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Option agreements, securities, mutuality of contract and implied terms II

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Option agreements, securities, mutuality of contract and implied terms II

03 May 2018

The First Division has refused a reclaiming at the instance of the Defender in the case of J & H Lamont v Chattisham Limited [2018] CSIH 33. Separate Opinions were issued by each of the Lord President, Lord Drummond Young and Lord Malcolm. A copy of the Opinions may be found here.

As noted in the news item on this website dated 8th September 2017 (published following the issuing of the Lord Ordinary’s Opinion), the facts of the case were as follows. The Pursuers had granted an option over a large area of land, owned by them, which had considerable potential for development. It was (as is common) one of the conditions of the option agreement that the Pursuers were required to grant a standard security over the option subjects – the security was to secure “implementation of [the Pursuers’] obligations under this Agreement”.

No development in fact took place during the option period and the Pursuers terminated the option agreement. The option agreement provided that on the earlier of expiry of the option period or termination of the option agreement the Defender was to deliver an executed discharge of the standard security which the Pursuers had granted over the option subjects.

The Defender refused to deliver that discharge, alleging that the Pursuers were in breach of various express and implied terms of the option agreement; that those breaches had caused substantial loss to the Defender; and that it was entitled to withhold or retain performance of its own obligations (and in particular to retain the standard security over the option subjects) until its own claim for damages had been resolved.

In refusing the Defender’s reclaiming motion, the First Division has now given authoritative and detailed guidance in relation to the proper scope of the principles of mutuality of contract and retention. The case represents an important landmark in this area of law.

David Thomson QC, of Axiom Advocates, represented the successful Pursuers and Respondents both before the Commercial Judge and before the First Division.”