Scottish Court of Session Decisions

The oddity that the first review date (13 April 1995) was the same as the date of entry, rather than a specified anniversary thereof, is perhaps explained by the fact that the initial rent of £55,000 had been agreed upon some time before the date of entry.

The paragraph continues with a statement of the hypotheses on which the valuation is to proceed and certain factors which are to be disregarded. Paragraph 2 contains machinery for determination of the open market rental value by a surveyor if the parties are unable to agree.

as "the Councils") who were working with the developer to procure the development of the shopping centre, which was to be constructed behind High Street, Falkirk. Mathiesons owned premises part of which extended over part of the area of ground required for the development of the shopping centre. The developer thus required to acquire a portion of Mathieson's land in order to assemble the site for the development. A bargain was entered into between Mathiesons and the Councils in terms of which Mathiesons were to sell the land required to complete the development site, and in return, in addition to a cash price of £1000, Mathiesons were to be granted a lease of a unit (in the event Unit 22A) in the centre, once developed, extending to 2200 square feet, at a rent of £10,001 per annum.

Further provisions related to the bargain being conditional on planning permission, and to a guarantee by Wimpy. In a letter of the same date to Mr Fitzsimmons (No. 6/14 of process), Mr Crawford repeated the points made in paragraphs 2, 3 and 4 of his letter to Mr Henderson, as well as referring to the points about planning permission and a guarantee, although he did not mention the duration of the lease. By letter dated 10 October 1994 (No. 6/15 of process) Mr Henderson replied to Mr Crawford confirming Mathiesons' willingness to proceed with the sub-lease. In doing so he elaborated on certain of the points made by Mr Crawford. He stated inter alia:

Mr Henderson went on to confirm the guarantee arrangement, and the initial rent of £55,000 per annum. He set out in more detail how the rent-free period would operate, and the instalments in which the capital contribution would be made.

value?" If it had been contemplated, it would have been the subject of express discussion. It was inconceivable that, if there had been any such agreement, it would have gone unmentioned in the correspondence settling the heads of terms. Mr Stevenson had had no direct discussion with Mr Fitzsimmons. The only discussions he had were with Mr Henderson, and were accurately reflected in the correspondence mentioned in paragraph [11] above.

The offer reflected the other points set out in the exchange of correspondence between Mr Crawford and Mr Henderson. Clause 14 referred to an enclosed draft sub-lease, and provided that the exact terms would be agreed prior to the conclusion of missives. The defenders' solicitors, David Johnson & Co, responded by letter of 7 March (No. 6/5 of process). Their qualified acceptance proposed no alteration to Clause 1 of the offer. With regard to Clause 14, their counter-proposal was that the draft lease would be adjusted "in normal commercial terms" prior to the date of entry. The missives were concluded by two further letters of 7 March, which added nothing on the point in issue.

Mr Rattray explained that that clause was based on a style which he selected. He inserted the words printed above in bold in blanks in the style when he was first preparing the draft. He added the words in bold italics by later revisal. No revisals to that part of the clause were proposed by the defenders' solicitors. Mr Rattray's evidence was that in writing into Clause SECOND of the sub-lease the cross-reference to Part IV of the Schedule of the lease, his intention was to incorporate the provisions of the lease to the effect of reflecting the heads of terms. He was trying to provide for rent review to open market value. He acknowledged that the wording could and should have been "tightened up".

Mr Sandison stressed the reference to "both parties". He also cited Prenn v Simmonds [1971] 1 WLR 1381, per Lord Wilberforce at 1384G-1385D and Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 per Lord Wilberforce at 995H, 996E-F and 997C-D. In the former case, Lord Wilbeforce said (at 1385B):

In the second passage cited from the latter case Lord Wilberforce said (at 996D):

In the first of the principles set out by Lord Hoffmann in Investors Compensation Scheme reference is made (at 912H) to "all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract". In BCCI v Ali Lord Bingham of Cornhill referred (at 259F) to "the relevant facts surrounding the transaction so far as known to the parties", and Lord Hoffmann pointed out (at 272E) that:

However, in Reardon Smith Line Ltd v Hansen-Tangen Lord Wilberforce said (at 996E):

The aspect of this matter which, in my view, presents a need for particular care is where the respective parties to a contract had differing degrees of knowledge about certain of the background circumstances.

