If there was no agreement that is an end of the matter. If there was an agreement we have to go on to the second stage of determining whether the point had arrived where parties were bound by it.

Was there agreement?

We are asked to deduce an agreement from the documents produced. These are largely communications between parties’ agents. Some of these are marked “without prejudice”. There was substantial agreement between Mr Kermack and Sir Crispin as to the effect in law of use of that phrase. That was as follows. Firstly, the use of the words “without prejudice” prevent offers, suggestions or concessions made in the course of negotiations from being converted into admissions of fact but do not prevent reliance upon clear admissions or statements of fact (Daks Simpson plc v Kuiper). Secondly, a court is entitled to look at the terms of “without prejudice” correspondence in order to decide whether agreement has been reached between the parties. If it decides that agreement has been reached the protection of these words flies off; if not it remains. Sir Crispin, however, also submitted that use of the phrase was relevant to the question of whether parties had agreed to be bound: it suggested that they had not. We accept that it can have that significance although there is also the possibility, mentioned by Lord Johnston in Richardson v Quercus Ltd (at page 604), that surrounding circumstances may “obliterate the effect of such a docquet”.

Ostensible authority

Much of the negotiation here was done by the two Land Agents. Since there was an issue about the extent of their authority we should give our view on that before proceeding further.

Mr Kermack’s submitted that Mr Stewart had authority to bind Mr McCulloch and had so bound him by the time he had finished his negotiations with Mr Addison-Scott. We find nothing in the correspondence to lead to that conclusion. On the contrary it seems to us that, as brought out by Sir Crispin with reference to the correspondence, Mr Stewart’s authority, like that of Mr Addison-Scott, was only to negotiate, not to bind. Productions 16, 17 and 19 are all to that effect. It would, indeed, have been remarkable were it otherwise: it is not practice, so far as we know, for tenants to agree to be bound by whatever Land Agents may negotiate on their behalf in the course of a rent review. In our view, therefore, both agents’ authority was only to negotiate and anything which they agreed between them was always subject to their principals’ instructions.

With that we turn to consider the individual issues which may have a bearing on the question whether parties ever reached agreement

Rent

The question remitted to us in this application is what rent should be payable for the holding as from Martinmas 2004.Isolating that issue for the moment, we have no difficulty in concluding that that was agreed in the course of negotiations between the parties. The provisional agreement, if we can use that phrase, struck between Mr Stewart and Mr Addison-Scott covered both the rent payable as from that date, although the Martinmas 2004 payment itself was to remain at the pre-existing level, and the rent payable upon nullification of the Post Lease Agreement. These figures had the express approval of Mr McCulloch as early at 19th October 2005 (production 16) and were not demurred from at any time until 5th April 2006 when they were indirectly challenged on the basis that he was not satisfied with the stocking levels on which they had been calculated. They likewise had, and continue to have, the approval of the landlords. It is clear, therefore, that agreement had been reached on the new rent payable as early as 27th October 2005 conform to Mr Addison-Scott’s email of that date (production 18).

It is the respondents’ position, however, that the matter of rent cannot be viewed in isolation because any agreement on the new rent was conditional upon a number of other things also being agreed. These were: (a) the improvements sought to be carried out by the tenant; (b) the means of nullification of the Post Lease Agreement; (c) what was to be done in relation to the fixed equipment on the holding; and (d) how the present application and application SLC/222/04 were to be disposed of. We deal with each in turn.

Improvements

Improvements are first mentioned in Mr Stewart’s email to Mr Addison-Scott of 19th October. The reference reads as follows:-

“I do not wish to muddy the waters further but my client has asked me to pass on to you his desire to have a positive response from the landlord regarding several further improvements he would wish to make to the farm including new buildings. He would wish agreement on these improvements as part of this rent review.”

The desired improvements are listed in Mr Stewart’s further email to Mr Addison-Scott dated 26th October, in which the list is introduced with the words “…please see below the list of improvements Hugh McCulloch would wish the landlord to agree to all as part of this rent review”.

