Scottish Court of Session Decisions

At advising on 3rd May 1978,—

LORD CAMERON .—[His Lordship read the passage quoted above, and continued.]—The respondents plead that as the lease and sublease were both terminated by destruction by fire of the subjects thereof they are entitled to the decree of declarator which they seek and also that the defences are irrelevant and lacking in specification.

The reclaimers in their amended pleadings state pleas to the relevancy of the respondents' pleadings both in whole and in part, and in particular deny that the admitted destruction of the subjects brought either lease or sublease to an end. They have also tabled a plea of personal bar based on alleged affirmation by the respondents of the continuation of the lease, as well as challenging the respondents' averments of fact in support of their principal pleas. Finally they plead "competent and omitted" in relation to the respondents' principal plea on the merits to the effect that destruction of the subjects brought the lease and the sublease to an end. In support of their reclaiming motion the reclaimers submitted as their basic argument that, contrary to the view expressed by the Lord Ordinary and on which his decision was principally founded, there is no absolute rule of law that destruction of the subject matter of a contract of lease of urban subjects brings that contract to an end. Parties to a contract are free to contract as they desire within the limits of legality, and in particular the issue of risk is a matter of contract. The maxim res peril suo domino was not conclusive of the matter nor is the general statement in Gloag on Contract (2nd ed.), p. 348, one of an absolute rule of law. The question must always be what is the res: the res is the subject matter of the contract, and is not necessarily limited to the physical subjects leased in a contract of lease. Thus parties can include an obligation to rebuild—or such an obligation can legitimately be spelled out from the terms of the contract considered as a whole. If parties wish to keep a contract of lease alive, even if during the stipulated currency of the lease the physical subject may be destroyed, it is within their legal competence to do so. There is nothing in the authorities in the law of Scotland which forbids this exercise of the right of freedom of contract. Indeed, the law as to the admitted right of a lessee to an abatement of rent in the event of partial destruction of the subject let and reiteration in recent Scots authority of the tenant's "right to abandon" a lease in the event of total destruction as instanced in Mackeson v. Boyd 1942 SC 56 per Lord President Normand at p. 61 and per Lord Moncrieff at p. 63 makes this clear, as the Court was there expressly considering the meaning and effect of the decision in Duff v. Fleming 8 M. 769. See also per Lord Anderson in Sharp v. Thomson 1930 S.C. 1092, at p. 1096. This was quite in accord with Bell's Principles, sec. 1208, note (b) and 1253 as well as Rankine on Leases 226, 228 and not inconsistent with the true ratio of Duff v. Fleming .

The obligations which were laid on the sublessee were such that made it clear that the relationship of landlord and tenant was not to be ended should destruction of the subjects by fire take place. Termination of the contract in certain events was foreseen and provided for under clause 16 of the lease, a provision which was imported into the sublease. Destruction by fire was not included in the catalogue of events. The obligation in clause 14 to keep the subjects let insured to the full value, when considered along with the very important terms of clause 3, led to the clear conclusion that the tenants in the sublease were bound to "renew and replace" the subjects in all circumstances of damage (which would plainly include destruction other than where the damage was caused by fire, in which event the responsibility for rebuilding was placed on the proprietors by the express stipulation of the contract itself). The argument was reinforced by reference to the liability on the tenant to insure for 12 months' rent, a stipulation which assumed a situation where, because of supervening events, an abatement or total remission of rent might be appropriate. It was not to be assumed that the premises let were the actual stone and lime of the structure known as 150 Trongate at the date of entry on the lease; the subjects of the contract were a shop at 150 Trongate-8 Brunswick Street.

