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Scottish Property Investment Ltd v Scottish Provident Ltd [2004] ScotCS 17 (23 January 2004)

OUTER HOUSE, COURT OF SESSION

CA77/03

OPINION OF LORD MACKAY

OF DRUMADOON

in the cause

SCOTTISH PROPERTY INVESTMENT LIMITED

Pursuer;

against

SCOTTISH PROVIDENT LIMITED

Defender:

________________

Pursuer: Woolman, Q.C.; Burness, W.S.

Defender: Ross; Shepherd & Wedderburn

23 January 2004

[1] This action relates to subjects at 8 St Andrew's Square and 21 South St David Street, Edinburgh ("the Subjects"). The pursuer is the tenant of the Subjects by virtue of a lease in its favour. That lease was granted by the General Reversionary and Investment Company Limited and is dated 26 March and 1 April 1970. The landlord's interest in the lease is now owned by the defender.

[2] Clause SECOND of the lease is in the following terms:

"The subjects hereby let are let for the purpose only of banking and office premises in connection with the tenants' business of Bankers and Financiers and all matters necessary therefor or such purposes as the Landlords in their absolute discretion may from time to time approve and for no other purpose whatever unless with the consent in writing of the Landlords and the tenants shall not use or permit to be used the said subjects for any offensive, noisy, obnoxious trade, business, manufacture or occupation nor as a betting shop, hotel, club, billiards saloon, dance hall, funfair, amusement arcade, leisure centre nor for any purpose which may be or become a nuisance or annoyance or cause disturbance to the owners or occupiers of any adjoining or neighbouring properties nor to use or permit to be used the said subjects for any sale by action, exhibition, public meeting, or entertainment."

[3] Clause THIRD (22) of the lease is in the following terms:

"Not to assign transfer sub-let or part with or share the possession of the subjects or any part thereof without the previous consent in writing of the Landlords and in any event not to assign less than the lease of the whole of the leased premises PROVIDED that such consent shall not be unreasonably withheld in the case of a respectable and responsible sub-tenant or assignee AND to give notice in writing of any assignation transfer or sub-lease or devolution of the Tenants interest in the present lease and to produce the instrument of such assignation transfer or sub-lease or any grant of Confirmation Probate or Letters of Administration in any way relating to the subjects within one month after the execution or grant thereof to the Landlords and to pay a fee of three guineas for the registration thereof AND IT IS HEREBY AGREED that every permitted sub-lease of the leased premises or any part thereof shall contain obligations on the sub-tenants in the same form as those contained in this sub-clause with the substitution throughout of the words 'the superior landlords' for the words 'the landlords' and such additional and further obligations as the landlords may then require."

[4] The lease is for a period of 98 years ending on Whitsunday 2068.

[5] By letter dated 25 March 2003, solicitors, acting for the pursuer, sought the defender's consent to a sub-lease of the third and fourth floors of the Subjects (hereinafter referred to as 'the third and fourth floors') to the Scottish Human Services Trust. That letter was in the following terms:

"Dear Sir

MACDONALD ORR LIMITED

8 ST ANDREWS SQUARE, EDINBURGH

SCOTTISH PROVIDENT LIMITED

We act for Standard Property Investment Limited who are the tenants under the lease undernoted. Scottish Provident Limited are the Landlords.

Our clients have agreed terms with Scottish Human Services Trust to sub-let the third and fourth floors at 8 St Andrews Square, Edinburgh. We enclose the accounts for the period to 31 March 2002 incorporating the figures for the period to 31 March 2001. As you will appreciate the accounts to 31 March 2003 are not available.

We are also enclosing the form of draft sub-lease to be entered into in accordance with the heads of terms.

We understand that consent has already been requested based on less information than that contained in this letter.

However, we are of the view that the information contained in and submitted with, this letter is adequate for you to come to a decision.

We would highlight that Clause THIRD (Twenty two) of the Lease provides that your consent is not to be unreasonably withheld to such a sub-letting and we would point out that the other terms of the proposed sub-lease are all consistent with the terms of the head lease.

We can confirm that our clients will meet your reasonable legal and other expenses properly incurred whether or not the matter proceeds.

