Scottish Court of Session Decisions

The Corporation of Glasgow on 24th March 1900, acting under powers conferred upon them by the Glasgow Corporation and General Powers Act 1897, served upon Mrs Mary Lynch, wine and spirit merchant, 263 High Street, Glasgow, a notice to treat under the Lands Clauses (Scotland) Act 1845 (which is incorporated by the Glasgow Act of 1897). The notice set forth that the premises at 263 High Street, of which Mrs Lynch was tenant under a lease for five years, which expired at Whitsunday 1903, were about to be acquired by the Corporation under their compulsory powers, and required from Mrs Lynch “the particulars of your interest in the subjects so required and to be taken and used as aforesaid, and of the claim made by you in respect of the same,” and intimated “that the Corporation are now ready and willing to treat and agree with you for the purchase of your interest therein, and as to the amount of compensation to be paid to you in respect thereof.”

Mrs Lynch stated her claim “for goodwill, right of licence, fixtures, and fittings,” at £5000.

The Corporation having refused to acquiesce in this claim, both parties nominated arbiters. The terms of the nomination of arbiters are quoted in the opinion of the Lord Ordinary, infra.

The arbiters appointed Mr David Dundas, K.C., as oversman.

Evidence having been led, Mr Dundas pronounced the following alternative findings—“(a) Upon the assumption that such compensation must in law be assessed solely upon the basis of the claimant's interest in the business and premises during the unexpired portion of the said lease, and upon the assumption that her interest must terminate at Whitsunday 1903, when the said lease would naturally expire—Eight hundred pounds (£800); or otherwise and alternatively ( b) upon the assumption that in assessing said compensation, it is proper to include compensation representing the value in money of such expectation as the tenant reasonably had at the date of the notice served upon her by the Corporation of obtaining a renewal of the said lease after the said term of Whitsunday 1903—Sixteen hundred pounds (£1600).”

Note.—[After stating the terms of the reference]—“A question of considerable interest was argued by the counsel for the parties, the determination of which lies at the root of the matter.

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“It was urged by the counsel for the Corporation that in assessing compensation no regard must be had to the chance or expectation, whatever it was, of the claimant that her lease might in ordinary course and apart from the intervention of the Corporation have been renewed, and her occupation have been continued for an indefinite period. The subject-matter of the compensation must, it was argued, be strictly limited to the fair value of the tenant's enjoyment of the shop and business during the unexpired period of the lease, i.e., till Whitsunday 1903. On the other hand, the claimant's counsel urged that the question for arbitration was the value of the claimant's business to her as it stood at the date of the notice, including as an element for valuation the contingency of a renewal of her tenancy upon the expiry of the then current lease.

There is not, so far as I am aware, any direct authority upon the point. A number of English cases were cited—[ Ex pte. Farlow (1831), 2 B. and A. 341, 36 Rev. Rep. 580, and Ex pte. Wright, 2 B. and A. 348, 36 Rev. Rep. 586 ( Hungerford Market cases); Rex v. Liverpool Railway Co., 1836, 4 A. and E. 650, 43 Rev. Rep. 454; Nadin, 1848, 17 L.J. Chan. 421]—but they seem to me to have depended upon special considerations and the construction of clauses in special Acts of Parliament. The Scots case of City of Glasgow Union Railway Co., 1870, 8 Macph. 747, 7 S.L.R. 426, came very near to deciding, but I think just missed deciding, the point here raised (see per Lord President, 7 S.L.R., at p. 427—‘There are really some nice points in this case, but it just falls short of raising them’). In Fleming ( 23 R. 98) the Court held that the arbiter's duty was to value the contingency of a lease being terminated at a break, but no question arose as to the possible renewal of the lease after its natural term expired. The views stated in English text-books—[Cripps, 4th ed., p. 104, Balfour Browne, p. 113]—seem to be rather adverse to the contention of the claimant, but they are based upon the English cases above referred to.

I think therefore that the question is still an open one, and that I am free to consider it apart from any decision of the Court, Scots or English.

My opinion is in favour of the view that in the case of a lessee, especially of a lessee of premises licensed for a public-house, which is a peculiar business in many respects, it is the duty of an arbiter to take into account in assessing compensation the whole conditions under which the tenant stood at the date of the notice, and to include in the compensation to be awarded money value for the contingency of a renewed period of tenancy.

