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Cite as: 1999 SC 21, [1998] ScotCS 9

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OPINION OF LORD MACFADYEN

in the cause

AUBREY INVESTMENTS LIMITED

Pursuers;

against

D. S. C. (REALISATIONS) LIMITED (In Receivership)

Defenders:

________________

11 August 1998

Introduction

In this action of declarator of irritancy, the pursuers, the landlords of shop premises at Unit 2, 53 Marischal Street, Peterhead ("the property"), seek to enforce the irritancy which their tenants, the defenders, formerly known as D. S. Crawford Limited ("Crawfords"), incurred by virtue of the appointment of joint receivers of their undertaking. The lease between the pursuers' predecessors in title and Crawfords contained in Clause TWENTIETH an irritancy provision which was inter alia in the following terms:

"If at any time during the currency of this Lease the Tenants shall ..., being a company, ... have a Receiver or Manager appointed, ... then and in any of these events it shall be in the power of the Landlords to put an end to this Lease without any declarator or process of law to be used to that effect and to remove the Tenants from possession of the premises ..., which irritancy is hereby declared to be pactional and not penal and shall not be purgeable at the Bar; ...".

On 3 September 1996 joint receivers of Crawfords' undertaking were appointed. After a period during which there took place negotiations between the pursuers and the receivers, which will require to be examined in detail, the pursuers on 24 January 1997 served on Crawfords a notice of irritancy. The issue which remains between the parties is focused in the defenders' third (formerly sixth) plea-in-law, which is in the following terms:

"In all the circumstances of the case a fair and reasonable landlord would not seek to rely on Clause TWENTIETH of the Lease and accordingly the pursuers are not entitled to declarator as first concluded for."

That issue arises for decision because of the terms of section 5 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 ("the 1985 Act"), which are inter alia as follows:

"(1) Subject to subsection (2) below, a landlord shall not, for the purpose of treating a lease as terminated or terminating it, be entitled to rely-

on a provision in the lease which purports to terminate it, or to enable the landlord to terminate it, in the event of an act or omission by the tenant (other than such a failure as is mentioned in section 4(1)(a) of this Act [failure to pay rent or make any other payment]) or of a change in the tenant's circumstances; or
on the fact that such act or omission or change is, or is deemed by a provision of the lease to be, a material breach of contract,

if in all the circumstances of the case a fair and reasonable landlord would not seek so to rely.

(2) No provision of a lease shall of itself, irrespective of the particular circumstances of the case, be held to be unenforceable by virtue of subsection (1) above."

It is not disputed that Clause TWENTIETH, so far as providing for irritancy on the appointment of a receiver of the tenant, is a provision of the lease which purports to enable the landlord to terminate it in the event of a change in the tenant's circumstances. The pursuers therefore may not rely on that provision if in all the circumstances of the case a fair and reasonable landlord would not seek to do so.

The Circumstances of the Case

Since the section directs attention to the way in which a fair and reasonable landlord would act "in all the circumstances of the case", it is appropriate to begin by summarising those circumstances as they were brought out in evidence at the proof. They may be gathered in part from the correspondence and other documents which were lodged as productions, and in part from the evidence given by witnesses explaining and commenting on the contents of documents and filling in gaps in the written records. The witnesses who were led for the pursuers were:

David A. Smith, W.S., a partner in Shepherd & Wedderburn, W.S., who acted as the pursuers' solicitor in relation to the matters with which the action is concerned;
Simon J. Newton, a partner in Workman & Partners, Property Managers and Surveyors, who acted as the pursuers' property managers in relation to inter alia the property with which the action is concerned;
Matthew A. Oakeshott, the principal shareholder in and director of the pursuers; and
Robert T. Stevenson, FRICS, a partner in Donaldsons, Chartered Surveyors, who gave expert evidence on whether the pursuers acted in a way in which a fair and reasonable landlord would have acted in the circumstances of the case.

The witnesses who were led for the defenders were:

John D. Lawrie, C.A., who is one of the joint receivers of the defenders (and in what follows any reference to "the receiver" in the singular is a reference to Mr Lawrie);
J. S. Fraser Macgregor, a partner in Bennett & Robertson, Solicitors, who acted for the receivers in relation to the matters with which the action is concerned; and
William A. Duguid, FRICS, a partner in Rydens, Chartered Surveyors, who also gave expert evidence about how in the circumstances a fair and reasonable landlord would have acted.

The Lease which contains the irritancy clause on which the pursuers seek to found (No. 5/1 of process) was granted by their predecessors in title, Netherscot Developments Ltd, in favour of Crawfords in 1981. It was therefore drafted without regard to the restrictions now placed on the enforcement of an irritancy by section 5 of the 1985 Act. I have already set out so far as material the terms of the irritancy clause. The property, which comprises a baker's shop and bakery in a central location in Peterhead, forms the middle unit in a group of three shops. At all material times the other two shops were tenanted by John Menzies and Papertree. By the Lease the property was let for the period from 13 October 1980 until Martinmas 2005. The initial rent was £6500 per annum, but there was provision for rent reviews at five-yearly intervals. The 1995 rent review was concluded shortly before the appointment of the receivers, and its effect - an increase of the annual rent to £14,800 with effect from Martinmas 1995 - was set out in a Memorandum dated 31 July and 5 August and recorded on 3 September 1996 (No. 9/1). At the time of the rent review negotiations, Mr Oakeshott approached Crawfords with a view to negotiating a termination of the Lease, but they indicated that they were trading well from the property, and did not wish to give up the Lease.

At an earlier stage, in consequence of a management buy-out of the Crawfords business, a guarantee of the tenant's obligations under the Lease was granted by United Biscuits (UK) Limited. That guarantee was incorporated in a Minute of Agreement Incorporating Guarantee dated 23 November and 19 December 1990 and recorded on 5 January 1991 (No. 34/1). In terms of Clause SECOND the guarantor was obliged, within fourteen days of a written demand, to perform the tenant's obligations under the Lease. Clause THIRD enabled the pursuers, in the event of their irritating the lease, to require the guarantors, by notice served within six months from the date of irritancy, to take a new lease of the property from the date of irritancy for a period equal to the unexpired portion of the term of, and otherwise on the same terms as, the irritated lease.

Mr Oakeshott first heard of the appointment of the receivers on about 5 September 1996, when agents who were acting for him in another matter sent him a copy of a press article reporting it. He immediately telephoned Mr Smith for advice. Mr Smith's business entry (No. 33/1) relating to that telephone conversation confirms that Mr Oakeshott wished to check the position under the guarantee, and wished to know whether he could terminate the Lease. Mr Smith's letter of 6 September (No. 33/2) dealt with the position under the guarantee and, with reference to the irritancy clause, said:

"The appointment of a receiver is ... a breach which is not capable of being remedied and, accordingly, an event has now occurred under the Lease which entitles you to bring the Lease to an end if you so wish."

No reference was made at that stage to the "fair and reasonable landlord" test set by section 5 of the 1985 Act. Armed with that advice, Mr Oakeshott then contacted the receivers' office and eventually spoke to Mr Lawrie by telephone. His objective was to ascertain what the receivers' intentions were. The receiver indicated that he hoped to dispose of the business as a going concern, and Mr Oakeshott gained the impression (correctly) that he was optimistic about his prospects of doing so. He indicated an interest in other freehold properties which the receiver might have to sell. He acknowledged that at that stage he had a feeling that the property was under-rented, and that a better rent might be obtained if there was an opportunity to let it on a fresh longer lease. According to the receiver, he told Mr Oakeshott that it would take time to identify a preferred bidder, and that he would keep him as well informed as he could and revert to him if any material event occurred which affected his interest.

On 10 September 1996 the receiver wrote to the pursuers (No. 9/2/1) intimating his appointment, referring to the Lease, indicating that he was considering the possibility of selling Crawfords' business as a going concern, and broaching the possibility of dialogue with a view to an arrangement by which the lease would be assigned to the purchaser of the business. It was proposed that any arrangement would be on the understanding that the pursuers would not in the meantime irritate the Lease. It was emphasised (and repeated on a number of occasions in later correspondence) that the receiver was not adopting the Lease, and was acting as agent of Crawfords and without any personal liability. A letter in similar terms, the receiver explained in evidence, was sent to all landlords whose leases were understood not to be supported by guarantees. At that stage the receiver, although under the impression that there was a guarantor in place in respect of the pursuers' Lease, could not find the relevant documents, and therefore proceeded on the hypothesis that there was not. In cases where there was known to be a guarantee, a firmer line would have been taken. Mr Oakeshott indicated in evidence that he regarded it as reasonable to allow the receiver some time to find a purchaser, and to wait to see what the proposal for assignation was. He indicated that he had no firm time-scale in mind initially, although he was thinking in terms of weeks rather than months, given that he was confident of being able to re-let the property himself if necessary. He also mentioned his recognition that the avoidance of job losses was desirable, if possible. In the event, the response which was made on the pursuers' behalf was by letter from Workman & Partners dated 30 September (No. 9/2/2), which indicated that until 31 October the pursuers would take no steps to irritate the Lease while the receiver endeavoured to dispose of the business.

In seeking to dispose of the Crawfords business as a going concern the receiver divided it into a number of packages. In particular, he sought to dispose of a package comprising a bakery and nine shops in the north-east of Scotland which included the property let from the pursuers ("the Peterhead portfolio"). There was a high level of interest, and within a matter of days the receiver had a significant number of parties whose interest in some part of the business had been noted. He set a closing date for offers towards the end of September. By that date he had three offers for the Peterhead portfolio. One of these was from a partnership which traded as Thains Bakery ("Thains"). Another was from Chalmers of Bucksburn Limited ("Chalmers"). Having considered the offers, the receiver accorded Thains "preferred bidder" status, and so advised his solicitors, Bennett & Robertson (No 28/6/1). As the receiver explained in evidence, there was no point in taking detailed negotiations with Thains further at that stage, until the landlords had in principle accepted Thains as suitable assignees of the leases. Such negotiations were therefore deferred, although the receiver in evidence accepted that the pursuers would not necessarily appreciate that his negotiations with Thains had been left in such an undeveloped state. By letter dated 4 October (No. 9/2/3) Bennett & Robertson sought the pursuers' consent in principle to an assignation in favour of Thains, and gave certain details about the firm. It was indicated that details of references were awaited. On 7 October (No. 9/2/6) Mr Newton asked Bennett & Robertson for copies of Thains' accounts for the last three years. He also asked for confirmation of whether Thains were to take an assignation only of the pursuers' property, or whether that was to be part of a larger transaction.

