Simmers (Respondent) v Innes (Appellant) (Scotland)

An option to repurchase property was exercised by the notice required under the agreement, rather than by tendering the purchase price on the stipulated date. After exercise, the resulting sale was governed by the ordinary Scottish rule that time for payment and completion of a sale of heritage is not of the essence unless the contract expressly provides otherwise or the subject matter or surrounding circumstances require that conclusion.

A contractual valuation remains effective where the agreed valuer states a value on the contractually correct basis. Its effectiveness is not destroyed merely because the valuer also supplies a value on an incorrect alternative basis.

A shareholders’ agreement formed part of a financing arrangement for a pig-farming business. It gave Mr Simmers an option to repurchase shares and heritable property. He served notice before 31 March 2004, but the parties disputed the basis of the contractual valuation and completion did not occur on that date.

The Lord Ordinary refused specific implement and assoilzied Mr Innes: 2006 SCLR 61. The Extra Division reversed that decision, holding that the option had been validly exercised, time was not of the essence for completion and the agreed valuer had produced an effective vacant-possession valuation: [2007] ScotCS CSIH_12.

The issues before the House were whether the option required payment on 31 March 2004, whether time was otherwise of the essence for completion, and whether a report giving values on both vacant-possession and tenanted bases satisfied the agreement.

1. Appeal dismissed unanimously. Lord Neuberger of Abbotsbury delivered the leading speech. Lord Hope of Craighead, Lord Scott of Foscote, Lord Rodger of Earlsferry and Lord Walker of Gestingthorpe agreed that the appeal should be dismissed.

2. Per Lord Neuberger, the option was exercised by serving the notice contemplated by clause 21 before 31 March 2004. Reading the agreement as a whole, the buy-out mechanism required notice, followed by valuation and then completion under clause 10. Treating tender of the purchase money on 31 March as the means of exercise would leave the notice provision without a purpose and would be commercially absurd. Clause 10 therefore contained an implied requirement for timely notice.

3. Once the option was exercised, a bilateral contract for the sale of heritage existed. Under the ordinary Scottish rule, payment on a stipulated completion date is not generally an essential condition. Time becomes essential where the contract expressly so provides or where the subject matter or surrounding circumstances require it. The agreement contained no express provision making time essential.

4. The agreement’s structure reinforced the ordinary rule. Notice could be served as late as 30 March, while completion required valuation of the property and shares, preparation of a balance sheet and execution of documents. Completion on 31 March would therefore have been practically impossible. The financing purpose of the transaction also made it unlikely that the parties intended a timely notice to be defeated by failure to complete on that date. Mr Innes remained entitled to occupy the property and receive rent until completion.

5. The agreed valuer’s figure of £3,705,000 was an effective contractual valuation. It was produced by the valuer selected by both parties and valued the whole property with vacant possession, as the agreement required. The additional tenanted value did not invalidate the correct valuation. The Extra Division was therefore entitled to order specific implement at the buy-out price based on the vacant-possession figure.

6. Lord Neuberger added that, where parties dispute the contractual basis of valuation, it may be sensible for the valuer to calculate both alternatives while identifying the preferred basis. The parties may then accept a valuation, compromise or seek a judicial ruling. The contract or nature of the dispute may sometimes make that course inappropriate.

1. House of Lords: The appeal was dismissed unanimously. The House affirmed the Extra Division’s decree for specific implement: [2008] UKHL 24.

2. Extra Division of the Inner House of the Court of Session: The court allowed Mr Simmers’s reclaiming motion. It held that notice validly exercised the option, time was not of the essence for completion and the valuation was effective on the vacant-possession basis. It ordered specific implement at the adjusted buy-out price derived from £3,415,000: [2007] ScotCS CSIH_12.

3. Outer House of the Court of Session: The Lord Ordinary held that time was of the essence, that the valuation was ineffective because it stated two values and that the contractual basis was vacant possession. He refused specific implement and assoilzied Mr Innes: 2006 SCLR 61.