In any event, it was open to the parties where as here, at worst for the reclaimers the presumptive consequences of the fire was the termination of the contract, to add a term to or to vary their contract so that the presumptive consequences should not follow and this, it was plain from the correspondence, is precisely what they did. The respondents knew what they were doing and in that knowledge agreed with the reclaimers that these consequences should not follow but that the contractual rights and liabilities of parties should continue—including the rebuilding of the subjects and their continuous occupation by the respondents. There was no break in the occupation and it was the respondents—the tenants under the sublease in right of occupation of the subjects—who did the rebuilding. If the reclaimers failed on this major submission they contended that there was here a clear case of personal bar. The representations were plain and unequivocal that the contract subsisted. The letter of 8th February from the respondents spoke of the subjects as being sublet to them and adding "rent charges will obviously be suspended until such time as the property can be re-built." Nothing could be less equivocal. It was not necessary that representations should be limited to representation as to a state of facts—it is a representation as to a certain "state of things" which is to be sought, and in any event the representation made was one which specifically involved consideration of a state of fact—in futuro—namely the rebuilding of the premises. Such rebuilding was obviously not to be undertaken by any other parties than the respondents, who reminded the reclaimers in their letter that they were also proprietors of the subjects destroyed. What happened thereafter were further actings in fact, i.e. continued and regular payments of the rent charges applicable to the sublease until 1975, facts of considerable importance. The reclaimers acted upon these representations to their prejudice in that they incurred the expense of valuation of this right in a valuation of their assets undertaken in 1972. This expense was incurred in reliance upon these representations. On this aspect of the case Mr Clyde in his closing address for the reclaimers said he would if necessary be content with a proof before answer.

Finally the reclaimers submitted that the respondents were met with an unanswerable plea of competent and omitted. The basis of that plea is, as set out in MacLaren on Practice 401, in familiar terms. What the respondents in this process were seeking to do was to reverse the decision of the Sheriff-Principal, affirmed on appeal to the Court of Session, to nominate an arbiter to fix a rental under and in terms of clause 5 of the sublease. The fact that the respondents had sought to challenge the right to seek nomination of the arbiter on the ground that the contract had been terminated in 1972, was irrelevant. The defence had never been proponed and therefore it was omitted. The case of Murray v. Seath 1939 S.L.T. 348 was directly in point, as in that case the pursuer was seeking by the declarator she sought to reverse a final interlocutor in a Sheriff Court action of division and sale of heritage in which she had been called and appeared as a defender. In her later action the pursuer sought decree that she had the sole title to that heritage. It was held that, when the substantial purpose of the subsequent action was to seek to reverse a decision competently arrived at in the earlier, the plea of competent but omitted would lie and succeed. This was on all fours with the present case. The arbitration clauses in the sublease were in any event still effective at the date when the Sheriff Court application was made as there was neither agreement nor decision that the destruction of the subjects had brought the lease and sublease to an end. Counsel referred to Scott & Sons v. Del Sel 1922 S.C. 592 (1923 S.C. (H.L.) 31) and therefore this was a question which could competently be litigated in the earlier process. If this submission was correct then the reclaimers must succeed and the action be dismissed or alternatively a proof before answer be allowed.

The respondents in supporting the decision of the Lord Ordinary submitted primarily that the subjects of lease were specifically identified and in precise detail both in the lease and sublease and it was matter of admission that these subjects had been utterly destroyed. The maxim res perit domino is concerned with the interest of each party—which is the res—and if no interest survives or exists the contract is at an end. It was to be observed that the contract referred not merely to subjects known as 150 Trongate-8 Brunswick Street, but to "the subjects hereby let" and it was to these subjects as described that in particular the obligations laid on parties by clause 3 of the lease related. These were the subjects which were destroyed and had disappeared. There was nothing in the contract of lease or sublease which took the contract outside the general principle of the law of Scotland laid down in Walker v. Bayne (1813) 3 Dow 233, 239; Duff v. Fleming 8 M. 769 repeated in Allan v. Markland 10 R. at p. 396 by Inglis L.P. and by Lord Deas at p. 394. Counsel also referred to the judgment of Lord Carmont in Mackeson v. Boyd 1942 S.C. at p. 64. If the res was the actual subjects let then clearly, following Duff, as the landlord was under no obligation to rebuild in event of destruction by fire the lease (and sublease) necessarily came to an end.

