Scottish Court of Session Decisions

At advising on 21st December 1979,—

LORD PRESIDENT .—The pursuers are heritable creditors of a company known as Lyon Group Limited (in liquidation with effect from 14th April 1975) in virtue of a standard security dated 26th March 1973 and recorded in the General Register of Sasines on 9th April 1973. The subject of the security was, under exception of two small areas of ground with which this action is not concerned, a lease of 20·6 acres of land at Righead Industrial Estate dated 5th and 17th January 1973, and registered in the General Register of Sasines on 9th April 1973. The authors of this lease in favour of Lyon Group Limited, which I shall refer to hereafter as "Lyon," were Lanarkshire County Council.

By lease dated 19th March and 4th April 1975, and registered in the General Register of Sasines on 6th May 1975, the defenders became subtenants of Lyon in 2·35 acres of the subjects held by Lyon under their lease of 1973. This parcel of land was known as Unit 2.

It appears that in October 1975 the pursuers, as creditors in the standard security, served upon Lyon a calling-up notice under section 19 of the Conveyancing and Feudal Reform (Scotland) Act 1970. It appears further that Lyon are in default within the meaning of section 20 of that Act and the pursuers are thus entitled, if they wish, to exercise all the rights conferred upon them under that section.

In this action the pursuers seek reduction of the lease granted by Lyon to the defenders in 1975, declarator that the defenders have no right title and interest in and to the subjects thereof (Unit 2), and decree of removing. The defenders resist these conclusions and have tabled a counter-claim against the pursuers which falls to be considered only in the event of success for the pursuers in the principal action. After debate in Procedure Roll the Lord Ordinary granted to the pursuers decree de plano in terms of the conclusions of the summons and dismissed the counter-claim as irrelevant. In this reclaiming motion the defenders challenge the Lord Ordinary's decision in all its branches and we have heard full debate upon the relevancy of the pursuers' averments, the relevancy of the defences, and the relevancy of the averments upon which the counter-claim is presented.

In his opinion the Lord Ordinary has summarised clearly and succinctly the essential averments of both parties. I accept that summary with gratitude and have only to add that by amendment in the Inner House the defenders have amplified their averments in answer 4 on the matter of the state of knowledge of the pursuers in March 1973 of the "rights" said to have been granted over Unit 2 in favour of the defenders' parent company T.S.L., and that the pursuers have now averred in article 6 of Condescendence that as at 25th September 1979 the amount of Lyon's total indebtedness which was secured by the standard security was, including interest, £683,283.45. I should mention also at this stage that as a result of a Joint Minute between the parties we have been able, for the purposes of the reclaiming motion, to see the 1971 lease by Lanarkshire County Council in favour of Lyon, the 1973 Lease of 20·6 acres of land which is the subject of the standard security, the standard security itself, and the lease of Lyon to the defenders granted in 1975 almost on the eve of Lyon's liquidation.

The first matter to be considered is the relevancy of the averments of the pursuers who seek reduction of the defenders' lease. In course of the excellent debate to which we listened the defenders accepted that their right and title as sub-lessees were derived from the registered lease in favour of Lyon granted in January 1973. In particular it was no longer maintained for the defenders that the 1971 lease in favour of Lyon was not superseded by the 1973 lease or that it had not been implicitly renounced. After January 1973 the 1973 lease alone was Lyon's title. The debate accordingly proceeded upon the assumption, implicit in the pursuers' pleadings, that the defenders as prospective sub-lessees of Lyon, whose title as lessors was the registered lease of 1973, had an obligation to examine Lyon's title and, having done so, to search the record before entering into the sub-lease in 1975. That those who propose to take a sub-lease from tenants holding under a registered lease or, indeed, under a lease capable of registration, have such an obligation to search, is, it was conceded, a necessary consequence of the Conveyancing and Feudal Reform (Scotland) Act 1970. It will be recalled that that Act introduced the new form of heritable security known as the standard security and that by section 9 (2) thereof, read together with section 9 (8) it was made competent to record a standard security over any estate or interest in land, other than an entailed estate or any interest therein, which is capable of being owned or held as a separate interest and to which a title may be recorded in the General Register of Sasines. By section 9 (3) it was provided that a grant of any right over an interest in land for the purpose of securing any debt by way of a heritable security shall only be capable of being effected at law if it is embodied in a standard security.

Against this background the first submission for the defenders upon this chapter of the argument came to be that the pursuers' right to reduce the lease of 1975 depended primarily upon the proposition that it was void ab initio. This in turn depended upon showing that standard condition 6 of the standard conditions set out in Schedule 3 to the Act of 1970, which is expressed merely as an obligation upon the debtor, had become a condition of Lyon's title by publication in the Register of Sasines. That standard condition 6 did apply in a question between the pursuers and Lyon was not disputed. The question is, however, whether it became a condition of Lyon's title, so as to affect third parties, by publication in the Register. A party who enters into a transaction with a person with a recorded title is undoubtedly bound by any restriction on that title which has entered the record. He is not bound or affected at all, however, by any contractual restriction imposed on his author in favour of a heritable creditor or anyone else, the details of which are contained in an unrecorded deed.

In this case, as the defenders have pointed out, the pursuers' averments are as follows—"The said standard security contained inter alia the following condition, ‘The standard conditions specified in Schedule 3 to the Conveyancing and Feudal Reform (Scotland) Act 1970 … shall apply. …’ Condition 6 of the standard conditions specified in said schedule provides: ‘(6) It shall be an obligation on the debtor not to let, or agree to let, the security subjects, or any part thereof, without the prior consent in writing of the creditor, and "to let" in this condition includes to sublet.’" If the standard security had merely provided that "the standard conditions in Schedule 3 shall apply" then, said counsel for the defenders, there would be no answer to the pursuers' claim, for the 1975 lease was granted by Lyon in breach of standard condition 6 which, on this hypothesis, would have been a published condition of Lyon's title affecting all who transacted with them. When, however, the blanks in the quotation which appears in Condescendence 3 are filled in, the picture becomes a very different one. From the terms of the standard security itself the relevant passage is as follows:

"the standard conditions specified in schedule 3 to the Conveyancing and Feudal Reform (Scotland) Act 1970 and any lawful variation thereof operative from the time being shall apply and we agree that the standard conditions shall be varied in accordance with the said Minute of Agreement."

