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EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
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Lord Kingarth
Lord Eassie
Lord Marnoch
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[2007] CSIH 30
XA60/06
OPINION OF THE COURT
delivered by LORD EASSIE
in
APPEAL
From the Sheriffdom of Grampian,
Highland and Islands at Stonehaven
in the cause
MARINUS CHARLES MARIS and
MRS ROXANNE MARIA SLOANE-MARIS
Pursuers and Respondents:
against
BANCHORY SQUASH RACQUETS
CLUB LIMITED
Defenders and Appellants:
_______
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Act: J.J. Mitchell, Q.C.; Paull & Williamsons (Pursuers and
Respondents)
Alt: Ferguson, Q.C.;
CMS Cameron McKenna (Scotland) LLP (Defenders and Appellants)
25 April 2007
[1] The pursuers
and respondents in this appeal from the sheriff (Sheriff Davies) sitting in
Stonehaven are partners in a partnership carrying on business as hoteliers at
the Tor-na-Coille Hotel, Banchory. As
trustees for that firm they have title to the hotel buildings and grounds. In 1979 their predecessors in the ownership
of the hotel buildings and grounds, Gemlac Limited, granted a lease in favour
of the defenders and appellants. The
interlocutor of the sheriff against which the defenders appeal declares the
defenders to have incurred an irritancy of the lease as at 4 February
2004 and
grants decree of removal.
[2] The Minute of
Lease is dated 3 December 1979 and 11 January
1980 and was
registered in the Sasine Register on 19 February 1980.
The subjects of the lease are an area of land within the hotel
grounds. In accordance with the
requirements of the lease, at about the time of its grant, the defenders
erected squash courts and associated offices on that area of land. The lease was granted for a term of
99 years, commencing at Whitsunday 1979.
The rent payable under the lease is a nominal amount of £5 per annum. But in addition the terms of the lease
require the tenants to permit hotel guests to use the squash courts and
facilities on the same basis as the members of the squash racquets club
operated by the defenders; and the
landlords are required to provide facilities within the hotel for booking
squash courts and arranging times of play.
[3] Responsibility
for maintaining and repairing the squash court buildings is placed on the
tenant. More particularly, Clause
(SIXTH) provides inter alia that:
"The Tenants shall be bound to erect
and complete on the said subjects within five years of the said date of entry
and thereafter to maintain in good order and to renew if destroyed, squash
courts and associated offices. The
subjects are let for the purpose of erecting squash courts and associated
offices and for use by the tenants and their successors in the furtherance and
enjoyment of the game of squash, and for no other purposes whosoever."
No power is given to the landlord to enter on the subjects
and carry out repairs, the cost of which would thereafter be recoverable from
the tenant. Clause (FOURTEENTH)
contains what was accepted by the parties to be an irritancy clause applicable inter alia in the event of the tenants
being in breach of their obligations of maintenance and repair. The clause is in these terms:
"In the event of the Tenants being in
breach of any material condition of this lease or failing to pay rent or comply
with any material condition of this Lease the same shall be terminated and the
subjects shall revert to the Landlords."
No issue in this appeal turns upon a construction of the
terms of the irritancy clause, or indeed the other terms of the lease.
[4] The irritancy
invoked by the pursuers concerned the defenders' breach of their obligation to
maintain the buildings in good order.
The findings in fact which the sheriff made following a proof before
answer are not disputed by counsel for either party. As respects the findings in fact relating to
the defenders' failure to maintain the squash court buildings in good order
(principally findings in fact 18 to 34 inclusive) it is sufficient for present
purposes to summarise them as follows.
