AWG Business Centres Limited v Regus Caledonia Limited and others, 13 July 2016 – Interpretation of repairing obligations in lease

Outer House case considering the repairing obligations contained in a lease and sub-lease of 3 floors of Riverside House at Riverside Drive in Aberdeen.

The lease and sublease referred to common parts which included a car park. Defects were found in the concrete decking of the car park and remedial works had to be carried out. The question for the court was whether, in terms of the lease and sublease, the cost of the works was to be met by the sub-tenant or by the landlord.

The lease (between the landlord and tenant) was a full repairing and insuring lease under which the tenant was obliged to pay a service charge which was defined by reference to “Service Expenditure” which was incurred by the landlord in carrying out “Landlord Services” (which included repairs). An express exception from the Service Expenditure was “expenditure incurred in respect of or pertaining to the initial construction of the Building or the Service Systems”.

In terms of the sub-lease, the sub-tenant was obliged to pay to the tenant the sums which the tenant was obliged to pay to the landlord by way of the service charge under the lease.

The tenant paid the costs of remedial works to the car park as part of the service charge and sought to recover those from the sub-tenant. However, the sub-tenant argued that in terms of the exception from Service Expenditure, latent defects (such as the defects in the car park) “pertained to” the initial construction of the building and could not be recovered by way of the service charge.

Lord Tyre rejected the sub-tenants argument finding that it was appropriate to place emphasis[1] on the fact that the lease was a full repairing and insuring lease under which it was intended that the tenant would relieve the landlord of the cost of repair and rebuilding even in relation to inherent or latent defects.

 In Lord Tyre’s view, a reasonable person having all the background knowledge available to the parties would have understood the phrase “in respect of or pertaining to the initial construction of the Building” extended only to works carried out during the construction phase and any related snagging. The sub- tenants interpretation placed too much weight upon the words “or pertaining to”.  Lord Tyre found that those words could be seen as a reference to costs such as professional fees associated with the construction of the building, which were not strictly costs of construction.

The full judgement is available from Scottish Courts here.

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[1] Per the approach in @SIPP Pension Trustees v Insight Travel Services Ltd 2016 SLT 131

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Tyco Fire & Integrated Solutions (UK) Limited v. Regent Quay Development Company Limited, 9 June 2016 – Validity of notice exercising break option in lease

Outer House case concerning the validity of a break option served by a tenant to a landlord in respect of premises in the Glover Pavilion at Aberdeen Science and Technology Park.

Background
The lease was originally of units 3 and 4 in the pavilion and was for a period of 10 years ending in February 2014 and contained a break option exercisable after 5 years. However, in October/November 2011 the parties entered a minute of variation, which amended the lease to include additional premises (unit 1), extended the term of the lease until August 2021 and included a new break option exercisable by the tenant 5 years after the “effective date” provided in the minute of variation (on providing 6 months’ prior notice).

Arguments
The tenant served a notice exercising the break option in January 2016. However, the landlord argued that the notice was invalid as the heading of the letter containing the notice referred only to units 3 and 4 (followed by the term “the Premises” in parenthesis) and not to unit 1. The landlord argued that this created confusion by attributing a new meaning to a defined term (i.e. arguing that the premises had been redefined in the letter as being units 3 and 4 without unit 1). In addition, it was argued that, when this was error was taken with the first paragraph of the letter which referred only to the lease and not to the minute of variation (although the tenant had referred to the minute of variation in the second paragraph of the letter), it had the effect that the notice applied only to the original lease and not the lease as varied by the minute of variation.

Decision
Lord Tyre rejected those arguments and granted declarator that the notice had been validly served.

The test to be applied was how a reasonable recipient with knowledge of the terms of the lease would have understood the notice[1]. Lord Tyre began by rejecting the landlord’s argument that the reference in the first paragraph of the letter to “the Lease” was to the lease prior to it being varied by the minute of variation.  The notice required to be read as a whole and it was readily apparent from the notice that the sender was fully aware of the existence of the variation and of its terms. A reasonable recipient of the notice with knowledge of the lease would have understood the notice to refer to the lease as it had been at the date of the notice (i.e. as varied.). Lord Tyre took the view there was no ambiguity.

With regard to the omission of unit 1 in the heading in the letter, Lord Tyre, despite noting that careless drafting was to be discouraged, said the following:

“…in my opinion no reasonable recipient would be misled into interpreting the notice [so as to redefine the definition of “the Premises” in the contract] or even of being left in any reasonable doubt that [there had simply been a clerical error]… I am satisfied that the reasonable recipient would not have been perplexed in any way by the error in the letter heading.  The operative element of the notice is sufficiently clear and unambiguous to avoid any such perplexity, and the fact that the ingenuity of lawyers can suggest theoretical ambiguities is not to the point.”