In light of the general principles of the law it would be necessary for the reclaimers, if they could, to show a further interest which elided the general principle—and this would have to be matter of express stipulation. This was clear from what was said in Walker v. Bayne 3 Dow 239 by Lord Eldon at p. 246, as well as by Gloag on Contract (2nd ed.), p. 348, and was consistent with Rankine on Leases 231. If the lease is silent on the matter then no such stipulation can be inferred. Under clause 3 the landlord was only bound to maintain the tenant's title in respect of the actual subjects let as described in the lease. There was nothing in clause 14 which in express terms bound a landlord to rebuild in case of fire or devote the insurance monies received to that end. Indeed the reference to "full insurance value" pointed away from any obligation to rebuild—there was no requirement to insure up to reinstatement value. The cases of Hamilton's Trs. v. Fleming 9 M. 329 and Clark v. Hume 5 F. 252 esp. per Lord Stormonth-Darling at 253 made it clear that an obligation to insure gave the tenant no right to demand that the money recovered should be expended in reinstatement.

While the common law binds a landlord to put let premises in tenantable repair at the outset of a lease, here the tenants accept the premises as in tenantable repair and under the provisions of clause 3 in the head lease the landlord "opts out" of certain of his common law obligations in the matter of repair and upkeep, which obligations are assumed by the tenant (and transmitted to the respondents by the provisions of clause 6 of the sublease). It was to be noted that the obligations set out in clause 3 were prefaced by the word "substantially"—and this also governed and defined the meaning of the words "renew and replace." Therefore there could be no question of an obligation to rebuild being spelled out of the language of clause 3. If this construction were correct it gave full meaning and effect to the words "damage by fire." The reclaimers' construction necessarily imported the words "destruction or" into clause 3. Further the use of the word "substantially" demonstrated that it was the actual subjects which then existed and were known as 150 Trongate-8 Brunswick Street that were comprised in the lease and no others. The use of the word "replace" in clause 3 was to be contrasted with the use of the word "rebuilding" in clause 6. If parties had meant "rebuild" in clause 3 they could and should have said so. In these circumstances the subjects being destroyed and no obligation laid either on tenant or landlord to rebuild, the contract terminated at the date of the fire, and no contract of lease was thereafter in existence.

If there was no contract from the date of destruction there could be no affirmation, waiver, or variation of something which had no existence in law. The same result must follow in case of the plea of personal bar, because at the time of the alleged actings on which the plea was founded there was no contract in existence and no positive obligation in terms of a previously determined contract could be erected on the negative foundation of a plea of bar. But in any event the plea was not sustainable on the reclaimers' averments. The representation must be as to a state of facts—not an erroneous representation as to a matter of law. But the subject matter of the alleged bar was not that of the original lease or sublease. The rebuilt structure is part of a larger whole—the lessee could not leave these subjects "in good and tenantable repair" as they were not the subjects to which the lease and sublease related. In any event the averments of alleged prejudice were irrelevant as wholly lacking in specification.

On the final question of the plea of competent and omitted the respondents submitted that the Lord Ordinary was correct. If there was no contract the plea could not be properly stated. In any event the plea was directed to the wrong matter. The application to the Sheriff was under a clause concerned only with the fixing of rent and not under the clause which dealt with disputes or differences as to the meaning and extent of the contract itself. Further the respondents were not responsible for any omission of the plea. They had proponed it but the Sheriff-Principal had refused to accept it. They should not be deprived of their legal remedy because of this refusal. The ground of the Sheriff's decision was not that the amendment sought was incompetent, but that in his discretion it appeared to him to come too late. No case could be found in which the plea had been sustained in such circumstances. If the plea to the determination of the contract could not competently be presented in answer to an application under clause 5 then its omission, if omission there was, could not be pleaded against the respondents in this action. For all these reasons the Lord Ordinary's decision should be affirmed.

I am of opinion that the solution to the principal issue which arises in this reclaiming motion is to be found in a construction of the terms of the contract between the parties, in light of the general or particular principles of law governing contracts of lease.