By 1996 the squash court buildings were deteriorating both internally
and externally. Among other things the
roof was leaking. Various complaints
were made by the pursuers to the defenders then and over the ensuing years to
which the general response was that the defenders lacked funds to carry out
repairs or maintenance. Some minor, ad hoc, repairs were attempted by club
members but with apparently no real lasting effect (cf. finding in
fact 24). The defenders indicated
an intention to re-locate their club, but those intentions came to nought. In the early autumn of 2003, following
intimation that the defenders were not to relocate and also a further
indication from the defenders that they lacked funds to undertake any major
repairs, the pursuers instructed chartered surveyors to prepare a report on the
condition of the buildings. This
resulted in the preparation of a schedule of dilapidations. The sheriff made a finding in fact that the
schedule of dilapidations detailed correctly the defects then present (23 October
2003) in the
subjects. Particulars of the defects are
set out in finding in fact 34 but it is unnecessary to rehearse their
details. (It is not suggested that the
defects were minor or insignificant.)
[5] On or about
4 November 2003 the pursuers served on the defenders a Notice of Irritancy
of the Lease along with the schedule of dilapidations specifying the repair
works which the pursuers required the defenders to carry out. The terms of the Notice of Irritancy are more
fully described by the sheriff in the finding in fact 35. Put shortly, the material provision was to
the effect that if the work specified in the schedule of dilapidations were not
carried out within three calendar months of the date of the notice, the lease
would be forfeit in terms of inter alia
Clause (FOURTEENTH).
[6] The sheriff
records (finding in fact 38) that between 4 November
2003 and 3 February
2004 the
defenders failed to communicate with the pursuers in relation to the
Notice. Except in two very minor
respects, none of the repair works specified in the schedule of dilapidations were
undertaken or commenced during that period.
Following the expiry of the three month period on 4 February
2004 the
pursuers proceeded to raise the current action, in respect of which warrant was
granted on 12 February 2004.
[7] It appears
that service of the writ was effected very shortly thereafter and following
sundry procedure the first instalment of the proof before answer took place
between 15 and 17 December 2004.
Further instalments took place on various subsequent dates, the
conclusion of the proof being achieved on 4 November
2005. Thereafter on 16 January
2006 the
sheriff issued his judgment and granted decree of declarator of irritancy and
removing.
[8] In defending
the action the defenders invoked the "fair and reasonable landlord" provisions
contained in section 5 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985, the terms of which are as
follows:
"5-(1) Subject to sub-section (2) below, a landlord shall not, for
the purpose of treating a lease as terminated or terminating it, be entitled to
rely -
(a) on a provision in the lease which
purports to terminate it, or to enable the landlord to terminate it, in the
event of an act or omission by the tenant (other than such a failure as is
mentioned in section 4(1)(a) of this Act) or of a change in the tenant's
circumstances; or
(b) on the fact that such act or omission or
change is, or is deemed by a provision of the lease to be, a material breach of
contract,
if in all the circumstances of the
case a fair and reasonable landlord would not seek so to rely.
(2) No
provision of a lease shall of itself, irrespective of the particular
circumstances of the case, be held to be unenforceable by virtue of
sub-section (1) above.
(3) In
the consideration, for the purposes of sub-section (1)(a) or (b) above, of
the circumstances of a case where -
(a) an act, omission or change is alleged to
constitute a breach of a provision of the lease or a breach of contract; and
(b) the breach is capable of being remedied
in a reasonable time,
regard shall be had to whether a
reasonable opportunity has been afforded to the tenant to enable the breach to
be remedied."
The proper interpretation of this provision is advanced by
counsel for the defenders and appellants as the principal issue in this
appeal.
[9] More precisely,
the issue of interpretation raised by the appeal is whether the time for
application of the fair and reasonable landlord test - the tempus inspiciendum - is (a) the time at which the landlord
exercises his contractual right to terminate, or irritate, the lease; or (b) the time at which the court seised of
an action of declarator of irritancy has to decide, at the conclusion of the
court procedures, whether declarator of irritancy should be granted or refused.
[10] To appreciate
the context in which this issue arises it is necessary to advert further to the
findings of the sheriff.
