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Latest Supreme Court guidance on “business common sense” in relation to contractual construction

7th December 2011

The Supreme Court has today issued its judgment in the case Aberdeen City Council v Stewart Milne Group Limited.

The Council had sold an area of land to Stewart Milne Group Limited for an initial price, which was then subject to a possible uplift (the “Profit Share”) in the circumstances set out in the missives of sale. Those circumstances were (i) the service of a notice “buying out” the Profit Share; (ii) the disposal of the land by Stewart Milne Group Limited entering into of a lease in respect of the land for more than 25 years; and (iii) the disposal of the land by sale by Stewart Milne Group Limited.

Stewart Milne Group Limited sold the land to a related company for a price which the Council contended did not reflect the open market value of the land. It was argued for Stewart Milne Group Limited that the “Profit Share” fell to be calculated by reference the “Gross Sale Proceeds” actually received by it (which would mean there was no “Profit Share” to be paid to the Council at all) whereas the Council submitted that, in the case of a sale otherwise than for the open market value, on a proper construction of the missives, the open market value was to be used in calculating the “Profit Share” rather than “Gross Sale Proceeds” actually received by Stewart Milne Group Limited.

The Supreme Court dismissed Stewart Milne Group Limited’s appeal from the Inner House of the Court of Session. The leading judgment, delivered by Lord Hope DPSC, provides useful guidance in relation to the role of “business common sense” as part of the process of contractual construction. A copy of the Supreme Court judgment (reported as Aberdeen City Council v Stewart Milne Group Limited [2011] UKSC 56) can be viewed here (opens as PDF).

Craig Sandison QC and David Thomson, both of Ampersand, appeared for the successful Respondent, Aberdeen City Council.

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