It is, I think, settled law that a claimant is not to be prejudiced by the fact that, owing to the action of the promoters in compulsorily acquiring the property with a view to its demolition, it has become certain that the lease would not and could not have been continued or renewed. This conclusion is, in my opinion, deducible from Fleming's case ( 23 R. 98), and from some of the English cases to which I was referred. See Dumbarton Water Commissioners, 12 R. 115, per Lord President, at p. 120.

But as the question raised and argued is not without difficulty, it appears to me that the proper course is to issue alternative findings, so as to leave it open to the Court to decide the question of law, and to avoid, if possible, any risk of the award being set aside upon the ground that it contained money value in respect of interests or contingencies which do not form the subject of legal compensation.

I propose, therefore, to issue my award upon the alternative basis indicated in the foregoing findings.”

Mrs Lynch raised the present action against the Corporation concluding for declarator “that in the circumstances of the present case the pursuer is entitled, as against the defenders, to compensation for the expectation she reasonably had at the date of the notice to treat condescended on of continuing to occupy the licensed premises situated at No. 263 High Street, Glasgow, as tenant thereof beyond the duration of the lease she held at the date of said notice to treat.”

The action also contained alternative conclusions for payment of £1600 and of £800.

With respect to her interest in the subjects, the pursuer made the following averments (which were in substance admitted):—“(Cond. 2) The pursuer tenanted the said premises at 263 High Street, Glasgow, under a lease dated 2nd and 4th March 1898, granted by Gossman & Smith, house factors, Glasgow, on behalf of the then proprietors, for a period of five years from the term of Whitsunday 1898. The pursuer had occupied the said premises for nearly ten years prior to Whitsunday 1898. … (Cond. 3) The premises occupied by the pursuer consisted of a large shop with cellar attached, and fitted with the usual fittings of the trade. It was situated in a busy locality, and the business carried on by her was a profitable one. The defenders, through the magistrates of the city, who are the licensing authorities, had suppressed several licences in the immediate neighbourhood before the date of said notice to treat, and had thus increased the value of the pursuer's business. But for the intervention of the defenders under their statutory powers, the pursuer would have been allowed to occupy said premises and carry on her said business therein during the rest of her life. In the arbitration proceedings after mentioned her landlords appeared, by their law-agent, and stated that he believed the pursuer was a good tenant, and that but for the acquisition of the property by the Corporation the proprietors would in all probability have continued her tenancy.”

The Lands Clauses (Scotland) Act 1845 enacts (sec. 17)—“When the promoters of the undertaking shall require to purchase any of the lands which by this or the special Act, or any Act incorporated therewith,

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they are authorised to purchase or take, they shall give notice thereof to all the parties interested in such lands … and by such notice shall demand from such parties the particulars of their interests in such lands, and of the claims made by them in respect thereof, and every such notice shall state particulars of the lands so required, and that the promoters of the undertaking are willing to treat for the purchase thereof, and as to the compensation to be made to all parties for the damage that may be sustained by them by reason of the execution of the works.”

The City of Glasgow Corporation Improvement and General Powers Act 1897 enacts (sec. 3)—“The Lands Clauses Acts are (except where expressly varied by this Act) incorporated with and form part of the same.” Section 9—“Whenever the compensation payable in respect of any lands, or of any interest in any lands, proposed to be taken compulsorily in pursuance of this part of this Act … requires to be assessed, the estimate of the value of such lands or interests shall be based upon the fair market value, as estimated at the time of the valuation being made, of such lands and of the several interests in such lands, due regard being had to the nature and the condition of the property.”

On 12th March 1903 the Lord Ordinary ( Pearson) pronounced the following interlocutor:—“Finds with regard to the decree-arbitral, pronounced by the oversman in the reference between the pursuer and the defenders that the oversman was entitled in fixing and determining the compensation which the pursuer is entitled to receive from the defenders in full of her claim for compensation in respect of her interest in the lease, goodwill, right of licence, fixtures and fittings, all therein mentioned, to include compensation representing the value in money of such expectation as the pursuer reasonably had, at the date of the notice served upon her by the defender, of obtaining a renewal of her lease after the term of Whitsunday 1903: Finds that on this footing the amount ascertained by the said decree-arbitral, which is dated 24th May 1901, to be due by the defenders to the pursuer is one thousand six hundred pounds: Therefore decerns and ordains the defenders to make payment to the pursuer of the said sum of one thousand six hundred pounds.”