Much of the controversy in the full and excellent debate was devoted to an examination of the authorities bearing upon the issue of the effect of total and accidental destruction by fire of the whole subjects of a lease of heritage. In my opinion, the law is now settled that, in the absence of express or necessarily implied stipulation to the contrary, such destruction determines the contract. It is of course always within the capacity of contracting parties to provide otherwise, but unless they do so the presumptive determination of the contract will operate when the subject matter is totally destroyed, so that neither party is bound and neither party can compel performance of any of the stipulations of the contract, and in particular the landlord cannot be required to rebuild the subjects. This matter is dealt with by Stair in his Institutes at 1.15.2 and in Bell's Principles sec. 1208, Gloag on Contract (2nd ed.), p. 348 is to the same effect while Rankine on Leases 226 cites the passages in Stair and Bell to which I have referred. As Gloag summarises the law:

"… the accidental destruction of a house which is the subject of a lease has the effect of putting an end to the contract, and liberating both landlord and tenant from its obligations. Neither, in the absence of express stipulation (and I emphasise the word ‘express’) is bound to rebuild."

"A merely agreed obligation by either landlord or tenant to keep the subjects in repair, or to insure does not anount to an undertaking to restore them if accidentally destroyed."

The matter reached the House of Lords in 1813 in the case of Walker v. Bayne 3 Dow 233 and 6 Paton 217. In the report in Dow Lord Elden makes it plain that the judgment was intended to settle and clarify for tho future guidance of parties concerned what was the effect of the total and accidental destruction of the subject of a lease—the landlord cannot be compelled to rebuild and res peril domino. In the report in 6 Paton 217 there is this significant note:

"The case as thus disposed of was expressly meant to decide the general question of law as to the landlord's non-liability to rebuild the house for his tenant when burned down by accident."

The plain corollary of this general statement is that as the house is the subject matter of the contract—the res—then its destruction determines the contract. I pause here to observe this:—if as a result of Walker v. Bayne the general rule is that the tenants cannot compel the landlord to rebuild the necessary consequence is that the contract is at an end. Either you can compel rebuilding or you cannot. As Lord Eldon pointedly said if parties intend to contract so that the landlord can be compelled as matter of legal obligation to defray the cost and undertake the performance of the duty of rebuilding for the tenant's benefit—after destruction by fire—then it is for the parties to make it clear. If you cannot compel rebuilding, it seems to me to be beside the mark to say that the tenant acquires the right to "abandon" the lease: whether he can abandon or not unless he can compel rebuilding he is left with no subjects to occupy, so that his contract is without subject matter on which the material stipulations of parties can operate or have effect.

These observations bring me now to the case of Duff v. Fleming 8 M. 769 already referred to. That case was concerned with the consequences of the destruction by fire of premises occupied under lease as a spirit shop. The destruction rendered the premises unfit for the business. The tenant abandoned them four days after the fire. Within four months they were repaired and the landlord sued the tenant for rent. The Court held that the tenant was entitled to abandon on the ground that the damage was so extensive as to render the subjects unfit to serve the purpose for which they were intended under the lease. In that case Lord Justice-Clerk Moncrieff said, citing the House of Lords decision in Walker v. Bayne, "As, therefore the landlord was not bound to rebuild, I am of opinion that the subject of the lease had perished and that the tenants' obligation in regard to it had terminated." Lord Cowan was equally definite on the general principle that the destruction of the subject for the purpose for which it was let, by accidental fire or from other fortuitous events, puts an end to a contract of lease "of that there could be no doubt," while Lord Neaves in a lapidary sentence summarised the matter thus "By the law of Scotland the contract of location is dissolved rei interitu" and added "… in the case of an urban subject, a dwelling house for instance, the res is the house and if the house is destroyed the contract is dissolved." This statement of the law has never been adversely criticised during the century which has elapsed since the decision in that case. It was, as recently as 1942, expressly approved in the case of Mackeson v. Boyd 1942 SC 56.

It is no doubt correct that in certain of the cases reference will be found to a tenant's "right" to abandon the lease where destructive damage has been shown to be so great or of such a character as to render the subjects let wholly incapable of use for the purpose for which they were let under the lease. See, for example, Lord President Normand in Mackeson v. Boyd at 61. But such phrases are not used as indication that destruction of the resonly renders the contract voidable and not void but rather to deal with a situation which can be likened to one of "constructive total loss."