We have to advise you that our clients will suffer substantial loss if this transaction does not proceed and we therefore call upon you to consent to the proposed sub-letting within a period of 14 days from the date of this letter, failing which our clients will hold you in breach of contract. In the event that you do refuse consent, we would require detailed reasons with reference to the lease, for that refusal.

This letter will be founded on if necessary."

A copy of the form of draft sub-lease was enclosed with that letter.

[6] Clause 2 of the draft sub-lease provides that the pursuer should sub-let the third and fourth floors to the Scottish Human Services Trust ("the proposed sub-tenants") "subject to the same provisos, conditions and disclaimers in favour of the (pursuer) and where applicable the (defender), as are created in the Lease in favour of the (defender)". In terms of Clause 4 of the draft sub-lease, the proposed sub-tenants would be required to undertake:

".......

not at any time to assign the sub-tenant's interest in the whole of the Premises without the consent of the (defender) and the (pursuer) (which consent of the (pursuer) shall not be unreasonably be withheld);
not to use the Premises for any purposes other than as office premises."

[7] The defender's solicitors replied to the letter of 25 March 2003, by a letter of 31 March 2003. The letter of 31 March 2003 was addressed to the pursuer's solicitors and was in the following terms:

"Dear Sirs,

SCOTTISH PROVIDENT LIMITED

STANDARD PROPERTY INVESTMENT LIMITED

8 ST ANDREWS SQUARE, EDINBURGH

We act for Scottish Provident Limited. We confirm having received a copy of your letter of 25 March 2003 to our clients being formal application on behalf of your clients, Standard Property Investment Limited, for consent from our clients as landlords to sub-let part of the premises leased to your clients in terms of the Lease. Our clients have asked us to respond to your letter on their behalf.

We are aware of the terms of the alienation clause in the Lease which are as summarised by you in your letter. However, it is quite clear that the proposed use to which the part of the building to be sub-let to the sub-tenants would be put would amount to a departure from the use permitted by reference to Clause SECOND of the Lease in relation to which our clients have complete discretion. It is on this basis that our clients have instructed us to reject your clients' application amounting to a change of use of the premises.

It is, perhaps, also worth noting at this stage, that the requirement for landlord's consent to change of use of the premises to facilitate partial sub-letting was acknowledged by your clients in the context of the previous sub-lease granted by your clients to Environmental Resources Management Limited which was only granted under reservation of resolution of this and other matters to be resolved between our respective clients. Your clients also envisaged in the letter which they sent to Peter Coupe of Abbey National Investment Management on 15 November 2002 that they would require to obtain the consent of the landlord to the change of use of the premises to facilitate partial sub-letting.

Your clients' threat of legal proceedings is noted and it goes without saying that any such action will be strenuously defended."

[8] In the present proceedings the pursuer seeks declarator in the following terms:

"For declarator that (a) the defender, as the landlord under a lease granted by the General Reversionary & Investment Company Limited in favour of the pursuer and executed on 26^th March and 1^st April, 1970, unreasonably withheld consent to the pursuer's sub-letting part of the leased subjects to the Scottish Human Services Trust, in terms of the defender's agents' letter to the pursuer's agents of 31^st March, 2003, and was thereby in material breach of sub-clause (22) of clause THIRD of the lease, and (b) the pursuer having by its agents' letter to the defender's agents of 13^th May, 2003 exercised its right to rescind the lease on the ground of the defender's material breach, the lease is at an end."

[9] The case came before me for a debate, on the defender's first plea in law, a general plea to the relevancy and specification of the action. At the outset of his submissions, counsel for the defender moved me to sustain that plea-in-law and to dismiss the action. Counsel for the defender also submitted that if, contrary to that principal submission, I was minded to hold that the defender had acted unreasonably in withholding its consent to the proposed sub-lease, a proof would be required on the issue of the materiality of any such breach of contract. Counsel for the defender made clear that before any such proof could take place, the defender would wish to adjust its pleadings.

[10] As a further preliminary observation, counsel for the defender suggested that it would not be appropriate for any of the correspondence between the parties to be referred to during the debate. That observation was, however, difficult to reconcile with the provisions of Rule of Court 47.3, particularly in relation to the letters of 25 March 2003 and 31 March 2003, which I have quoted. Both of those letters are referred to in the pleadings of both parties. They are also included in the schedule of documents appended to the summons, in terms of Rule of Court 47.3(3).

