Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2011] CSOH 103
CA62/11	OPINION OF LORD GLENNIE in the cause RALPH LAUREN LONDON LIMITED Pursuers; against THE MAYOR AND BURGESSES OF THE LONDON BOROUGH OF SOUTHWARK AS TRUSTEE OF THE LONDON BOROUGH OF SOUTHWARK PENSION FUND Defenders: ­­­­­­­­­­­­­­­­­________________

Pursuers: Dunlop, Q.C.; Brodies LLP

Defenders: Lake, Q.C.; Maclay Murray & Spens

17 June 2011

[1] On 3 June 2001 I refused the pursuers' motion for interdict. I gave brief reasons for my decision. I have been asked to set out my reasons in writing and I do so below.

[2] The pursuers are the tenants of subjects at 194 Ingram Street, Glasgow ("the subjects") in terms of a lease dated 12 December 2002 and 13 January 2003. The defenders succeeded to the interest of the landlords in the subjects in March 2010 and may, for present purposes, be regarded as the landlords. On 26 March 2010 the defenders issued a Back Letter ("the Back Letter") addressed to the pursuers in terms of which they undertook, in paragraph 3, inter alia as follows:

"We shall not grant first lettings of that one of the Commercial Units (as defined in the Lease) known as Unit 6, situated to the north of that one of the Commercial Units let as at the date hereof to All Saints Retail Ltd, to retailers other than high quality fashion retailers as are approved by you (such approval not to be unreasonably withheld or delayed)."

It is agreed between the parties, for present purposes at least, that that Back Letter and, in particular, the obligation contained in paragraph 3 thereof is valid and enforceable according to its terms.

[3] In their summons, the pursuers make the following averments in Article 2 of Condescendence:

"The pursuers are a company specialising in the retail of high-end, luxury designer apparel. In terms of the lease, they are tenants of the subjects and occupy same as a shop selling high-end, luxury designer apparel. The pursuers have occupied the subjects and traded successfully from them in that manner for several years. The pursuers' covenant is prized by landlords such as the original landlords and the defenders, as providing a high quality retail centre point which draws footfall and encourages business in the neighbourhood, and thus increases the value of other units let by such landlords. It was at the time of the pursuers entering into the lease, and remains, important to the pursuers that premises in the immediate locale of the subjects are occupied by businesses which are congruent with that operated by the pursuers. The subjects are located in the heart of the Merchant City area of Glasgow, an important element of which is high end retail such as that offered by the pursuers. At present, the adjacent premises are predominantly occupied by such businesses, including Gant Clothing, Mulberry, Agent Provocateur, Jaeger and Crombie - all of whom are recognised high quality fashion retailers. The pursuers have an ongoing interest in seeing that premises in the immediate locale are only occupied by high quality fashion retailers. The value to them of the lease which they have with the defenders is enhanced by the fact that neighbouring premises are occupied by similar businesses to theirs, thereby creating a high-end fashion retail 'area' within the Merchant City itself. Since the inception of the lease the pursuers have enjoyed undertakings from the landlords thereof from time to time, requiring that Unit G6 of the Commercial Units as defined in the lease, which Unit is adjacent to the subjects, will only be let to high quality fashion retailers approved in advance by the pursuers. Such an undertaking was a precondition of the pursuers' agreement to let the premises in the first instance. The Undertakings granted to the pursuers since the outset of the lease have referred to 'Unit 6, situated to the north of that one of the Commercial Units let as at the date hereof to All Saints Retail Ltd'. That Unit is in fact, in terms of the lease, Unit 'G6' and could reasonably have been understood by all parties as being such. Unit G6 lies to the north of premises which were, until recently, let by All Saints Retail Ltd. Unit G6 has not as yet been let by the defenders or their predecessors to any party."

In Article 4 of Condescendence, the pursuers aver that the lease will endure until August 2017.

