Scottish Court of Session Decisions

Glasgow City Council v Morrison Developments [2002] ScotCS 274 (16 October 2002)

OUTER HOUSE, COURT OF SESSION
CA18/02	OPINION OF LORD EASSIE in the cause GLASGOW CITY COUNCIL Pursuers; against MORRISON DEVELOPMENTS LIMITED Defenders:   ________________

 

 

Pursuers: Jonathan J Mitchell, Q.C.; E Bain, Solicitor

Defenders: Connal, Q.C., Solicitor Advocate; McGrigor Donald

16 October 2002

1. In this action, commenced on 30 January 2002, the pursuers seek declarator of irritancy of a lease entered into between their statutory predecessors - The City of Glasgow District Council - and the defenders. For convenience I shall use the term "pursuers" as encompassing those statutory predecessors. The lease was executed on 28 and 31 March 1995 and its subjects are an area of ground in Glasgow owned by the pursuers extending to 0.723 ha. The date of entry for which provision was made in the lease was 31 March 1995.
2. In their pleadings the pursuers aver that the lease was amended by a "Supplementary Agreement for Lease" also dated 28 and 31 March 1995, and further amended by a "Second Supplementary Agreement for Lease" dated 30 August and 5 September 1995. In their pleadings the defenders admit that the lease was so amended but in opening the debate on the defenders' plea of prescription it became apparent that the defenders' solicitor advocate, Mr Connal, Q.C., questioned whether the supplementary agreements effected any variation of the lease, since they bore to vary another document, namely an "Agreement for Lease" dated 14 November 1994 and 20 January 1995. Mr Connal sought leave to amend the defences so as to withdraw that admission. Put briefly, the particular aspect in which the question whether the lease had been amended might be relevant for the present case related to alteration of the date of entry and hence the starting point for the effluxion of time, were the obligations to which I shall refer shortly subject to the quinquennial negative prescription, as the defenders contend. In the event it was agreed by parties that the diet of debate might usefully proceed on matters unaffected by Mr Connal's wish to withdraw the admission and that it should proceed on that more limited basis.
3. The lease is a bulky document but for present purposes it is sufficient to say that by Clause 2 the pursuers let to the defenders the area of land, and any buildings constructed on the land pursuant to the terms of the lease, for a term of 125 years from the date of entry. Opening with the words "for which causes and on the other part", Clause 3 then provides both that the tenant should within fourteen days commence certain building operations consisting of the construction of a retail shopping centre whose nature and extent is much more specifically defined elsewhere in the lease and that the tenant should thereafter carry out and complete those construction works with "all due diligence and despatch". Employing the same opening phrase, Clause 4 of the lease binds the tenant firstly to pay rent at the rates and dates set out in a schedule to the lease and secondly to pay a grassum of £340,000. The detailed provisions relating to the amount of rent are not material for present purposes beyond a general observation that they are largely predicated upon completion of construction of the shopping centre. The grassum of £340,000 is defined as being payable on the earliest of three dates. Those dates are (a) the date of practical completion of the building works; (b) the "target completion date"; or (c) the date falling twenty four calendar months after the date of entry. The "target completion date" is defined in the lease as being, subject to certain force majeure exceptions, eighteen months after the date of entry. Clause 7 of the lease contains provisions entitling the landlord to irritate the lease on the occurrence of various events. Those events include the grassum's being unpaid for a space of twenty one days after its becoming payable or default having been made in the performance or observation of any of the other obligations of the tenant. The clause contains further detailed provisions which it is unnecessary to discuss at this stage.
4. It appears that for reasons not explored before me, no doubt for the good reason that they are not pertinent to the issues which I have to decide at this stage, the tenants - the defenders - neither carried out any of the construction works which they had agreed to do nor did they make payment of the grassum. The pursuers eventually served notice on the defenders that they were in breach of both (1) the obligation to commence and thereafter carry out the construction of the shopping centre and (2) the obligation to make payment of the grassum; and that failing payment, and the tenants' otherwise complying with the terms of the lease, within two months irritancy would be incurred. On the face of the productions which have been lodged, there appear to have been two such notices, one dated in August 2001 and a second in October 2001 but as respects the issues raised at this stage in the proceedings nothing turns on that, since the argument for the pursuers, even on subsidiary issues, assumed only the second to have been served.
5. The principal issue debated at this stage in the case may be couched shortly as being whether, as the defenders contend, the tenant's obligations (1) to pay the grassum and (2) to begin and thereafter continue the construction works fall within the five year prescriptive period provided for under section 6 of the Prescription and Limitation (Scotland) Act 1973, as amended - "the Act" - or, as the pursuers contend, either or both of the obligations escape that extinctive effect as being "obligations relating to land", subject to the long negative prescription.
6. Section 6 of the Act provides for the extinction of certain obligations after their subsistence for a continuous period of five years without interruption by judicial challenge in the form of a relevant claim. Subsection (2) of section 6 of the Act states that - "Schedule 1 to this Act shall have effect for defining the obligations to which this section applies". Paragraph 1 of Schedule 1 provides that, subject to paragraph 2 of the Schedule, section 6 of the Act applies to certain enumerated obligations. Subparagraph (a) of paragraph 1 lists a number of different types of obligations involving obligations to make periodical payments. Heads (i) and (ii) relate to payments of interest or instalments of annuity and heads (iii) and (iv) relate to payment of feu duty or ground annual or other periodic payments under a feu grant or contract of ground annual. Heads (v) to (vii) relate, to any obligation to pay a sum of money due in respect of a particular period -

