Inner House case relating to an agreement for lease of subjects at the Maxim office park in North Lanarkshire. Tritax were owners of the development and Regus were to take a lease of part of the development. Monies were to be made available to Regus in respect of its fit out costs as an incentive. Regus did not comply with restrictions on the type of tenant imposed by sale agreements and so HUB (a company created to run the restaurant and other facilities at the development) was interposed to sub-let to Regus.
In terms of the agreement for lease, HUB were to deliver a letter to Regus (although the letter was not addressed to Regus) from the Bank of Scotland relating to sums which the Bank held on deposit in respect of the fit out costs. This letter formed the crux of the case and was in the following terms:
“We understand that Heads of Terms have been agreed between TAL CPT and Regus (Maxim) Limited for the lease of the first floor of Building 1 at Maxim.
It may assist the proposed tenant to have confirmation from us that, on behalf of the landlord (Tritax Eurocentral EZ Unit Trust) and TAL CPT, we hold the sum of £913,172 to meet the landlord’s commitment to fit-out costs. These funds will be released in accordance with the drawdown procedure agreed between the parties, whereby the proposed tenant’s contractors will issue monthly certificates.
This is subject always to agreement of wider commercial terms with the incoming tenant.”
Regus carried out the fitting out works and issued invoices to HUB who confirmed that the costs were properly incurred and that the contribution should be paid to Regus. However, the bank refused to release the costs as there had been a default in the facility agreement and they were exercising a right of retention over the sums referred to in the letter. Regus sued for payment of the costs from the bank. In the Outer House Lord Menzies had dismissed the action. He found that he was unable to construe the letter as amounting to a unilateral undertaking by the bank of a legally enforceable obligation to pay the sum to Regus. On appeal to the Inner House, Regus relied on two arguments:
- The letter was an undertaking in terms of which the bank were obliged to make payment.
- That the letter contained negligent misrepresentations acted on by Regus to its detriment and the bank were obliged to make reparation to the Regus for breach of a duty of care.
The court rejected Regus’s appeal. For a promissory obligation of the type argued for by Regus, clear words are required. The letter merely confirmed that, at the date of the letter, the bank held the funds on behalf of Tritax and TAL (the developer/development manager). It did not contain an unconditional obligation on the bank to pay the funds to Regus on demand as the bank’s own debt. The bank’s freedom to pay out the money would depend on the terms and conditions on which it held the funds and the letter also spelt out that release of the money was governed by an agreed procedure. In addition, the sentence referring to wider commercial terms made it plain that the confirmation was not unconditional. For the same reasons, whilst the letter made the representation that the bank held the funds; it did not make a representation that the money would be released whatever the circumstances when Regus came to demand payment.
The full judgement is available from Scottish Courts here.
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