On 8 October there was a further discussion between Mr Oakeshott and Mr Smith, in which the latter evidently had reservations about whether there had been any need to give the receivers time before proceeding to irritate the Lease, but after sight of Workman & Partners' letter of 30 September, Mr Smith confirmed that in light of that letter it was not open to the pursuers to irritate the lease before 31 October (see No. 33/3 and /4). By fax of the same date to Mr Newton (No. 33/5) Mr Smith expressed the opinion that but for the terms of the letter of 30 September it would have been open to the pursuers to irritate the Lease, but that in light of that letter it was necessary for the pursuers to consider the application to assign to Thains. He advised that if, on receipt of full financial information about Thains, their covenant did not stand comparison with that of the guarantors, the pursuers would be entitled to refuse consent. If full information was not provided by 31 October, or the information provided was not satisfactory, it would be open to the pursuers to proceed to irritate.

The provision of adequate financial information about Thains proved problematical. Information had originally been sought by Bennett & Robertson from Thains' solicitors, Baird Burnett & Co, on 1 October (No. 28/6/5). Although Thains were willing to provide references, they were initially unwilling to disclose their accounts, as Baird Burnett & Co explained to Bennett & Robertson on 3 October (No. 28/6/7). On 8 October (No. 9/2/5) Bennett & Robertson wrote to Baird Burnett & Co informing them that the question of exhibition of accounts had been raised, acknowledging Thains' desire to retain confidentiality, but pressing them to produce "something pretty substantial as evidence of covenant" in the form of accounts or a satisfactory alternative. They also sought permission to disclose that the proposed assignation of the tenant's interest in the property was part of a larger transaction. No such permission was ever forthcoming, and that aspect of Mr Newton's request remained unanswered. On 25 October (No. 28/6/19) Baird Burnett & Co sought again to explain Thains' unwillingness to disclose accounts, and inquired whether an accountant's letter would be an acceptable substitute for accounts. On 28 October (No. 9/2/7) Bennett & Robertson forwarded to Mr Newton a trade reference from Rank Hovis, and promised that an accountant's reference would be made available "shortly" in lieu of accounts. They explained that Thains were concerned about maintaining confidentiality about their business affairs, and had indicated a preference not to exhibit accounts. At the same time (No. 28/6/22) they pressed Baird Burnett & Co to provide the accountant's letter. On 29 October (No. 9/2/8) Mr Workman indicated that sight of accounts would be required, and sought assistance in obtaining a bank reference. On 31 October (No. 28/6/23) Bennett & Robertson wrote to Baird Burnett & Co pointing out that as a matter of "accepted commercial reality" accounts would have to be produced.

At that stage in the dialogue, on 31 October, the time limit expressed in the letter of 30 September expired. A telephone conversation took place on 1 November between Mr Newton and Mr Smith in which the former conveyed to the latter Mr Oakeshott's instructions that a letter should be sent indicating that the pursuers regarded themselves as free to irritate the Lease. The relevant business entry (No. 33/6) also records that Mr Oakeshott did not want to irritate the Lease immediately if there was any prospect that the receiver could obtain full financial information on Thains. Accordingly, on the same day Mr Smith, after discussing the draft with Mr Oakeshott, wrote to Bennett & Robertson (No. 9/2/10) concluding with the following statement of the pursuers' position:

"In view of the joint receivers' inability to provide our clients with sufficient financial information for the prospective assignee, our clients consider that the undertaking which they gave to the receiver on 30 September 1996 has ceased to apply and our clients regard themselves as being free to take immediate steps to irritate the Lease."

The receiver had left the negotiations with landlords to Bennett & Robertson, and was not, according to his recollection, made aware of that letter at the time. The letter did, however, elicit a response from Bennett & Robertson dated 5 November (No. 9/2/11) in which they indicated that they were "chasing up" accounts - as they had indeed done on 1 November (No. 28/6/26), and did again on 5 November (No. 28/6/28) - and hoped to make them available shortly. They asked for the pursuers' "continued forebearance for a further period". They added that they had stressed to Thains' solicitors that the production of accounts was a normal commercial requirement, and that it might assist if the pursuers could give an assurance that the accounts would be treated in the strictest confidentiality. In the meantime, Baird Burnett & Co had made a final attempt (No. 28/6/31) on behalf of Thains to maintain their position on the production of accounts. On 6 November (No. 28/6/32) Bennett & Robertson asked that Thains urgently reconsider their position as their "apparent intransigence" could prejudice the proposed transaction. On 12 November (No. 9/2/13) Mr Newton gave the suggested assurance that accounts would be treated confidentially, and that was passed on the Baird Burnett & Co the next day (No. 28/6/36). On 14 November Baird Burnett & Co provided an extract from Thains' trading and profit and loss accounts for the three years ended 31 March 1995 (No. 28/6/38) and the following day (No. 9/2/14) Bennett & Robertson passed them on to Mr Newton on the basis that they were to be seen only by "the senior principal" dealing with the application for consent to the proposed assignation. A further trade reference was supplied on 25 November (No. 9/2/15). It is evident from the correspondence and was confirmed by the evidence of the receiver and Mr Macgregor that the responsibility for the delay in providing adequate financial information about the proposed assignees was wholly that of Thains themselves, and that every effort was made on behalf of the receiver to press for the necessary material.

On 29 November (No. 9/2/16) Mr Newton faxed Bennett & Robertson intimating that the pursuers were considering their response to the request for consent to the proposed assignation in favour of Thains, and that he expected to receive their instructions shortly. At that stage he also took up the facts that a quarter's rent had fallen due on 11 November and that arrears in respect of the preceding year remained due following completion of the rent review. Payment of these sums was made a condition of the pursuers granting consent to the assignation. On the same day Bennett & Robertson responded by fax (No. 9/2/17) indicating that the receivers would pay the arrears, on the basis that the pursuers would process the application for consent urgently. On 9 December (No. 9/2/18) Mr Newton drew attention to a miscalculation in the sum of arrears paid by the receivers, and set out the pursuers' position on consent in the following terms:

"My clients' instructions are that in order for them to give their consent to the assignation of the lease they would require the assignees to make a rent deposit of £7400, being the equivalent of six months' rent."

The proposed procedure for dealing with such a deposit was set out in some detail. That position was adopted on Mr Oakeshott's instructions, because he regarded Thains' covenant as not quite as strong as that of the original tenant. The receiver indicated in evidence that at that stage Mr Macgregor told him that they were "almost there" with consents from the majority of the landlords, but the receiver was not made familiar with the detail of each landlord's position. No reply to the letter of 9 December was made by or on behalf of the receivers. On 23 December (No. 28/6/41) Mr Newton sent a mildly expressed reminder. Nothing else was done on the pursuers' behalf to follow the matter up.

On 7 January 1997 Bennett & Robertson wrote to Mr Newton a letter (No. 9/2/20) in inter alia the following terms:

"We refer to previous communications concerning the application for consent to Thains Bakery and regret to advise you that negotiations with Thains have broken down and the proposed assignation to them will not be proceeding.

However, we are pleased to advise that an alternative Assignee has been found, i.e. Chalmers of Bucksburn Limited.

We have obtained a package of information concerning them to enable consideration of this fresh application for consent and we enclose the papers as per the annexation.

Our clients are keen to progress matters as quickly as possible and your expeditious processing of the application would be greatly appreciated."

Attached to that letter were trade, bank and landlord's references, and accounts for the years ended 31 March 1994 and 1995. Accounts to 31 March 1996 were added on 21 January (No. 9/2/22).

The explanation for the change in position expressed in that letter was given by the receiver in evidence as follows. A meeting was arranged to take place between the receiver and Thains on 11 December to carry out final negotiations concerning the sale of the Peterhead portfolio. At that meeting Thains attempted systematically to negotiate the price down to a level lower than that offered by the next highest bidder (Chalmers). That was unacceptable to the receiver, and consequently he informed Thains that they no longer had preferred bidder status, and reserved the right to "go elsewhere". In his view he made his position abundantly clear to Thains. Having broken off negotiations with Thains, the receiver then contacted Chalmers and indicated that if they were still interested in the Peterhead portfolio, he was prepared to negotiate with them. Through Bennett & Robertson he requested financial information from Chalmers, and it was provided promptly. The receiver regarded that information as satisfactory. He did not think that any landlord would regard their covenant as unsatisfactory. He therefore decided to proceed to seek the landlords' consent to assignations in favour of Chalmers. The letter of 7 January was therefore sent.

In examination in chief the receiver said that there was no conscious decision to delay informing the pursuers of the breakdown of negotiations with Thains. It was simply a matter of circumstance, partly the time taken to obtain information in support of Chalmers' covenant and partly the intervention of the holiday period. He said that it did not cross his mind to telephone the pursuers and the other landlords on 11 December to inform them of the position. He accepted, with hindsight, that he probably should have done so, but explained that other aspects of the receivership, including the declaration of 400 redundancies on 18 December, were uppermost in his mind. Under cross-examination he expressed contrition at not having told Mr Oakeshott at once about the change in preferred bidder - "failed miserably" was his own phrase. He said that he could not recall giving Bennett & Robertson instructions to save up the bad news of the failure of the negotiations with Thains until there was good news to go with it about the acceptability of Chalmers' covenant. There was put to him a passage from Appendix II to Mr Duguid's report (No. 24/1) in which, in a summary of the relevant chronology the following entry appears:

"19 December 1996:

Receiver instructs his solicitors to proceed with an alternative deal for the same portfolio to Chalmers of Bucksburn Ltd. It was also decided because of the holiday period that intimation of the collapse of the original deal to the Landlord would be delayed until the New Year when a full package of financial information would be available on the alternative assignees."

The receiver stated that he did not recall giving instructions in terms of the latter sentence of that entry. In evidence Mr Macgregor explained that he took the view that that approach was best in the circumstances, to avoid leaving the landlords to dwell on the negative news of the breakdown of the negotiations with Thains over the Christmas and New Year holiday period. He expressed himself as reasonably certain that the approach had been discussed with the receiver.