"(v) by way of rent or other periodical payment under a lease;

(vi) by way of periodical payment in respect of the occupancy or use of land, not being an obligation falling within any other provision of this subparagraph;

(vii) by way of a periodical payment under a land obligation, not being an obligation falling within any other provision of this subparagraph".

Subparagraph (g) of paragraph 1 of Schedule 1 brings within the ambit of section 6 of the Act - "any obligation arising from, or by reason of any breach of, a contract or promise, not being an obligation falling within any other provision of this paragraph".

7. The second paragraph of Schedule 1 catalogues obligations to which, notwithstanding the terms of the first paragraph, section 6 does not apply. The particular provision pertinent to the present case is subparagraph (e) which is in these terms:

"(e) except as provided in paragraph 1(a) of this Schedule, to any obligation relating to land (including an obligation to recognise a servitude);"

Section 15 of the Act, the interpretation section, provides in subsection (2) that, in the part of the Act concerned with prescription, "unless the context otherwise requires, any reference to an obligation or to a right includes a reference to the right, or as the case may be, to the obligation (if any), correlative thereto".

8. For the defenders, solicitor advocate Mr Connal, Q.C., contended that the expression in para.2(e) of Schedule 1 "any obligation relating to land" should receive a narrow construction. He referred to the discussion in Johnston on Prescription and Limitation at paragraph 6.55ff. An obligation to carry out works on, or affecting, land was not thereby an obligation relating to the land. Having expressed the view that the test be whether land be the main object of the obligation Mr Johnston continued at paragraph 6.61 of his work-

"--- it is not self evident that the tenant's obligation to pay rent should be said to have land as its main object. Certainly, not all obligations undertaken by the parties to a lease will be obligations in relation to land, so that the conclusion must be that it is necessary to focus on the particular obligation in question (rather than the contract as a whole) and to ask whether it has land as its main object. Furthermore, an obligation to pay damages for breach of an obligation in relation to land would probably not in itself be an obligation in relation to land".

The footnote to the last sentence having referred to Lord Advocate v Shipbuilding Industries Limited 1991 S.L.T.838, Mr Connal then referred to that case. In it the landlord sought damages respecting his tenant's alleged breach of the tenant's repairing obligations under the lease. In relation to the issue whether that claim was saved from extinction by the quinquennial prescription on the ground of its being an obligation relating to land within the ambit of paragraph 2(e) of Schedule 1 to the Act the Lord Ordinary (Coulsfield) said (840J) -

"As regards para.2(e), it again seems to me that, on a straightforward reading of the words, an obligation to make reparation for breach of an obligation to do something on land is not itself an obligation relating to land".

