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No entitlement to damages for breach of land swap agreement

27 Sep 11 but ... Failure to provide adequate alternative site was a breach... Both parties were house builders.

The present action concerned the sale of a surplus site at Broomhouse by Bellway to Persimmon. Previously, Persimmon had sold a part of a site at Dalkeith to Bellway. 

The missives between the parties were implemented, and Bellway proceeded to develop the subjects sold. Prior to the conclusion of these Wester Cowden missives, discussions had taken place between representatives of the parties with a view to the transfer of a broadly similar area of land at Broomhouse by Bellway to Persimmon. Persimmon accepted the offer, and the present action concerned the missives in respect of that piece of land.

The Broomhouse land was sold for £4,160,000, but that was subject to a deduction of what were known as Abnormal Costs. Abnormal Costs were the subject of an elaborate definition in condition 1.1 of the missives. Consequently, the risk of abnormal ground conditions lay with Bellway. The Seller’s Works were defined as the installation of roads, footpaths and other services. Bellway was to complete these works by the Long Stop date, 15 December 2007. Clause 12 of the agreement provided that, if it were unable to complete the works by this date, it would be obliged to offer Persimmon another residential site in Central Scotland of a similar value. This clause was included because there were substantial and potentially costly constraints which might prevent the development of the Broomhouse site.

Bellway did find problems in completing the Seller’s works. The cost of completing the roads turned out to be very expensive, and Bellway failed to persuade the Council to amend the design to reduce costs. Bellway informed Persimmon, asking them to take formal instructions on an offer of an alternative site in Airdrie. This offer was renewed in December 2007, but both were rejected. Persimmon now claimed damages of £1,789,948, alleging that Bellway had been in breach of contract.

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Bellway contended that actionable breach of contract giving an entitlement to damages would not result from their failure to comply with the obligation in condition 10 to complete the Seller’s Works by 15 December 2007. If they failed to comply with that, they became subject to the obligation in condition 12; that was the remedy expressly provided by the contract. The judge accepted Bellway’s argument. The important right to damages could only be taken away by an express contractual provision. In the present case, a breach of Bellway’s obligations gave rise to a further obligation under Condition 12 to offer an alternative site. Only if an adequate alternative site were not offered, would there be a breach of contract and an entitlement to damages. This construction of Condition 12 was fully supported by the commercial background to the contract.

The judge assessed expert evidence as to the value of the alternative site. Condition 12 required that the alternative offered should be broadly equivalent to the area of land at Broomhouse, both in its size and in its value as land for residential development. No time limit was specified; nor did the offer have to be in any particular form. No price had to be specified in the offer, and there was no mechanism for determination of the price. In addition, all that was required was an offer; it was not essential that the offer should be accepted. The valuations showed that the Airdrie site was worth £3.85m as opposed to the Broomhouse site which was valued at £4.5m- a 17% difference. Broomhouse was the better site, and the two sites were not of “comparable value” as required by Condition 12, and Bellway were in breach of contract on that account.

Persimmon Homes Ltd. v Bellway Homes Ltd., [2011] CSOH 149 

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