The full judgement is available from Scottish Courts here.

 

 

[1] Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 as recently applied in Scotland in West Dunbartonshire Council v William Thompson and Son (Dumbarton) Ltd  2016 SLT 12.

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Hamid Khosrowpour (AP) v. Andrew Joseph Mackay, 1 July 2016 –Whether obligation to leave house to creditor in will required formal writing

Background
Inner House case concerning an alleged contract relating to the purchase of a local authority flat at Partick Bridge Street in Glasgow in 1989.

Mr Khosrowpour claimed that he had loaned £8k to Mrs Mackay for the purchase of her flat and that the parties had entered a contract by which Mrs Mackay would remain in the property for the rest of her life without repaying the loan but that Mrs Mackay would make a will transferring it to Mr Khosrowpour on her death. Mrs Mackay also granted a standard security (securing all sums due and which may become due) in favour of Mr Khosrowpour in 1991.

Although Mr Khosrowpour said that Mrs Mackay had originally granted a will passing the property to him, she later executed a new will directing that her executors pay the sale proceeds of the flat to her children (who included Mr Khosrowpour’s former wife).

Mr Khosrowpour sought damages for breach of contract from Mrs Mackay’s executor

In the Outer House it was found that the contract related to heritage and, as such, required formal writing for its constitution. However, Mr Khosrowpour argued that, because of his payment of the funds and Mrs Mackay’s execution of the first will, Mrs Mackay was personally barred from relying on the lack of formalities to resile from the agreement. As such Lord Turnbull found that Mr Khosrowpour had set out a stateable case regarding personal bar and allowed a proof (an evidential hearing) to consider whether it could be established. The executor appealed to the Inner House.

Arguments
The pursuer argued that the rule of rei interventus (where there are important actings by the party seeking to rely on the agreement which are known to and permitted by the other party and which are unequivocally referable to the purported contract) applied. However, in the Inner House the court observed that the actings of the party who relies upon the invalidity of the bargain to escape from it fall under the rule of homologation, not rei interventus and that was the rule that applied to this case.

The consequence of this is that, unlike the rule of rei interventus, there is authority to the effect that homologation does not apply unless actings (in this case accepting the funds and writing the first will) took place at a time when the alleged homologator (in this case, Mrs Mackay) was aware of the right to resile. As such Mrs Mackay’s executor argued that Mr Khosrowpour had produced no evidence that the first will was executed at a time when the deceased knew that it was within her power to resile from the verbal agreement (meaning she could not be personally barred from changing her will). There then followed some discussion as to whether there is a rebuttable presumption that parties are aware of their rights with the onus of proving the opposite resting on the party contradicting the proposition (i.e. whether it should be presumed that Mrs Mackay was aware that the verbal agreement was not binding). However, in the view of the court, there is no presumption albeit that, in certain cases, depending upon the particular circumstances, the courts will not allow a party to rely upon alleged ignorance in the absence of clear proof.

Decision
The Inner House allowed an appeal. The circumstances in this case did not entitle Mr Khosrowpour to the benefit of any presumption that, when executing the first will, Mrs Mackay was to be taken as having been aware that she knew of her right to withdraw from the arrangement. Moreover, the court was not persuaded that Mrs Mackay should have borne responsibility for any ignorance on her part in that regard.  As to the suggestion that Mrs Mackey could have obtained legal advice, the court found:

“As a proposition no doubt that is true, and in a different context might well be significant.  However, this was a family matter, and when a formal legal document was prepared and executed, it directly contradicted the alleged oral bargain.”

The full judgement is available from Scottish Courts here.

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Northern Rock (Asset Management) Plc v. Jane Steel and Bell & Scott, 19 February 2016 – solicitor’s liability to client’s bank on discharge of security

Background
Inner House case in which Northern Rock sought damages from the solicitor of one of its customers. Headway Caledonian Ltd borrowed sums from Northern Rock to finance the purchase of a Business Park in Hamilton. In return it granted a standard security in favour of Northern Rock. Some years later, Headway’s solicitor sent a draft discharge of the standard security to Northern Rock requesting that it sign and return the document. In the accompanying email, the solicitor stated that the company intended to sell the subjects and redeem the loan. However, that information was incorrect as Headway only intended to sell part of the subjects and to redeem part of the loan. (The reason for the error was unknown.)

Northern Rock (which had not instructed solicitors to act on its behalf in the transaction) relied on the email and granted the discharge of the standard security. The solicitor then registered it in the Land Register. As a result the loan became unsecured. Headway then became insolvent and the Northern Rock raised an action for damages against the solicitor and her firm in respect of its losses.