The emphasis is mine. In these circumstances it is impossible to tell from the recorded standard security itself whether condition 6 had or had not been excluded or varied. The Minute of Agreement no doubt, did not exclude or vary standard condition 6 but this was not a recorded deed and the defenders are accordingly not affected by any publication of that condition in the Record itself. This argument for the defenders was presented upon the basis that until 1970, at least, the law as to publication was clear and settled. It was to be found in particular in the case of Aberdeen Trades Council v. Shipconstructors and Shipwrights Association 1949 S.C. (H.L.) 45. That was a case in which a back letter governing an ex facie absolute disposition had been recorded. Although the back letter referred to an unrecorded personal bond it was held that it did not have the effect of putting the conditions of the personal bond on record. In his speech Lord Reid at p. 69 had this to say:

"There is little direct authority on the question whether a reference in a recorded deed to conditions or limitations which are set out only in an unrecorded deed has to any extent the same effect in law as the publication of those conditions or limitations by setting them out in full in a recorded deed. I think that the reason for this lack of authority is that it has always been assumed that the effects in law of publication can only follow publication in full. It can hardly be maintained that publication by reference to an unrecorded deed would affect any person who could not obtain access to that deed, and I know of no warrant in principle or authority for the view that the extent to which a person is affected by publication in the Register of Sasines depends on whether or not he has or can obtain access to a certain unrecorded deed. I agree with the opinion of Lord Meadowbank reported in Munro v. Munro : "

No reversion can be said to be incorporated in a sasine unless the import of it is clearly expressed in it. One is not bound to go and search for papers not upon record." Lord Simonds dealt with the matter thus:—

"The general ground of objection failing, it was contended on behalf of the appellant that at least in this case the respondents' power of sale was limited and qualified. This plea was founded on the fact that the back letter which, being duly recorded, gave notice to the world that the disposition though ex facieabsolute was in fact in security only, also contained a reference to the power of sale vested in the disponee under the terms of a personal bond given by the debtor. I will assume that the original disponee was bound by this instrument and I will further assume that its terms are otherwise apt to bind a successor, though I gravely doubt it. But the appellant's contention involves a proposition which appears to me to be subversive of principle. It is that a reference in a recorded document to an unrecorded document gives public notice of all the contents of that document, so as to affect singular successors of the disponee. For this proposition no authority could be cited. Nor is it easy to find authority to the contrary, though I am indebted to my noble and learned friend Lord Normand for a reference to the observations of Lord Brougham in The Tailors of Aberdeen v. Coutts, and to my noble and learned friend Lord Reid for a reference to those of Lord Meadowbank in Munro v. Munro . It is, however, clear that the object of a Register of Sasines would be substantially defeated if a reference to an unrecorded deed, whose whereabouts might be unknown and identity doubtful, were equivalent to a record of its terms. In my opinion this plea also fails."

The Act of 1970 contains no provisions which demonstrate any intention to innovate upon that important principle and, in the result, the defenders had no public notice that standard condition 6 did apply to the standard security, and that condition did not therefore become a condition of the title of Lyon as lessors under the lease of 1973.

For the pursuers the contention was that there had been sufficient "publication" of standard condition 6 so as to affect third parties, and that the 1975 lease granted in breach of that condition was accordingly void. In so submitting counsel for the pursuers accepted the principle to be derived from the case of Aberdeen Trades Council and, indeed, sought to apply it in their own favour. Their particular submission was that as a result of the provisions of the 1970 Act, which fall to be read together with the provisions of the standard security, the defenders were bound to presume that standard condition 6 applied, for no variation or exclusion thereof appeared on the face of the record. There was in any event a high probability that it had not been excluded or varied for this condition is plainly designed to restrict any power to let which the debtor may have which, in its exercise, would inevitably weaken the security. The pursuers could not and did not attempt to found upon an unpublished variation of the standard conditions. By the same token the defenders could not escape the consequences of a standard security which in its published terms required those transacting with Lyon to presume that standard condition 6 applied.

I have no hesitation in holding that the defenders' submissions upon this chapter of the argument are to be preferred. A standard security requires to be expressed in conformity with either Form A or B in Schedule 2 to the Act (section 9 (2)). The form appropriate to the standard security in this case was Form B. The style ends as follows—"The standard conditions specified in Schedule 3 … and any lawful variation thereof operative for the time being, shall apply:

" Note 4 to Schedule 3 makes it quite clear that agreed variations need not appear in the standard security itself and may be effected even by an unrecorded instrument. Section 11 (2) of the Act provides as follows—"

Subject to the provisions of this Part of this Act, the conditions set out in Schedule 3 to this Act, either as so set out or with such variations as have been agreed by the parties in the exercise of the powers conferred by the said Part (which conditions are hereinafter in this Act referred to as "the standard conditions"), shall regulate every standard security."

Section 16 is concerned with variations of, inter alia,standard conditions subsequent to the recording of a standard security, and sub-section (2) which applies to a case in which (as in this case) the personal obligation and other provisions have been created and specified in an unrecorded deed, provides that any standard condition may be varied in any appropriate form of deed which need not be recorded. From an examination of these provisions it may be taken that the general rule is that the standard conditions shall apply to every standard security unless they have been excluded or varied. Variations at the time of the granting of a standard security or, in the case of a standard security to which section 16 (2) applies, after the recording of a standard security, may, but need not, enter the register at all. If they do enter the register either in gremio of the standard security, or by endorsement thereon (section 16 (1)), or in a duly recorded deed then there can be no doubt that the standard conditions so varied are published to the world and affect the grantor's title. The provisions governing the making of variations by an unrecorded deed, however, contain nothing which suggests that unrecorded variations are to be regarded as having entered the granter's title, or that third parties are to be affected by those variations which do not appear on the face of the register. What then is the effect of the reference in the standard security granted by Lyon in the pursuers' favour? That reference is, quite properly, expressed in the language of Form B of Schedule 2 to the Act but the deed itself goes on to say that the parties have agreed that the standard conditions shall be varied in accordance with a Minute of Agreement which, we know, was not recorded. Counsel for the pursuers are, no doubt, correct in saying that the general rule to be derived from the statute is that all the standard conditions apply to every standard security unless they have been expressly varied, and that there is clear warning that condition 6 in particular may not have been excluded or varied, but the question in this case is whether, upon a proper construction of this standard security in light of the provisions of the Act, it can be affirmed that standard condition 6 had not been excluded and did apply. The answer is not in doubt. It cannot be so affirmed. All that the recorded standard security publishes to the world is that standard condition 6 does apply if it has not been excluded or varied in the unrecorded Minute of Agreement to which it refers. In short it leaves the question of the possible exclusion of condition 6 in doubt, and upon the application of the principle to be derived from the Aberdeen Trades Council case, I am not prepared to hold that there was public notice of the contents of the unrecorded Minute of Agreement, an examination of which would alone have demonstrated that standard condition 6 had neither been excluded or varied.