[11] In its defences the defender does not admit that the proposed sub-tenants, the Scottish Human Services Trust, are "respectable, responsible and financially sound". However, counsel for the defender did not dispute that the proposed sub-tenants are of good standing. Counsel for the defender indicated that for the purposes of the debate he was prepared to proceed on the basis that they are.

[12] Nor was there any dispute on the part of counsel for the defender that the sole reason given by the solicitors acting for the defender, as to why consent to the proposed sub-lease had been refused by the defender, had been one based on the terms of the user clause in the lease, Clause SECOND. In seeking to explain why the application had been refused for that reason, counsel for the defender submitted that it was clear that the proposed sub-tenants could not comply with the whole provisions of Clause SECOND of the lease.

[13] During his submissions, counsel for the defender readily acknowledged that the provisions of Clause SECOND and Clause THIRD (22) are difficult to reconcile. He was less willing to acknowledge that an application to the landlords under the provisions of Clause THIRD (22) might give rise to an obligation on the landlords to consider the whole provisions of both clauses.

[14] However, counsel for the defender did submit, without qualification, that the basic question I had to consider was whether the defender's decision to refuse consent had been unreasonable. He argued that on the basis of its averments the pursuer could not prove that the defender had acted unreasonably. It was suggested that the pursuer did not offer to prove the existence of any mitigating factors, which the defender had failed to take into account, in reaching its decision. In the whole circumstances, I should take the view that the pursuer's pleadings were irrelevant and should dismiss the action.

[15] In developing his submissions counsel for the defender referred to International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] 1 Ch 513, Legal & General Assurance Society Ltd v Tesco Stores Ltd, Unreported, 18 May 2001, Lord Hamilton, and Ashworth Frazer Ltd v Gloucester City Council [2001] 1 WLR 2180. Little reference was made to the first two of those authorities. It was Ashworth Frazer on which counsel concentrated.

[16] The plaintiff in Ashworth Frazer was the tenant of premises, which comprised part of an area that had been demised to the plaintiff by the defendant council, under a development lease with a term of 114 years from 1968. The plaintiff, having developed the premises, sought to assign the lease for a use that was different from the use which the plaintiff had itself made of the premises. In terms of the lease, any such assignation required the council's prior written consent, such consent not to be "unreasonably withheld". Questions arose as to whether the intended use by the assignee was prohibited by the user covenant in the lease and, if so, whether it was unreasonable for the council to have refused consent solely on the ground that the intended use would be in breach of the user covenant in the lease.

[17] The second of those issues is, of course, similar to the issue that arises in the present case. On that particular issue, the House held that a court neither could nor should determine by strict rules the grounds on which a landlord might reasonably or unreasonably withhold consent. It also held that although a landlord was not entitled to refuse consent on grounds, which were wholly extraneous to the relationship of landlord and tenant, the question whether the landlord's consent was reasonable or unreasonable depended, in each case, on its particular facts and fell to be determined by the tribunal of fact giving the concept of reasonableness a broad and common sense meaning. The decision of the Court of Appeal to contrary effect in Killick v Second Covent Garden Property Co Ltd [1973] 1 WLR 658 was overruled.

[18] When referring to Ashforth Frazer, counsel for the defender relied in particular on certain passages in the speeches of Lord Bingham of Cornhill and Lord Rodger of Earlsferry.

[19] Counsel referred to paras. 3 - 6 in the speech of Lord Bingham:

"3 When a difference is to be resolved between landlord and tenant following the imposition of a condition (an event which need not be separately considered) or a withholding of consent, effect must be given to three overriding principles. The first, as expressed by Balcombe LJ in International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch.513, 520 is that

'a landlord is not entitled to refuse his consent to an assignment on grounds which have nothing whatever to do with the relationship of landlord and tenant in regard to the subject matter of the lease...'

The same principle was earlier expressed by Sargant LJ in Houlder Bros & Co Ltd v Gibbs [1925] Ch. 575, 587:

'in a case of this kind the reason must be something affecting the subject matter of the contract which forms the relationship between the landlord and the tenant, and... it must not be something wholly extraneous and completely dissociated from the subject matter of the contract.'

While difficult borderline questions are bound to arise, the principle to be applied is clear.

