Scottish Sheriff Court Decisions

SHERIFFDOM OF LOTHIAN AND BORDERS AT EDINBURGH

 

A1003/08

JUDGMENT   of   SHERIFF M G O'GRADY, QC   in causa   MRS WING WAI MA or CHOI   Pursuer;   against   HENRY TSE & CO LIMITED and OTHERS   Defenders:   __________

 

 

 

 

 

EDINBURGH, February 2009

The sheriff having resumed consideration of the cause dismisses the first and second craves for the pursuer; refuses to admit to probation articles 4 and 5 of condescendence; to this extent sustains the first plea-in-law for the first and second defenders; allows parties a proof before answer of their respective remaining averments; reserves meantime all question of expenses.

 

 

NOTE:

This action called before me for debate on first and second defenders' preliminary pleas. Mr Sandison, counsel for the first and second defenders moved me to refuse to admit condescendences 4 and 5 to probation and to grant decree of dismissal in favour of the first and second defenders of the pursuer's first and second craves and thereby to that extent sustain the first plea-in-law of the first and second defenders.

 

Submissions for first and second defenders

The action insofar as it relates to Irritancy proceeds upon the basis of the lease entered into by the parties which now forms No.5/1/3 of process. The relevant terms of the lease for the purposes of the defenders' argument is Clause 9.1 (page 34 thereof); only subsection (a) is relevant for this purpose.

I was reminded by Mr Sandison the breach relied upon by the pursuer was a remediable breach, that is to say, it is a right to intimate termination but not an entitlement to so terminate unless a Notice is first given in the prescribed form.

Service of the notice is governed by the related provision set out in Clause 9.8 of the lease. In terms thereof the deemed time of service is 48 hours after the date of posting. In addition to the terms of the lease itself, Mr Sandison argued that the lease is also bound to comply with statute, namely, section 4 of the Law Reform (Miscellaneous Provisions) (Scotland) Act, 1985. Only subsection 2 of that section was relevant for the purposes of the argument. The period provided for by the statute in relation to the present action is subsection (3)(b). As applied to the present dispute, the statute in effect provides for the 28 days set out in the parties' lease.

It is accepted by Mr Sandison that in the present case the rent was indeed in arrears to the extent of £27,000 and, further, there was no dispute as to the date the notice was posted, namely 4 February 2008. There is no dispute between the parties that as at that date the landlord was entitled to serve a Notice in terms of the agreement. But in serving the Notice the pursuer was obliged to comply with both the terms of the lease as agreed between parties and the provisions of section 4 of the 1985 Act. Taking those obligations together, the note required to convey that payment had to be made by midnight on 5 March 2008, that is to say 28 days after the date upon which the note is deemed to be served by the operation of Clause 9.8 of the lease. The defenders' argument therefore - and the dispute between the parties in this respect - centred on whether the Notice of 4 February adequately conveyed this message to the defenders. In the defenders' submission there was no such adequate communication.

The starting point for the argument was that service of the Notice, being a unilateral action by one party and being a step which is capable of bringing about a significant change, requires strictly to conform to the contractual and statutory provisions which govern it.

I was referred to the case of Scrabster Harbour Trust v Mowlem PLC, 2006 SC 469. I do not rehearse the facts of that case, but I was referred to paragraph 47 of the judgment where the Court held that "where a contract gives one party the right unilaterally to bring the contractual relationship to an end, or to alter it in some way, then that party must, if he chooses to exercise that right, comply with the agreed conditions for its exercise. If strict compliance with a particular condition is called for, then strict compliance will be enforced".

I was further referred to the case of Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd 1997 AC 749. In terms of its facts (which again I do not rehearse) this was said to be closer to the present case in that it dealt with the notices. Mr Sandison argued that there were essentially two views expressed by the Court in Mannai. The minority view was that "strict meant strict" and one simply asked whether the information was or was not in the Notice. That view proceeded upon the basis that the required information was bound to be contained in the Notice, regardless of whether a reasonable person could deduce the information. By contrast, the second view of the Court was to the effect that the test to be applied was what a "reasonable recipient" would have made of the Notice. The Notice would only be regarded as non-compliant if a reasonable person could not have misunderstood it.