The second submission for the defenders on this chapter of their attack upon the relevancy of the pursuers' pleadings was that the defenders had no duty to go behind the standard security to discover whether or not standard condition 6 had been excluded or varied in the unrecorded Minute of Agreement. As in the case of the first submission, this submission took as its starting point the case of Aberdeen Trades Council from which it may be deduced that one is not bound to go and search for papers not upon record (see the speech of Lord Reid at p. 70 when he quoted with approval the opinion of Lord Meadowbank to that effect in Munro v. Munro, 19th May 1812 F.C.). To this submission there is a short answer. It is this. A new situation was brought about by the Act of 1970. As the result of that Act those who transact with a lessee who has granted a standard security know that the statutory standard conditions, including condition 6, regulate the standard security unless varied or excluded. The standard security in the style of Form B tells them just this. This particular standard security informed the defenders that standard condition 6 did regulate the security granted by Lyon unless it had been excluded or varied by the Minute of Agreement. In these circumstances the new situation which was not in contemplation before 1970 is that there is public notice to all concerned in transactions with the granter of a standard security that the standard conditions to be found in Schedule 3 to the Act of 1970 do regulate the standard security unless it should turn out that they have been excluded and varied. The principle is that no one is required to search for and examine an unrecorded deed to find out what conditions it contains which may affect the recorded deed which refer to it. That principle, it seems to me, does not provide an apt answer to the very different question which arises as the result of the Act of 1970, namely, whether an individual who has had statutory and public notice that certain specific standard conditions, including condition 6 which restricts the granter's power to let or sub-let, do regulate a particular standard security unless they have been excluded or varied, is entitled, without inquiring further, to take a sub-lease from the granter without the prior consent of the heritable creditor? In my opinion the answer to that very different question is that at the very least the published terms of the standard security put him upon his inquiry and that if he takes a sub-lease from the granter of that standard security without the prior consent of the heritable creditor, and, indeed, without inquiry, he does so at his peril. That is the general answer. It applies to this case with full force for the question of the possible variation of the standard conditions was not only mentioned in the language of Form B. There was in addition specific published reference to the Minute of Agreement. Any other answer would, I think, be quite unreasonable for unless it were held that persons in the position of the defenders were put upon their inquiry by the clear published warning in the standard security and in the statute, the protection which that statute intended to confer upon heritable creditors would be constantly at risk. It follows, in my opinion, that since the defenders took the lease of 1975 from Lyon without the prior consent of the pursuers and without either searching the record or making any other inquiry, they would, in law, fall to be treated as having taken their lease from Lyon in mala fide and upon that ground the lease is reducible at the instance of the pursuers.

Although the pursuers argued that the defenders' lease was voidable for other reasons, including the proposition that it had been granted by Lyon to the prejudice of the pursuers as heritable creditors, it is unnecessary to explore these further submissions. For the reason which I have given so far the pursuers are, in my judgment, entitled to decree in terms of their conclusions, without further inquiry, unless the substantive defence to the action is relevant on averment. This defence falls into two parts.

The first is that in the exceptional circumstances averred the defenders were excusably ignorant of the critical fact, namely, that Lyon's title to grant to them a sub-lease rested essentially upon the registered lease of 1973. If they ought to have been aware of this then the obligation to search the record, on which the pursuers' case rests, could not be disputed. If, on the other hand, they were excusably ignorant that Lyon's only title to grant a sub-lease was the registered lease of 1973 they were, in the exceptional circumstances averred, under no duty to search the record.

In maintaining that their averments in support of this, the first branch of their defence, were at least sufficiently relevant to go to inquiry, counsel for the defenders drew attention to the fact that Lyon had omitted to disclose to them that the 1971 lease had been superseded by another lease—the registered lease of 1973. Indeed the preamble to the lease granted to the defenders in 1975, which had been prepared by Lyon's solicitors, begins in these terms—"The landlords having power to let inter alia the subjects after-mentioned under the terms of a Head Lease granted in favour of the landlords by the County Council of the County of Lanark …" Lyon, needless to say, did not disclose, either, the fact that they had granted a standard security over the 1973 lease to the pursuers. In seeking proof before answer on this branch of the defence counsel for the defenders relied upon the following circumstances which the defenders had averred which were, they said, quite exceptional and which, if proved, would justify the proposition that their ignorance of Lyon's only title in 1975 fell to be excused. Their parent company, T.S.L. were aware in 1972 that Lyon were in possession of subjects which included Unit 2 on a lease for 120 years granted in 1971. That lease was not capable of registration and could not competently become the subject of any standard security. In knowledge of the lease of 1971, which had been exhibited to them, T.S.L. in 1972 entered into probative missives with Lyon in terms of which Lyon became bound to assign to T.S.L. their rights as lessees to that part of the subjects known as Unit 2. T.S.L. had also satisfied themselves that Lyon's landlords had, as the 1971 lease required, consented to the proposed assignation. On the conclusion of these missives T.S.L. paid to Lyon a grassum of £44,000 together with a first-stage payment of £3,000 in terms of the contract embodied in the building contract appended to the missives under which Lyon undertook to erect buildings on Unit 2 at the expense of T.S.L. Building work then began. By the beginning of March 1973 a substantial part of the buildings had been completed. Practical completion had been achieved in or about August 1973 when the premises were occupied by the defenders and opened to the public. The circumstances in which the defenders came to occupy them were these, according to the averments of the defenders. "By 3rd January 1973 it had been agreed between Lyon and T.S.L. that in place of an assignation Lyon would implement the missives by granting a sub-lease of the subjects." It is not suggested in this wholly unspecific averment that the "agreement" was other than of the most informal. In particular it is not maintained that it had any force in law. In chronological order the next event was, it appears, the decision of the controlling company, of which T.S.L. was a subsidiary, to set up the defenders as a subsidiary of T.S.L. to manage their trading interests in Scotland. The defenders were, as a result, incorporated in the spring of 1973. The defenders then aver that "on 31st July 1973 T.S.L.'s agents wrote to Lyon's agents stating that T.S.L. would like the assignation of the lease to be taken in name of the defenders." The next averment to be noticed is in these terms—"Lyon agreed to the proposal that the sub-lease should be granted in favour of the defenders and the 1975 lease was in due course prepared and executed by the parties." It is not maintained that this "agreement" by Lyon, which is in no sense a direct response to the alleged request on 31st July 1973, was in any way enforceable in law. It is not even said when it was intimated nor what informal communings preceded it. Finally and most importantly the defenders make the following averment:

"Neither T.S.L. nor the defenders nor their agents had any knowledge at the time the 1975 lease was entered into that Lyon had renounced the 1971 lease or entered into new leases and granted securities over the said subjects."