The letter of 7 January was received by Mr Newton on 8 January. He immediately faxed a copy to Mr Oakeshott, and a discussion then followed between them. Mr Oakeshott was, according to Mr Newton's evidence, surprised, and on his own account also furious, at what he saw as the sudden withdrawal of the proposal for assignation to Thains that had been under discussion for a matter of months. On his instructions Mr Newton telephoned Thains. According to Mr Newton's evidence, the partner to whom he spoke, Graham Thain, expressed surprise that the deal between his firm and the receiver was off, said that they were still in discussion with the receiver, and were not aware that the transaction was not to be proceeded with by the receiver. Mr Newton said that his impression was that there was genuine surprise in Mr Thain's voice when he responded to the news of the letter of 7 January. Mr Thain's position was reported to Mr Oakeshott, who decided that if Thains were still willing and able to take over the lease of the property, he would take legal advice as to whether he could now irritate the Lease with a view to entering into a new lease with Thains. As Mr Newton put it in evidence, Mr Oakeshott wished to take the property out of the state of limbo in which it had been for some months.

Mr Smith learned of the letter of 7 January on his return from holiday on 9 January. He spoke to Mr Oakeshott by telephone, and his file note (No. 33/8) records that Mr Oakeshott brought him up to date about Mr Newton's communication with Thains, Thains' "surprise" that their deal with the receiver was off, their continuing interest in the property, and Mr Oakeshott's wish to negotiate a new lease with them. Mr Smith recorded the instructions which he received in the following terms:

"We were instructed to speak to Thains' solicitors and obtain a written undertaking from them that Thains would meet our costs for entering into negotiations for a new Lease even if these negotiations fell through. We should also make it clear that Thains must not speak to the Receiver about the fittings within the shop [lest the receiver remove them or charge a high price for them]. If we do not receive a suitable undertaking from Thains' solicitors we are to go ahead and consider the new application from the Receiver for consent to assign the Lease to Chalmers of Bucksburn."

Later the same day Mr Smith had a further telephone conversation with Mr Oakeshott which is recorded (in No. 33/8) in the following terms:

"Discussing the position with regard to irritancy. Advising that it was possible to irritate the lease immediately but agreed that we would wait until we had a deal with Thains before doing so in case the negotiations with Thains got nowhere and you decided to consider the Receiver's latest application. DAS to draft an irritancy letter and issue it if and when missives have been concluded with Thains for the lease."

That passage did not appear in the original typed version of the file note (No. 33/8A), but was added in January 1988 after Mr Smith had realised that the typed note omitted to reflect one of his original hand-written notes. The type written note quoted above contains more than was in the hand-written note, but I accept Mr Smith's evidence that the late file note accurately reflects the discussion he had with Mr Oakeshott. Mr Oakeshott's position, as he explained it in evidence, was that he wanted to do a deal with Thains for a new lease, if it could be done quickly and cleanly. Otherwise he would consider assignation the Chalmers.

Mr Smith had twice on 9 January failed in attempts to contact Mr Burnett of Baird Burnett & Co. On 10 January he reported to Mr Oakeshott that he understood that Mr Burnett was not likely to be back at his office until the beginning of the following week. Mr Oakeshott's instructions were recorded in the relevant file note (No. 33/9) in the following terms:

"Matthew Oakeshott said that we should speak to [Mr Burnett] on Monday and ask him for an undertaking by close of business on Monday or else we would deal with the new application for consent to assign."

In evidence Mr Oakeshott explained that those instructions did not reflect a firm decision on his part to fall back on the possibility of consenting to an assignation to Chalmers if Thains did not give the desired undertaking, but rather reflected the message he wished conveyed to Thains to put pressure on them to proceed with expedition. On Monday 13 January Mr Smith again failed in his attempt to contact Mr Burnett. Later in the day he received a telephone call from Dennis Thain expressing Thains' keenness to proceed and promising to arrange for Mr Burnett to contact Mr Smith the following morning to give the desired undertakings. On 14 January Mr Burnett telephoned Mr Smith to confirm that Thains wished to proceed with the proposed new lease, and seeking to negotiate a ceiling on the expenses to be covered by the undertaking. By 22 January Mr Oakeshott's position was recorded in Mr Smith's file note (No. 33/13) as follows:

"[Mr Oakeshott] said that he was concerned that we still did not have a contract in place with Thains as we have not responded to the letter from the Receiver intimating that the deal with Thains is off and seeking consent for the assignation of the Lease to Chalmers. Unless Missives are concluded by 5.00 p.m. on Friday the deal with Thains will be off and we should make that clear to Thains' solicitors."

A formal offer (No. 9/2/23) on the pursuers' behalf to let the property to Thains for twenty years on the terms set out in a draft Lease (No. 9/3) was sent by Mr Smith to Mr Burnett on 23 January, and an unqualified acceptance (No. 9/2/31) was sent by Mr Burnett to Mr Smith on 24 January. Missives were thus concluded within the time limit set by Mr Oakeshott on 22 January.

On 24 January Mr Smith sent to Crawfords an irritancy notice (No. 5/2) the operative portion of which was expressed in the following terms:

"Whereas a Receiver (sic) has been appointed in respect of your Company and that in terms of Clause TWENTIETH of the said Lease this forms a ground for irritancy of the said lease, therefore on behalf of the landlords, we hereby give you Notice that the landlords are exercising their right to terminate the said Lease and that the said Lease has accordingly been terminated by virtue of irritancy and that with effect from today's date."

There followed a telephone conversation between Mr Macgregor and Mr Smith (No. 33/14) and a formal letter (No. 28/6/42) from Mr Macgregor to Shepherd & Wedderburn, dated 30 January, putting forward on the receivers' behalf the contention that in all the circumstances of the case a fair and reasonable landlord would not seek to rely on the appointment of the receivers as ground for irritancy. Part of the ground on which that contention was put forward was an assertion that it was usual practice to give a receiver at least six months to dispose of his interest in a property. Mr Smith discussed that letter with Mr Oakeshott on 3 February, confirmed his advice that the pursuers had been entitled to irritate the lease, and received instructions from Mr Oakeshott to raise an action of declarator of irritancy. On the same date a faxed letter from Bennett & Robertson (No. 28/6/43, written not by Mr Macgregor, but by the senior litigation partner, Mr Macfie) intimated that the receivers had no plans to vacate the property, asserted that the pursuers were in breach of their contractual obligations in respect that they had delayed unreasonably in responding to the request for consent to the proposed assignation in favour of Chalmers, and demanded an explanation of that failure and of the pursuers' "motives for doing so". Mr Smith responded on the same date with a lengthy letter (No. 28/6/44) in which he set out the pursuers' position, and concluded by stating that he had instructions to raise an action of declarator of irritancy and that, if the receiver did not accept the validity of the pursuers' position, litigation would have to follow.

Pursuers' Submissions

Mr Robertson began his submission by acknowledging that the pursuers accept that the appointment of the receivers was a change in the tenant's circumstances, and that the test set by section 5 is therefore applicable. It was necessary to consider "all" the circumstances of the case, without limitation, and in particular without limitation to any particular period of time. The test referred to a "fair and reasonable landlord". Attention was therefore focused on the landlord-tenant relationship. The matter was not to be approached as one of general equity. The section did not confer on the court a discretion to determine what it regarded as the fair and reasonable course. The question was whether someone who came up to the standard of the fair and reasonable landlord would in all the circumstances of the case rely on the appointment of the receivers as justifying irritancy.

Mr Robertson referred to and relied upon the views expressed by Lord Cullen in Blythswood Investments (Scotland) Ltd v Clydesdale Electrical Stores Ltd (in receivership) 1995 SLT 150. Since it is the only previous case dealing with the application of section 5 (albeit on the procedure roll rather than after proof) it is worth quoting from Lord Cullen's Opinion at some length. At 155F-156A his Lordship said:

"... following the recommendations made by the Scottish Law Commission, the draftsman of section 5 did not make the enforceability of an irritancy clause in a particular case depend on whether its enforcement would be penal or not. Further, as counsel for the pursuers pointed out, he did not make it depend on what the court would regard as fair and reasonable. It would depend on whether a fair and reasonable landlord would seek to rely on the irritancy clause in all the circumstances of the case. Accordingly the test which was adopted was not directed to the avoidance of a certain nature of result but to the way in which a fair and reasonable landlord would act. ...

... On any view the object of the language is to import the standard of behaviour which would be expected of a fair and reasonable landlord; and, in my view, the provision was correctly interpreted by counsel for the pursuers when he submitted that it involved considering what a fair and reasonable landlord in the position of the actual landlord would have done; and accordingly in what he described as the 'factual matrix' of the particular case. ...

The averments of the pursuers appear to me to be directed to demonstrating the advantages which the pursuers would be able to attain by exercising the irritancy ... [The] language of section 5(1) and in particular the words "in all the circumstances of the case" is of such width that I am unable to exclude the subject matter of these averments.

... I am bound to say that I consider that there may well be practical difficulties in dealing with the weight to be attached to evidence in support of the pursuers' averments. If these averments are well founded, they indicate that the pursuers had a strong motive for exercising the irritancy. This is to be set against evidence provided by the defenders that the enforcement of the irritancy would involve them sustaining substantial loss. To a significant extent the tenants' loss would be the landlords' gain. These are, of course, only some of the considerations which may be brought to bear in the present case, but in my view they raise a significant difficulty in determining to what extent the motives which a person in the position of the landlord may have for deriving advantage from the enforcement of the irritancy should influence the result. However, that appears to me to be a difficulty which lies within the field of the assessment of evidence which is directed to what a fair and reasonable landlord would do in all the circumstances of a case."

Reference was also made to the Opinion delivered by Lord Penrose in the present case following the debate which he heard (Aubrey Investments Ltd v D. S. Crawford Ltd (in receivership) 1998 SLT 628). Agreeing with Lord Cullen, Lord Penrose said (at 635L):

"The test is related to the standard of behaviour which would be expected of a fair and reasonable landlord in the position of the actual landlord in all the circumstances of the case.

The first issue which arises in this case is whether the circumstances which might relevantly be considered are restricted to those arising directly out of the relationship of the landlord and tenant in respect of the leased premises. ... At its highest, the argument for the receivers in this case involved the proposition that the test of reasonable conduct required Aubrey to have regard to the receivers' interests in achieving the beneficial disposal of Crawford's business as a whole. ... If the argument were sound, the reasonable landlord would have required to have regard to the interests of the receivership as a whole and held off from exercising the right to irritate only to discover eventually that he was not to have the benefit of the covenant of the preferred purchaser, and might then be thrown back on the general market. In my opinion, nothing in the Act points to a test of conduct which requires the landlord, at least in a question with a receiver who has not adopted a lease, to have regard to facts and circumstances extraneous to the relationship defined by the lease in relation to the leased premises."