Mr Sandison argued that the first question to be established in the present case is - which of the two approaches applies?

It was argued that in the present case the contract does prescribe specific information which the Notice must contain, in that the tenant had 28 days from the service of the Notice to pay the arrears; the Notice has to be specific as an indispensable condition. The message required by the Notice was the tenant had 28 days to pay, service having been deemed to take place 48 hours after posting, that is to say 6 February, and that the tenant therefore had until the last moment of 5 March to pay.

I was referred to the terms of the Notice No.5/1/1 of process. It was pointed out that the only date on the face of the Notice was 4 February 2008. The Notice states:

"You require to make full payment of the said sum with interest thereon at the rate of four per centum per annum .....until payment".

This, Mr Sandison argued, was a problematic sentence. The only date on the face of the Notice is 4 February 2008. 28 days from that date is the last moment of 3 March 2008. In fact, the tenant had another 48 hours till the last moment of 5 March to pay taking the "strict view" set out in Mennai. Mr Sandison argued that his primary submission is that the Notice, to be valid, required to convey that accurate information, whereas in fact it is conveyed the message that the tenants had 28 days from 4 March; the Notice had in fact conveyed the wrong message, a message which was wrong in terms of both contract and law. It failed because "the key did not fit the lock".

Mr Sandison then proceeded to an esto position, that is that even if the present case did not fall within the "strict" category and fell within the "reasonable recipient" category, the Notice did not meet even the criteria for the latter. I was referred once again to the terms of Mannai. It was argued that even on the more liberal interpretation of the situation, the Notice had to be sufficiently clear to leave the reasonable recipient in "no doubt" of the right to be exercised. The Notice required to give the information about how and when the right was being exercised "unambiguously". Mr Sandison argued that this was not so radically different from the strict test and was still a high hurdle for the Notice to clear. Their Lordships who adhered to this view held that the recipient "cannot be misled" by what the Notice says. Reference was made in the judgment to the cases of Carradine and also Delta Vale Properties Ltd. The net result of this was, according to Mr Sandison, that if a reasonable man might not understand the message conveyed by the Notice, then it fails even the "reasonable recipient" test. Whatever the divergent views of their Lordships in Mannai, each judge makes it clear that the test is that a reasonable man cannot be misled. Accordingly, the defenders say that even applying the "reasonable recipient" test (their esto position) then the Notice fails to convey the message adequately. All that the Notice said was that the tenants had 28 days "from this Notice", that is to say 4 February. In the circumstances the recipients might well have concluded that they had to pay within 28 days. It was not, according to this argument, necessary for the defenders to say that a reasonable person would have reached that conclusion; only that a reasonable person could have reached that view. That according to the defenders was all they required to show. The test was not what the recipient might have understood - it is whether he could have been misled.

Accordingly, on either test Mr Sandison argued that the Notice failed to meet what was required to terminate the lease. The declarator of irritancy sought by the pursuer could not be granted.

I was invited to dismiss the first and second craves of the pursuer and to refuse to admit to probation Articles 4 and 5 of condescendence. I was further invited to sustain the first pleas-in-law for the first and second defenders.

Submissions for pursuer

Mr Weir for the pursuer sought, without opposition, to amend the pursuer's first plea-in-law. He asserted that the parties were at one in that I could without probation deal with the question of whether irritancy was achieved by the Notice. As far as the remaining monetary craves were concerned those would require a proof before answer. He understood this position to be uncontroversial.

Mr Weir began by arguing that the defenders' submissions proceeded upon the premise that they were correct in their analysis of the provision of the lease and statute and that the message to be conveyed by the Notice was that when the 28 day period did run until midnight on 5 March 2008. It was central to the defenders' argument to assume that the effect of the lease and the statute was that the 28 day period fell to run from the date of deemed service, that is from 6 February. For that proposition to be substantiated regard had to be had to the provisions of Clause 9.1 of the lease and section 4 of the Act; because a different conclusion may fall to be reached in the interpretation of these provisions.

I was referred again to the terms of Clause 9.1.