[4] The pursuers complain that the defenders propose to let Unit G6 to a hairdressing business known as John Quinn Salons Limited ("JQS"). They say that in terms of the Back Letter the defenders required their approval to such a letting. The defenders initially sought their approval but now propose to let the unit to JQS notwithstanding that they have not obtained it. The pursuers go on to aver that JQS was only incorporated in October 2010 and has no track record. Mr John Quinn, who appears to be behind JQS, has operated a hairdressing salon in the south side of Glasgow for some time, but that salon has not at any time been associated with or operated adjacent to high quality fashion retail outlets such as that operated by the pursuers. They are not, they say, high quality fashion retailers. In those circumstances the pursuers' refusal of approval is reasonable.

[5] In support of the motion, Mr Dunlop QC submitted that he had to satisfy the court on two matters: (a) that the pursuers had a prima facie case; and (b) that the balance of convenience favoured interdict. I accept that as a general proposition, subject to the caveat that that expression now falls to be understood in light of the decision of the Inner House in Gillespie v Toondale Ltd 2006 SC 304. Though that case was concerned with inhibition on the dependence, I agree with Lord Brodie that what was said there about prima facie case is applicable to applications for interim interdict: Cowan v Royal Bank of Scotland plc [2011] CSOH 85 at para.[11]. Further, it has long been recognised that in assessing the balance of convenience, a Scottish Court will have regard to the relative strength of the cases put forward by each party at the interlocutory stage as one of the many factors going to make up the balance of convenience: see per Lord Fraser of Tullybelton in NWL Limited v Woods [1979] 1 WLR 1294 at p.1310, a passage approved and applied in Boehringer Ingelheim GmbH v Munro Medical Supplies Limited 2004 SC 468, with the caveat that it is not possible nor appropriate at an interim stage to weigh in a fine balance the respective strength of the parties' cases; so that the merits of the parties' cases is only likely to affect the balance of convenience where it can be seen at the interim stage that one party or the other is very likely to succeed at the end of the day: per Lord Hamilton at para.[16].

[6] Dealing with the question of prima facie case, Mr Dunlop said that it was not in dispute that the defenders had given the undertaking in the Back Letter and that they intended to let the Unit to JQS as the first tenant of that unit. In their Defences lodged prior to the hearing of the motion for interdict, the defenders accepted that JQS was not a high quality fashion retailer, and there was no suggestion that the pursuers had approved JQS. There was therefore a "near certainty" that unless restrained by interdict the defenders would let the Unit to a party not approved in advance by the pursuers. Accordingly, he submitted, that the pursuers had a clear prima facie case unless either (i) the defenders did not need the approval of the pursuers, or (ii) such approval was being unreasonably withheld.

[7] As to the first of those points, the argument that the defenders did not need the approval of the pursuers, Mr Dunlop submitted that the objective purpose of the undertaking was to afford the pursuers a "reasonable veto" regarding tenants of the unit which remained unlet. The defenders' argument appeared to be that JQS were not "retailers", and that a proposal to let the Unit to them was unaffected by the undertaking in the Back Letter. In answer to that, the pursuers offered to prove that the business of JQS could reasonably be described as a retail business; see Article 5 of Condescendence in which the pursuers aver that JQS, if permitted to operate from Unit G6, would operate a retail business which sold to the general public hairdressing products and hairdressing services. Further, Mr Dunlop submitted that a reading of the undertaking which would permit the defenders to let the Unit to anyone, provided that they did not sell goods, would not accord with the reasonable expectations of honest, sensible businessmen having regard to the context in which the undertaking was given.

[8] I was referred by both parties to certain parts of the Lease. In Part I of the Schedule to the Lease, the leased subjects (i.e. the subjects leased to the pursuers) are described as

"ALL and WHOLE those retail premises on ground and basement floors known as Unit G1, Ingram Street, Glasgow ... as such premises are shown etched in red on the Plan Nos. 1 and 2 annexed and executed as relative to the foregoing Lease ...