4 Secondly, in any case where the requirements of the first principle are met, the question whether the landlord's conduct was reasonable or unreasonable will be one of fact to be decided by the tribunal of fact. There are many reported cases. In some the landlord's withholding of consent has been held to be reasonable (as, for example, in Pimms Ltd v Tallow Chandlers Company [1964] 2 QB 547 and Bickel v Duke of Westminster [1977] QB [1896] 2 QB 241, Houlder Bros [1925] Ch. 575 and International Drilling [1986] Ch 513). These cases are of illustrative value. But in each the decision rested on the facts of the particular case and care must be taken not to elevate a decision made on the facts of a particular case into a principle of law. The correct approach was very clearly laid down by Lord Denning MR in Bickel v Duke of Westminster [1977] QB 517, 524.

5 Thirdly, the landlord's obligation is to show that his conduct was reasonable, not that it was right or justifiable. As Danckwerts LJ held in Pimms Ltd v Tallow Chandlers Company [1964] 2 QB 547, 564: 'it is not necessary for the landlords to prove that the conclusions which led them to refuse consent were justified, if they were conclusions which might be reached by a reasonable man in the circumstances...' Subject always to the first principle outlined above, I would respectfully endorse the observations of Viscount Dunedin in Viscount Tredegar v Harwood [1929] AC 72, 78 that one 'should read reasonableness in the general sense'. There are few expressions more routinely used by British lawyers than 'reasonable', and the expression should be given a broad, common sense meaning in this context as in others.

6 The Court of Appeal held itself to be precluded by Killick v Second Covent Garden Property Co Ltd [1973] 1 WLR 658 from holding on the facts of this case that the belief of the landlord, however reasonable, that the proposed assignee intended to use the demised premises for a purpose which would give rise to a breach of the user covenant was of itself a ground for withholding consent to assignment: see (1999) 80 P & CR 11, 23 per Chadwick LJ. Lord Rodger has fully analysed that decision. I would myself criticise it on three grounds. First, it purported to treat as a question of law what was in truth a question of fact. Secondly, in holding that the landlord's withholding of consent was unreasonable because the outcome which he wished to avoid was not a necessary consequence of the assignment (which was, it seems clear, based on the landlord's contention: see [1973] 1 WLR 658, 660, 661) the court accepted much too high a test. A reasonable landlord may seek to avoid not only an undesirable outcome which must occur but also one which he reasonably fears may well occur, not least where that involves the prospect of unwelcome litigation. Thirdly, the decision as expressed gave quite inadequate weight to the user covenant in a lease. The lease is, after all, the contract between landlord and tenant, a contract with special characteristics and subject to special rules but a contract all the same. It records what the parties respectively agree to do and not to do. Unless a term is discharged or consensually varied or revoked, a party is ordinarily bound by what he has agreed, even if (with the benefit of hindsight) he regrets his bargain. The contract is, as civil lawyers put it, the law between the parties, and it would rarely be right to hold that a landlord was unreasonable in withholding consent to an assignment which in his reasonable judgment would or might well lead to a breach of covenant. Killick should no longer be treated as authoritative."

[20] After referring back to what had been said by Balcombe L.J. in International Drilling at page 520 C-D, about the onus being on a tenant to prove that consent had been unreasonably withdrawn, counsel for the defender suggested that Lord Bingham may have been in error in suggesting, in para.5 of his speech, that the obligation was on a landlord to show that his conduct was reasonable. When International Drilling was decided, the onus was under a tenant to show that the withholding of consent had been unreasonable. That was the position at common law. What Lord Bingham said in the para. 5 is explained by the enactment of section 1(6) of the Landlord and Tenant Act 1998, which placed the burden on the landlord of establishing that a landlord's refusal of consent to a proposed assignment or sub-lease had been reasonable. Whilst the provisions of the 1988 Act do not apply in Scotland, the English authorities founded upon by counsel for the defender require to be considered in the light of those statutory provisions.

[21] Turning to the speech of Lord Rodger of Earlsferry, counsel for the defender referred in particular to paras. 68 - 75:

"68 Approaching the matter in this way, I am satisfied that it cannot be said, as a matter of law, that the belief of a landlord, however reasonable, that the proposed assignee intends to use the demised premises for a purpose which would give rise to a breach of a user covenant cannot, of itself, be a reasonable ground for withholding consent to the assignment.