Both Lord Cullen and Lord Penrose had made reference to the Report of the Scottish Law Commission ("Irritancies in Leases", Scot. Law Com. No. 75) which lay behind the provisions of the 1985 Act dealing with irritancy, and I was referred to a number of passages in the Report. For present purposes I find it sufficient to note specifically the following passages:

"... It was emphasised to us, and we think fairly, that irritancy was a remedy specifically designed so that an owner of land could ensure that the land was restored to his possession in circumstances where a tenant had become unable, through commercial failure or otherwise, to perform his obligations as possessor, and that it was important to appreciate that a landlord had an interest as owner and not merely as collector of rent. One of our consultees observed that a landlord may, in many cases, have a real interest to ensure that the land is physically occupied and used and even used in a particular manner. It was similarly emphasised to us that the peremptory nature of irritancy reflected the legitimate interest of the landlord in ensuring that he could have a timeous remedy avoiding the real prejudice which would arise if the repossession of the land were to be delayed by lengthy procedures. (paragraph 3.3)

"... We think it essential that the ultimate enforceability of an irritancy must be judged by reference to a standard which is broad and objective, and which can in its practical application reflect those particular factors which are applicable to contracts of lease. ... We think that [the] criterion of the "fair and reasonable landlord" [to be found in the legislation dealing with the termination of agricultural leases] could be used in relation to commercial leases generally as a criterion by which to judge whether insistence on an irritancy was penal in its effect. ... (paragraph 4.11)

"We think that a basic standard of the kind we envisage would require to be supplemented in three ways. First, [it] must be so expressed as to relate to what such a landlord would have insisted upon as regards enforcement of his rights in the particular circumstances of the case. Second, it should be made clear that the relevant unfairness and unreasonableness may reside in the manner of enforcement... Third, the statutory provision should make it clear that the basic criterion is to be applied not to the parties' agreement to the inclusion of the particular irritancy provision in the lease ... but only to the reliance placed on the provision in particular circumstances. (paragraph 4.12)

"We recommend , therefore, that the existing power of the courts to grant equitable relief from the enforcement of an irritancy in oppressive circumstances should be recast as a statutory provision to the effect that a landlord shall not be entitled to rely ... on an act or omission by the tenant or on a change of the tenant's circumstances as grounds for terminating the lease if, in all the circumstances of the case, no fair and reasonable landlord would have sought so to rely. (paragraph 4.13, Recommendation 4)

"... we think that if the relation of receivership to irritancy is to be considered, it would be more appropriately considered in connection with the law relating to receivers, and not as a special case in the law of irritancy as such." (paragraph 5.14)

Clause 2 of the draft Bill appended to the Report expresses the test in the same language as section 5, rather than in the somewhat different language of Recommendation 4.

Mr Robertson submitted that section 5 was not designed to give any particular protection to receivers. The lease was a contract between the landlord and the tenant, and when consideration had to be given to what a fair and reasonable landlord would do, that was in the context of the tenant's interest in the let property rather than in any wider context. The landlord should not have imputed to him an obligation to consider matters which arose outwith the relationship constituted by the lease. There was a tension between the interests of the company in receivership and those of the floating charge holder who had appointed the receivers. The landlord had no access to information about what was going on in the receivership as a whole. The receivers, answerable to the floating charge holder, were dealing with the whole undertaking of the company, and thus had wider concerns than those arising from the tenancy of the particular property. The starting point for consideration of the issue arising under section 5 was that the lease was a contract in which the parties had agreed what was to happen in the event of the tenant's receivership.

Mr Roberston submitted that there was no material difference in effect between the language of section 5 as enacted ("a fair and reasonable landlord would not seek to rely") and that of the Scottish Law Commission's recommendation 4 ("no fair and reasonable landlord would have sought so to rely").

He further submitted that, despite the fact that the language of the test was derived by the Commission from the legislation relating to agricultural holdings, no real assistance was to be obtained from the case law on that legislation, since it was concerned with the different context of consent to a notice to quit for which a statutory ground had been established.

Mr Robertson's position, accordingly, was that the correct approach was to examine all the circumstances which formed the context in which the actual landlord sought to rely on the irritancy clause, and to ask whether in those circumstances a fair and reasonable landlord would have sought so to rely. In developing that submission he considered the circumstances of the case under some twenty one headings.

Clause TWENTIETH of the Lease contained no proviso requiring the pursuers to give time for the receivers to dispose of the tenant's interest in the Lease. That could be contrasted with the position under the leases relating to some of the other properties in the Peterhead portfolio, e.g. No. 29/1 of process, Schedule Part VI, Clause 1, proviso (2); No. 29/2, Clause 5.1(c); No. 29/5, Clause SEVENTEENTH, proviso (2).
The pursuers had not in the circumstances waived the right to irritate (see Lord Penrose's Opinion in 1998 SLT 628 at 633D- 634G).
The advice given to the pursuers by their solicitors was that they were entitled to irritate. The advice received was a relevant part of the circumstances of the case to which to apply the test of the fair and reasonable landlord. The pursuers did not rush to irritate the lease as soon as they were advised that they could. Instead they chose to give the receiver time.
The receivers never adopted the lease or held out that there was any prospect of the receivership being recalled.
The property was well located, and would be attractive on the market. That was the unanimous evidence of all the witnesses. It was the middle one of a group of three units, the other two of which were well let to substantial tenants. There was therefore a potential advantage to the pursuers in irritating and taking the re-letting of the property into their own hands.
The property was perceived by Mr Oakeshott to be under-rented, notwithstanding the recent rent review. The fact that the opportunity of re-letting was not immediately seized went to support the reasonableness of the pursuers' position.
The receiver was optimistic about effecting a sale of the company's business as a going concern.
The pursuers were asked to consider, and did consider, a particular proposal in connection with the disposal of the business as a going concern, namely assignation of the Lease to Thains. A general willingness to give time, initially until 31 October, was expressed before Thains were identified to the pursuers as the potential assignees, but from the moment when Thains were identified, i.e. from 7 October onwards, they were consistently referred to as the proposed assignees or prospective assignees.
There was delay in obtaining adequate financial information about Thains. Although the correspondence between Bennett & Robertson and Baird Burnett & Co shows that the receivers' solicitors were pressing for the necessary information, the full detail of that correspondence was not known to the pursuers at the time. It was accepted, however, that it was reasonably clear to the pursuers that the problem lay with Thains rather than with the receivers.
The pursuers did not at any stage indicate to the receiver either (a) that if the transaction with Thains fell through, they would give further time while an alternative assignee was considered, or (b) that any particular time was to be allowed (beyond the original period to 31 October) for conclusion of the transaction with Thains.
Neither the receiver nor anyone on his behalf indicated that he expected, or thought he had a right to, a period of six months in which to complete the disposal of the tenant's interest in the Lease. All the indications in the correspondence were that he was looking to conclude the transaction as soon as possible. The response to the intimation on 1 November that the pursuers regarded themselves as free to irritate was a request for "continued forebearance".
The pursuers had no detailed information about the circumstances in which the transaction with Thains fell through, or about the involvement of Chalmers. The only information made available to them by the receiver was that contained in the letter of 7 January. That neither indicated why the Thains transaction had fallen through, nor when. It gave no indication of when the receiver had begun to put together the alternative proposal involving Chalmers. The letter of 7 January was wholly at variance with the way the discussions had been proceeding until then.
The pursuers were surprised to receive the news that the transaction with Thains was off. Mr Oakeshott was under the impression that Thains were content with the proposed rent deposit. Mr Newton was not, however, asked about whether he had had communication with Thains on the subject, and Mr Macgregor's evidence was that he did not advise Thains of the terms of Mr Newton's letter of 9 December. The pursuers, at all events, were unaware that Thains had not been told about the need for a rent deposit. Mr Oakeshott's surprise also rested in part on the indication that the receiver had given him at the outset that he would be kept advised of any material event affecting the pursuers' interest.
Mr Newton's conversation with Thains on 8 January brought to the pursuers the understanding that Thains were surprised that the receiver's transaction with them was off. It was not necessary to resolve where the truth lay as to whether Thains were indeed under the impression that their negotiations with the receiver were continuing, or whether, as the receiver indicated in evidence, he had made it abundantly clear to them that they were not. What mattered was the impression gained by Mr Newton and conveyed by him to Mr Oakeshott.
The pursuers had no reason to believe that an assignation to the new proposed assignees was certain to proceed, or would happen within a limited time-scale. The Thains transaction had fallen through at a late stage. The pursuers had not been told when the breakdown had occurred. There had, however, been sufficient time after the breakdown and before 7 January for the package of financial information about Chalmers to be put together. The reason for the breakdown had not been identified, but it was plainly not a lack of consent on the part of the pursuers. Although it was not established that Thains were content with the rent deposit proposal, there was nothing to indicate that that was the stumbling block. The pursuers' view that the new proposal was not certain to proceed was not an unreasonable one. If it did, there was no assurance as to time-scale.
The lucrative trading period at the end of the year was now past. Although not a factor of much weight, that might affect how quickly the new proposal for assignation could be brought to a conclusion.
The pursuers had no information as to the loss likely to be suffered by the receivers if they were unable to obtain the premium which the assignee might pay. Nor were they in a position to assess the impact on the value to be realised by the receivers from sale of the Peterhead portfolio as a whole if the pursuers' property was withdrawn from it.
The pursuers' concern was not simply to maintain short term rental income, but to maintain the investment value of their interest in the property. It was accepted that the rent was paid up to February 1997. The evidence of Mr Oakeshott and Mr Stevenson, however, was that the investment value was adversely affected by the continuation of the situation in which the receiver was in occupation of the property. The possibility of the property becoming vacant, with further adverse impact on investment value, continued.
Although there was a guarantee in place, it would not offer adequate protection of the landlord's interest in having a trading tenant in possession. The guarantee would secure the income stream, but not the presence of a trading tenant. In any event, the irritancy required to be exercised before the guarantor could be compelled to take a new lease.
The fact that the pursuers concluded their contract with Thains before serving the irritancy notice does not have a bearing on whether a fair and reasonable landlord would have relied on the irritancy.