Before parting finally with Duff v. Fleming I should note in particular another passage from the judgment of Lord Neaves. In that case, as here, the landlord had rebuilt the premises and an argument was submitted for the landlord that he could therefore compel the tenant to resume possession and pay rent. In rejecting that argument Lord Neaves said "But location is a mutual contract, and if that argument were sound, it would follow that the tenant, by tendering rent could compel the landlord to rebuild, which I do not consider to be the law. The simple answer, however, to the argument is that the destruction, once accomplished, dissolved the contract and that the relation of landlord and tenant between the parties having brought this to an end can only be re-established by a new agreement." This passage from Lord Neaves was specifically quoted by Lord President Normand in Mackeson v. Boyd as applicable to a case of which he described as "constructive total destruction of the subjects of a lease where caused by a Government requisition of however indefinite duration."

Unless therefore the reclaimers can point to a provision or provisions in the contract of lease imported into the sublease which would elide the operation of this general principle, I am clearly of opinion that their principal contention must fail and with it fail the subsidiary submissions of variation of the terms of the contract and of personal bar.

The clauses of the lease and sublease were subjected to rigorous and detailed analysis by counsel leading to diametrically contradictory conclusions. In my opinion the reclaimers' analysis is to be rejected and that of the respondents preferred. The clause principally subject to scrutiny was clause 3 of the lease. In my opinion that clause does not, contrary to the reclaimers' argument, place any obligation on the tenants to rebuild the subjects if destroyed by any cause other than fire. The words "renew and replace" in the context in which they appear would not in the ordinary use of language suggest that the word "replace" is a synonym for "rebuild"—it is to be noted that the word "rebuilding" occurs specifically in a later clause and one might well ask why use a different word in clause 3 to express the same idea. The landlords are expressly absolved by clause 3 from the normal obligations of a landlord in maintaining the building, keeping the premises wind and water-tight or upholding the structure of the building. The earlier part of the clause, on a fair reading appears to me to transfer these burdens to the tenant and I note the use of the adverb "substantially" in relation to the discharge of these obligations. And finally, the tenants are taken bound to leave the premises, i.e. the subjects let and described in the lease, on the expiry of the lease "in a good and tenantable state of repair." But the matter goes deeper than that: if the reclaimers were correct in their construction of the word "replace" this would place on the shoulders of tenants an obligation of unknown extent in expenditure to rebuild, at any point in the duration of the lease, the subjects tenanted by them for the benefit of the landlords without apparently the landlords being under a similar obligation if accidental fire were the cause of the destruction at whatever point in the duration of the lease that should occur. But standing Walker v. Bayne and Duff v. Fleming no such obligation was laid on the landlord because I can find nothing in clause 3 in particular or in any of the other clauses of the lease or sublease which would specifically elide the operation of the general principle and expressly place on the landlords the burden of rebuilding the subjects for the benefit of the tenant Senior counsel for the respondents drew particular attention to the words in clause 3—"Damage by fire excepted" and argued that "damage" was to be contrasted with total loss and reinforced his argument by reference to the language of clause 14 in relation to the tenant's obligation to insure to the "full insurable value" of the subjects let, and from that drew the inference that the obligation could not be one of re-instatement because the requisite insurance was not for the purpose of covering costs of reconstruction or re-instatement. I think there is force in these arguments. I do not think that in this case the obligation in clause 14 of the lease which requires the tenant to insure the premises let "to the full insured value" in the name of the landlord advances the reclaimers' case. Such an obligation by itself in no wise implies an obligation on the landlord to rebuild during the currency of the lease for the benefit of the tenant. This I think is well settled since at least the case of Duke of Hamilton's Trs. v. Fleming 9 M. 329. As was said in the House of Lords in Walker v. Bayne "If the landlord is obliged (to rebuild) under the lease let them say so." The rule as to the effect—or lack of effect—of an obligation on a tenant to insure the subjects let was the subject of express decision in the more recent case of Clark v. Hume (1902) 5 F 252. In that case Lord Stormonth Darling (whose judgment was affirmed) said:

"It is clear that the mere fact of the tenant being taken bound to pay one half of the premium on a fire insurance policy in the landlord's name will not give the tenant such an interest in the insurance as to entitle him either to claim any part of the money recovered or to demand that the money shall be expended by the landlord in re-instatement."