That view, said Mr Connal, demonstrated a narrow approach. The ambit of paragraph 2(e) of Schedule 1 to the Act had been further considered in Barratt Scotland Limited v Keith 1994 SLT 1343, Mr Connal having evidently overlooked that the case was more fully reported at 1993 S.C.142, and should have been so cited. The decision, it was submitted, merely vouched the proposition that the obligation in a contract for the sale of land to deliver a disposition of the land subject to that contract was "an obligation relating to land" being within the natural and ordinary meaning of that expression. So far as the decided cases went, therefore, an "obligation relating to land" was confined to an obligation to transfer title. An obligation to carry out building works on land, even if flowing from a contract of lease, was not within the concept. Likewise the obligation to pay a grassum, not being related to any obligation to transfer ownership was not "an obligation relating to land". Both of the obligations founded upon by the pursuers as grounds for irritating the lease being thus subject to the short quinquennial prescription the consequence was that, subject to the question relating to alteration of the date of entry, and hence the starting point for the running of time, the notice of irritancy came too late. On the other hand, as I understood the position of the defenders, if the pursuers were correct in their contention that the obligation to pay the grassum, or construct the shopping centre, were indeed obligations "relating to land" and had not been extinguished there was no answer to the pursuers' action for declarator of irritancy, at least so far as founded on failure to pay the grassum.

9. In his response Mr Mitchell for the pursuers observed at the outset that, since the defenders maintained that the lease continued in force, their argument implied that if a purchaser of a house were to delay payment of the price for a period in excess of five years, the purchaser would then be entitled to demand a conveyance of the property without making payment of any sum. The contract in the present case was a lease but that made no difference since the grassum was equivalent to a price - a price for occupancy. The defenders' argument was destructive of the principle of mutuality of contractual obligations. In that regard section 15(2) of the Act was significant since it defined rights and obligations in terms of correlativity.
10. With that correlativity in mind, the relationship between paragraphs 1(a)(v) and 2(e) of Schedule 1 was clear. The obligation of a landlord to give his tenant possession of the land was plainly an obligation relating to land. The correlative obligation to the tenant's right to take and keep possession would typically be the obligation to pay rent. Thus the obligation to pay rent was an obligation relating to land but, exceptionally, paragraph 1(a)(v) applied the short negative prescription to that obligation. However, applying that quinquennial prescription to periodical payments did not mean that non-periodical payments were similarly treated. A grassum was essentially a lump sum paid in return for the grant of possession and equiparated with the lump sum price in a contract for the sale of land.
11. Counsel for the pursuers went on to say that there was little useful judicial discussion of paragraph 2(e) of Schedule 1 other than that to be found in Barratt Scotland Limited v Keith. Counsel referred to the passage from the opinion of the Lord Ordinary (Penrose), 148, in which the Lord Ordinary expressed the view that the expression "obligation relating to land" should be given its natural and ordinary meaning. The passage continued -

"Prima facie the expression is wide enough to include a contractual obligation owed by one person to another, unless such an approach is excluded by the remaining words 'relating to land'. In my opinion it is an ordinary usage of English to describe missives as a contract relating to land. The words 'relating to land' define the subject matter to which the obligation relates. They provide no other qualification on its scope. If this view is correct, then the expression cannot be limited to obligations relating to real rights of third parties, but must include personal obligations under contracts dealing with land and interests in land. With the exception of cases in which land is dealt with incidentally only, contractual and other forms of obligation, such as unilateral gratuitous promise, to create rights and interests in land, or to convey land or interests in land, are in my opinion typical 'obligations relating to land'. The sum these examples would not adequately define the expression."

That approach had received approval in the Inner House, reference being made in particular to the opinion of the Lord Justice Clerk (Ross), 153F et seq. At 154B, the Lord Justice Clerk distinguished contracts for carrying out services on land, such as repairs to plumbing, in which land is "merely the environment within which the services are to be performed". But an obligation in missives to deliver a disposition was seen by the Lord Justice Clerk as being impossible to regard other than as an obligation relating to land. Lord McCluskey referred, 158, to the dicta of Lord Coulsfield in Lord Advocate v Shipbreaking Industries Limited in terms which, said counsel, did not readily endorse those views. For completeness counsel also mentioned the case of Strathclyde Regional Council v W A Fairhurst & Partners 1997 S.L.T.658 in which, respecting a contract to design the Kingston Bridge in Glasgow, counsel were evidently in agreement that it was subject to the long negative prescription under section 7.