Upon these averments—and we were invited to consider them in light of the close connection between T.S.L. and the defenders and upon the view that the same agents acted throughout for T.S.L. and then for the defenders—the submission was that in the knowledge of the agents who acted for T.S.L. in 1972, Lyon were in possession under a long lease granted only a year before. They examined that lease on entering into the missives in 1972. After the defenders came into existence in the spring of 1973 and when the question of a sub-lease to the defenders came to be considered, it was perfectly reasonable for these agents to assume that there had been no change in Lyon's title at all and, accordingly, that there was no need to examine in 1975 the 1971 lease which they had examined on behalf of T.S.L. in 1972 and which they had no reason to believe had been renounced.

The pursuers' answer to this submission for the defenders was, firstly, that the defenders are seeking to maintain the lease of 1975. Lyon's title to grant it was the registered lease of 1973. The defenders cannot be heard to claim ignorance of this lease of which public notice was given on the register. Secondly, and in any event they argued that the defenders' submission fell to be tested by the averments with which they conclude answer 4:—

"The defenders entered into occupation of Unit 2, accepted a lease of the said subjects and assumed responsibility for the construction of the said buildings, all on the faith of the rights conferred upon T.S.L. by the said Missives."

Upon no view of the defenders' averments in answer 4 could it be held that they entered into the lease of 1975 "on the faith of the rights conferred upon T.S.L." by the missives of 1972. These were concerned with assignation to T.S.L. with the consent of the landlords. Three years elapsed before the execution of the sub-lease to the defenders and for aught that appears on record the consent of Lyon's landlords to this very different kind of contract in favour of different parties was neither sought nor obtained.

In my opinion the defenders' averments in answer 4 read as a whole are not relevant to instruct excusable ignorance in 1975 of the 1973 lease from which the defenders' rights under the 1975 lease were derived—particularly where it is not suggested that the pursuers in any way contributed to the defenders' failure to investigate the title of the prospective lessor. I do not rest this view upon the proposition that the defenders cannot plead ignorance of the 1973 lease because, having been registered, it was a public fact. The reason on which I proceed is that upon no view of the defenders' averments, if proved, could it be affirmed that they entered into the 1975 lease on the faith of any rights conferred upon T.S.L. by the missives of 1972. In any event the contract on which they embarked with Lyon in 1975 was a contract of a completely different kind. At least three years had elapsed since the agents common to T.S.L. and the defenders had examined Lyon's title for a completely different purpose—to see whether Lyon had power to assign in favour of T.S.L. No consideration was given at all in 1972 to the question whether, without their landlords' consent, Lyon had power to grant a sublease to anyone. In the totally different circumstances confronting the defenders and their agents in 1975 the defenders cannot excuse their failure to ascertain, in 1975, Lyon's title to grant the sub-lease which they wished to take by reference to the events which had taken place over three years earlier in relation to a contract between Lyon and T.S.L. of a very different kind. In so saying I cannot pretend that I have no sympathy for the defenders or their agents because the silence of Lyon is difficult to excuse, but sympathy affords no basis in law for holding that the defenders were, on their averments, excusably ignorant of the existence of the registered lease of 1973.

The second branch of the defence on averment is directed to the proposition that the pursuers were in mala fide in taking a standard security from Lyon in 1973 which was regulated inter alia by standard condition 6. The submission that their averments were at least sufficiently relevant to entitle them to inquiry rested upon the well-known cases of Rodger (Builders) Ltd. v. Fawdry, 1950 SC 483, Marshall v. Hynd, (1828) 6S 384, Petrie v. Forsyth, (1874) 2R 214, Stodart v. Dalzell, (1876) 4R 236 and Wallace v. Simmers, 1960 S.C. 255. From these cases it is clear that a party who takes a heritable title, including a sub-lease, from another is not in bona fide when he knows that the granter has already bound himself to grant that right to another, i.e., has granted to another a right which is capable of becoming a real right. Even if he does not actually know all this he will still be in bad faith if he knows that some sort of right has already been conferred upon another in respect of the relevant subjects, but proceeds without any inquiry. In reliance on the principle underlying these cases the proposition for the defenders was that they had averred enough to show that before the pursuers accepted the standard security from Lyon they knew that some sort of rights had been conferred by Lyon on third parties in and to, inter alia, Unit 2, and were aware of sufficient facts and circumstances to put them on their inquiry. Had they inquired they would have learned of the missives of 1972, and of the building work which had taken place on the faith of these missives. In short they would have learned that rights had been conferred by Lyon over Unit 2 which would be adversely affected by a standard security regulated by, inter alia, standard condition 6.

In my opinion this second branch of the defence must fail on relevancy for the reasons given by the Lord Ordinary. It must fail also for other reasons. Even if one were to assume from the defenders' averments that the pursuers were aware of sufficient facts and circumstances to put them on their inquiry (and I am far from saying that they had any duty to inquire at all) what would they have discovered? They would have discovered only the existence of the 1972 missives in relation to the lease of 1971 which had ceased to exist in January 1973. They were no longer capable of being implemented. In any event they would have discovered that these missives were concerned with an assignation of Lyon's right under the 1971 lease. The question is whether in that knowledge they would be in bad faith if they took a standard security which prohibited sub-letting by Lyon without the prior consent of the pursuers. Nothing in the standard security which they took would have prevented implement of the 1972 missives if, contrary to the fact, they were then still capable of being implemented. Finally, even if their inquiry had led them to the alleged "agreement" said to have been reached between T.S.L. and Lyon "by 31st January 1973" (for the implement of the missives by the grant of a sub-lease instead of an assignation) they could not be held to have acted in bad faith in disregarding it for it was in no sense an enforceable obligation capable of being converted by T.S.L. into a real right. In short, inquiry would have revealed nothing which affected the good faith of the pursuers.

Upon the whole matter I am satisfied that no relevant defence has been stated to the action and that the pursuers are entitled to the decree de plano pronounced in their favour by the Lord Ordinary. His interlocutor to this extent should therefore be affirmed.