“ Opinion.—The pursuer carried on until May 1900 the business of wine and spirit merchant in licensed premises at 263 High Street, Glasgow. She was at that time tenant of the premises under a lease for five years, which expired at Whitsunday 1903. She avers, and it is not disputed, that she had occupied the premises for nearly ten years prior to Whitsunday 1898, and that she had purchased the good will, fittings, and stock of the business from the previous holder of the licence.

The defenders in the course of executing certain statutory improvements, served her with a notice to treat, dated 24th March 1900, requiring from her the particulars of her interest in the subjects therein mentioned, namely, ‘the spirit shop and pertinents situated at 263 High Street.’ It appears from the narative of the documents after mentioned that the pursuer thereupon lodged a statement of her claim (which has not been produced) claiming a sum of £5000. The Corporation declined to pay the amount claimed, and tendered a smaller sum; whereupon the parties respectively named arbiters to try the question of disputed compensation. On the documents the dispute appears to be rather as to the amount to be paid than as to the scope or terms of the reference. These terms may admit of construction; but whatever their true construction may be, the respective nominations of arbiters appear to me to express the agreement of parties as to the scope of the arbitration. Of course the governing document, so far as regards the scope of the contract to take land, is the notice to treat. But the ingredients of the claim for compensation may be matter of dispute, even where the subject to be taken is clearly identified, and where they are set out in the documents constituting the arbitration, it is a question of construction whether the arbiters in estimating the compensation are entitled to take into account every circumstance which in their view affects the amount to be awarded, or whether any and what limits are imposed upon their powers.

Now the nomination of an arbiter for the pursuer narrates that she had stated her claim, ‘for goodwill, right of licence, fixtures and fittings,’ at £5000, and that the Corporation not having acquiesced in the said claim, it was necessary that the same should be settled by arbitration in terms of the Lands Clauses Act, and she therefore nominated an arbiter on her part ‘for settling said disputed compensation.’ The Corporation in nominating their arbiter narrate that the pursuer ‘claims from’ us in respect of her interest in said lease, goodwill, right of licence, fixtures and ‘fittings the sum of £5000 sterling’; that they refused to pay that sum, but made a tender to her of £1500 ‘in full of her said claim,’ which she had declined to accept; that the question of disputed compensation between the parties fell to be ascertained in terms of the Lands Clauses Act, and that they thereby nominated and appointed the person named to be arbiter on their behalf concerning said matters, and that in terms of the Act. The arbiters having differed, devolved the reference on the oversman; and in order to give parties an opportunity of having the present question decided in a court of law he stated his decree-arbitral alternatively, as set out supra.

The question is, whether a reference in the terms I have quoted warrants the inclusion of a sum representing the value in money of such expectation as the tenant reasonably had, at the date of the notice to treat, of obtaining a renewal of the lease after Whitsunday 1903. I answer that question in the affirmative. I hold that under the expression ‘her interest in the said lease, goodwill, and right of licence,’ it was not beyond the arbiter's competency to take account of the money value of such

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expectation as the pursuer reasonably had of obtaining a renewal of the lease. The inclusion of goodwill and right of licence among the subjects of claim would not of course itself submit them to the arbiters as necessary ingredients in their estimate of the compensation due. The documents which constitute the arbitration must be taken as a whole in order to see what questions both parties have agreed to submit. In this case it appears to me that the documents confer on the arbiters power to go beyond the existing lease, and to assess a sum for the value of goodwill and right of licence on any basis they deem proper if they find it capable of being estimated at all. There is undoubtedly a market for the tenant's interest in a licensed business. It is a thing which is bought and sold every day, and I have no doubt that the chance of getting a current lease renewed, or of the tenant being allowed to remain after its expiry, is an ingredient in the value. I do not say that the oversman was bound to award anything on that head. He might quite possibly have found it incapable of assessment in money. But in the course of a three days' proof evidence was led upon that among other subjects, and there can be no question here that the thing was capable of estimation, because the oversman expressly finds that if this item be taken into account it increases the sum awarded by £800. This precludes the suggestion that this ground of claim is too vague and precarious to be allowed. In some cases it might be so; in this case the oversman finds that it is not.