Mr Weir asserted that the primary right of the landlord if the failure to pay rent for a period of 28 days after the due date entitles the landlord to terminate "forthwith". Accordingly, in principle, the pursuer's entitlement was to irritate if no rent was paid by 29 February 2008. It was of course accepted that there was a proviso to give notice of breach. Mr Weir however submitted that "breach" raised a failure to pay rent in terms of the lease on the due date. The provision is to the effect that the Notice must give a period and declare a time within which it is to be remedied and the time is not less than 28 days. Mr Weir however urged me to bear in mind that Clause 9.1 provided for a right of immediate termination. According to him, this begs the important question - from what time do we date the reasonable period which falls to be given? Do we (as the defenders say) date it from the period when the Notice is deemed to be served? Or is it proper to interpret the provisions meaning that a reasonable time is not less than 28 days from the date of the breach? Mr Weir argued that, on his interpretation, the starting point is the failure to pay the rent on 1 February. His submission was that there is no reason to read into Clause 9.1 such words as "from the date of Notice" because that is not what the lease says. One needs to look elsewhere for the correct construction.

One source of construction is of course the terms of the 1985 Act. It is argued that subsections (3)(a) and (b) are equally important. (a) provides a statutory minimum period of time and (b) provides a greater period. In other words, subsection 3 contemplates two possibilities; firstly, a statutory minimum period of 14 days commencing on date of deemed service and secondly, a different (or longer) period that being referable to the amount of time that remains between service and expiry of any terms provided for in the lease. The lease prescribes 28 days as a reasonable time. Significantly, it does not provide the 28 days from the deemed service of the Notice. However, Mr Weir argued that 28 days must of course be referable to something. If however one bears in mind that it refers to non-payment then it is reasonable to interpret the term as meaning that the 28 days runs from the date of the breach. Subsection 3 of the Act therefore uses the word "remaining" because it does indeed contemplate the possibility - as here - that there can be running a period of time which at the date of service still has some way to run. Not only that, but it contemplates a period of more than 14 days from the date of deemed service of the Notice.

Broadly put, Mr Weir's position could be summarised as follows. In this case 14 days from the deemed date of service was 20 February. The lease makes provision for payment within 28 days of the breach, that is to say 29 February. The Notice dated 4 February (deemed served on the 6^th) provides for a statutory minimum of 20 February to remedy the breach. However, because of the terms of Clause 9.1 it is necessary to apply the terms of section 4(3)(b) such that a greater period is permitted and it is open to a "generous" landlord to offer more than the basic minimum. Therefore if one takes 4 February as the starting point then the tenants have until 3 March to remedy the breach. In short, there would have been nothing wrong if the Notice had provided the tenant had 28 days from the breach to remedy the situation. Such Notice would have been well within the terms of the lease and the Act but, in fact, by making the period referable to the Notice itself the landlord gave more Notice than was provided for.

Mr Weir conceded that one possible criticism of the approach which he suggested is that it would be open to a landlord to wait 27 days and simply hand over the Notice backdated to the date of breach, but that could not happen precisely because of the terms of the Act which provides for the minimum of 14 days. That provision would provide protection against such an approach.

Essentially, all this meant that the tenant had 28 days from the breach to pay and avoid termination in terms of Clause 9.1 but as a matter of fact in terms of the Notice given the tenant was afforded more time.

This, according to Mr Weir, raises the question - does all of that suffer at the hands of Clause 9.8? That Clause makes provision for the details of Notice and service but, it was argued, it is all about nothing more than providing a mechanism whereby in a situation where a Notice is served by recorded delivery the tenant cannot turn round and say that he did not get it or know anything about it. It has some importance in this sense, that in terms of setting a minimum period of Notice it makes reference to service of that Notice. That is unsurprising. It is providing a mechanism by which the period can be calculated. In terms of (b) reference is made to service in the context of providing a mechanism by which the period remaining (in terms of the lease) falls to be calculated; that is to say, one obviously requires a starting point to calculate the period. But in relation to 4(3)(b) it does not say that the period (whatever it may be) must start on the date of deemed service of the Notice.

If the Court accepts that 28 days runs from the date of the breach, then Notice served fell within the terms of the lease, which terms the tenants would be deemed to have known. Further, and importantly, the Notice falls within the terms of the 1985 Act in the sense that nothing in it does anything contrary to the legislation.