There is then mention of improvements in Messrs Dale & Marshall’s letter of 6th December where the question is asked “Will your client consent to allow our client to erect further fixed equipment to reflect that which has been removed?” although that would appear to be a reference to different improvements from the ones listed on 26th October.

With that any negotiations relating to improvements seem to peter out and it is clear that no agreement on the subject was ever reached but nor was the matter further insisted upon by Mr McCulloch.

Despite the foregoing references to the matter of improvements being agreed as part of the rent review we do not think that agreement on the rent was ever conditional on the landlords agreeing to the proposed improvements. We have come to that view because (a) consent to improvements is a severable matter from the new rent payable and (b) the language used seems to us suggestive of the matter being dealt with in the context of the rent review as a matter of convenience rather than as a condition of agreement to the new rent. The penultimate paragraph of the letter of 6th December, from which we have quoted above, seems to us to be clearly to that effect.

Nullification of the Post Lease Agreement

Unlike the position with consent to improvements, what was to happen to the Post Lease Agreement is obviously an integral part of the rent review. We therefore have no difficulty in holding that agreement as to the new rent was conditional upon what was to happen to the Post Lease Agreement.

We are clear that parties agreed that the Post Lease Agreement would be nullified. Although, in the absence of explanatory evidence, not much reliance can be placed on the notes of negotiations which are production 10A these contain reference to “P-L to go from 28/11/05”. Then the email from Mr Stewart to Mr Addison-Scott dated 19th October says “My client…is willing to compromise and will pay £16,700 pa as rent for the holding from 28th November 2005 on condition that the post lease agreement obligations re fixed equipment is nullified and returned to the landlord”. Mr Stewart’s further email of 26th October records that there was agreement on the figure of £16,700 “from Nov 2005 following nullification of the post lease”. Accordingly it seems clear enough that again by 27th October there was agreement that the Post Lease Agreement would be nullified with effect from Martinmas 2005.

What was obviously not agreed by that date, standing the terms of Messrs Dale & Marshall’s letter of 6th December, was the method of nullification. However, we are satisfied from the subsequent history of matters that they accepted that nullification could be effected consensually between the parties and that the statutory procedure following a determination of rent by the Court was not the only route to nullification.

In order to achieve that result, however, there had to be agreement as to what was going to happen to the fixed equipment.

The fixed equipment

It was agreed that Mr McCulloch would produce a list of what he considered to be the landlords’ fixed equipment on the holding. His agents’ letters of 13th , 16th and 21st December 2005, and 10th and 15th February 2006 all proceed on the basis that he would do so, some of them explicitly promising the production of such a list. It was also agreed that following production of such a list, assuming the landlords found it to be accurate, the fixed equipment would be inspected by Mr Evans.

The question then becomes what was to happen as a result of Mr Evans’ inspection.

Production 14, the email from Mr Addison-Scott to Mr Mellish and Mr Kermack dated 6th October 2005, speaks of the landlords inspecting with a view to agreeing whether the buildings were in a “ ‘reasonable state of repair’ or…in ‘no worse state of repair’ than at the outset of the agreement.” That, however, is a communication internal to the landlords’ camp and not part of the negotiations although it purports to report on them. It is not covered by Sir Crispin’s concession.

Production 16, the email from Mr Stewart to Mr Addison-Scott dated 19th October, refers to agreement on the new rent “on condition that the post lease agreement obligations re fixed equipment is nullified and returned to the landlord”. It says nothing about any work requiring to be done before the Post Lease Agreement is nullified. Production 18, the email on which Mr Kermack founds as encapsulating the agreement the parties had reached by 27th October 2005, says “The post lease agreement will be ‘repealed’ as from M2005 subject to an inspection of the holding to confirm the status of the fixed equipment and that it is acceptable to the landlord”. It says nothing as to what is to happen if the state of the fixed equipment is not acceptable to the landlords. It is perhaps a matter of inference that it was to be put into a state acceptable to the landlords by the tenant. But it does not actually say that. An alternative explanation is Sir Crispin’s view that any agreement between the parties conferred an option on the landlords as to whether to proceed with nullification of the Post Lease Agreement once they had seen the result of the inspection but, as a possible explanation of the final state of matters, that is, we think, eclipsed by subsequent developments in the correspondence between parties.

