Good faith negotiations and pre-contractual liability?

Aisling Developments Ltd v Persimmon Homes Ltd [2008] CSOH 140, issued 24 September 2008, is another case where the arguments focused on contract when perhaps they might have been better targeted on pre-contractual liability.

The facts were as follows.  Aisling was a company specialising in the identification of development opportunities, purchasing the relevant land and then re-selling it to developers after obtaining planning permission and carrying out site investigations.  In 2001 the company identified a site at Old Craighall, Musselburgh, East Lothian which would be suitable for the relocation which Queen Margaret University College (QMUC) was then seeking to make from its existing site at Clermiston in Edinburgh.  The site was owned by the house-builder Persimmon but its development was restricted by the site’s location in the Edinburgh Green Belt.  Aisling saw that the development potential for housing also might be unlocked by an educational development on the site.  There followed a complex series of negotiations in which QMUC and Persimmon came into negotiating contact but Aisling were in effect assured by Persimmon that they would have a contract and remuneration for their contribution to the contract which was ultimately agreed by the now University and Persimmon and under which the University acquired and built upon its new location.  But eventually Persimmon dropped Aisling altogether, with the latter in consequence suffering a loss of nearly half a million pounds. 

Aisling’s arguments that the negotiations had given rise to a contract were ultimately rejected by Lord Glennie after a learned and persuasive analysis of the relevance of “intention to contract” and “agreement on all the essentials” in determining when parties became contractually bound.  Lord Glennie does however refer with some disapproval to the conduct of Persimmon in the negotiations, which he refers to in para 62 as their “stringing along” of Aisling.  There was evidence, summarised at paras 36-38, of Persimmon assuring Aisling that a contract would be concluded between them and that there was no substantial disagreement on its terms.  But, says Lord Glennie, “the court is a court of law, not of business morality” (para 62).  His attention had presumably not been drawn to the long line of authority, going back at least to Walker v Milne (1823) 2 S 379 (the Melville Monument case), under which a party’s expenditure occasioned by reliance on another’s assurances that there is a contract between them may be recovered from the latter when the contract fails to materialise.  While a finding of liability under this head in Aisling would have extended the law, no great leap is involved (see MacQueen & Thomson, Contract Law in Scotland (2nd edn, 2008) para 2.95), and it would align our law with that of other jurisdictions in Europe (ibid, para 2.96).