[11] Against the
background of the finding in fact that subsequent to service of the Notice of
Irritancy of 4 November 2003 the defenders took no steps to repair the
buildings (other than in two very minor respects) within the three month period,
the sheriff held that as at February 2004 the defenders remained in material
breach of their obligations under the lease (finding in fact and
law 7). The sheriff also found that
the period of three months afforded to the defenders in the Notice to undertake
all the required works was a reasonable period (finding in fact and
law 9). The sheriff further found
that in all the circumstances of this case a fair and reasonable landlord would,
as at 12 February 2004, have relied on the defenders'
breach of Clause (SIXTH) to terminate the lease (finding in fact and
law 16).
[12] Counsel for
the defenders and appellants expressly accepted that the sheriff was entitled
to make those findings, with which he therefore took no issue. However, contended counsel, the proper tempus inspiciendum was not February
2004 but November 2005 when the closing submissions in the proof were made.
[13] The practical consideration
leading counsel to advance that submission (which had also been advanced to and
rejected by the sheriff) was that subsequent to the raising of the action in
February 2004 the defenders had eventually carried out the necessary repairs,
these being completed by the end of July 2005 (findings in fact 39 to 44
inclusive). It may be noted however that
the carrying out of a major part of these works was funded by an undertaking
from a third party effectively to donate the necessary funds (finding in fact
58); and that no major repairs had been completed
prior to the conclusion of the evidence for the pursuers on, we were told,
10 February 2005. Counsel for the
defenders and appellants made plain that only if he were correct in his
submission that the appropriate tempus
inspiciendum was the point at which the court was considering its decision
whether to grant decree of declarator, could one then embark on the second
branch of the submissions for the defenders.
That second branch was to the effect that, the sheriff having erred
respecting the tempus inspiciendum,
the matter was then at large for this court to consider the fair and reasonable
landlord test as matters now stood, the contention for the defenders and
appellants being of course that the court should now apply that test in a
manner favourable to the defenders.
[14] In submitting
that, on a proper construction of the statute, the time at which the landlord's
actings were to be tested by the fair and reasonable landlord criterion was the
date of granting or refusing decree of declarator of irritancy, counsel for the
defenders and appellants advanced three considerations.
[15] The
first of those considerations focused on the words "in all the circumstances of
the case" occurring towards the end of sub-section (1) of
section 5. The phrase was of wide
ambit, and counsel argued that it was therefore habile to encompass
circumstances arising after the service of any notice of irritancy. He submitted that only if one took the date
of decree as the relevant date could one take all of the circumstances of the
case into account. The width of the
phrase had been noted by the Lord Ordinary (Cullen) in Blythswood Investments (Scotland) Limited v Clydesdale Electrical Stores Limited (in receivership) 1995 S.L.T.
150, 155; by the Lord Ordinary (Penrose)
in Aubrey Investments Limited v D S Crawford Limited (in receivership)
1998 S.L.T. 628, 636F; and by Lord
Macfadyen in the report of the same case at a later stage in the Outer House, viz. Aubrey
Investments Limited v DSC
(Realisations) Limited (in receivership) 1999 SC 21, 43B.
[16] The second
point advanced by counsel for the defenders in favour of his submission that
the date of decree was the relevant date invoked the tense employed by the
draftsman in the concluding words of sub-section (1) of section 5 of the
Act - "would not seek to rely". As we
understood it, the contention was that the use of the conditional present, as
opposed to the conditional perfect - "would not have sought to rely" -
indicated that the reliance envisaged in the section was of a continuing
nature. Reliance would be placed on the
clause at the moment when the landlord moved the court to grant decree of
declarator and therefore, grammatically, that reliance came within the ambit of
the statutory provision.