It was urged by the defenders that this question could not be regarded apart from the owner's compensation, as if any award in favour of the tenant in respect of the period after the expiry of the lease would necessitate a corresponding deduction from the value of the owner's interest. But that is not so, for the supposition that the lease may be renewed assumes that it is for the benefit of both, and this assumption is (as is well known) specially applicable to the case of licensed premises, where a change of tenant affects the chance of a renewal of the licence.

This case was argued by the defenders as if it depended entirely on the terms of the Lands Clauses Act. It is true that the nominations of the arbiters bear to be made in terms of that Act. But the terms of this reference appear to me to go considerably beyond anything contained in the Act, even according to its widest interpretation. The Act itself makes no special provision, and uses no special words, applicable to tenancies for more than a year, except the provisions as to severance in sections 112 and 113, and as to the production of the lease in section 115. The tenants in such leases are simply included among ‘the parties interested in such lands’ referred to in section 17; and that section requires from owners and tenants alike ‘the particulars of their interest in the lands taken, and of the claims made by them in respect thereof.’ The Act has indeed been construed somewhat liberally in practice, in favour of the claims of persons engaged in trade, whether as owners or as tenants, so as to admit claims which are not strictly for compensation for the interest taken, such as loss of business through compulsory removal, expenses of removal, loss on forced realisation of stock, and the like. These, however, have in some cases been allowed under the expression ‘injuriously affected’ occurring in section 6 of the Railways Clauses Act, which I understand not to be applicable here. But in any view there seems to have been no reported case since the Act passed in 1845, in which the chance of the sitting tenant or his successor obtaining a renewal of the lease after its natural expiry has been taken into account in the compensation. It is worthy of note that the Lands Clauses Act does appear to recognise a wider right to compensation in the case of tenants for a year. By section 114 a yearly tenant is entitled to compensation ‘for the value of his unexpired term or interest … and for any loss or injury he may sustain.’ I should suppose that these last words are wide enough to cover such a claim as the one now made. But there are no similar words used in the Act as regards tenants for more than a year. The difficulty in applying the Act to this claim in the absence of some such words is put thus, that the subject of compensation must be an interest in the lands taken, and the pursuer's interest in the lands taken is just the right of occupancy until Whitsunday 1903, the chance of her being allowed to remain undisturbed being of too personal a nature to be included in the expression ‘an interest in land.’ On the other hand, the lessee's interest, which is taken, may accurately be described as a lease, and I cannot doubt that part of the value of the lease of licensed premises to the sitting tenant is the chance of renewal, or of being allowed to remain undisturbed. While the principal Act is not clear upon this matter, it is proper to have regard to a circumstance which was not adverted to in argument, namely, that the Glasgow Improvement Act of 1897, under which I understand the improvement in question to have been authorised, and on which the notice to treat is based, varies the provisions of the Lands Clauses Act in this matter of assessing compensation in respect of any lands or of any interests in any lands proposed to be taken compulsorily. It enacts (section 9, sub-section 1) that ‘the estimate of the value of such lands or interests shall be based upon the fair market value, as estimated at the time of the valuation being made, of such lands and of the several interests in such lands, due regard being had to the nature and the condition of the property.’ It is true that this clause, when read as a whole, seems to have been framed for the protection of the Corporation, but none the less it prescribes a rule for the valuation of the interests in the lands which is stated somewhat more definitely than is done in the Lands Clauses Act. Now, one of the ‘several interests’ in the land here in question is a lease, and the question was, what is its fair market value?

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If that section applies to this case, I am disposed to think that it makes clear what is left ambiguous on the terms of the principal Act, namely, that all circumstances which affect the ‘fair market value’ of the pursuer's interest may be taken into account by the arbiter. It is within his competency to decide whether that interest has a market value, and if so, whether that value varies with the chance of obtaining a renewal, and this is practically what I understand the oversman to have affirmed in his second alternative finding. If the claimant be regarded as holding on to the subjects, it is her chance of getting a renewal that is to be estimated. If she is regarded as selling it, it is the purchaser's chance. Neither course being open to her, owing to the Corporation having taken the subjects, it was for the arbiters and oversman in fixing the fair market value to assess the value of that chance, if it was capable of assessment.