As for the interpretation of the Notice itself, Mr Weir doubted there was much between the parties as to what one could draw from the case of Mannai. Whether one characterises the position as "strict" or "reasonable" does not matter. This is because the Notice is clear in that it conferred on the tenant a period of 28 days from 4 February, and this is plain from the words at paragraph 3 of the Notice. It makes reference to the sum outstanding, and stipulates payment must follow within 28 days. Mr Weir argues that there is no room to search for ambiguity in the Notice. This in his submission is a matter of "natural construction". It is the obvious construction and we do not need to worry about the interpretation of a "reasonable recipient". Even if the test is one of the "reasonable recipient", Mr Weir argued that test is net.

In Mr Weir's submission, the Notice was good, remains good and is effective as a Notice. Therefore, subject to any issue of waiver, it will found the basis for irritancy to be effective.

In saying that, Mr Weir suspected that the defender would ask, what happens if that argument is correct because the defender maintains waiver. Mr Weir was of the view that the Court could not grant decree in terms of craves 1 and 2 until the question of waiver was settled. He therefore invited me to sustain the second preliminary plea for the pursuer to the extent of excluding from probation the averments from page 10 starting from "the Notice of intention to irritate" in line 9 up to the words "upon that Notice" at page 13 (before esto) that in his submission the appropriate course.

Defenders' reply

Mr Sandison observed that the clear difference in approach between the pursuer and the defenders was in the former case the proposition is that the "reasonable period" dates from the breach, whereas in the latter case it is said to be the date of the Notice. He reminded me that the pursuer comes before the Court seeking declarator of irritancy and to succeed the pursuer needs to demonstrate that she had a right to do what she did, that is to say, the onus is on her to show that the lease justifies the construction that the period commences with the breach. The difficulty for the pursuer is that the lease says no such thing. Even the pursuer did not say that it did. Mr Weir had simply invited me to infer this. In looking at the terms of the lease what requires to be read into the provision is the time for remedy of the breach. All of this occurs in the context of the landlord not being entitled to irritate unless he "first has given notice etc" prescribing a time for remedy of not less than 28 days. The inference from that is that the starting point for the 28 days is in the words of the lease when "notice has been given". Otherwise what is the point of giving Notice of not less than 28 days when up to half of it (14 days) might have expired? There is, in the defenders' submission, nothing in the lease to suggest that "a reasonable period" runs from the date of the breach. It would make no sense to give a "reasonable time" for such remedy such when up to half of that period may have expired. The only reasonable inference is that the time runs from the Notice not from the breach; it makes no commercial sense to say otherwise. Mr Sandison invited me to take the view that the natural reading of the lease is that the requisite period flows from the date of the giving of Notice and not the date of the breach and it is for the pursuer to prove the contrary.

Secondly, Mr Sandison argued that even if he was wrong in his first submission, this leaves open the question as to whether the reasonable recipient of the Notice would appreciate that he was being offered until the last moment of 5 March and not 3 March to make payment. That is a core question. Did the Notice adequately convey that he had until 5 March? The Delta test makes that abundantly clear. Even leaving aside all other arguments, this is a fundamental point. The Notice was served by recorded delivery and accordingly Clause 9.8 definitely applies and the deemed date of service was 6 February. As a matter of fact, the Notice only refers to 28 days from 4 February. So leaving aside any additional argument, the note on its own terms does not pass the Delta test. Accordingly, even if the pursuer's primary position was correct, his argument fails.

Decision
Having had the benefit of parties' helpful and careful submissions in relation to this matter I am satisfied that I should uphold the argument for the first and second defenders and to that extent sustain their first plea-in-law. I am of the view that whichever of the two tests is applicable - whether it be the strict view or the reasonable recipient test - the notice served by the pursuer neither contains the information it is obliged to (by the terms of the lease and by statute) nor does it avoid the very real risk of that a reasonable person could not have misunderstood it. The information which it was required to convey was that payment had to be made by midnight on 5 March, 2008, that is to say 28 days after the date upon which the Note is deemed to have been served by the operations clause 9.8 release. I do not accept the pursuer's argument that the proper interpretation of the provisions mean that a reasonable time is not less than 28 days from the breach. The starting point is not, in my view, the failure to pay rent on 1 February.

For these reasons I have pronounced the interlocutor in these terms and I have reserved the question of expenses.