The solicitor argued that the lender was a third party to whom she did not owe a duty of care.

In the Outer House Lord Doherty agreed with that argument finding that, in the circumstances: (1) it was not reasonable for Northern Rock to rely on the solicitor’s statements without checking them by seeking clarification from the solicitor and/or looking at their file; and (2) that it was not reasonably foreseeable by the solicitor that Northern Rock would rely on the statements without such checks.

Decision
The Inner House allowed an appeal finding that, in the circumstances, it was reasonably foreseeable that Northern Rock would rely on the solicitor’s statements and sign and return the discharges. Consequently the solicitor was to be taken to have assumed responsibility for her statements. The Inner House considered that Lord Doherty had not considered whether it was fair just and reasonable to impose a duty on the solicitor:

“As a consequence of the Lord Ordinary’s approach, he did not go on to consider whether the imposition of a duty of care would be fair, just and reasonable.  The context was, for the reasons I have explained, a background of assumption of responsibility and reasonable foresight of significant economic loss suffered by a bank in a sufficiently proximate relationship with a solicitor who had previously shown herself to be a trustworthy source.  The context was also, importantly, that that solicitor whilst acting outwith her mandate and instructions made a serious error and put in train a series of events which caused the bank to suffer significant loss.  What then of the fact that the loss could have been avoided if, having received the email which ought never to have been written and the attachments which ought never to have been sent, the bank had checked its file?  Does that mean that it would not be fair, just and reasonable to hold the solicitor liable?  I cannot identify any policy reason for doing so.  Nor can I conclude that that fact demonstrates that the solicitor should be relieved of liability.”

The full judgement is available from Scottish Courts here.

 

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The Old Course Limited v Fife Council Assessor, 7 June 2016 –entry of showhouses on valuation roll for non-domestic rates

Inner House case considering the entry of apartments at the Hamilton Grand in St Andrews on to the valuation roll (for non-domestic rates). Old Course had furnished 2 (out of 26) of the apartments at development and used them as showhouses when selling the other apartments. The assessor entered the showhouses on to the valuation roll with the description “showhouse”.

Old Course appealed against the entry arguing that the showhouses should have been excluded[1] from the roll on the basis that they were dwellings[2]. Although the apartments in question were used as showhouses, Old Course argued that, in terms of the legislation, it is the nature of the subjects (i.e. the natural physical characteristics) which determines whether or not a property is a dwelling and that the use to which the subjects are put is irrelevant.

The Inner House refused the appeal noting that:

 “in characterising subjects for the purposes of valuation for rating it is proper to look not only to their physical circumstances but also to the use to which they are put.  Subjects are valued in their actual state and according to their existing use”.

The court found there was nothing in the legislation to support Old Course’s arguments that use of the subjects is irrelevant and that Old Course’s proposed interpretation of the legislation would lead to absurd results.

The full judgement is available from Scottish Courts here.

 

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[1]  In terms of s.73 of the Local Government Finance Act 1992.

[2] In terms of s. 72(2) of the 1992 Act.

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The City of Edinburgh Council v Martin Smith, 19 April 2016 – Short Scottish Secure Tenancy -creation of unintentional further contractual tenancy prevents landlord recovering possession

Sheriff court case in which the City of Edinburgh Council sought decree for payment of arrears of rent and recovery of possession of a property at Springwell Place in Edinburgh.

The Council let the property to Mr Smith under a Short Scottish Secure Tenancy Agreement for an initial period of 6 months after which it was renewed on a month to month basis until one of the Council’s managing agents served a notice to quit on the tenant requiring him to remove from the property in February 2015. On the same date a notice of intention to raise proceedings for possession was served in terms of s36 of the Housing (Scotland) Act 2001.

In terms of s36(5), where the landlord has served the appropriate notices and raised the proceedings within the relevant timescale, the court must grant an order for recovery of possession if the tenancy has reached its end, tacit relocation is not operating and no further contractual tenancy is in place.

However, in this case, the sheriff was advised that an agreement had been reached with Mr Smith whereby he would remain in occupation of the property on payment of an agreed sum by way of rent (which also included the rent arrears). At a subsequent hearing before the sheriff the council also sought an adjournment rather than decree in order to give the tenant an opportunity to comply with his obligations before it obtained the decree.

Although Mr Smith did not appear in court and did not lodge any response to the council’s action, the sheriff found that the agreement between him and the council constituted a contractual tenancy:

“[t]hree of the essential clauses of a lease appear to have been agreed, namely, the parties, the subjects and the rent.  In those circumstances, at common law, the duration of the lease would be implied to be one year”.

As such, the sheriff found that the council was not entitled to recover possession in terms of s36(5) as a “further contractual tenancy” was in place and council’s action was dismissed.