69 I accept that, as Mr Lewison stressed, in proceedings such as the present the court is not concerned with whether or not the terms of the contract are reasonable as between the parties. The court is concerned only with the assignment and with whether or not it is reasonable for the landlord to withhold consent to that assignment. But in determining that matter, as Bickel shows, the correct approach is to consider what the reasonable landlord would do when asked to consent in the particular circumstances. The rule of law derived from Killick introduces a rigidity which makes it impossible to apply that approach. It should, for that very reason, be rejected.

70 Indeed the reasoning in Killick requires the landlord to proceed in a way in which, it appears to me, no reasonable landlord would actually proceed. It is accepted, by analogy with the position where a landlord is asked to consent to a sublease, that a landlord may act reasonably if he refuses consent where the assignment of the lease will necessarily result in a breach of a user covenant: Packaging Centre Ltd v Poland Street Estate Ltd (1961) 178 EG 189 and Granada TV Network Ltd v Great Universal Stores Ltd (1963) 187 EG 391; Killick v Second Covent Garden Property Co Ltd [1973] 1 WLR 658, 661-662. And one can easily see that a reasonable landlord faced with such a prospect could well decide to withhold consent. But one can equally easily see that a reasonable landlord, faced with the prospect that the assignment of the lease is likely to result in a breach of a user covenant, could well reach precisely the same decision. After all, a landlord considering whether to accept a tenant in the first place would almost certainly reject a person who would probably, even if not necessarily, use the premises in breach of a covenant in the lease. His decision to do so would be both rational and reasonable. In my view it may be equally rational and reasonable for a landlord to withhold consent to an assignment to a prospective assignee who will probably, even though not necessarily, breach the covenant. In deciding whether to withhold consent to an assignment reasonable landlords need not confine their consideration to what will necessarily happen; like everyone else taking an important decision, they may have regard to what will probably happen.

71 The central plank in the reasoning of the court in Killick seems to be that it would be unreasonable for the landlord to withhold consent because the assignment does not change the legal relationship between the landlord and the tenant. So the landlord would have exactly the same powers to prevent a breach of covenant by the assignee as by the existing tenant. The landlord would therefore be in the same position, neither better nor worse, to enforce the user covenant. As an analysis of the landlord's legal position that is undoubtedly correct. But the reality is that a reasonable landlord could well look at the matter more broadly and see that his position would be significantly altered by the assignment. It is one thing to have a tenant who complies with the user covenant in the lease and against whom there is no need to take steps to enforce the covenant. It is quite another to have a new tenant who does not comply with, or who challenges the interpretation of, the user covenant and against whom the landlord might need to take steps to enforce it or to contest the tenant's interpretation, with all the inconvenience and potential cost involved. It is also a different thing to have a new tenant who intends to apply to the Lands Tribunal under section 84 of the Law of Property Act 1925 to discharge or modify the user covenant. Again the landlord would face the prospect of becoming embroiled in legal proceedings. If they occurred, all or any of these matters would make a huge practical difference to the landlord. So the prospect that one or other of them will probably happen is one which a reasonable landlord must be entitled at least to take into account when asked to consent to the assignment of a lease. It is therefore in my view wholly unrealistic to suggest, as Killick does, that no reasonable landlord, faced with the probability of real changes of these kinds, would withhold consent to an assignment simply because, technically, his legal position and his legal remedies would remain the same. I accordingly reject the central strand of the reasoning on which the decision in Killick depends.

72 Mr Lewison submitted that, if the council were permitted to withhold consent in a case like the present, they would in effect have the power to impose their interpretation of the user covenant and the tenant would have no real interest to pursue the matter. So far as the tenant's interest is concerned, the history of the present proceedings, where the respondents have pursued a point of interpretation all the way to this House, would seem in itself to show that the argument cannot be pressed too far. For the rest, it is simply not the case that the landlord would have power to impose his particular interpretation of a user covenant. On the contrary, a tenant who is faced with a refusal of consent based on a particular interpretation may always apply to the county court for a declaration as to the proper interpretation. If the ruling shows that the landlord's interpretation is wrong, then it would plainly be unreasonable for the landlord to continue to withhold consent on that basis.

73 For these reasons I would reject the supposed rule of law that the Court of Appeal derived from Killick. In so far as Killick is thought to lay down any such rule, it should be overruled. Since the decision of the Court of Appeal to make the third declaration was based solely on an application of Killick, it follows that the council's appeal against that part of the court's order must be allowed.