The draft Minute of Agreement of 17th November refers, at Clause Fifth, to the setting aside of the Post Lease Agreement being “suspensively conditional upon the buildings and other fixed equipment at Kilmichael and Glecknabae being in a reasonable state of repair”. Clause Sixth goes on to say that responsibility for ensuring that the fixed equipment is in that state of repair would be allocated between the parties in accordance with the Post Lease Agreement. That would seem to put the burden on the tenant.

Production 24, Messrs Dale & Marshall’s response of 6th December, makes plain that Clause Fifth is not acceptable to Mr McCulloch. It seems to be its suspensive nature which is particularly objected to. Mr McCulloch wishes the inspection to take place immediately and his agents say that “thereafter matters could proceed between our respective clients”. Again there is no reference to who is to do what following upon the inspection.

Messrs Turcan Connell’s letter of 15th December (production 28) makes things a little clearer, however, in that it contains draft terms of reference for Mr Evans as follows:-

“We, Turcan Connell, Solicitors, on behalf of the landlord and Dale & Marshall, on behalf of the tenant, hereby refer and submit to Dougal Evans….to inspect the landlords’ fixed equipment situated at the holding….as listed on the schedule annexed, and to specify the works required to be carried out to the buildings and to the other fixed equipment on the holding in order to bring them into a reasonable state of repair in accordance with Section 5(4B)(b)(i) of the [1991 Act as amended].”

That is followed by correspondence agreeing to Mr Evans as the inspector. Beyond that, the final paragraph of Messrs Dale & Marshall’s letter of 15th February 2006 (production 38) contains, for the first time, an acknowledgement that certain work will have to be carried out by the tenant before the landlords resume responsibility for the fixed equipment. As to the standard of repair to be achieved, that must, we think, be a reasonable state of repair since that is what is specified in Clause Fifth of the draft Minute of Agreement and in the proposed terms of reference quoted above from which no demur is made by Mr McCulloch’s agents.

The “Without Prejudice” character of that letter assumes a certain significance in our discussion below, but for present purposes we can rely on that letter to conclude that no later than its date agreement had been reached that, as a condition of nullification of the Post Lease Agreement, the tenant would put the fixed equipment into a reasonable state of repair. We think, therefore, that, correcting the words of paragraph C of the present Minute, the net result was that parties had agreed the nullification of the Post Lease Agreement on the later of the occurrence of (a) Martinmas 2005 and (b) the date upon which the tenant has put the buildings and other fixed equipment on the holding into a reasonable state of repair, all to the satisfaction of Mr Evans.

Failure to agree disposal of the Land Court applications

It was Sir Crispin’s submission that any agreement to compromise litigation must include agreement as to how the litigation is to be disposed of and as to expenses. These would certainly normally be features of an agreed settlement (MacPhail para 14.65). Thus one could not interpone authority to a Joint Minute purporting to dispose of a case if it did not cover these matters. But where there is a question as to whether the subject matter of the litigation is already governed by a contract between the parties and that question is referred to the court for decision, the fact that parties have not also agreed disposal of the case and expenses can hardly affect the decision as to whether they have concluded a contract on the merits of the case. Once the question as to the merits has been decided by the court parties are free to agree disposal or further procedure and expenses in the light of that decision or, failing agreement, make their submissions to the court on these matters. Accordingly, we do not regard ourselves as bound to conclude that the subject matter of these applications has not been agreed – or to refuse to give effect to that agreement - simply because the manner of their disposal has not been agreed.