12. Mr Mitchell further submitted that if, as Barratt clearly established, the obligation to deliver a disposition in exchange for the price was an obligation relating to land, the obligation to grant possession under a lease was similarly an obligation relating to land and the correlative obligations on the tenant included, in this case, payment of the grassum. In counsel's submission, the tenant's obligation to construct the shops, undertaken likewise as a counter prestation to the grant of possession for the term of 125 years, was likewise within the concept of an "obligation relating to land". An issue arose as to the reasonableness of the time allowed by the notice of irritancy for compliance with the construction obligation which it was accepted could not be disposed of simply on the basis of the pleadings. However, no such issue arose respecting payment of the grassum. If, as was submitted, payment of the grassum were an obligation relating to land and not subject to the five year negative prescription provided for under section 6 of the Act, there was no answer to the conclusion that an irritancy had been incurred by reason of the failure to make payment of the grassum. Nor was there was any defence available to the second conclusion seeking payment of that sum. Counsel for the pursuers therefore moved for decree de plano in those terms.
13. For the reasons advanced by counsel for the pursuers, I am persuaded of the soundness of his argument, particularly as respects payment of the grassum. It is in my view clear from the decision in Barratt Scotland Limited v Keith that the phrase "obligations relating to land" is not confined to real rights and their correlative obligations but extends to personal obligations arising under contracts which have as their subject the creation of rights or interests in land or the transfer of the existing rights or interests in land. Accordingly, while under a contract of lease there may possibly be incidental or ancillary obligations which might not come within the expression "obligations relating to land", the central or core obligations, such as the grant of the tenant's interest and the reddendum must fall within the scope of that term. The structure of Schedule 1 to the Act as analysed by counsel for the pursuers conforms with, and indeed prompts, that view. Periodical payments prestable under a lease or other contract relating to land, such as a feu or contract of ground annual are brought within the five year prescription by way of what is effectively a derogation from the general exclusion provided for in paragraph 2(e). The grassum is not such a periodical payment and thus does not fall within the ambit of that derogation. In my opinion it cannot be said that payment of the grassum is not part of the reddendum or counterpart for the grant of occupation and possession by the landlord. In my view the language used in the opening wording of Clause 4 of the lease reflects that reality.
14. In these circumstances I consider that the approach adopted by the defenders when confronted with the threat of irritancy on the ground of their failure to make payment of the grassum - namely the invocation of the quinquennial prescription - was misconceived. No other reason is advanced wherefor declarator of irritancy on this ground should not be granted. I must therefore grant the pursuers' motion for decree de plano of declarator of irritancy in terms of the first conclusion of the summons under deletion of the text, occurring in line 6, -

"(1) Carry out or complete the development works which they were obliged to do under and in terms of the lease and (2)".