Mr Robertson made three additional points about the application of the "fair and reasonable landlord" test. First, he submitted that in any given set of circumstances there was a range of responses which a fair and reasonable landlord might make to the situation, rather than a single course of action which every fair and reasonable landlord would adopt. The actual landlord failed the test only if his actings lay outside the range of fair and reasonable responses. Secondly, he submitted that care required to be taken to avoid judging the matter with the benefit of hindsight. Thirdly, the test was to be applied in the context of a contract which expressly provided that receivership of the tenant was an event entitling the landlord to irritate. He submitted further that the fact that the landlords of the other properties in the Peterhead portfolio consented to assignation to Chalmers did not demonstrate that the pursuers were acting otherwise than a fair and reasonable landlord would do in deciding to irritate. The terms of each lease, and the circumstances affecting each property and each landlord, varied. The fact of the other consents could not be said to be wholly irrelevant, but it was of very little weight.

The evidence did not show, Mr Robertson submitted, that in all the circumstances of the present case a fair and reasonable landlord would not have relied upon the appointment of the receivers in serving the notice of irritancy when they did. The defenders' challenge to the validity of the irritancy therefore failed, and decree of declarator of irritancy and decree ordaining the defenders to remove should be granted.

Defenders' Submissions

Mr Ferguson began his submissions by pointing to the fact that section 5 of the 1985 Act superimposes a statutory test upon the landlord's contractual right to irritate. It controls the landlord's reliance on what appears on the face of the lease to be his contractual right. The question in the present case was whether a fair and reasonable landlord would have sought to rely on the appointment of the receivers to irritate the Lease in January 1997. If that question was answered in the affirmative, decree should be granted in the pursuers' favour; if in the negative, the defenders should be assoilzied.

Mr Ferguson submitted that the only test to be applied was the one expressed in section 5, namely whether in all the circumstances of the case a fair and reasonable landlord would not seek to rely on the irritancy clause in respect of the tenant's receivership. The language of Recommendation 4 the Scottish Law Commission Report was different ("no fair and reasonable landlord would have sought so to rely") and set a higher test than the one expressed in the section.

There was, Mr Ferguson said, little assistance to be obtained from textbooks as to the proper approach to the application of the statutory test. He referred, however, for the sake of completeness to Sinclair, Handbook of Conveyancing Practice in Scotland, (3rd edn.), § 22.2 (a somewhat sceptical view of the workability of the fair and reasonable landlord test); McDonald, Conveyancing Manual, (6th edn.), §§ 25.79 and 25.81; Halliday, Conveyancing Law and Practice, (2nd edn.), Vol. 2, § 44-35; and Green and Fletcher, The Law and Practice of Receivership in Scotland, (2nd edn.), §§ 4.14 and 4.21.

Mr Ferguson accepted that the onus was on the tenant to prove that a fair and reasonable landlord would not have relied on the receivership as ground for invoking the irritancy (McDonald, op. cit., § 25.79).

In discussing Blythswood Investments he submitted that the actual knowledge possessed by the landlord in a particular case might affect where the borderline lay between circumstances which fell to be taken into account in applying the "fair and reasonable landlord" test and those which did not. The landlord's motive was not irrelevant. The language of section 5 made it clear that every case must depend on its own facts. The relevant circumstances, and the weight to be accorded to each factor, would vary from case to case. It was, however, important to attempt to devise a framework for the practical application of the test in this and other cases. The way to achieve that was to see the test as concerned essentially with balancing the hardship which the landlord would suffer if not allowed to irritate the lease against the hardship which the tenant would suffer if irritancy took place. That approach was developed later in Mr Ferguson's submissions.

A number of points were identified for the purpose simply of confirming that they were not being made. First, it was not submitted that the terms of the lease fell to be ignored. A distinction required to be drawn between the terms of the lease and the enforcement of those terms. Section 5 was concerned with enforcement of - reliance on - the provisions of the lease (Scottish Law Commission Report, § 4.12). The mischief identified in the Report was penal enforcement of irritancies; the remedy devised to cure the mischief was the fair and reasonable landlord test. Enforcement was penal if it caused adverse consequences disproportionate to the event giving rise to the irritancy. Since the fair and reasonable landlord test was intended as a control upon the enforcement of what would otherwise be the landlords right, a landlord could not, however, demonstrate that he was acting as a fair and reasonable landlord would simply by pointing to the fact that he was acting in accordance with his contractual right. The contract laid down a minimum standard of behaviour to which the landlord must adhere. The statute overlaid that minimum with a further test. In judging what a fair and reasonable landlord would do, one relevant aspect of the contract was any provision made for time to be given for disposal of the tenant's interest on receivership. Secondly, Mr Ferguson confirmed that, despite the contention put forward by Mr Macgregor immediately after the irritancy notice was served, he was not arguing that there was a standard period of six months which a receiver was entitled to be allowed for the purpose of disposing of the tenant's interest in the lease. Thirdly, he confirmed that he was not arguing that the fair and reasonable landlord test operated as a broad equitable discretion (Scottish Law Commission Report, § 4.10).

So far as the time at which the test fell to be applied was concerned, Mr Ferguson submitted that the emphasis on enforcement in section 5 pointed away from the date of the lease as the tempus inspiciendum. Indeed the fact that the section applied retrospective to existing leases demonstrated that that could not be so. He submitted that the relevant time was the time when the attempt to enforce the irritancy took place. He recognised the possibility of some lapse of time between the taking of the decision to enforce and the service of the notice of irritancy. He submitted that in such a case, both dates would require to be considered, but preferred to emphasise the date of the decision.

The expression "fair and reasonable", Mr Ferguson submitted, did not involve two different and mutually exclusive criteria. The words were essentially synonymous, or at least overlapping in their meaning, importing different aspects of one criterion. Reference was made to aspects of the dictionary definitions of "fair" and "reasonable" (SOED); to a passage in Gordon, Criminal Law, (2nd edn), § 4-18 ("'Reasonable' in this connection [i.e. the reasonable man] means 'fair' or 'moderate', and not 'rational'. The reasonable man is not so much the normal man, as an artefact used by the courts as a norm by reference to which the conduct of other, real, men is to be judged."); and to the approach to the word "reasonable" adopted in the context of unfair dismissal - the "range of reasonable responses" approach (Smith & Wood, Industrial Law, (6th edn.), pp. 400 et seq.; Iceland Frozen Foods Ltd v Jones [1982] IRLR 439). The use of the two words "fair" and "reasonable" in conjunction demonstrated that the test involved equitable relief from the strict enforcement of contractual rights. In applying the test it was not irrelevant to consider alternative courses of action. Such alternative courses might serve as part of the yardstick by which the landlord's conduct fell to be judged, might serve to reveal motive, and might be capable of yielding an inference that the actual course adopted was not one which a fair and reasonable landlord would take. That what was done was not what a fair and reasonable landlord would do might be proved directly or inferentially. In the present case it was important to bear in mind the alternative course of action that was available.

It is clear from § 4.11 of the Scottish Law Commission Report that the "fair and reasonable landlord" test is drawn from section 26(1) of the Agricultural Holdings (Scotland) Act 1949 (now section 24(2) of the Agricultural Holdings (Scotland) Act 1991). That provision is concerned with the operation of notices to quit. The scheme requires a notice to quit served by the landlord, permits a counter-notice by the tenant, and (subject to exceptions) provides that where a counter-notice has been served the notice to quit shall not have effect unless the Land Court consents to its operation. In terms of section 26(1) (or in the 1991 Act section 24(1)) the Land Court shall consent if, but only if, they are satisfied as to one or more of a list of five matters (concerned with the nature or desirability of the purpose for which the landlord sought to obtain possession, or the balance of hardship), provided that:

"notwithstanding that they are satisfied as aforesaid, the Land Court shall withhold consent to the operation of the notice to quit if in all the circumstances it appears to them that a fair and reasonable landlord would not insist on possession".

Mr Ferguson submitted that assistance was to be obtained in relation to the operation of the fair and reasonable landlord test under section 5 from authorities on the operation of that test under the agricultural holdings legislation. He noted that in Blythswood Investments Lord Cullen (at 155K), in dealing with the relevancy of averments about advantages which the landlords would be able to attain by exercising the irritancy, placed no reliance on section 26(1) of the 1949 Act "since that provision expressly refers to the purposes of the landlord". He submitted, however, that that was not contradictory of his contention, which was that under section 26(1) the whole circumstances, including the landlord's purpose and the balance of hardship, were relevant at the stage of applying the fair and reasonable landlord test. Mr Ferguson referred for illustrative purposes to the four reported cases in which the proviso to section 26(1) has been applied (Altyre Estate Trustees v McLay 1975 SLT (Land Ct) 12; Carnegie v Davidson 1966 SLT (Land Ct) 3; Mackenzie v Lyon 1984 SLT (Land Ct) 30; and Trustees of the Main Calthorpe Settlement v Calder 1988 SLT 30), and to two English cases (Clegg v Fraser [1982] 2 EGLR 7, in support of the proposition that in applying the equivalent of the proviso to section 26(1) factors relevant to the decision under the earlier parts of the section could be brought into account, and Cooke v Talbot [1977] 2 EGLR 1, especially for the reference by Lord Widgery CJ at 3K to preparing a "balance sheet of hardship" in operating the fair and reasonable landlord test). Reference was also made to McCallum v Arthur 1955 SC 188 and in particular to the following passage from the opinion of Lord Sorn (at 198-9):

"In a case under section 26(1)(a) where the landlord has already established that the purpose for which he proposes to terminate the tenancy is desirable in the interests of efficient farming, one would suppose that this fact would be the main, or at least an important, consideration in deciding how the discretion [under the proviso] should be exercised. The question of hardship may enter into it too. Hardship to the tenant, if consent is given, may have to be weighed against hardship to the landlord, if consent is withheld. If there is a preponderance of hardship on the tenant's side, it would be for consideration whether that preponderance was such, in character and degree, as to make it appear the more reasonable course to withhold consent, notwithstanding the desirability of giving consent from the point of view of efficient farming. Other relevant considerations might possibly arise in particular cases and, if so, those would no doubt be taken into consideration."