For these reasons we have concluded that a point was reached, no later than 15th February 2006, at which there was consensus between the parties on all of the matters germane to rent review and that nothing was left outstanding upon which agreement on the new rent was conditional.

It is, however, the respondents’ position that even if a stage was reached when all of these matters had been agreed the point was never reached at which the agreement became binding and enforceable because parties had always intended to put their agreement into writing and had not intended to be bound until that writing had been signed. Sir Crispin relied on the “without prejudice” nature of some of the correspondence as part of that argument.

Was the agreement binding?

In W S Karoulias SA v The Drambuie Liqueur Co Ltd, a case not cited to us on this occasion but relied upon by Mr Kermack in Salvesen v Graham in which the cast appearing before us was the same but their roles were reversed, Lord Clarke (at page 34) said this:-

“It is important, in my view, to recognise that while there may be complete agreement between the parties, in the sense of negotiations being over, there may not yet necessarily be a binding agreement. That distinction is, I think, what Lord Mackay of Clashfern was alluding to at p 259 of the Comex Houlder Diving Ltd case when he said ‘final mutual assent as spoken of by Lord Blackburn in Rossiter v Miller…means mutual assent to be bound in law.”

That respectfully seems to us to be an admirably succinct statement of the law but we add to it for our own guidance the following passages from the cases cited in argument.

We were not taken directly to the case of Ridgway v Wharton but were referred to the following quotation from the speech of Lord Wensleydale in that case as it appears in the speech of the Lord Chancellor in Gordon’s Executors v Gordon at page 409:-

“If two parties have agreed or talked together upon an agreement, and it is understood between them that that agreement is to be reduced into writing, nothing binds them but that writing. If parties agree finally to be bound by any terms, and then, for the sake of preserving a memorial, having agreed to be bound by the original terms, they get a document drawn up, there is no doubt that they are bound by the original terms, provided they are such as can be binding without writing, and are not void under the Statute of Frauds. The formal document is only ancillary. If the original understanding is that the terms are to be reduced into writing, and that the parties are not to be bound until the terms are reduced into writing, then each party has a right to withdraw before the agreement is signed.”

Then what was said by Viscount Haldane in Gordon’s Executors v Gordon (at page 411):-

“In a case such as the present it would of course have been open to those concerned to reach a definite and concluded agreement in conversation or by correspondence. Such an agreement is not the less a real one if the parties have, as part of its terms, stipulated that there is to be a further agreement embodying its substance and also other terms which they are subsequently to settle. In such a case the later agreement, when concluded and executed, will supersede the earlier one. But until then the earlier agreement stands and binds.

As I have said, the parties may contract in that fashion. But when they desire to do so they must make the intention plain of closing negotiation in its first stage by a completed bargain. For if it appears that they have negotiated with the view of not stopping there, but of proceeding to embody the result in a written instrument, it is presumed that, until they have all duly executed that instrument, the point has not been reached at which an agreement enforceable by law was to be the outcome. This presumption is one of intention and yields to definite expression of intention to the contrary if such exists. But apart from such an expression of contrary intention it is not legitimate to infer that the parties meant to stop short of what they have shewn that they set out to do, any more than it is legitimate to pick out letters from a continuous correspondence, and abstracting from the sequence and the character of the correspondence as a whole, to fix the parties by particular letters, however apparently definite, at which they have not made plain that they intended to pause.”

And finally what was said by Lord President Cooper in Stobo, Limited v Morrisons (Gowns) Limited (at page 192):-

“The only rules of Scots law which it appears to me to be possible to extract from past decisions and general principles are that it is perfectly possible for the parties to an apparent contract to provide that there shall be locus poenitentiae until the terms of their agreement have been reduced to a formal contract; but that the bare fact that the parties to a completed agreement stipulate that it shall be embodied in a formal contract does not necessarily import that they are still in the stage of negotiation. In each instance it is a matter of the construction of the correspondence in the light of the facts, proved or averred, on which side of the border line the case lies.”