15. If, as I have held, the defenders' obligation to pay the grassum has not been extinguished by operation of the quinquennial prescription, I did not understand there to be any other defence proponed respecting the second conclusion for the pursuers, which seeks payment of the amount of the grassum together with interest thereon stipulated under Clause 11 of the Lease. I shall therefore also grant decree de plano in terms of the second conclusion.
16. Having thus reached the view that the action falls to be completely disposed of on the basis of the tenant's failure to pay the grassum, it is unnecessary for me to decide whether the tenant's obligation to construct the shops was comprised within the ambit of an obligation relating to land. But it may be appropriate that I give some expression to my view on that question. In contending that it was so comprised counsel for the pursuers stressed that the basis of his contention was not that the works envisaged would be carried out on land - or, to employ the words of the Lord Justice Clerk in Barratt Scotland Limited v Keith that land was the environment in which services were to be performed. Rather, the basis of the submission was that the execution of the works was a counter prestation for the grant of a lease of a term of 125 years. On this matter I again consider the argument advanced by counsel for the pursuers to be sound. The obligation to construct the buildings is expressed in the lease as being a direct counterpart of the grant of the tenant's interest. It is clearly part of the counter prestation respecting which the interest in the land is created. The obligation to construct the shops must therefore come within the concept of an obligation relating to land by reason of its correlativity with the grant of the interest in the land.
17. Although superseded by the decision which I have reached as regards the disposal of this action, it is appropriate that I record a further branch of the discussion before me, namely whether the "right" to irritate a lease on grounds of failure by the tenant was itself subject to a quinquennial prescription differing from the assumed quinquennial prescription attaching to the tenant's obligation, breach of which was invoked as the ground of irritancy.
18. As I understood the argument for the defenders, effectively the right to irritate ran contemporaneously with the continuing existence of the tenant's obligation, in casu, the obligation to pay the grassum. Thus, the starting point for that right to irritate was the point in time at which the grassum became payable and the running of time would not be interrupted except by commencement of an action for declarator of irritancy. For his part, Mr Mitchell, as I understood him, submitted that, on the important assumption that the right to irritate were subject to a quinquennial prescription at all, it had a different timetable. Since the terms of the irritancy clause in the lease in the present case empowered service of a notice of irritancy only in the event of the grassum being unpaid for a period of twenty one days following its due date for payment, and since on the view most favourable to the defenders the due date for payment of the grassum was 30 September 1996, the starting point for service by the landlord of a notice of irritancy was thus 21 October 1996. Although it appeared from the documentary productions that there had been an earlier notice of irritancy, the notice of irritancy founded upon in the present pleadings was served on 11 October 2001 and was thus served within five years from the starting point for service of a notice of irritancy. The bringing of an action of declarator was simply declaratory of the result of that notice. Accordingly, assuming the "right" to irritate came within the structure of the Act at all and assuming it were not a right imprescriptible in terms of paragraph (c) of Schedule 3 to the Act as a "right exerciseable as a res merae facultatis, but on the contrary was subject to the five year negative prescription, the pursuers' right to irritate had not been extinguished.
19. In my opinion - as canvassed during the discussion of this branch of the argument - while it may be convenient to talk of a landlord's "right" to irritate a lease this is perhaps a good example of the dangers of such convenient, but inaccurate, usage described by W N Hohfeld in his collected papers on "Fundamental Legal Conceptions as Applied in Judicial Reasoning". Adopting Hohfeld's well known analysis, imparted latterly to every student of jurisprudence, it is evident, in my view, that the "right" to irritate a lease has no "duty" as its jural correlative. Put in other, perhaps simpler, words the service of a notice of irritancy does not create any additional obligation on the tenant. It is the exercise of a possible remedy for a previous breach of contract. If the landlord chooses to exercise that power or privilege, the tenant suffers the loss of his tenancy but he does not thereby incur any duty or obligation. That jural nature of irritancy as a privilege is reflected in earlier 19^th century cases such as Lindsay v Hogg (1855) 17D 788 and Bidoulac v Sinclair's Tr. (1889) 17R 144. However, section 6 of the Act, read with the defining Schedule 1 to the Act, is couched or structured in terms of "obligation". Since the power or privilege to the landlord to irritate the lease has no correlative obligation on the part of the tenant, it is, I think, impossible to see how that power or privilege could be brought within the scope of paragraph 1 of Schedule 1 to the Act, even having regard to the provisions of section 15(2) of the Act. It was suggested in the course of the discussion that the power or privilege to irritate might come within the concept of res merae facultatis and thus within the category of a right which was imprescriptible, in terms of Sections 7 and 8 and Schedule 3, head (c) of the Act. I was referred to Mr Johnston's discussion of that topic at 3.07ff. However, I have reservations as to whether the power to irritate can be seen as being the exercise of a right exercisable as a res merae facultatis. It appears to me that essentially the power to irritate is a remedy for a breach of contract. It may be open to defences of personal bar or waiver, but there is nothing respecting questions of personal bar or waiver arising in the present case, other than the proposition - which I have rejected as unsound - that the obligations upon whose breach the notice of irritancy was founded had been extinguished in terms of Section 6 of the Act.
20. In these circumstances I shall grant decree in the terms indicated earlier in this opinion.