Returning to the application of the fair and reasonable landlord test in the circumstances of the present case, Mr Ferguson submitted that the court must weigh the hardship which the tenant would suffer if the irritancy took effect against the hardship which the landlord would suffer if it did not. The approach to that task should be qualitative rather than quantitative (Scottish Law Commission Report, § 4.16). It was not a matter of assessing the respective hardships in cash terms. Different factors would have different weight in the balance. The hardship which the tenant would suffer would be loss of the commercial benefit of the lease - in the context of receivership loss of the premium which an assignee would pay as consideration for assignation of the tenant's interest in the lease, and loss of the opportunity to realise the value of fixtures and fittings on the more advantageous going concern basis - together with the potential for additional claims if the property were not disposed of on a going concern basis. In these respects, it was submitted, the interests of the tenants and the receivers coincided. The potential hardship to be suffered by the landlord lay in general terms in the risk of loss (a) of income stream and (b) of investment value. It was necessary to examine how significant those risks were in the circumstances of the present case. In submitting that here there was no very substantial risk that the landlord would be prejudiced by not operating the irritancy, Mr Ferguson pointed (1) to the undisputed evidence that the property was well located, under-rented, and readily re-lettable, (2) to the fact that the rent, including arrears, had been paid up to February 1997, (3) to the fact that the property was occupied and trading successfully, (4) to the absence of evidence that in any respect the tenant's obligations were not being complied with, and (5) to the existence of a satisfactory guarantee by a substantial guarantor. These factors, he submitted, went beyond eliding any risk to the landlord's income stream, and also operated to protect investment value. There was no evidence that in relation to the pursuers' property the tenant had ever been a poor or unsatisfactory tenant. A further factor of great importance was that there was available an alternative assignee - Chalmers - whose covenant the pursuers accepted was satisfactory. In these circumstances the balance of hardship came down on the tenant's side.

Mr Ferguson went on to invite me to consider how the landlord had in fact approached the decision to invoke the irritancy. If undue weight had been placed on any factor, that might, he suggested, indicate a failure to act as a fair and reasonable landlord would. In this case Mr Oakeshott was not concerned to protect his income stream or worried about difficulty in re-letting. Any effect on investment value was temporary. His stated concern was with delay, that is with the length of time during which there had been no sound tenant in place and the likely future duration of that state of affairs. The evidence did not demonstrate, however, that there was major concern on that account. After the expiry of the initial time limit on 31 October 1996, there was no attempt made to impose a further time-scale on the receiver. The delay that took place was caused by Thains, not by the receiver. After the pursuer's position had been stated, Mr Oakeshott left the matter in the hands of Mr Newton, and went off on holiday at a time when he knew that the transaction with Thains had not been brought to a conclusion. Even on 8 January when the decision was made to negotiate a fresh lease with Thains, and irritate the existing lease, no time limit was imposed on Thains. That was not done until 22 January. The letter of 7 January did not put the matter "back to square one". A decision on the acceptability of Chalmers as assignees could have been taken quickly. The necessary information was provided with the letter of 7 January. The possibility of reverting to an assignation to Chalmers if a bargain could not be struck with Thains remained open in Mr Oakeshott's mind, and that demonstrated that he had no fundamental objection to Chalmers. If delay in reaching a concluded arrangement with Chalmers was a concern, the irritancy notice would have been served there and then, immediately after 7 January. A fair and reasonable landlord would not have waited two weeks before irritating, and then done so only after concluding a contract for a new lease with Thains. A fair and reasonable landlord would not have lost patience. He would, if concerned at the break down of the negotiations with Thains, have asked the receiver to explain what had happened and what the position was in relation to Chalmers. Without taking that step it was not reasonable to conclude that there would be a long delay in reaching a concluded bargain with Chalmers. There was no evidence from Thains, and the receiver's evidence that he made it clear to them that he was no longer dealing with them was unchallenged. The result was that either Thains' internal communications were very poor, or they misled Mr Newton. Mr Oakeshott's reaction to the letter of 7 January was thus coloured by a suspicion or assumption about the receiver's behaviour which was unfounded. There was no reason why Mr Oakeshott could not have set the receiver a time limit within which to conclude a bargain with Chalmers, equal to the time that was in fact taken to conclude the bargain for a new lease with Thains. Mr Ferguson characterised Mr Oakeshott's decision as involving the making of a clandestine deal with Thains. He must have known that by not considering Chalmers, he would undermine the receivers' position. His motive for preferring to negotiate with Thains was his desire, which he had had since before the receivership commenced, to enter into a new longer lease. His whole approach, it was suggested, was coloured by Mr Smith's advice that he could irritate whenever he wanted. He did not make any assessment of the hardship to be suffered by the tenant, as a fair and reasonable landlord would. He concentrated exclusively on his own interests.

It was accepted by Mr Ferguson that the reaction of the other eight landlords of properties in the Peterhead portfolio to the substitution of Chalmers for Thains as the proposed assignee on 7 January yielded no inevitable inference that the pursuers' irritancy notice was not the act of a fair and reasonable landlord, but he submitted that it was nevertheless relevant evidence to that effect. The evidence was that one landlord had interposed a guarantor, but that otherwise all had by 3 March agreed to assign to Chalmers. If the other landlords were not put off by fear of further delay, why should the pursuers, whose property was said to be the best in the portfolio, have been?

In conclusion, Mr Ferguson summarised his submissions by saying that there had been an alternative course of action, namely consent to assignation to Chalmers, which a fair and reasonable landlord would have taken. The balance of hardship came down on the tenant's side. The landlord had acted as he did in order to obtain the windfall benefit of a new and longer lease to Thains. The loss suffered by the tenant was disproportionate to the impact of the receivership on the landlord. Thus, on the weight of the evidence as a whole, the pursuers, in seeking to irritate the lease, did not act as a fair and reasonable landlord would have acted. The defenders should therefore be assoilzied.

Discussion

The single event which gave rise to this action was the appointment of joint receivers of the assets and undertaking of Crawfords. In terms of Clause TWENTIETH of the Lease between the pursuers and Crawfords, the occurrence of that event put it within the power of the pursuers to bring the Lease to an end. But for the terms of section 5 of the 1985 Act, there would have been no room for dispute. The pursuers' conclusions for declarator of irritancy and removing would have been unanswerable. But section 5 superimposes a statutory control on the enforcement of such irritancy clauses. It disentitles the landlord from relying on his contractual right to terminate the lease if in all the circumstances of the case a fair and reasonable landlord would not seek so to rely. The question posed by section 5 arises only if, in contractual terms, the irritancy has been incurred. The fact, therefore, that under the terms of the Lease the pursuers were entitled, by virtue of the simple fact of the appointment of the joint receivers, to terminate the Lease is what brings that statutory control into operation in this case.

It is clear that the mischief addressed by the Scottish Law Commission in the Report to which reference has been made was the enforcement of irritancies to penal effect on the tenant (§ 4.10). It is equally clear that the remedy which was devised for that mischief was not expressed in terms of penal effect, but in terms of what would have been done in all the circumstances of the case by a fair and reasonable landlord (Blythswood Investments per Lord Cullen at 155F). That sets an objective standard, and does not confer on the court a general discretion to do as it thinks fair and reasonable (per Lord Cullen at 155G). The Scottish Law Commission, however, saw the "fair and reasonable landlord" test as "a criterion by which to judge whether insistence on an irritancy was penal in its effect" (§ 4.11). It therefore seems to me that while the question for the court must be whether in all the circumstances of the case a fair and reasonable landlord would not have enforced the irritancy, it is legitimate to bear in mind in interpreting and applying the "fair and reasonable landlord" test the fact that it was adopted as a means of avoiding the mischief of penal enforcement.

The reference in the statutory test to "all the circumstances of the case" requires the assumption to be made that the hypothetical fair and reasonable landlord would have been in precisely the same factual position, when deciding whether or not to enforce the irritancy, as the actual landlord actually was in when he decided to enforce it (Blythswood Investments per Lord Cullen at 155I; Aubrey Investments per Lord Penrose at 635L). One consequence of that, in my view, is that in general the hypothetical fair and reasonable landlord must be taken to have been in the same state of knowledge as the actual landlord was in from time to time. I therefore accept Mr Ferguson's submission that the actual state of knowledge of the landlord may affect what circumstances fall to be taken into account in applying the fair and reasonable landlord test. I would, however, qualify the generality of the proposition to the extent that if it is shown that a fair and reasonable landlord would have made inquiries which the actual landlord did not make, the fair and reasonable landlord may be taken to have had any additional knowledge that the evidence shows would have been obtained by making those inquiries.

In Blythswood Investments Lord Cullen took the view (at 155 K) that the words "in all the circumstances of the case" were very wide, and consequently admitted to probation averments about the advantages which the irritancy would bring to the landlord. At the earlier stage in the present case, Lord Penrose considered whether there was a limit on the circumstances that might relevantly be considered, and in particular whether they were restricted to those which arose directly out of the relationship of the landlord and the tenant in respect of the leased premises. He concluded (at 636D) that:

"nothing in the Act points to a test of conduct which requires the landlord, at least in a question with a receiver who has not adopted a lease, to have regard to facts and circumstances extraneous to the relationship defined by the lease in relation to the leased premises."

It seems to me that the words "all the circumstances of the case" are indeed wide. They are unlimited except in respect that they connote that circumstances extraneous to "the case" are irrelevant. I do not consider, however, that it is possible a priori to rule out of consideration any circumstances relating to the receivership, on the ground either that the receiver who has not adopted the lease is not the tenant or that the circumstances which are relevant are only those directly arising out of the tenancy of the particular property. In a case such as the present where the appointment of the receivers is the event on which the irritancy is based, it seems to me to be unrealistic to regard the circumstances of the receivership, the conduct of the receiver, and his interests and objectives, as not being part of the circumstances of the case. Nor do I consider that circumstances arising from the fact that the receiver is concerned with assets other than the tenant's interest in the particular lease can automatically be ruled out of consideration. The consequences of that view are, however, mitigated by two considerations. The first is that the knowledge of the hypothetical fair and reasonable landlord of the circumstances of the receivership will be limited in the same way and probably to the same extent as the knowledge of the actual landlord of those circumstances. The hypothetical landlord will therefore take account of matters affecting the receivership only to the extent that he is, or may be taken to be, aware of them. The second is that the weight which falls to be attached to any circumstance, including circumstances bearing on the receivership, is a matter for the fair and reasonable landlord. The actual landlord will therefore not be faulted for giving little or no weight to a circumstance bearing on the receivership if that is what the hypothetical fair and reasonable landlord would have done. These two considerations, it seems to me, are capable of operating as a sufficient guard against testing the landlord's conduct by reference to circumstances arising from aspects of the receivership remote from the relationship of landlord and tenant of the particular leased premises.