74 It is important not to exaggerate the effect of overruling Killick. In particular, it does not establish any contrary rule of law that it will always be reasonable for a landlord to withhold consent to an assignment simply on the ground that the proposed assignee intends to use the premises for a purpose which would give rise to a breach of a user covenant. While that will usually be a reasonable ground for withholding consent, there may be circumstances where refusal of consent on this ground alone would be unreasonable. As Lord Denning MR stressed, it will depend on the circumstances of the particular case."

[22] Counsel for the defender submitted that on the basis of the guidance to be found in these passages from the speeches of Lord Bingham and Lord Rodger, I should be persuaded that the pursuer had not offered to prove any facts on which it could be held by the Court that the defender had acted unreasonably in withholding consent to the proposed sub-lease. That was because it was clear that there was no stipulation in the draft sub-lease that would require the proposed sub-tenants to comply with the full terms of the user clause in the lease, namely Clause SECOND.

[23] In responding to those submissions, senior counsel for the pursuer stressed that there was no dispute as to the relevant authorities. It was submitted that the outcome of the debate turned on a proper construction of the terms of the lease and had no wider legal significance. Senior counsel for the pursuer stressed, as counsel for the defender had previously acknowledged, that the lease had not been very happily drafted. It was clear, nevertheless, that it had certain central features. The lease was to run for 98 years. There were no break provisions. The only means by which the pursuer could relieve itself of its obligations under the lease was by the granting of an assignation or a sub-lease, consented to by the defender. If consent to do so was not forthcoming, the pursuer would sustain loss. Those were the background circumstances, in which it was important to construe the lease on the basis of its whole terms.

[24] Senior counsel for the pursuer sought to analyse Clause SECOND of the lease as falling into three parts. The first part he identified as running from the beginning of the clause up to and including the words "all matters necessary therefor". He submitted it was clear from the language used that this first part of Clause SECOND applied only to the original tenants, namely the pursuer, and to their business of bankers and financiers.

[25] Senior counsel for the pursuer identified the second part of Clause SECOND as being "or such purposes as the landlords in their absolute discretion may from time to time approve and for no other purposes whatever unless with the consent in writing of the landlords". Counsel for the pursuer submitted that this was an important control, which the landlords were able to exercise over the original tenants and applied only to those tenants.

[26] In his submission, the remaining part of Clause SECOND applied to both the original tenants and to any assignees and sub-tenants, and applied subject to any variation in the terms of Clause SECOND, which might be agreed, from time to time, with the landlords.

[27] Senior counsel for the pursuer described Clause THIRD (22) of the lease as being in the nature of a code, which had been intended by the original parties to the lease to regulate the granting of assignations and sub-tenancies and which fell to be construed with that explicit intention in mind. Clause THIRD (22) provided the landlords with the means by which they could decide whether or not to agree to any transfer of the tenants' obligations, whilst the terms of that clause recognised that the tenants had the right to seek consent to the grant an assignation or a sub-lease. The landlords had a right to be consulted in advance, to consider prospective assignees and tenants and, in the case of a proposed sub-lease, to require such additional and further obligations which they, as the landlords under the lease, wished. Senior counsel for the pursuer submitted it was clear that, when the terms of the lease were read as a whole, the original parties to the lease had agreed that there was to be a user regime and a transfer regime. There was no need, let alone any requirement, to construe the lease in such a manner that the qualified discretion of the landlords, that was to be found in Clause THIRD (22), could be usurped by the exercise of the absolute discretion referred to in Clause SECOND. Senior counsel for the pursuer submitted that his approach to the construction of the lease gave content to both of these important clauses and yet yielded a commercial sensible result, which it could be inferred that the original parties to the lease had agreed to. Such a construction provided a mechanism by which the tenants could seek to relieve themselves of their obligations, subject to the interests of the landlords being adequately protected. I should accept such a construction as being what the original parties had intended.