I have looked carefully into the authorities cited, but they do not appear to me to have any direct bearing upon either of the grounds on which I hold that this case, which I regard as exceptional, must be decided in favour of the pursuer.”

The defenders reclaimed, and argued—The Lord Ordinary was wrong in treating this as an exceptional case depending on the terms of the nomination of arbiters or of the Glasgow Corporation Act 1897. It was in reality an arbitration under the Lands Clauses Act 1845, and the question was whether under that Act a leaseholder had right to compensation for the expectancy of a renewal of his lease. He had no such right. In claiming such a right he was claiming for an expectancy which necessarily ceased to exist as soon as the undertakers acquired the subjects. There could thus be no expectation that the former owner would renew a lease. All that the Lands Clauses Act provided compensation for was a legal interest in land, plus compensation for disturbance. Although the point had never been definitely decided under the Lands Clauses Act, yet it had been decided against the tenant in questions arising under Acts with provisions practically identical— The King v. Manchester and Liverpool Railway Co., 1836, 4 Adol. & Ellis, 650; ex p. Nadin, 1848, 17 L.J., Ch. 421; ex p. Edwards, 1871, L.R., 12 Eq. 389; Wadham v. North-Eastern Railway Co., 1885, 14 Q.B.D. 747, and 16 Q.B.D. 227; City of Glasgow Union Railway Co. v. M'Ewen & Co., 1870, 8 Macph. 747, 7 S.L.R. 426; Solway Junction Railway Co, v. Jackson, 1874, 1 R. 831, 11 S.L.R. 344; Fleming v. Newport Railway Co., 1883, 8 App. Cas. 265; Fleming v. District Committee of Middle Ward of Lanarkshire, November 15, 1895, 23 R. 98, 33 S.L.R. 83; Cripps' Law of Compensation (4th ed.). p. 104; Balfour Browne's Law of Compensation (ed. 1896), p. 113. The principle established in these cases was that the tenant could only claim for the interest he had in his existing lease, not for any chance of renewal— Ex p. Farlow, 1831, 2 Barn. & Adol. 341, and the other Hungerford Market cases cited against them were decided on the terms of the special Act. They were distinguished in the King v. Manchester and Liverpool Railway Co. (cited supra). Even if it were true that the interest for which the pursuer claimed had a marketable value, that made no difference; the Act did not require the undertakers to pay for every speculative chance. But it was not true; no one would purchase a tenant's right except conditionally on the lease being renewed. The undertakers were entitled, if they pleased, to wait till the end of the lease, and then turn the tenant out; they were not bound to begin their operations at once or to buy out every tenant— Stevenson v. North British Railway Co., November 28, 1901, 4 F. 230, 39 S.L.R. 215. If they chose to proceed at once, why should they pay for any right except the actual interest in the lease which the tenant could maintain against them?

Argued for the respondent—This was a case under the special terms as to what should be compensated contained in section 9 of the Glasgow Act 1897. It provided that compensation should be made for “interests” at their “fair market value.” The chance of a renewal of the lease was an interest which had a market value. The Hungerford Market cases— ex p. Farlow, 1831, 2 Barn. & Adol. 341; ex p. Wright, 2 Barn. & Adol. 348; ex p. Still, 4 Barn. & Adol. 592; ex p. Gosling, 4 Barn. & Adol. 596—where compensation was awarded for the expectation of a renewal of tenancy, though the tenant had no contract, showed that an undertaker might have to pay for more than the legal interests of the tenant. Cooper v. Metropolitan Board of Works, 1883, 25 Ch. D. 472, and Belton v. London County Council [1893], 68 L. T. 411, were authorities to the same effect. Even if the case were to be taken as raising the general question under the Lands Clauses Act, it was within the powers of the arbiter to compensate for the expectation of a new lease. The case was really analogous to that of a lease with a break, as to which see Fleming v. District Committee of Middle Ward of Lanarkshire, cit. sup. The argument that the undertakers might wait till the expiry of the lease, and then turn the tenant out, was equally applicable to the case of a break in a lease, but had not prevailed.

At advising—