It is not difficult to see why this should be so and why in the case of a lease for a term of years, if such an obligation of re-instatement were to be laid on the landlord for whose benefit and unfettered use it might be thought that such insurance monies would accrue, it would require clear and precise stipulation in the contract providing for such an additional burden, which the common law does not provide, being laid on the landlord's shoulders. If then there is, as I think, no specific provision to be extracted from a consideration of clause 3 of the lease which places a burden of re-instatement on the respondents and it is for them to point to such a provision if they can, then the common law must decide the issue. In my opinion therefore on that principal issue the reclaimers' submissions, well and carefully presented as they were, must fail.

This failure has serious consequential effects on the remaining submissions for the reclaimers. If the contract was terminated by destruction of the premises, then there can be no argument that the original contract was varied in the manner contended for by the reclaimers—who expressly departed from any argument that a new lease had been entered into on termination of the original lease of the destroyed premises.

I am also of the opinion that the reclaimers' arguments in support of their plea of personal bar must fail. In the first place, it is no more than an attempt by means of a plea of personal bar to set up a contract which no longer existed at the time when the alleged actings on which the plea is founded took place. In the next place, the averments on which the plea is founded appear to me wholly insufficient to support it. The reclaimers' case is that they were induced by the actings and representations of the respondents to alter their position to their prejudice. This must be considered in its context. The reclaimers' argument subsumes that the respondents made representations as to a state of fact which was incorrect. But the respondents at the worst—as the quoted letters appear to show, did no more than acquiesce in an erroneous view of the legal relations currently existing between the parties. The reference to rebuilding does not appear to me to help as the respondents at the material time and thereafter were and continued to be proprietors of the subjects and of those contiguous to them, and it is not clear from the letters quoted in the pleadings in which capacity they could be said to be contemplating a rebuilding on the site. This was not a representation as to a state of fact, but at best for the reclaimers acceptance of a common error as to the legal position of parties and the mutual obligations legally incumbent on them. As a result of this exchange of letters the reclaimers obtained a pecuniary benefit to which they were not entitled—and it is in this curious and ambiguous situation that the reclaimers allege that they incurred expense in including in the valuation of their assets at an unspecified date in 1972 the value to them (unspecified) of the unexpired portion of the lease. The reclaimers do not say what increase in cost to them was in fact involved. Thus the alleged alteration of position to prejudice is a cash loss—but which the reclaimers pointedly fail to quantify or to set against the gain to which they were legally not entitled. In these circumtaances also I should be against the reclaimers.

There remains the issue of "competent and omitted." In the present litigation the respondents are not seeking in effect or substance to reverse the decision of the Sheriff Principal in the application to nominate an arbiter under and in terms of clause 5 of the sublease. What they are seeking to do is to settle a question which it would have been competent to raise in a reference to arbitration under clause 10 of the sublease. The situation out of which the plea comes to be stated is unusual and so far as the researches of counsel went, without precedent. The application to the Sheriff Principal was of summary character. There was no adjustment of pleadings and consequently no closed record. The Sheriff heard parties on 9th June 1975 and, according to his note, gave a verbal judgment for the reclaimers, but decided to continue the application in order to allow time for parties to agree on a nominee, if they could. What he did do, however, was to issue an interlocutor making avizandum. In the interim the respondent tabled a minute of proposed amendment challenging the basis of the application on the ground that the contract had come to an end and therefore there was no legal foundation for the application. This, on 30th July, the Sheriff refused as coming too late—on the ground that he had already decided the dispute and given a verbal decision. This of course was a matter which lay in the discretion of the Sheriff Principal. When the matter was appealed to the Court of Session the appeal was refused but no opinions were issued by the Court, though parties are apparently agreed that some indication was given by the Court that the question was inappropriate for decision in the proceedings currently pending. The position therefore is that, late though they may have been, the respondents did endeavour to put forward the plea. This is, in my opinion, a distinction of substance and raises an issue which has not previously called for decision. The present case is very different from that of Murray v. Seath 1939 S.L.T. where Lord Russell was dealing with a case which was directly concerned with the subject matter of an earlier contested litigation in which success for the pursuer would have reversed a decision in foro in the earlier litigation to which the pursuer had been a party. One consequence of the Sheriff's action was that the primary question whether it was in any case competent to take the point as to the continuing validity of the lease in an application to nominate an arbiter for the limited purposes of clause 5 of the sublease was never before the Court and therefore never decided.

