Sheriff Appeal Court challenge against £87k liability to seller of property under buyback agreement succeeds

About this case:

• Citation:
  [2025] SAC (Civ) 25
• Judgment:
  External link
• Court:
  Sheriff Appeal Court
• Judge:
  Sheriff O'Carroll

Appellant Liaquat Ali, the second defender in an action raised by pursuer and respondent Sagir Sarwar, appealed against a decision finding him and his company Clearwater Investments Scotland Ltd jointly and severally liable to the pursuer for payment of £87,347.31. The appellant’s position was that the property had been sold for the same price that it paid to buy it, and therefore there were no surplus monies due to the appellant.

The appeal was heard by Sheriff Principal Nigel Ross, with Appeal Sheriffs Brian Mohan and Derek O’Carroll. Burke, solicitor, appeared for the appellant and Tosh, advocate, appeared for the respondent.

Commercial common sense

In 2017, the pursuer and respondent sold a commercial property to Clearwater, the first defender, for £300,000 but retained the right to buy the subjects back after clearing a loan debt. The contract provided that, if that right was not exercised within four years, the defenders would have the right to sell the property on the open market to clear outstanding financial obligations, however any “surplus monies” from the sale of the property would be paid to the pursuer after deduction of certain sums.

While the pursuer never exercised the right to buy the subjects back, the defenders sold the property elsewhere in 2022 for £300,000. Following the sale, the pursuer claimed he was entitled to surplus monies in the amount of £179,000, leading to lengthy proceedings in Glasgow Sheriff Court. The sheriff rejected a number of aspects of the pursuer’s claim, but he found in favour of the pursuer in some parts of his case and awarded him £87,347.31.

It was submitted for the appellant that, under reference to the decision of the Inner House in Ashtead Plant Hire Co Ltd v Granton Central Developments Ltd (2020), where a contractual provision was capable of bearing more than one meaning, the approach supported by commercial common sense should be favoured. Predictability was generally important, and parties would generally avoid arbitrary obligations.

For the respondent it was submitted that the sheriff was entitled to reach the conclusions he did on the basis of the evidence before him. He had made no error of law in reaching his conclusions, had not gone plainly wrong, was entitled to reach the conclusions on the facts that he did, and there was no basis upon which this court could interfere with his decision.

Windfall for no reason

Delivering the opinion of the court, Appeal Sheriff O’Caroll noted the precise effect of the buy-back provision: “The starting point was clause 3 which provided, in short, that if the respondent failed to exercise his right to purchase the property (he did so fail), the appellant had the right to sell the property on the open market ‘in order to clear any outstanding loans and personal debts’. Clause 5 further provided that ‘any surplus monies from the sale of said property will be paid to Mr Sarwar less expenses and other borrowing personal or business’.”

He continued: “It is tolerably clear that ‘surplus monies’ referred to genuine surplus, namely any excess profit made on the onward sale of the property. There is no indication, and no logical argument, that either side was to profit at the expense of the other. In context, the calculation therefore required to include the sale price, under deduction of expenses and of any other borrowings, outstanding loans and personal debts incurred in the purchase and sale.”

Considering whether the sheriff erred in his calculations, Appeal Sheriff O’Carroll said: “The Sheriff did not account for two sums. The first is the deposit of £79,000 paid by the defenders to the pursuer for the purchase price. That formed part of the total purchase price for the property which, taken together with the loan of £221,000, totalled the £300,000 price paid to the pursuer. That sum of £79,000 must also fall into the calculation of surplus monies. It was paid by the defenders to the pursuer. If not taken into account, the pursuer would benefit from that sum as a windfall, for no discernible reason.”

Further noting a loan repayment made by the defenders, he concluded: “Applying the Ashtead principles, it could not have been intended by the parties that the defenders would repay interest and capital payments so as to reduce the outstanding amount of the loan, while on resale of the property donating that benefit to the pursuer. Again, this would mean that the pursuer would obtain a windfall after sale at the expense of the defenders for no discernible reason. That could not have been the intention of the parties in the agreement.”

The appeal was therefore allowed, and decree of absolvitor granted in favour of the appellant.