All that remains for consideration is the counter-claim. Whether recompense, which is an equitable remedy, is available is always a question of circumstances, but I have no doubt that in the circumstances of this case no relevant basis for the defenders' claim of recompense has been stated. If I give my reasons briefly I intend no discourtesy to counsel on both sides of the bar from whom we heard full and excellent argument. In the first place, since I have held that the 1975 lease falls to be reduced on the ground that the defenders in entering into it were in mala fide, this necessarily colours their possession of the subjects in respect of which they committed themselves to the expenditure averred. It is settled law that a mala fidepossessor is not entitled to claim recompense for any meliorations he may have made (Cardross v. Hamilton (1711) M1747;Duke of Hamilton v. Johnston (1877) 14 S.L.R. 298;Waugh v. More Nisbett (1882) 19 S.L.R. 427). The defenders' first plea in law in the counter-claim was no doubt framed with this rule in mind. In the second place it is plain that the work was done by the landlords, Lyon, who were paid for what they did. All they gained was their profit. A claim for recompense could hardly lie against Lyon for the cost of the works which they themselves carried out under contract with T.S.L. In the third place I am not persuaded that there exists between the defenders and the pursuers as heritable creditors of Lyon a relationship which would support a claim for recompense for any alleged benefit which may enure to them indirectly. I know of no authority which would permit to the defenders a claim of recompense against the heritable creditors of their lessor, even if these heritable creditors should become lucrati as the result of works paid for by the defenders. In the fourth place it cannot be said that the pursuers have yet become lucrati for they have not yet reached the stage of entering into possession of the subjects of the lease. It is at least conceivable that they may never require to do so and the claim is accordingly premature. For all these reasons I am satisfied that the defenders have made no relevant averments to justify the grant in their favour of the equitable remedy of recompense. I therefore concur in the Lord Ordinary's disposal of the counter-claim, although not entirely for the same reasons, and would refuse the reclaiming motion in its entirety.

LORD CAMERON .—This case is concerned with the application of certain provisions of the Conveyancing and Feudal Reform (Scotland) Act 1970. The particular provisions in question are those dealing with the newly introduced statutory form of heritable security known as the "Standard Security," the terms and conditions of which except and so far as they are specifically varied and capable of variation are, by operation of statute, incorporated in all heritable securities granted since the Act came into force.

One of these standard conditions is standard condition 6 which provides that it shall be an obligation on the debtor not to let or agree to let, the security subjects or any part thereof without the prior consent in writing of the creditor and "to let" and this condition includes "to sub-let."

The debtor in the present case is a company called Lyon Group Ltd. ("Lyon") and the creditor the pursuers. The sub-lessees are the defenders, who were incorporated in the spring of 1973 and obtained from Lyon in April 1975 what purported to be a sub-lease. Lyon is now in liquidation, having been liquidated very shortly after purporting to grant this sub-lease in favour of the defenders, who are themselves said to be a wholly owned subsidiary of a company known as Tobacco Sales Ltd.—T.S.L. for short. It is not in dispute that Lyon did not obtain the prior consent of the pursuers before purporting to enter into the sub-lease with the defenders. Lyon are lessees from the former County Council of Lanark, and it is admitted on record by the defenders that Lyon were lessees of the council under a lease of April 1973. The Lord Ordinary has found that this lease superseded an earlier lease covering a much larger area of ground entered into in April 1971. The earlier lease covered an area of 101—5 acres, which meant that it was not registrable under the Registration of Leases Act 1857 while the later lease of April 1973, being for an area of less than 50 acres in extent, was registrable and was duly registered. Quite apart from the defenders' plain admission in answer 2, I agree with the Lord Ordinary's conclusion that the lease of 1973 superseded that of 1971.

This conclusion has a certain importance for the disposal of this reclaiming motion, in that the defenders maintain that they were under the impression that the lease under which Lyon granted the sub-lease was that of 1971. The case however can only be taken on the basis that the right of Lyon to enter into a sub-lease was derived only from the lease of April 1973. It appears from the defenders' averments that missives were entered into in December 1972 between T.S.L. and Lyon under which Lyon would assign to T.S.L. the precise area which forms the area covered by the sub-lease in question here. It is averred by the defenders however that this was an assignation of the 1971 lease, which at that time was the only lease between Lyon and the County Council. At the time the missives were entered into the defenders were not in existence. The missives are interesting: the offer by T.S.L. is dated 22nd November 1972 and condition 11 states "It is understood that your clients (Lyon) will grant an assignation of the said lease insofar as it relates to the said subjects and that the landlords have consented to such assignation" (my italics). In their acceptance dated 29th November 1972 Lyon required deletion of the words "have consented" and the substitution of the word "consent." Clearly T.S.L. were very much alive to the necessity for and importance of the landlord's consent—to an assignation. The prescribed grassum of £44,000 was paid to Lyon but no assignation followed. According to the defenders' own pleadings a subsequent arrangement was made between Lyon and T.S.L. that in place of performance of the contract contained in the missives, to which the lessors had given consent according to the terms of the missives, a different arrangement was entered into prior to the incorporation of the defenders, by which Lyon was to grant a sub-lease to the defenders. The defenders were incorporated on 28th March 1973, but from their averments it appears that "by 31st January it was agreed between Lyon and T.S.L. that in place of Assignation … Lyon would implement" the missives by granting a sublease of the subjects. This was apparently changed to an assignation on 31st July 1973, but at some date unspecified but later than July, it is averred that the earlier arrangement was reverted to. The importance of these averments is that on the defenders' own averments they accepted, and without fuller inquiry acted upon, an arrangement which had been made prior to their incorporation and in anticipation of it. The matter does not end here. The missives which were abandoned referred to an assignation of a small part of a very much larger whole, i.e.,the area covered by the only lease then in existence—namely the lease of 1971. There is no averment or suggestion that the lessors were made aware of a new arrangement between T.S.L. and Lyon for a sub-lease to a wholly different party, far less that they gave prior written consent to such a contract or indeed that they were aware of it. The defenders, when they entered into the sub-lease, were aware that it contained no consent or reference to a consent to a sub-let by the "head landlord" and also that the lessors professed expressly to have "power to let inter alia the subjects after mentioned under the terms of a head lease." They were thus aware who the "head landlords" were, that the subjects to be let to them were part of the subjects let by the "head landlords," and that this was a long lease—which at the very least might be registrable. All that the lease said was that the "landlords having power to let" proceeded to let. The omission of any reference to consent as well as the bare reference to power is, in my opinion, of some significance in the circumstances in which the defenders found themselves. They were merely implementing arrangements made over their heads as to which they had never been consulted and which were made even prior to their incorporation.