[17] The third
ground upon which counsel particularly founded his construction of the
statutory provision was the view expressed by the Lord Ordinary (Macfadyen) in
the case of Euro Properties Scotland
Limited v Khurshied Alam and Another
(20 June 2000, unreported) in paragraph [45] of his Opinion. Having noted that in his earlier decision in Aubrey Investments he had expressed the
view that the time at which the fair and reasonable landlord test fell to be
applied was the time at which a formal attempt to rely on the irritancy is
made; that the submission on behalf of
the landlord in the case now before him was in accordance with the views
expressed in Aubrey; and that in Aubrey no question arose of taking into account events after the
notice of irritancy (the point being whether an earlier date was the tempus inspiciendum), Lord Macfadyen
said:
"Having reconsidered the matter in
the somewhat different circumstances of the present case, I have come to the
conclusion that the phrase 'all the circumstances of the case' in
section 5(1) is wide enough to include events taking place after service
of the notice of irritancy (or in this case in the service of the
summons). I take that view because it
seems to me to be conceivable that there could be a case in which it could be
affirmed that, at the date of the irritancy notice, a fair and reasonable
landlord would rely on the irritancy, but in which before the court reached a
decision on the matter further events had taken place which would have led a
fair and reasonable landlord to change his mind and decline to rely on the
irritancy. The matter is not closed, it
seems to me, until the court has granted or refused declarator of irritancy."
It was accepted by counsel for the defenders that this
passage was technically obiter.
[18] Despite its
attractive presentation we are not persuaded by the argument advanced on behalf
of the defenders and appellants. In our
view it is important, as was submitted by counsel for the pursuers, to take
account of the words in the opening part of section 5(1):
"Subject to sub-section (2) below, a
landlord shall not, for the purpose of
treating a lease as terminated or terminating it, be entitled to rely ...".
(emphasis added)
Those emphasised words indicate clearly that reliance on the
irritancy provisions of the lease in question in any particular case is contemplated
by the statute as being for a particular purpose, namely that of "terminating
or treating the lease as terminated".
That being the purpose, the reliance must precede the purpose. The introduction of the fair and reasonable
landlord test in the concluding words of section 5(1) must relate back to
the same purpose of reliance, namely the terminating of the lease or the
treating of the lease as terminated. It
was not disputed that the termination, or treated termination, of a lease
occurs, depending on the terms of the contract and the circumstances, on the
giving or expiry of notice of irritancy or at the latest by other formal act
such as the initiation of proceedings by declarator of irritancy, as was
apparently accepted in the present case.
The action of declarator of irritancy is simply a means of establishing
judicially that at an earlier date the lease was validly terminated (cf. HMV Fields
Properties Limited v The Skirt'n'Slack
Centre of London Limited 1986 S.C. 114;
Dean v Freeman [2005] CSOH 75).
Accordingly we consider that invoking events after the act of
terminating the lease, or treating it as terminated, as matters relevant to
what a fair and reasonable landlord might do, would involve directing attention
not to the decision whether to terminate the contract or treat it as
terminated, but to the different issue or decision whether there should be
agreement to restore the landlord and tenant relationship on a new or similar footing.
[19] We also
consider that the provisions of sub-section (3) of section 5 of the
Act support the view that the proper tempus
inspiciendum is that at which the landlord terminates the lease. The provisions of sub-section (3)
require that, in the event of a remediable breach, regard must be had to
whether a reasonable opportunity has been afforded to the tenant to enable the
breach to be remedied. As counsel for
the pursuers observed, the reasonable opportunity must occur prior to the act of
termination. For his part, counsel for
the defenders also accepted that the allowance of a reasonable opportunity must
be an allowance by the landlord. In
agreement with counsel for the pursuers we find it difficult to reconcile this
provision with the construction contended for by counsel for the
defenders.
[20] Counsel for
the pursuers also adverted to the provisions of section 4 of the Act,
respecting monetary breaches, in which the Act makes entitlement to rely on the
irritancy provisions dependent on the tenant's having been given prior
notice. If a tenant failed to respond to
the notice and the landlord thereafter terminated the lease, it was not open to
the tenant to remedy the breach by tendering payment during the dependence of
the subsequent action of declarator of irritancy. We agree with counsel for the pursuers that
it would be odd, as a matter of legislative policy, were non-monetary breaches
to be capable of being, in effect, purged during the dependency of the action,
whereas monetary breaches of contract containing a conventional irritancy
cannot be so purged. The fair and
reasonable landlord test was proposed by the Scottish Law Commission in place
of a notice procedure since the Commission had come to the view that, given the
wide variety of non-monetary obligations and the variety of their possible
breaches, a notice procedure was inappropriate in the case of non-monetary
breaches. (Scot Law Com. No.75
paragraphs 4.7ff). There is nothing
in the report of the Commission to suggest that in the case of non-monetary
breaches it would be legitimate to take account of events after termination to
enable the tenant in effect to purge his incurrence of the irritancy.