It is convenient at this point to deal with two points raised by Mr Ferguson. The first was his acceptance that the onus of establishing that in all the circumstances of the case a fair and reasonable landlord would not seek to rely on the appointment of the receivers as ground for irritating the lease was on the defenders. Although in light of Mr Ferguson's concession it is unnecessary for me to decide the point, the concession was in my opinion rightly made. I note that it has been held that there is no question of onus in the application of the fair and reasonable landlord test in the context of a notice to quit an agricultural holding (Mackenzie v Lyon at 32; see also McCallum v Arthur, per Lord Sorn at 198), but I do not consider that that would be the correct approach in the context of section 5 of the 1985 Act.

The second point raised by Mr Ferguson concerned the time at which the test falls to be applied. It is in my opinion clear that it cannot be applied as at the date of the lease. The test is not concerned with the inclusion of the irritancy clause in the lease, but with the reliance placed on it (Scottish Law Commission Report, § 4.12). Equally, for the same reason, the relevant time is not the time at which the event occurs by which the irritancy is incurred (here the date of appointment of the receivers). In my opinion, the relevant time is the time at which the landlord seeks to rely on the irritancy by serving a notice of irritancy. Mr Ferguson pointed out that there might be a gap between the moment at which the landlord decided to rely on the irritancy and the moment at which the notice was served. I do not consider that that occasions any difficulty. The circumstances obtaining at the time when the decision was made form part of the factual background, and there is therefore no risk of their being left out of account. But the time at which the test finally falls to be applied is the time at which the formal attempt to rely on the irritancy is made.

Mr Ferguson submitted that the fair and reasonable landlord test did not involve two separate criteria, "fairness" and "reasonableness", but rather used the two overlapping expressions to define a single concept. That is in my view a sound point, although I am not sure that very much turns on it. It seems to me that "fair" and "reasonable" are ordinary words of the English language, and that it would not be helpful to attempt to define them, or substitute other words for those chosen or adopted by the legislature. As their dictionary definitions show, they are not synonyms, but there is a measure of overlap in their meanings. They have here been used in conjunction with each other to describe the attributes which are to taken to be possessed by the hypothetical landlord whose conduct is to be used as a test of the conduct of the actual landlord. The purpose is to provide an objective criterion of conduct. The process is familiar from a number of areas of law - the reasonable man in the law of negligence, reasonableness as a test of the validity of an administrative action or decision, reasonableness as a test of the actions of the employer in the context of unfair dismissal, and the fair and reasonable landlord test in the context of the operation of a notice to quit and agricultural holding. There is, however, in my view, only limited scope for arguing from one context to another.

One specific point on which counsel differed from each other in their submissions was whether there was any significance in the difference between the way in which the test is formulated in section 5 ("if in all the circumstances of the case a fair and reasonable landlord would not seek so to rely") and the way in which it was formulated in Recommendation 4 of the Scottish Law Commission ("if, in all the circumstances of the case, no fair and reasonable landlord would have sought so to rely"). Mr Robertson submitted that there was no significant difference in effect. Mr Ferguson submitted that the formulation in the recommendation set a higher test, and that the test in the section should be applied to the exclusion of the other formulation. Since the draft Bill appended to the Report expresses the matter in the same way as the section as enacted, it seems to me to be reasonable to infer that the Scottish Law Commission did not regard the two formulations as being different in effect. In my opinion, the difference is one of emphasis only. The point emphasised by adopting the "no fair and reasonable landlord would" formulation is the one familiar from employment law and administrative law, namely that there may, in any set of circumstances be a range of reasonable responses (or, in this case, a range of fair and reasonable responses), and that to fail the test the actual response must fall outwith that range. That is, however, so whichever formulation is adopted. In the proper application of section 5 as enacted, it is in my opinion necessary to bear in mind that the fact that some landlords would, in the given circumstances, refrain from enforcing the irritancy does not establish that "a fair and reasonable landlord would not seek so to rely". Allowance must be made for the unusually lenient landlord, and for the landlord who has reasons of his own to choose not to irritate. The test is failed only if it can be affirmed that any landlord adhering to the standards of fairness and reasonableness would in all the circumstances decline to irritate.

Given that the test set by section 5 was avowedly derived from the legislation controlling the operation of notices to quit agricultural holdings, it is, in my view, legitimate to look to the cases under the agricultural holdings legislation to see if they cast light on the proper interpretation or application of the fair and reasonable landlord test. In doing so, allowance requires to be made for the different context. Thus in Blythswood Investments Lord Cullen derived no assistance from that legislation in deciding whether or not averments about the advantages to be gained by the landlord by irritating the lease were relevant, because the landlord's purpose in serving the notice to quit was already in issue under the parts of section 26(1) preceding the proviso. But it does not follow that no assistance at all can be gained from the cases under the 1949 Act. In the event, however, I do not find much assistance in the four cases cited by Mr Ferguson in which the proviso was operated. Each of them seems to me to have been no more than a decision on its own facts.

I do not consider that the fair and reasonable landlord test can be reduced, as Mr Ferguson, at least in some parts of his submissions, sought to do, to a balance of hardship. I accept without hesitation that a fair and reasonable landlord would not look exclusively to his own interests, but would also take into account the impact which enforcement of the irritancy would have on the interests of the tenant. That point can be expressed in terms of balancing the hardship which the landlord would suffer if not allowed to irritate against the hardship which the tenant would suffer if the irritancy were allowed to take effect. Support for the relevancy of such balancing is to be found in Blythswood Investments (at 155L), in McCallum v Arthur (per Lord Sorn at 199), and in Cooke v Talbot (per Lord Widgery CJ at 3K). I am not persuaded, however, that all the relevant circumstances that a fair and reasonable landlord would take into account can be expressed in terms of a balance of hardships. In Blythswood Investments Lord Cullen, after referring to the landlord's purposes and the loss which the tenant would suffer, said (at 155L- 156A):

"These are, of course, only some of the considerations which may be brought to bear in the present case".

There are other practical difficulties about the balance of hardship approach apart from the fact that it does not exhaust all the relevant considerations. Foremost among them is the fact that the factors to be weighed in the balance are incapable of being reduced to any common unit of measurement of their weight. Mr Ferguson recognised that that was so. In particular, he recognised that the respective hardships could not be reduced to cash terms. It was in that context that he submitted that the approach should be qualitative rather than quantitative. It is, in my view, doubtful whether that makes matters much easier.

Nevertheless it is, in my opinion, appropriate to identify, so far as it is possible to do so, the losses which the fair and reasonable landlord would perceive that the tenant would be likely to suffer if irritancy were insisted upon. In the context of an irritancy proceeding on the basis of the appointment of receivers of the undertaking of the tenant, and where the proposal is that the tenant's interest in the lease should be assigned, there is no question of the irritancy causing the tenant himself the loss of the continuing benefit of the lease for the remainder of its term. The proposal to assign the tenant's interest recognises that the benefit of the remainder of the lease has already been lost to the tenant. What would be lost through enforcement of the irritancy would be the opportunity to realise the value of the tenant's interest under the lease in the form of the payment which would be made by an assignee. In addition to that, the evidence showed that irritancy would, by preventing the disposal of the business conducted in the leased premises as a going concern, deprive the receivers of the opportunity to dispose of the fixtures and fittings in the leased premises at the more advantageous price that would be obtainable on such a disposal. These losses would, of course, not necessarily fall ultimately on the tenant company. It would require more knowledge of the receivership than the hypothetical fair and reasonable landlord would have to predict whether the loss would bear on the floating charge holder, the company's ordinary creditors, or the company itself. I do not consider, however, that a fair and reasonable landlord would on that account leave those losses out of account. On the other hand, although the receiver gave evidence that these losses together amounted to about £20,000, that is not information that would have been available to the hypothetical fair and reasonable landlord. He would have had to make his own estimate as best he could on the information available to him. A third factor mentioned in evidence was the possibility that in the absence of a going concern disposal, the receiver might face increased redundancy claims. The evidence was vague, and I do not consider that the hypothetical fair and reasonable landlord would have had sufficient information to enable him to form any worthwhile judgment on the likely significance of that factor.

I consider that the fair and reasonable landlord would have had in mind only to a very limited extent the possibility that irritancy of the lease might prejudice the disposal by the receiver of a portfolio including other properties. It is, I think, reasonable to suppose that the hypothetical landlord would be aware of the nature of Crawfords' business, and would therefore be alive to the possibility that the receiver might wish to dispose of a number of shop properties in a portfolio rather than singly. The circumstances of the case, however, include the fact that the receivers' solicitors had been asked to clarify that point and had not done so. The receiver had therefore not taken an available opportunity of putting the landlord more fully in the picture. Even if the hypothetical landlord had been informed of the proposed portfolio transaction, he would in my view have been entitled to regard the impact of a decision to irritate on that transaction as a relatively remote consideration, and to accord it little weight. Further, it is not obvious that the withdrawal of one property from the portfolio would prejudice the transaction as a whole. The fact is that the withdrawal of the pursuers' property from the Peterhead portfolio did not prevent the disposal of the remainder of the portfolio. That fact would not have been known to the fair and reasonable landlord at the material time, but it affords additional retrospective justification, in my view, for according little weight to the risk of prejudicing a portfolio sale.

It was clear from the evidence that the interests which a landlord would have in mind as potentially requiring to be protected by the enforcement of the irritancy were (a) the income stream produced by the let property and (b) the investment value of that property. The evidence was reasonably clear, however, that a number of circumstances combined to reduce the concern that the pursuers had, and that the hypothetical fair and reasonable landlord would have had, about these matters. The rent, including arrears, had been paid up to February 1997. The property continued to be occupied for the purpose contemplated in the lease, and active trade was being carried on. Although the pursuers were said not to be absolutely certain that all the tenant's obligations were being complied with, I take the view that the hypothetical fair and reasonable landlord would have had no reason to suppose that they were not. In addition, there was in place a guarantee by a substantial guarantor, who could be looked to for payment of rent and performance of the tenant's other obligations if the receiver ceased so to pay and perform. As an ultimate fall back position, the guarantor could be called upon to enter into a new lease. In any event, the property was well located, and readily capable of being re-let. Mr Oakeshott at least regarded it as under-rented. Notwithstanding these factors, however, I accept the evidence that the situation was one which a fair and reasonable landlord would regard as unsatisfactory. So long as the receiver remained in occupation the situation was affected by uncertainty. I accept that the property market would view less favourably a property occupied by a company in receivership than one occupied by a solvent tenant whose covenant was satisfactory. I therefore accept that there would be an adverse impact on investment value. The mitigating factors mentioned would not, I accept, be sufficient wholly to elide that impact. The quality of the property meant that any such impact would be temporary. The aim of the fair and reasonable landlord would nevertheless in my view be to minimise so far as he could, without ceasing to be fair and reasonable, the period of time for which that uncertain situation prevailed.