[28] In applying that construction, to the facts of the current dispute between the parties, senior counsel for the pursuer also founded on the detail of the correspondence dated 25 March 2003 and 31 March 2003. He submitted that it was clear from the second of those letters that the defender had refused consent to the proposed sub-lease, solely by having regard to the terms of Clause SECOND. The defender had not exercised its discretion in terms of Clause THIRD (22). The defender had not addressed the question of whether it would be unreasonable for it to refuse consent to the proposed sub-lease. On the contrary, the defender had refused an application, made under reference to Clause THIRD (22), by relying solely on another provision of the lease, namely Clause SECOND. In doing so, the defender had quite clearly taken no other factors into account.

[29] Senior counsel for the pursuer submitted that the facts were clear, as to what had happened when the pursuer's application for consent had been refused by the defender. He moved me to repel the defender's first plea in law and to grant decree de plano in favour of the pursuer.

[30] I have not found it easy to resolve the issues that were raised during the course of the debate. That is because the provisions of Clause SECOND and Clause THIRD (22) of the lease are difficult to reconcile. They and certain other provisions of the lease, including the seemingly random and illogical interchange between the use of the words "tenants" and "Tenants" and the use of the words "landlords" and "Landlords", give the distinct impression that the lease was drafted on a 'cut and paste' basis. It appears doubtful that the whole provisions of the draft lease were carefully revised with a view to ensuring that the lease, when finally executed, would set out, in clear and consistent language, the full terms of the agreement that the original parties to the lease intended to enter into. On the other hand, I must proceed on the basis that the terms of the lease do record the agreement between the original landlords and tenants. For that reason I must seek to construe the terms of the lease so as to give effect to them in a manner which is sensible and likely to correspond with the intention of the original parties to the lease.

[31] In construing the provisions of Clause SECOND and Clause THIRD (22), I must also endeavour to accord a natural meaning to the words to be found in those provisions. But I think that I must also recognise that, on occasion, commercial documents, and in particular commercial leases, are drafted in terms that give rise to an apparent conflict or inconsistency between provisions to be found in different parts of the one document. That appears to the situation that arises in the present case. Certain of the terms of Clause SECOND of the lease suggest that the landlords should have an absolute right to determine what use is to be made of the Premises, whereas the language found in Clause THIRD (22) appears to indicate that if the use, to be made of the Premises, is to be that of a sub-tenant or an assignee, then the landlords' consent to such a proposed use should not be unreasonably withheld "in the case of a respectable and responsible sub-tenant or assignee". Faced with such a conflict, what a court requires to do is to seek to identify a construction of the apparently conflicting provisions, so that they fit sensibly together. Insofar as it is possible to do so, a court should also be looking for a construction that is likely to correspond with the intention of the original parties.

[32] In considering the provisions of Clause THIRD (22), it is, of course, necessary to bear in mind that, when the terms of that particular clause were agreed to, the parties also agreed to the terms of Clause SECOND. The latter include, as senior counsel for the pursuer acknowledged, the words "The subjects hereby let are let for the purpose only of banking and office premises in connection with the tenants' business of Bankers and Financiers and all matters necessary therefore or such other purposes as the Landlords in their absolute discretion may from time to time approve and for no other purposes whatever unless within the consent in writing of the Landlords". There was, in my opinion, considerable force in the submission, made by senior counsel for the pursuer, that no sub-tenant or assignee of the pursuer could ever comply with the terms of that opening part of Clause SECOND, which culminate in the words "in connection with the tenant's business of Bankers and Financiers". In my opinion that opening part of Clause SECOND falls to be construed as referring to the business of the original tenants, namely that of the pursuer, not to the business of any subsequent sub-tenants or assignee.

[33] It also clear that the original parties to the lease anticipated that all or part of the Premises could be occupied and used by sub-tenants and assignees. That is a necessary inference from the terms of Clause THIRD (22). In my opinion, having regard to the structure of Clause SECOND, the original parties to the lease must also be deemed to have anticipated that such use by sub-tenants or assignees would not be 'for the purpose of banking and office premises in connection with the (pursuer's) business of Bankers and Financiers and all matters necessary thereto', which is the only use explicitly permitted by the provisions of Clause SECOND. But even if such a construction of the opening provisions of Clause SECOND was not correct, the following provisions of Clause SECOND confirm that the original parties to the lease clearly envisaged the possibility of the Premises, which constitute the subjects of the lease, being occupied and used by tenants (or assignees or sub-tenants), who would not carry on business as bankers and financiers and that the second part of Clause SECOND allowed the landlords to sanction the type or purpose of use involved, even if that had not previously been authorised.