But in the present case it is not a question of looking at the evolution of a particular clause the meaning of which requires to be determined. On the evidence, Clause SECOND appeared for the first time in the draft sub-lease. It was in the same form as it ultimately took in the sub-lease. It was the incorporation into the sub-lease of the rent review provisions in the lease. According to the defenders, that incorporation included the incorporation of a discount of the reviewed rent. One circumstance which can, in my opinion, be taken into account in judging objectively whether the parties intended to confer the benefit of that discount on the defenders is that that matter was not mentioned at all in the negotiations which underlay the missives. Moreover, although express provision was made by way of back letter for other benefits given to the defenders to induce them to take the sub-lease, no such mention is made of the discounted reviewed rent. The discount is, it seems to me, a matter which the objective observer would have expected to be expressly mentioned. The initial rent was mentioned in the heads of terms. Rent review was mentioned only to establish the dates at which review would take place. These circumstances, known to both parties, can in my view legitimately be taken into account in construing the sub-lease.

In article 8 reference is made to the missives and to the "intention of [Mathiesons] and the defenders from the period during which missives were entered into to conclusion of the Sub Lease" which, it is said, "was that the rent payable in terms of the Sub Lease should be the full market rent". The remainder of the averments in article 8 appear to deal with the construction issue rather than the rectification issue.

In Rehman Lord Penrose (at 751E) identified the elements that require to be proved as follows:

In Huewind Lord Kirkwood said (at 403):

That condition was agreed to by the defenders. It points, in my view, unequivocally to an understanding or common intention that the reviewed rent should reflect full open market value. There was no realistic prospect that between the date when the initial rent of £55,000 was settled and the April 1995 review date the market value would have risen so far above £55,000 that the ability to obtain merely 23.15% of it would have made it worthwhile for Mathiesons to reserve the right to insist on a review as at April 1995.

The cross-reference to the rent review provisions of the lease entered the contract between Mathiesons and the defenders only because it was mentioned in Clause SECOND of the sub-lease. It was paragraph 1 of Part IV of the Schedule to the lease, incorporated into the sub-lease by Clause SECOND, that on the defenders' contention introduced into the sub-lease the discount of the reviewed rent to 23.15% of the open market rental value. The effect was, on the defenders' contention, that the rent review provision of the sub-lease gave them the benefit of the discount. In my opinion, it is clear that in the missives the parties did not contemplate that result. They contemplated that the sub-lease would be "adjusted in normal commercial terms". Normal commercial terms would have included provision for periodical rent review. Although there is room, no doubt, for variation in the detail of how rent review clauses approach the assessment of open market rental value, normal commercial terms contemplate review to keep the rent in step with the rent which the subjects would obtain at the review date on the open market. It is in my view quite beyond the range of "normal commercial terms" that the sub-tenant should be given the benefit of a discount in the reviewed rent to 23.15% of open market value. In my opinion, therefore, condition 14 of the qualified acceptance, which was proposed by the defenders and accepted by Mathiesons, points clearly to a common intention that the sub-lease should be in normal commercial terms and should therefore not include the highly unusual discount provision taken from paragraph 1 of Part IV of the Schedule to the lease.

I agree with that view. It does not seem to me to matter whether it is the landlord in the sub-lease who acquires the property (as Professor Halliday contemplated) or the landlord in the lease who acquires his tenant's interest (as in the present case). In my opinion a relationship of landlord and tenant under the sub-lease continued to subsist after the assignation of the tenant's interest in the lease by Mathiesons in favour of the first pursuers. The defenders remained entitled to possession by virtue of and in terms of the sub-lease. The landlord's interest in the sub-lease came to be held by the first pursuers (as assignees of Mathiesons), despite the fact that the lease originally entered into between Meritclass and Mathiesons came to be extinguished confusione. As at the date when the declaratory action was raised (September 2001), therefore, the first pursuers had, in my opinion, title and interest to raise it.

In addition, by their second and third pleas-in-law respectively, they challenge the title to sue of the first pursuers, and of the second and third pursuers. I can be brief in dealing with the title pleas. At the time when the payment action was raised in early October 2001 the first pursuers had title to sue the action. They retain title to sue in respect of arrears of rent and service and other charges that fell due prior to the date of entry under the assignation, No. 6/18 of process. For the reasons discussed in the context of the declaratory action, I have held that the second and third pursuers became the landlords in the sub-lease with effect from that date of entry. They, therefore, in my opinion, have title to sue in respect of arrears of rent and service and other charges that have fallen due since 23 October 2001.