In my opinion when the two clauses of the sublease are compared—clause 5 and clause 10—it is plain that clause 5 is only concerned with one matter, the fixing of a rent from September 1975 until March 1982, that and nothing else. If any question as to the validity of the lease were to be raised that would have to go to arbitration under clause 10. Therefore I am of opinion that even if the plea were admitted it would not have been competent and the Sheriff could not have adjudicated upon it. But even if, however, it was "omitted" that omission does not therefore harm the respondents. Further, if the contract was terminated in February 1972 by destruction of the subjects, as in my opinion it was, then the arbitration clause fell with it and therefore there was no competent process before the Sheriff at all. It is quite clear on the authorities that where a contract is brought to an end by frustration or by destruction of the subject matter of the contract, an arbitration clause forming part of the contract falls with it also. Here, there is, in my opinion, no doubt that the contract was ended in February 1972 and with the contract there perished also its arbitration clauses. For these various reasons I am of opinion that the reclaimers' plea of competent and omitted must be repelled.

On the whole matter I would refuse the reclaiming motion and affirm the decision of the Lord Ordinary sustaining the 1st and 2nd pleas-in-law for the respondents and repelling the 3rd, 4th and 5th pleas for the reclaimers and I so move your Lordships.

LORD JOHNSTON .—Your Lordship in the chair has narrated the circumstances out of which this action arises and the contentions and arguments of the parties and it is unnecessary that I should repeat them in detail.

It is an established rule that the accidental destruction of an urban subject, which is the subject of a lease, has the effect of putting an end to the contract and liberating both landlord and tenant from its obligations. In the words of Lord Neaves "the destruction, once accomplished, dissolves the contract, and the relationship of landlord and tenant between the parties being thus brought to an end can only be re-established by a new agreement." Duff v. Fleming (1870) 8 M. 769, 771; Mackeson v. Boyd 1942 SC 56; Bell's Principles (4th ed.), p. 1208; Rankine on Leases (3rd ed.), p. 226; Gloag on Contract (2nd ed.), 348.

It was argued for the reclaimers that the terms of the leases and, in particular, the terms of the third and fourteenth clauses of the lease and the sixth clause of the sublease avoided the application of the rule, with the result that the relationship of landlord and tenant continued after the fire and throughout the rebuilding period and that they, the reclaimers, were now the lessees and lessors of that part of the new premises which replaced the destroyed premises.

I have no doubt that parties may agree to avoid the application of the rule, though no example of it having been done was cited and it is doubtful if a contract containing such an avoiding clause could come within the definition of a lease, but, be that as it may, I am clear that the leases cannot be construed as importing any such agreement. Whatever be the ambit of the obligation under the third clause, damage by fire is excepted, and the fourteenth clause is no more than an obligation to keep insured the premises and twelve months rent against loss or damage by fire. Neither alone nor in combination do they assist the reclaimers. In my opinion, the argument has no merit.

It is proper to note at this point that the reclaimers did not seek to support the averment at page 12E of the Closed Record that esto"the original lease and sublease were determined by the occurrence of said fire, there was an implied agreement between the parties in the circumstances condescended on which created a new lease and sublease in relation to the new subjects on the same terms and conditions as before."

