Simmers v Innes (Scotland)

The House of Lords dismissed the appeal and upheld the Extra Division's decree for specific implement in favour of the respondent. The court held that clauses 10 and 21 of the shareholders' agreement created an option exercisable by service of a notice before 31 March 2004, and that the service of that notice validly exercised the option. Time was not of the essence for completion of the resulting sale contract: the contractual scheme, commercial common sense and the mechanics of valuation and completion showed that completion could be postponed beyond 31 March 2004. Finally, the valuation carried out by the agreed valuer was effective for the purposes of the agreement because it contained a vacant possession valuation (the correct basis) even though it also contained a separate tenanted valuation.

Background and facts:

• The respondent, Mr Simmers, carried on a pig-farming business which was transferred into Scotpigs Limited under a shareholders' agreement dated 18 December 1998. The agreement provided for a buy-out by Mr Simmers on 31 March 2004 (clause 10) and for termination of the agreement unless a notice of intention to buy out was served before that date (clause 21).
• Disagreement arose in 2004 about the basis of valuation of the land (vacant possession or subject to the tenancy created by the agreement). A valuer produced a report giving a vacant possession figure and a separate discounted tenanted figure. Mr Simmers served notice of intention to effect the buy-out before 31 March 2004 but completion did not occur on that date; the parties disagreed about the buy-out price and Mr Simmers sought specific implement (specific performance) to compel completion at the buy-out price he contended for.

Procedural history:

• The Lord Ordinary in the Outer House held that time was of the essence and that the valuation was ineffective; he assoilzied (found for) Mr Innes. Mr Simmers reclaimed to the Inner House (Extra Division) which pronounced a decree for specific implement in favour of Mr Simmers, holding that the option had been validly exercised by notice, time was not of the essence for completion, and the valuer's vacant possession figure was an effective valuation. The present appeal was to the House of Lords.

Nature of the claim and issues:

• Claim sought: an order for specific implement (specific performance) compelling completion of the buy-out on terms of the agreement.
• Issues framed by the court: (i) whether the option was validly exercised by service of the clause 21 notice or required tender of purchase money under clause 10; (ii) whether time was of the essence for completion on 31 March 2004; and (iii) whether the valuer's report constituted an effective Buy-Out Valuation under the agreement.

Court's reasoning and conclusions:

• The court rejected the argument that the option could only be exercised by tender of purchase money and held that clause 21's notice provision must be read as the mechanism to exercise the option.
• On whether time was of the essence, the House of Lords held that the agreement contemplated an extension of the contractual relationship beyond 31 March 2004 if the option were exercised before that date; practical requirements (notice served up to 30 March, need for valuation, documentation and completion procedures) and the commercial nature of the transaction rebutted any presumption that completion had to occur on that precise date.
• On valuation, the agreed valuer had produced a vacant possession valuation (the correct basis) and the presence of an additional tenanted valuation did not invalidate the effective vacant possession figure; the valuation therefore satisfied the agreement's requirements.

Result: the appeal was dismissed and the decree for specific implement in favour of Mr Simmers was upheld.

Appeal dismissed. The House of Lords held that (1) the option was validly exercised by service of the clause 21 notice prior to 31 March 2004; (2) time was not of the essence for completion of the buy-out contract and completion could follow after the date of exercise; and (3) the agreed valuer's vacant possession valuation satisfied the Buy-Out Valuation requirement, so specific implement could be ordered at the buy-out price reflecting vacant possession.

Outer House (Lord Ordinary) judgment reported at 2006 SCLR 61 (Lord Ordinary assoilzied Mr Innes). Reclaimed to the Inner House (Extra Division) which pronounced a decree for specific implement in favour of Mr Simmers ([2007] ScotCS CSIH_12). Appeal to the House of Lords ([2008] UKHL 24) dismissed.