Applying that guidance to the present case we reason as follows:-

(1) The parties here intended their agreement to be reduced to writing: that is why a point came when the Land Agents handed things over to the solicitors. This was consistent with their normal, although not invariable, practice in the past.

(2) There was, however, no express stipulation for locus poenitentiae.

(3) What there was, therefore, was “the bare fact” that the agreement was to be reduced to writing.

(4) Per Lord President Cooper in Stobo that “bare fact” did not necessarily mean that parties always remained at the stage of negotiation.

(5) However, per Viscount Haldane in Gordon’s Executors v Gordon,in a situation where the agreement is to be reduced to writing parties have to make very clear that they are moving beyond negotiation before they become bound in advance of the writing being signed.

(6) Moving beyond negotiation is something different from reaching a point at which no further negotiation is necessary (W S Karoulias SA v The Drambuie Liqueur Co Ltd).

(7) The question, therefore, becomes whether we can identify a point at which, no further negotiation being necessary, the possibility of further negotiation was foreclosed because parties had moved beyond negotiation.

In answering that question Mr Kermack’s letter of 17th November 2005 under cover of which he sent the draft Minute of Agreement is a good starting point because its final paragraph contains the clearest possible statement that such a point had not then been reached. We consider that we are entitled to have regard to that paragraph because it contains a statement of fact – that the Minute of Agreement is being written purely for the purposes of exploring the possibility of a negotiated settlement.

Moving beyond that letter, in our discussion above as to what was to be done about the fixed equipment we have attached a good deal of significance to Messrs Dale & Marshall’s letter of 15th February and the acknowledgement it contains that the tenant has to deal with any repairs required to the fixed equipment. That letter is marked “Without Prejudice”. That leaves the way clear for the tenant to withdraw any such acknowledgement.

Beyond that, in turn, matters seem to revert to the Land Agents (production 39) who talk of “progressing this matter”, taking instructions and being “very keen to progress and conclude this matter”. That is the language of ongoing negotiation. Its clearest expression is in the email from Mr Stewart to Mr Addison-Scott of 2nd March which opens “Further to our last e-mails regarding you and me trying to reach a negotiated settlement to the rent review, I can advise that my client….. [has] not given me instructions to do this”. Then Messrs Turcan Connell’s letter of 6th March (production 41) talks of a “continuing hiatus, without decision one way or the other”. And beyond that there is nothing of substance until 4th April when Mr McCulloch, in effect, breaks off matters and reverts to this Court.

None of that discloses a point at which parties clearly departed from negotiation. Despite repeated promises, Mr McCulloch never produced the list of the fixed equipment so it cannot be said that parties had moved on to implementation of their agreement either. We have therefore concluded that as at 4th April 2006 there was no mutual assent to be bound in law and accordingly no binding contract between the parties. The respondents’ Minute therefore falls to be refused.

Disposal

Standing our decision to refuse the respondents’ Minute, we have acceded to the applicant’s motion, allowed the adjustments referred to by Sir Crispin to be received and allowed a period of 15 days for further adjustment by the Respondents followed by a further period of 15 days for adjustment by the Applicant with a view to a hearing thereafter. Since we have now passed the second anniversary of the rent review date we trust that that hearing can be fixed for an early date. We have also allowed 28 days for motions on the expenses of the Minute and Answers.

That leaves for consideration what parties think should happen to the landlords’ application (SLC/222/04). We have not pronounced any further order in that case arising out of this Minute. It will be for parties to make such submissions as to procedure in that case as they think appropriate.

For applicant: Sir Crispin Agnew of Lochnaw, QC; Messrs Dale & Marshall, Solicitors, Galston

For respondent: Mr L Kermack, Solicitor; Messrs Turcan Connell, Solicitors, Edinburgh