Time is, in my view, a matter of very great importance in the proper application of the fair and reasonable landlord test in the circumstances of this case. The issue is whether a fair and reasonable landlord would have irritated the lease at the juncture at which the pursuers did so. That juncture came some four and a half months after the appointment of the receivers. The pursuers had during that time agreed to give the receiver an (initially limited) period of time in which to find an assignee of the tenant's interest in the lease, begun consideration of the acceptability of the covenant of the assignees proposed by the receiver, continued negotiations after the initial period allowed had expired, suffered some delay through the reluctance of the assignees to produce the normal evidence in support of their covenant, and eventually intimated the terms on which they were prepared to consent to assignation to the party proposed by the receiver. They had acted in that way despite advice from their solicitor that they were entitled to irritate. There was thus no unseemly rush on their part to irritate.

In coming to a conclusion on the proper application of the fair and reasonable landlord test in the circumstances of the present case it is necessary to examine carefully the pursuers' reaction to the letter of 7 January intimating the breakdown of the negotiations with Thains and offering Chalmers as alternative assignees. The letter came four months after the appointment of the receivers, three months after Thains had first been proposed as assignees, and almost one month after the pursuers, having finally after a period of substantial delay been provided with satisfactory information about the quality of Thains' covenant, intimated the terms on which they were prepared to consent to the proposed assignation. The letter neither offered any explanation of the reason for the breakdown of the negotiations with Thains, nor identified when that had occurred. The fact that an alternative assignee was proposed, and the proposal was supported by full information about Chalmers' covenant, yielded the reasonable inference that some time had been allowed to elapse since the breakdown of the Thains negotiations, and that the receiver had deliberately refrained from informing the pursuers of the failure of the Thains negotiations while putting together material in support of the alternative proposal. The evidence shows that such an inference was well founded. Although the receiver said that he did not recall giving instructions to proceed in that way, it is clear from Mr Macgregor's evidence, which I am inclined to prefer on this point, that so far as he (Mr Macgregor) was concerned it was a deliberate decision to withhold the bad news until its impact could be mitigated by its being accompanied by some good news. From the point of view of avoiding the risk that the landlords would react adversely, there was sense in that strategy. Against the background, however, of the indication given by the receiver to Mr Oakeshott on the telephone in September that he would revert to him if any material event occurred affecting his interest, the pursuers were, in my view, entitled to feel let down. In his evidence that he had "failed miserably" in not keeping Mr Oakeshott informed, the receiver, it appeared to me, recognised that.

The pursuers' feeling of being let down was naturally compounded by the discovery by Mr Newton that Thains were maintaining that they did not know that their negotiations with the receiver were at an end. I accept the receiver's evidence that so far as he was concerned he had made his position plain to Thains. I also accept Mr Newton's evidence about what he was told by Thains, supported as it is by Mr Oakeshott's evidence of what he was told by Mr Newton. The absence of any evidence from Thains makes it impossible to identify with certainty how it came about that they represented their position as they did to Mr Newton. It is conceivable that they thought that the Receiver was bluffing. Perhaps it is more likely that they saw in Mr Newton's approach an opportunity to resuscitate part of the transaction, the part involving a particularly attractive property. Whatever the explanation may be, Thains' declared position reinforced Mr Oakeshott's feeling of dissatisfaction with the receiver, and held out an alternative way forward, with a party who was keen to acquire the tenancy of the pursuers' property. I leave out of account Mr Oakeshott's evidence that he understood by that stage that Thains found the proposed rent deposit acceptable, since Mr Newton was not asked about that matter.

On the defenders' behalf much was made of the fact that the pursuers proceeded with their negotiations with Thains for a new lease without contacting the receiver. I have no difficulty in accepting that to contact the receiver to seek from him an explanation for his change of position was a reasonable course to take. There was evidence, including evidence from both Mr Stevenson and Mr Duguid, that that was the reasonable thing to do. I am not persuaded, however, that it was the only reasonable thing to do. In light of the circumstances outlined in the last three preceding paragraphs, I am unable to hold that it was unreasonable of the pursuers to refrain from contacting the receiver. In any event, had I held otherwise on that point, I am of opinion that the conclusion that a fair and reasonable landlord would not have resorted to irritancy is not necessarily sufficiently based on a finding that in some respect other than the decision to irritate itself the way in which the actual landlord conducted himself was unreasonable.

An attempt was made to demonstrate that as at January 1997 the pursuers were not genuinely concerned about delay. It is no doubt right that after the initial time limit of 31 October expired, no attempt was made to impose a new time limit, but that was in the context of active discussion of the acceptability of the covenant of the proposed assignee. Again, it is no doubt right that the steps taken by Mr Newton to follow up his letter of 9 December were not very vigorous, but at that stage he had no reason to suspect that the negotiations with Thains had broken down. It is correct that initially no specific time limit was put on Thains for conclusion of the bargain for a new lease, but despite that Mr Smith's file in my view vouches Mr Oakeshott's anxiety to make progress. I am not prepared to reject Mr Oakeshott's evidence that the prospect of further delay was a matter of concern to him at that stage. Nor am I prepared to regard that concern as unreasonable.

It is, of course, correct that the letter of 7 January did not "put matters back to square one", if square one is taken to be the stage at which Thains were originally proposed as assignees. The package of information provided about Chalmers meant that the proposal of them as assignees took the matter to a stage which had not been reached with Thains until 15 November. Mr Ferguson's valiant (and successful) efforts to establish that point in cross-examination were not really undermined by the receiver's spontaneous and disconcerting use of the phrase "back to square one" in his evidence in chief. The pursuers could no doubt, as Mr Ferguson suggested, have set the receiver a time limit of two weeks for concluding a bargain with Chalmers, but it is in my view questionable how effective that would have been. In the event, the receiver did not have consent from all the landlords until early March. If a time limit had been set and not met, the pursuers would have found themselves two weeks further on and no nearer having an acceptable tenant in place.

The availability of an alternative assignee in respect of whose covenant satisfactory information was already available was, I have no doubt, an important factor to be considered by the fair and reasonable landlord as at 8 January. Had the breakdown of the Thains negotiations been intimated without an alternative proposal being made, it would in my view have been very difficult for the defenders to advance the proposition that a fair and reasonable landlord would not have been entitled to resort to irritancy. The extent of the information available did not, however, guarantee that the matter would be brought to a conclusion without further material delay. It cannot be said, in my view, that per se it made any other course unreasonable.

Mr Ferguson submitted, and had support in the evidence for the proposition, that a fair and reasonable landlord would not have lost patience. Pithy though the proposition is, it is not in my view sound. Its corollary is that a fair and reasonable landlord has infinite patience. In other words, he would allow the receiver as much time as he needed to dispose of the tenant's interest in the lease. I do not consider that that is correct. Indeed it was implicit in Mr Duguid's evidence that there was a limit to the time which a fair and reasonable landlord would allow. The contention was rather that in January that limit had not been reached. In my view there would inevitably come a time when even a fair and reasonable landlord would decide that enough time had been allowed. It does not assist in deciding whether that stage had been reached by the time the irritancy notice was served in the present case to put the matter in terms of loss of patience.

One ground on which Mr Ferguson sought to rely in characterising the pursuers' reliance on the irritancy as unreasonable was that Mr Oakeshott was in part motivated in negotiating a new lease with Thains by the prospect of obtaining their agreement to a longer lease. The evidence shows that Mr Oakeshott regarded that as advantageous, and that he had had in mind the possibility of re-letting the property on a new longer lease as early as during the negotiation of the 1995 rent review. In my view, however, a fair and reasonable landlord does not ignore his own commercial interests. He may find that he has to moderate the extent to which he pursues them. But the mere fact that a particular course of action brings with it a collateral benefit to the landlord does not taint it with unfairness or unreasonableness.

Criticism was also directed at the pursuers' decision to carry the negotiations with Thains to a conclusion before serving the irritancy notice. In my view that criticism is not well founded. Mr Oakeshott regarded the new lease with Thains as the preferable course, but until a binding contract was concluded, the possibility remained that that would fall through. If that happened, consenting to the assignation to Chalmers was more attractive than finding himself with the original lease irritated and no new tenant in place. It therefore made commercial sense to delay the notice of irritancy until the missives with Thains were concluded. I do not regard that as in itself unfair or unreasonable.

Finally, I do not find in the fact that the landlords of the other properties in the Peterhead portfolio consented to assignations to Chalmers material support for the conclusion that the pursuers acted unfairly or unreasonably in opting to irritate the lease instead. Mr Ferguson recognised that the point was not a strong one. That is partly because each lease was differently expressed, and each landlord's decision was made in a different set of circumstances. It is also partly because it cannot be concluded from the mere fact that the other landlords chose to consent to the assignation that they would have been acting unfairly or unreasonably if they had instead irritated their leases.

Conclusion

The most difficult part of applying the fair and reasonable landlord test is to judge what weight should be attached to each of the multifarious considerations which such a landlord would take into account from all the circumstances of the case. All that can be done, after a critical examination of all the circumstances, is to take an over all view. In doing so, I remind myself that the fair and reasonable landlord is not the wholly altruistic landlord who subordinates his own interests to those of the tenant. He is, rather, the landlord who is prepared to exercise his right to irritate the lease, unless it would be unfair or unreasonable of him to do so. The conclusion which I have reached is that in all the circumstances of this case it has not been shown that a fair and reasonable landlord would not have served the notice of irritancy which the pursuers served on 24 January 1997.

I shall accordingly repel the defenders' pleas-in-law, sustain the pursuers' first and second pleas-in-law, and pronounce decree in terms of the first and second conclusions of the summons.