Now, at the time the defenders entered into this lease-and significantly enough there are no missives referred to or produced—they were necessarily aware of the terms of the Act of 1970. Such a lease as they were entering upon was granted by a lessor whose own lease might well have been registered. They had the means of knowledge—a search of the register. They were also aware of the provisions of the 1970 Act relative to heritable securities and in particular of condition 6 of the standard conditions. Considerable debate centred round the question of what is the effect of "publication" by the registering of a registrable lease (and the lease of 1973 was such a lease), and of the registration of a standard security. In my opinion the fact of such "publication" is not to certiorate the public at large of what is recorded, but to make public notification to such persons who may resort or require to resort to the record of what is there recorded. As regards "standard securities," the statute provides for the incorporation in all heritable securities of the standard conditions set out in Schedule 3 to the Act, except insofar as these are varied or may be varied. The fact of variation must be recorded even if the precise variation itself is not on the record. The result of these statutory provisions in my opinion is this, that the right to rely upon the "faith of the record" necessarily implies at the same time that there is an implied knowledge of the statutory provisions as to the standard conditions which are incorporated in any effective heritable security over a registrable interest in land, or as to the existence of any permissible variation on the part of anyone seeking to rely upon such "faith" thereof. It would appear to follow therefore that it is a matter of initial presumption that all the standard conditions—including of course standard condition 6, apply except in so far as varied within the power of variation given by the statute. Notification in a recorded security of the existence of variation must therefore put on his guard and on his inquiry anyone who may require or be required to consult the record on the faith of which he is entitled and may be about to enter into a transaction affecting a registrable interest in land. The importance of condition 6 appears to me to be this, that since the Act of 1970 came into force all professionally concerned in transactions relating to the transfer of heritable right must be held to be aware of the terms and effect of this condition as imported into all post-1970 heritable securities.

The first issue in this reclaiming motion concerns the relevancy of the pursuers' averments in support of their reductive conclusion. The pursuers plead that because the sub-lease was granted without the prior written consent of the pursuers it is null and void. In my opinion, agreeing with your Lordship in the chair, I think that such a plea goes too far. While prior written consent is stipulated for in the principal lease as a condition to the grant of a sub-lease, I do not think that this condition would disable the lessor from subsequent homologation of a sub-lease granted without such prior written consent, and I can also envisage circumstances in which a successful plea in bar might be asserted on behalf of a sub-tenant. If it were null and void ab initio it could never be saved by any subsequent action or agreement of parties and thus a landlord even if willing to do so could never give validity to a lease which had been entered into without the prescribed consent in writing.

In my opinion a sub-lease entered into without prior written consent is one which is voidable at the instance of the party whose consent is required but has not been obtained. With these observations in mind I turn now to consider whether the pursuers have averred enough to entitle them to have this lease set aside and whether the defenders have stated a relevant defence in answer.

I think that two questions arise, the first whether there was any duty on the defenders to make inquiry as to Lyon's title and second, if so, whether the defenders have made relevant averments which if proved would demonstrate that such duty had been discharged.

The answer to the first question appears to me to involve consideration of the precise history of events in the transaction between Lyon and T.S.L. as well as between Lyon and the defenders. The original missives of 1972 between Lyon and T.S.L. were concerned with a proposed assignation between the parties thereto, and the missives proceeded upon a narrative of consent by the Lanark County Council—the lessors to Lyon. At this time the defenders did not exist, and the lease to which the missives related was that of 1971 which, being for an area of land in excess of 50 acres, was not registrable under the Act of 1857. By the time the lease to the defenders was granted by Lyon in 1975, and very shortly before the liquidation of that company, the situation had changed radically in respect that Lyon's title to the area in question here flowed from the lease of 1973 which superseded that of 1971. On this point I think there can be no room for dispute in view of the defenders' admission in answer 2 of the defences. There cannot be two leases simultaneously in respect of the same area of land, and I agree with the conclusion at which the Lord Ordinary has arrived on this matter. That lease was registrable, as the most cursory inquiry in 1975 would have disclosed. Now the defenders are not said to have been party to the alleged agreement between T.S.L. and Lyon as a result of which the contract embodied in the missives was abandoned. This agreement is not said to have been in probative form and not even in writing, while its precise date is also unspecified. Now, on the face of the pleadings the defenders only came into the picture in 1975. It is not said that any inquiry was made by the defenders into their author's title before the sub-lease was entered into. But, on the assumption that the defenders were a separate and independent legal person, then clearly they had a duty to take action to assure themselves of their proposed lessor's title. If they had done so then they would have discovered that their lessors were holding under a registrable lease and this necessarily would have led them to the record and there a search would have disclosed not only the terms of the 1973 lease but inevitably the existence on the record of the 1973 standard security. In such an event to take a lease without the prior written consent of the lessors to Lyon would open them to successful attack at the instance of those lessors or of the security holders. But no such inquiry was made by the defenders. There was no obligation in law on Lyon to make such disclosure.

It was argued for the defenders however that as they were a wholly owned subsidiary of T.S.L. and had the services of the same solicitors the knowledge of T.S.L. was the knowledge of the defenders. But even upon the assumption of this argument and of identity of solicitors I very much doubt whether in a matter of this kind the defenders as a separate legal persona can shelter behind T.S.L. even assuming that the shelter be waterproof. But it is not said by the defenders, other than in an oblique manner, that they were entitled to rely upon inquiries made on their behalf by T.S.L. far less what inquiries were in fact made by T.S.L. at the time the lease of 1975 was entered into. So far as the pleadings disclose there was none. In my opinion, on the assumption that the defenders were a separate legal person about to take a sub-lease from Lyon, a duty lay upon the defenders and their legal advisers, having regard to the fact that the lease from which their title would flow was a registrable lease, to verify that it had been registered and the terms thereof. Such a search could not have failed to disclose the fact of registration and of the existence on the record of the standard security. If the rule of law is that in the case of recorded interests in land an intending purchaser or lessee is entitled to act "on the faith of the record," then it seems a necessary corollary that the record must be consulted by such purchaser or lessee and that if he fails to do so he must take the consequences. Consequently, I think that the defenders are without relevant answer to having this lease set aside as voidable at the instance of the pursuers as the holders of a recorded standard security, unless they can ride to safety on the back of T.S.L. In my opinion they cannot, even on the assumption, which for the sake of argument I am prepared to make, that the defenders are a wholly owned subsidiary of T.S.L. and enjoyed the services of the same law agents. This assumption has this corollary, that the question has to be asked and answered as if T.S.L. were themselves in 1975 about to take a sub-lease from Lyon. Now, what is then the assumed state of affairs in 1975 when T.S.L. enter into negotiation for a lease? The missives of 1972—to which Lyon's authors have given consent, as the missives expressly bear—had been abandoned. Lyon and T.S.L. had entered into a wholly new arrangement in some improbative form under which Lyon—without apparent consultation with or consent of their own landlord—agreed to grant a sub-lease of part of the acreage held on long lease by them. Presumably the terms of this lease were within the knowledge of T.S.L., and if so they must have been aware that even on the terms of the 1971 lease the landlord's written consent was required for a sub-lease. Whether this is correct or not, it was surely for T.S.L., after such a lapse of time—some three years—and in light of the difference in the arrangements under consideration, to make some inquiry as to the state of Lyon's title and Lyon's capacity to grant a sub-lease. Consent to an assignation is one thing, consent to a sub-lease is another, and I do not think it can be assumed that because Lyon's author was prepared in 1972 to consent to an assignation of Lyon's right to company A the same consent could be assumed as effective in 1975 to apply to a sub-lease in favour of company B of unknown capacity and financial standing. But so far as the pleadings disclose, T.S.L. as the parent company of the defenders did nothing. This is made crystal clear by the defenders' averments that "neither T.S.L. nor the defenders nor their agents had any knowledge at the time the 1975 lease was entered into that Lyon had renounced that 1971 lease and entered into new leases and granted securities over the said subjects." In my opinion even if the defenders could in law, on the averments put forward by them, rely on the knowledge and protective actions of T.S.L. (and I am far from saying that they could) these are wholly insufficient to provide a relevant answer to the pursuers' claim.