...

Which premises are part of larger subjects on ground and basement floors comprising a range of Commercial Units at Ingram Street aforesaid shown edged blue on said Plan Nos. 1 and 2 (which larger subjects are, both in this Schedule and the foregoing Lease, called the 'Commercial Units') and which Commercial Units are part and portion of the subjects (herein called "the Building") now or formally known as 194 Ingram Street, Glasgow ...."

Plan I showed a layout of the ground floor. In that Plan, Units G1-G7 are all shown with the word "Retail" against them. Plan II shows the layout of the basement.

[9] Part V of the Schedule to the Lease sets out the Tenants' Obligations under the Lease. Clause (THIRTEEN) deals with Permitted user. In terms of that Clause the tenant is not to use the lease subjects or any part thereof, or permit it to be used,

"except as retail premises for the sale of fashion clothes together with fashion accessories, footwear, watches, jewellery, home furnishings and associated products and purposes (including a café for the customers of the tenants) with ancillary staff, stockrooms and offices or for such other purposes as shall have been approved in writing by the Landlords, such approval not to be unreasonably withheld or delayed in the case of a use falling within Class 1A of the Schedule to the Town and Country Planning (Use Classes) (Scotland) Order 1997 ..."

Class 1(a) of that Schedule to the 1997 Order relates to use "for the retail sale of goods other than hot food". Construed in light of this, Clause (THIRTEEN) permits the tenants (i.e. the pursuers) to use their premises for a restricted type of retail business or, with the approval of the landlords not to be unreasonably withheld, to a wider description of retail business - though the landlords were entitled, in their absolute discretion, to permit any kind of use (including non-retail use) of the premises if the tenants so desired.

[10] Mr Dunlop submitted that the Court should have regard to what was, objectively, the purpose of the undertaking in the Back Letter. High fashion brands tended to cluster. Their proximity to high-end fashion retailers gave them cachet and helped them attract customers. If what he described as the "purely literal approach" adopted by the defenders were to prevail, absurd consequences would follow. He urged me to construe the undertaking in a commercially sensible way. He referred to the decision of the Supreme Court in Multi-Link Leisure Developments Limited v North Lanarkshire Council 2011 SLT 184 at para [21].

[11] In opposing the motion for interdict, Mr Lake QC, for the defender submitted that the pursuers had not pled even a relevant case for any restriction on a letting to JQS. The undertaking related to the first letting of the only one of the Commercial Units (Unit 6) not already to have been let. The undertaking was not to grant a first letting of that unit to "retailers other than high quality fashion retailers as are approved by you ..." The pursuers' argument effectively ignored the fact that the undertaking concerned lettings to retailers. In terms of Part I of the Schedule to the Lease, retail units were a subset of Commercial Units. The Lease to the pursuers limited the pursuers' use of Unit G1 to retail use, subject to the consent of the landlords to some wider use. But in the Lease the landlords offered the pursuers no undertaking to keep other units for retail use. Nor did they do so in the Back Letter. In the undertaking in the Back Letter, the distinction between the expressions "Commercial Units" and "retailers" was clearly recognised. The pursuers sought to innovate on the terms of the Lease. There was no material before the Court to show that the objective intention of the parties was to limit the use of this particular Commercial Unit to high quality retailers. Mr Lake referred me to a number of well known authorities - including Prenn v Simmonds [1971] I WLR 1381 at 1384H-1385H, Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896 at 913B-E and Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251 at 259 - to emphasise that the intention of the parties was normally to be found in the words which they had used.

[12] I have to confess that initially I was attracted to the pursuers' argument. But that was because I too had paid insufficient attention to the fact that the undertaking concerned lettings to retailers. Having considered the matter in light of Mr Lake's careful submissions, I am persuaded that my first impression was wrong. In my opinion the terms of the undertaking are clear. The defenders bind themselves not to grant a first letting of Unit G6 to retailers other than high quality fashion retailers as approved by the pursuers. They do not restrict themselves in any way concerning the grant of a first letting to non-retailers. The pursuers' argument pays scant regard to the word "retailers" in that undertaking.