[21] A further
pointer, within the legislative text, to the proper tempus inspiciendum being the act of terminating the lease, or of
treating it as terminated, is to be found in the transitional provisions
respecting the entry into force of sections 4 and 5 of the Act, which are
to be found in section 6(2). Those
transitional provisions take the giving of written notice to terminate the
lease as the criterion eliding the application of sections 4 and 5 to
pre-commencement breaches. Had the
intention of the legislature been that in the case of non-monetary breaches the
date of giving final decree should be the relevant date, one would have
expected a different provision for section 5, with reference being made to
enforcement.
[22] Against the
results of this scrutiny of these aspects of the statutory provisions, which
all point consistently to the tempus
inspiciendum being the act of termination of the contract, we consider that
there is little substance in the points advanced by counsel for the
defenders. It is no doubt correct that,
as has been judicially observed, the phrase "all the circumstances of the case"
is a wide one. However, in our view that
width does not really assist in determining the point in time at which the test
is to be applied. The argument for the
defenders appears to us to assume that "the case" is what a fair and reasonable
landlord would do in the later course of a litigation brought to give effect to
a valid determination of the contract.
But, as we have already stated, the purpose for which one has to
consider whether a fair and reasonable landlord would rely on an irritancy
clause is defined in section 5 as being that of terminating the lease or
treating it as terminated. The issue is
not whether, having terminated the lease, ex
hypothesi validly, a fair and reasonable landlord would later agree to a
re-constitution of a relationship of landlord with his former tenant. While in his decision in Euro Properties Lord Macfadyen came to the view that matters were
not closed until the court had granted or refused declarator of irritancy, the
basis for that view was plainly the width of the phrase "in all the
circumstances of the case" and for the reasons already indicated we have come
to the view that that basis is unsound.
We are unable to see any significance in the draftsman's selection of
the conditional present as opposed to the conditional perfect.
[23] It also has to
be said that, as was discussed in the argument before us, the interpretation
advanced by counsel for the defenders and appellants is productive of considerable
practical difficulties. It would mean
that no one could confidently advise a landlord as to whether he might validly and
conclusively terminate a lease on the basis of his tenant's breach of
obligations. The respective rights of
parties to a lease would not be tested at the moment of termination but would
be dependent upon inter alia the
vagaries of the length of proceedings in the subsequent action of declarator of
irritancy and the potential ability of the tenant to take steps to remedy the
breach. Any reasonable opportunity or
ultimatum given by a landlord to his tenant, and its value as a compulsitor to
performance, would be much diminished in effect by the possibility of the
tenant ignoring that opportunity or ultimatum in reliance on pendente lite steps. The implication of the argument for the
defenders is that at any time the tenant should be able to remedy the breach,
including in the interval between the proceedings having been decided at first
instance and their decision after subsequent appellate levels. Various other scenarios were canvassed in the
argument before us and they all suggest that the position adopted by counsel
for the defenders and appellants is inherently unsound.
[24] In these
circumstances we consider that the sheriff was entirely correct to take February
2004 as the appropriate tempus
inspiciendum and to reject the submission made to him that it was
appropriate to take into account the repairs effected subsequent to the raising
of the action.
[25] Accordingly
the first branch of the submissions for the defenders and appellants advanced
before us fails. Since, as already
mentioned, the second branch of the submissions for the defenders and
appellants was dependent on their success on the first branch, it is
unnecessary for this court to reach a concluded view upon that second
branch. We would simply comment that,
given the history of the defenders' inability to execute repairs because of
their impecuniosity, it is far from obvious that a fair and reasonable landlord
would have given the defenders a further chance simply because a third party
had come to their rescue pendente lite.
[26] The appeal is
therefore refused.