In the result therefore I think the two questions which I posed must be answered to the effect that the defenders had such a duty of inquiry and that it is plain on the pleadings themselves that they failed to discharge it. The defenders however in their turn accuse the pursuers of being in bad faith in taking a standard security over the subjects covered by the security without further inquiry. I agree with your Lordship in the chair that even on the pleadings as amended the defenders' averments on this matter are insufficient to support the defenders' fourth plea in law.

The final question relates to the defenders' counter-claim based on the doctrine of recompense. It is of course true that the precise limits of the application of that doctrine have never been drawn and it would, in case of an equitable doctrine such as this, be undesirable to attempt to lay down rules applicable in all circumstances. But the essence of the principle of recompense is that it is equitable, and that there should be gain on the one side and loss on the other. The matter is summed up concisely in the brocard nemo debet locupletari aliena jactura.

What then is the state of facts averred on the present case upon which the defenders base their claim? The pursuers' rights are rights in security, not present rights in property or possession. Their gain, if any, lies in futuro and is at best potential: in theory therefore any increase in the value of the security subjects may never enure to them On what principle of equity therefore can they be called upon to pay now for the presumed increase of value of the security subjects? Faced with this question counsel for the defenders frankly admitted that no authority in decided cases could be cited by them in support of their claim. Indeed, the decision in the case of Soues v. Mill (1903) 11 S.L.T. 98 and the opinion of Lord Kyllachy, would appear to be directly contrary to the defenders' submission, and when the matter is considered in that light, I am of opinion that the defenders fail in their averments to demonstrate that if these averments are proved, any present gain can or will arise to the pursuers. But apart from this basic consideration there is another and equally fatal answer to the defenders' counter-claim. Equity requires good faith on the part of him who invokes it, and a mala fidepossessor can never invoke the doctrine of recompense.

In these circumstances I am of opinion that there are no relevant averments upon which the counter-claim can be rested and that it consequently fails. Upon the whole matter therefore, I agree that this reclaiming motion should be refused and that the interlocutor of the Lord Ordinary should be affirmed.

LORD KISSEN .—I begin by considering, in general terms and without reference to the particular facts of the present case, the effect of a recorded standard security and the incorporation of standard conditions where the standard security is over a lease recorded in the Register of Sasines and the debtor in the security wishes to sub-let the security subjects. Section 11 and condition 6 of Schedule 3 to the Conveyancing and Feudal Reform (Scotland) Act 1970 are in point. Section 11 (2) provides that the conditions set out in Schedule 3 to that Act ("the standard conditions") as so set out or as varied shall regulate every standard security. Some conditions cannot be varied or excluded but condition 6 can be varied or excluded. Condition 6 of Schedule 3 provides that:

"It shall be an obligation on the debtor not to let, or agree to let, the security subjects or any part thereof without the prior consent in writing of the creditor, and ‘to let’ in this condition includes to sub-let."

In terms of section 16, note 4 of Schedule 2 and note 5 of Schedule 4 to the Act of 1970, permitted and agreed variations of the standard conditions do not require to be recorded in the Register of Sasines.

The effect of these statutory provisions must be that a potential sub-lessee, before taking a sub-lease, should not only see the principal lease but must also be on his guard in regard to certain matters. Firstly, he must ascertain, if the lease is one which can be recorded in the Register of Sasines, whether it has been so recorded. Secondly, if so, he must ascertain whether there is a standard security over the subjects. Thirdly, if so, he must satisfy himself either that condition 6 has been expressly excluded or that he has the written consent of the creditor in the standard security over the subjects. I refer only to matters relating to the statutory provisions to which I have referred and not to other matters such as, for example, the consent of the landlord of his potential lessor. I said that a potential sub-lessee must be on his guard, the reason being that the potential lessor may be subject to a statutory incapacity to give a good title to the potential sub-lessee because of the provisions of the Act of 1970 which I have earlier mentioned. I refer later to possible circumstances in which such a potential lessor may be able to give a good title without condition 6, although applicable, being satisfied.

The dispute between counsel for the parties on this aspect was in narrow compass. It was common ground that recording in the Register of Sasines was publication and that such recording was notice to potential sub-lessees who would be bound by any restriction contained in the recorded deeds. The submission by defenders' counsel, based on general principles, repeated in Aberdeen Trades Council v. Ship-constructors and Shipwrights Association, 1949 S.C. (H.L.) 45, was that standard conditions were of no effect unless the variation was recorded in the Register of Sasines, any variation in an unrecorded document being of no effect. I cannot accept this submission. I do not think that Aberdeen Trades Council, supra, and the other cases are of assistance in this connection. The law on heritable securities has been completely altered by the Act of 1970 and it is to the Act that one must look. It seems clear to me from the terms of the Act, and, in particular, section 11 (2) that recording of the standard security is publication to the world and, particularly, to a potential sub-lessee of the standard conditions, including condition 6. If there is reference to a variation in an unrecorded deed, a potential sub-lessee cannot assume that condition 6 is excluded. If unrecorded deeds can be ignored, as defenders' counsel said was the result of Aberdeen Trades Council, supra, the unrecorded deed can have no effect in excluding condition 6 which is part of the recorded standard security.

Turning to the particular facts in this case and ignoring, for the present, the defenders' case based on mala fides on the part of the pursuers, (their sixth plea in law), what is the defenders' answer to that interpretation which is, prima facie, fatal to them? The submission was that, in the particular and special circumstances of this case, there was no duty on them to be on guard and to make inquiries before completion of the 1975 lease. In my opinion a justifiable failure to make inquiries cannot assist a sub-lessee in a case like the present unless the security holder in some way contributed to the justification for the failure.