[13] Mr Dunlop sought to justify his construction by reference to what he described as the commercial purpose of the undertaking, and the absurdity, as the pursuers conceived it, that would result if the defenders' construction were correct. Such an approach is legitimate where the commercial purpose of the agreement can be clearly established. I accept that it is permissible to do some slight violence to the language of a clause in a contract where a literal construction would defeat what is objectively the intention of the parties to it (see e.g. Aberdeen City Council v Stewart Milne Group Ltd [2010] CSIH 81 at para.[12]). However, I see no basis for applying that approach in the present case. In my opinion Mr Lake is correct in saying that nothing has been laid before the court to show that the parties must be taken to have intended a restriction on all lettings other than to high quality fashion retailers. There are neither averments nor evidence to the effect that a high quality fashion retailer such as the pursuers claim to be would consider themselves prejudiced by the letting of a neighbouring Unit to, for example, a restaurant or café. Had they wanted to prevent such a letting, or at least to have a qualified right of veto over it, it would have been easy to address that issue in the undertaking.

[14] It has to be borne in mind that the Lease itself does not impose any restriction on the right of the landlords to let other Units. Nothing as between the pursuers and the defenders, either in the Lease or the Back Letter, prevents the defenders from letting Units to non-retailing businesses, whether at the high fashion end of the market or much lower down the scale. The reference to "Retailers" in the floor plan in Plan I scheduled to the Lease is no more than descriptive of the type of unit then contemplated. It does not impose any restriction on use of any Unit. The pursuers may well have had in mind that the other Units would be let out on similar terms to their own, but in that event they would have been aware that the landlords were entitled to give permission to other tenants of other Units to use their Units for non-retail business. Further, the restriction only applies to the first letting of Unit G6. The defenders are perfectly free, even if the undertaking were to be construed as an undertaking not to grant a first letting to anyone other than a high quality fashion retailer, to grant a short first letting and then follow it with a letting to someone else carrying on a different business.

[15] I should add that despite Mr Dunlop's able argument, it seemed to me to be well nigh impossible to describe a hair dressing salon as a retailer. It may well sell hair and beauty treatments, but this is merely an adjunct of its main business which is the provision of hair dressing services. As it is not a retailer, there is no requirement for the pursuers' approval.

[16] Looking at the undertaking as a whole, in light of the averments made by the parties, and having heard submissions by counsel for an against the motion for interdict, I have come to the conclusion that, although the pursuers' case may be described as "stateable" (few cases are not), when taken alongside the arguments advanced by the defenders it does not amount to a prima facie case in the sense referred to above; and it is certainly not a case which has a strong prospect of success at the end of the day.

[17] In those circumstances I came to the view that I should not grant the interim interdict sought so as to prevent the defenders letting Unit G6 to JQS.

[18] Having reached that conclusion, I did not hear Mr Lake fully on the other matters. I understood it to be conceded by Mr Lake that if the pursuers' construction of the undertaking was correct, so that the defenders were not entitled to grant a first letting of Unit 6G to anyone other than a high quality fashion retailer approved by the pursuers, it would be difficult, if not impossible, for the defenders to say that that approval was being "unreasonably withheld or delayed". Mr Lake did, however, wish to argue that even if the pursuers were correct on the question of construction, the balance of convenience did not favour the grant of interdict. My initial view, as I told Mr Dunlop, was that if he was right on the clause then the balance of convenience would almost inevitably favour the grant of interdict; but not having heard Mr Lake on this aspect, and in anticipation of an argument relating to the fact that the Unit has been unoccupied for nearly 10 years, it would not be right for me to express any concluded view on the point.

[19] For these reasons I refused the motion for interim interdict. I granted the pursuers leave to reclaim my decision.