The sheriff also noted that, according to the council’s pleadings, the notice to quit had been hand delivered by the council’s managing agent and, if so, it had not been validly served as only Sheriff’s Officers have the authority to serve such a notice personally meaning that, even if there had not been a further contractual tenancy in place, the requirements of s36(5) would still not have been met.

The full judgement is available from Scottish Courts here.

 

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Peter Kennedy, North Hamilton and Edward Tulloch v Dickie & Moore Holdings Limited, 24 May 2016 – interpretation of contract

Inner House case concerning the interpretation of a minute of agreement between the owners of a development site in Ayr (the trustees) and Dickie & Moore.

The Trustees and Dickie & Moore had concluded missives for the sale of the site but later Dickie & Moore resiled from the missives (after paying an abortion fee). Dickie & Moore had been attempting to obtain planning permission for the site. When they resiled from the missives, the parties agreed that Dickie & Moore would continue to seek planning permission and the parties entered the minute of agreement by which the trustees would reimburse Dickie & Moore for professional costs if the trustees were to agree unconditional missives (i.e. missives which were not conditional on the obtaining of planning consent) with a third party.

The trustees entered unconditional missives to sell the site to a third party and, despite the fact that they had not succeeded in obtaining planning permission, they sought recovery of their professional costs from the trustees.

The minute of agreement provided:

“AND WHEREAS it has been agreed between the parties that in the event of the Sellers concluding unconditional (that is not subject or no longer subject to a suspensive condition) missives with a third party for the sale of the said subjects extending to 6.293 hectares or a substantial part thereof during the shorter of the period when the Planning Consent obtained or to be obtained by DMH for the development of the said subjects remains extant and the period of five years from the date of these presents, as the case shall be, the Sellers will reimburse DMH the full amount of the said professional fees together with any further vouched professional fees (up to a maximum of TEN THOUSAND POUNDS (£10,000) STERLING) incurred by DMH in obtaining such Planning Consent”

The question for the court was whether, in terms of the agreement, Dickie & Moore were entitled to recover their professional costs incurred in pursing the planning permission when the trustees concluded unconditional missives with the third party despite the fact that Dickie & Moore had not obtained planning permission.

The Inner House (allowing an appeal) took the view that the whole structure and purpose of the agreement was predicated on Dickie & Moore successfully pursuing their outstanding planning application. The Court did not consider that the parties had agreed to a situation whereby Dickie & Moore could achieve nothing in respect of planning consent but, provided that there was a sale within five years of the date of the minute of agreement, would be entitled to payment of the fees they had already incurred. Lady Clark made the following comments as regards the commercial sense of the possible interpretations:

“It is very difficult to understand why it would make any commercial common sense for the [the trustees] to pay substantial fees, for which they were not liable, in circumstances where [Dickie & Moore] were not obliged to achieve anything in relation to future planning consent but became entitled to repayment merely in the event of a sale to a third party within five years of the minute of agreement.”

The full judgement is available from Scottish Courts here.

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Scottish Parliamentary Corporate Body v The Sovereign Indigenous Peoples of Scotland, 5 May 2016 – removal of protestors camping at the Scottish Parliament

This is an Outer House case in which the Scottish Parliamentary Corporate Body sought an order for removal of a group of individuals camped within the grounds of the Scottish Parliament with the stated intension of remaining there until Scotland declares itself an independent country.

Lord Turnbull found that the corporate body was the valid proprietor of the grounds on which the camp was located, that the campers had no lawful right to encroach upon the corporate body’s property and found that arguments made by the campers concerning the impact of the Treaty of Union (leading to the creation of Great Britain) on the provision of the corporate body’s powers by the Scotland Act 1998 had no foundation. Lord Turnbull also rejected arguments based on rights claimed by the campers under The United Nations Declaration on the Rights of Indigenous People of 2007 and, in addition, found that the campers’ occupation of the camp did not fall within rights of access (the “right to roam”) created under the Land Reform (Scotland) Act 2003.

However, Lord Turnbull did find that, as the corporate body is a public body, it is unlawful for it to act in a way which is incompatible with the European Convention for the Protection of Human Rights and Fundamental Freedoms. As such, it was necessary to consider whether granting an order for removal of the campers was compatible with the rights guaranteed by the convention; in particular article 10 (freedom of expression) and article 11 (freedom of assembly and association). Consequently, Lord Turnbull granted a procedural hearing anticipating that it would lead to a further hearing to consider evidence on the proportionality of granting the order removing the camp (i.e. to allow the corporate body’s right to the removal order to be assessed against the campers right to freedom of expression and freedom of assembly and association).

The full judgement is available from Scottish Courts here.

 

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