The reclaimers' second argument was that the summary application by them for the appointment of an arbiter to determine the rent under the sublease could have been met by the averment, which is the basis of the present action, that the premises let had been accidently destroyed by fire and that the lease was thus terminated. I am by no means satisfied that the question as to whether or not the sublease had been terminated could have been determined in the summary application process. The length and complexity of the arguments presented in the present action suggests that it would have been vastly inconvenient to do so, and that the proper course might have been to sist the application until the determination of the present action. But, be that as it may, I am of the opinion that the reclaimers' plea of competent and omitted is ill founded since the respondents do not seek to challenge in this action the Sheriff Principal's appointment of the arbiter. The appointment stands but the subjects having been destroyed and the sublease having come to an end there is nothing on which he can arbitrate. In the words of the Lord Ordinary, "the arbiter has been appointed to decide a question which in effect does not exist."

The reclaimers' third argument was that the respondents are personally barred from seeking declarator in terms of the conclusions. It appears from the Lord Ordinary's opinion that the plea was abandoned before him. It has now been resurrected and is supported by averments added by way of a Minute of Amendment. Shortly stated the averments are that the respondents agreed with the reclaimers' assertion that in terms of the sublease they were bound to insure against loss of rent by fire and agreed that "the rent charges continue as previously," that the rent was paid until 1975 and further that they, the reclaimers, acted to their prejudice in that they incurred expenditure, in reliance on the respondents' affirmation of the continued existence of the lease and sublease. The only particulars of the expenditure is that it was incurred in connection with a periodic valuation of their assets in 1972. In my opinion the specification of prejudice is insufficient to sustain the plea. But quite apart from the lack of specification the plea is objected to on the ground that the respondents' assent to the reclaimers' erroneous interpretation of the provisions of the sublease and the payments of rent which followed could not justify the reclaimers in believing that "the relationship of landlord and tenant continued notwithstanding the destruction of the subjects."

"The rule of Estoppel or bar is," in the words of Lord Birkenhead, "capable of extremely simple statement. When A has by his words or conduct justified B in believing that a certain state of facts exists, and B has acted upon such belief to his prejudice, A is not permitted to affirm against B that a different state of facts existed at the same time," Gatty v. Maclaine 1921 S.C. (H.L.) 1 at p. 7.

The reclaimers' belief in the effect of the sublease, in so far as it was erroneous, did not arise from the words or conduct of the respondents but from their own interpretation of the sublease. In my opinion the basic requirements of the plea are not satisfied.

On the whole matter I would refuse the reclaimers' motion.

LORD BRAND .—The cardinal question in this case is whether the lease was terminated by the destruction of the subjects. I agree with the Lord Ordinary's summary of the law on this matter. There is no doubt that, in the absence of agreement to the contrary, a contract of lease is dissolved by the total destruction of the subjects (see Duff v. Fleming (1870) 8 M. 769; and Allan v. Markland (1882) 10 R. 383). Counsel for the reclaimers submitted that, on a proper construction of the lease, the parties intended that, notwithstanding the total destruction of the subjects by fire, their contractual relationship should continue. I can find nothing in the terms of the lease to support that construction. It follows that the lease in this case was terminated by the destruction of the subjects.

It was next argued on behalf of the reclaimers that, if the construction of the contract for which they contended was wrong, they were entitled to go to proof on their plea of personal bar. In my opinion there are no relevant averments to support the said plea. Mr Emslie cited the definition of personal bar in the speech of the Lord Chancellor in Gatty v. Maclaine 1921 S.C. (H.L.) 1 at p. 7. The defenders' averments do not satisfy either of the requirements of Lord Birkenhead's definition. There is no averment that the pursuers asserted a state of fact. The averments and the quotation therein from correspondence merely show that the parties were mistaken as to the proper construction of the lease. Nor is there any relevant averment of prejudice in relation to this contract. The cost of a valuation is so trivial as to be disregarded.

The reclaimers' third submission was that the parties agreed to a variation of the contract after the fire. This contention is untenable because the contract was extinguished by the fire.

Finally, the reclaimers attacked the Lord Ordinary's judgment on their plea of competent and omitted. The short answer to that submission is that, since the lease had ceased to exist, the application to the Sheriff to appoint an arbiter was a nullity. In any event, as Mr Cameron pointed out, the question of the construction of the lease would have been a matter, not for the Sheriff, but for another arbiter under clause tenth of the sublease.

For the foregoing reasons I agree that the reclaiming motion should be refused.