The essence of this submission was that the defenders or T.S.L. or the agents who acted for both of them were only aware of the 1971 lease, that they knew that the 1971 lease could never be legally recorded in the Register of Sasines and be the subject of a standard security because of the provisions of the Registration of Leases Act 1857, although it had in fact been illegally recorded, and that they were entitled to assume that the 1971 lease still operated. This submission cannot, in my opinion, be invoked as a defence for the defenders. The facts that T.S.L. and the defenders were closely connected, that they shared the same solicitors, that T.S.L. entered into missives with Lyon and paid them certain sums, that there were negotiations thereafter between T.S.L. and Lyon regarding assignation or a sub-lease cannot, in my opinion, affect the position. The fact is that, according to the defenders' averments, the defenders, who were not in existence until the spring of 1973, did nothing to inquire about the title of Lyon to grant the lease of 1975 but relied on information given to others, albeit close associates. In fact, although not strictly relevant, the consent of Lanark County Council to assignation had not been taken prior to the lease of 1975 and the main lease between Lanark County Council and Lyon was described as the "Head Lease" without any other specification. The latter matter was possibly something which might have caused inquiry to the defenders but I do not stress it.

In my opinion the defenders' averments in answer 4, taken pro veritate, could not excuse them from inquiry as to Lyon's title to grant the lease in 1975. Had any inquiry been made, as it should have been, the defenders would have known that the lease of 1975 was ineffectual against the pursuers. There could be no justification for the failure on the defenders' averments and, in any event, no justification by any actings of the pursuers.

I now consider the defence of mala fides on the part of the pursuers. This relates to the defenders' fourth plea in law which is in these terms, viz.:—

"The standard security so far as relating to Lyon's rights in the area comprising Unit 2 having been entered into by the pursuers in mala fide the defenders should be assoilzied."

The Lord Ordinary has dealt fully with the legal aspect of this case and I adopt his views on the reported cases mentioned by him and the principles to be followed. I agree that the question for decision is whether "there is disclosed a situation in which they (the pursuers) should have been put on their inquiry as to whether the defenders had acquired in Unit 2 a right of such a nature that it was capable of being turned into a real right." (See Wallace v. Simmers, 1960 S.C. 258). I cannot accept the suggestion that the pursuers should have been put on their inquiry simply because there was some kind of improbative agreement between Lyon and T.S.L. In all the cases prior to Wallace v. Simmers, supra, there were either prior rights by missives or a verbal contract known to be followed by possession with rei interventus (Stodart v. Dalzell (1876) 4 B 236).

Because of the amendments made by the defenders the decision on that question also depends on the defenders' averments. The relevant time for knowledge on the part of the pursuers was prior to March/April 1973 when the standard security was executed and recorded. The defenders were not incorporated until 28th April 1973, after the standard security was recorded. All that the pursuers would have discovered before execution of the standard security was that there had been missives relating to an assignation to T.S.L. in November and December 1972. Further confusion is added by the averment that on 31st July 1973 T.S.L.'s agents wrote to Lyon's agents stating that T.S.L. would like an assignation to be taken in name of the defenders. I cannot see how anything added by amendment since the debate before the Lord Ordinary improves the defenders' position in this respect and disclosed a situation in which the pursuers were put on their inquiry. I am content to adopt the approach of the Lord Ordinary and the conclusion which he reached, which have not been altered by the amendments. The defenders' averment at the end of Answer 4 is, in my opinion, irrelevant. It is in these terms, viz.:—

"The defenders entered into occupation of Unit 2, accepted a lease of the said subjects and assumed responsibility for the construction of the said building, all on the faith of the rights conferred on T.S.L. by the said missives."

It is quite contradictory of the defenders' own earlier averments about what took place in 1972 and 1973 and the terms of the missives. I add that it was finally conceded by defenders' counsel that the lease of 1973 superseded the lease of 1971. I cannot see how this concession could have been properly withheld.

Before I turn to the argument on the relevancy of the defenders' counterclaim, I have some observations to make on the pursuers' fifth plea in law which is in these terms, viz.:—

"Separatim said pretended lease between Lyon and the defenders having been entered into in prejudice of the pursuers' rights as security holders aforesaid falls to be reduced."

The Lord Ordinary did not sustain it. The argument for the defenders before him and before this Court was that, on the authority of Ritchie v. Scott 1 F 728 and Edinburgh Entertainments Ltd. v. Stevenson, 1926 S.C. 363, the doctrine of "radical right" could be invoked to preserve a lease granted by the debtor in a standard security contrary to the terms of standard condition 6. I do not think that these cases can support the defenders' submission. The Act of 1970, with the statutory provisions which I have mentioned, has changed the law and prejudice to a creditor's security is irrelevant. In any event Lyon's recorded title, the lease of 1973, was not unfettered so as to give them a "radical right" because it contained the specific exclusion of assignees and sub-tenants without the prior consent in writing of Lanark County Council. I reject the defenders' submission on this.

There remains the relevancy of the counter-claim by the defenders which only arises, if, as is now the position, the pursuers are successful in reducing the lease of 1975. As I said, the pursuers' averments have been amended and a new plea in law added. I think that the Lord Ordinary reached the correct decision and that the counter-claim is clearly irrelevant. A proof before answer will not in my opinion assist.

The essence of the counter-claim is that the pursuers were lucrati as a result of the expenditure incurred by the defenders. There is no specification as to how or to what extent the pursuers, as holders of a standard security, were lucrati. In none of the cases cited was there any suggestion that the doctrine of recompense can be invoked against a heritable creditor and, as the Lord Ordinary points out, Lord Kyllachy in Soues v. Mill, 1903 11 S.L.T. 98 at p. 100 is clear that the doctrine cannot be invoked in such cases (See also Gloag on Contract 2nd Ed. p. 330 and cases cited there). That is enough to make the pursuers' averments in the counter-claim irrelevant. In the circumstances I do not think that I require to consider the other arguments against relevancy except to say that I agree with the views of the Lord Ordinary. I would only add that the relationship between the defenders and pursuers and the circumstances in which the defenders incurred the sums counter-claimed, as disclosed in the averments of the defenders, cannot form a relevant basis for a counter-claim. I do not think that the averment added by the pursuers in their answer 6 to the counter-claim meets the criticism of the Lord Ordinary on the question of another remedy being available to the defenders.

I agree that the reclaiming motion should be refused.