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Cite as: [2005] CSOH 3, [2005] ScotCS CSOH_3

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Dean (t/a Abbey Mill Business Centre) v. FREEMAN [2005] ScotCS CSOH_3 (13 January 2005)

OUTER HOUSE, COURT OF SESSION

[2005] CSOH 3

CA111/03

OPINION OF LORD EASSIE

in the cause

MARCUS DEAN Trading as ABBEY MILL BUSINESS CENTRE

Pursuer;

against

TONY RUSSELL FREEMAN

Defender:

________________

Pursuer: MacColl; Henderson Boyd Jackson, WS

Defender: Cowan, Solicitor-Advocate; Simpson & Marwick

13 January 2005

[1] The pursuer in this action is the owner of commercial premises in Paisley known as the Abbey Mill Business Centre. He granted a number of leases of various parts of the Centre to a company named Solutions Recruitment and Management Consultants Limited - "SRMC" - and to certain other companies associated with SRMC. The interests of those associated companies under the leases granted to them were subsequently acquired by SRMC, the details of the respective transmissions of those interests to SRMC being immaterial for the purposes of the current litigation. Each of the leases contained the same standard terms, one of which (Clause 12) provided for a personal guarantee by the "Authorised Representative" of the tenant. In the case of each of the leases with which this action is concerned the "Authorised Representative" is the defender, Mr Freeman, and he is sued in his capacity as cautioner for the original or succeeding tenant, SRMC.

[2] All of the leases contained in Clause 9 an irritancy clause entitling the landlord to terminate the lease in the event of the tenant being in breach of the terms of the lease or on the occurrence of what might shortly be described as an insolvency related event. In particular in the case of a company, the insolvency related events include the presentation of a petition for the winding up of the company or the appointment of a receiver over all or part of its assets. The clause provides inter alia that on the occurrence of such an event the landlord (defined in the lease as "the Owner") shall be entitled at any time thereafter

".... to terminate this Lease and to re-enter the Premises, the same reverting to the Owner as though this Lease had never been entered into, and all that forthwith by written notice to that effect served upon the Occupant but without prejudice to and reserving to the Owner the Owner's right of action and remedy in respect of or arising from any antecedent breach by the Occupant of the provisions of this Lease."

[3] On 5 June 2003 a petition for the winding up of SRMC was presented and Mr Duncan McGruther CA, of Grant Thornton CA, was appointed as provisional liquidator of SRMC (he was subsequently appointed as official liquidator). By a letter dated 9 June 2003 sent by fax to the pursuer the provisional liquidator informed the pursuer of his appointment as provisional liquidator; intimated that he did not intend to adopt the leases personally; and requested a copy of the leases and details of the rent position. The provisional liquidator's letter was apparently sent under cover of a further fax message (both of which are in No 7/3 of process) from a Mr Donald McNaught, of Grant Thornton, which referred to an earlier telephone conversation and raised other practical issues, to which there is found a response in No 7/4 of process sent by fax on 9 June 2003. By a separate letter dated and understood to have been faxed on 9 June 2003 the pursuer, for his part, intimated to Mr McGruther that under Clause 9 of the leases the tenancies were terminated. The full text of that letter (No 7/5 of process) is as follows:-

"Please take notice that under the terms of the leases entered into by Solutions RMC under Clause 9 of the said leases, I Marcus Dean hereby give notice that the leases are terminated. Termination is given for the following reasons:

1. The company Solutions RMC has been placed into receivership.

2. The sum of £2909.14 for electricity charges has remained unpaid for over 14 days.

3. The rents for 23-25a of £9756.04 have not been paid.

The studios therefore will be re-entered and revert to myself, and the sums owing will be recovered by any means necessary.

Yours sincerely."

[4] There followed thereafter further communings between the provisional liquidator and the pursuer, some of which are in the form of documents lodged in process. But before adverting to these it is convenient to summarise the nature of the claims currently advanced by the pursuer against the defender as cautioner for the tenant, SRMC. Firstly, there are claims for rent and service charges on the various units or studios subject to the leases for the month of July 2003 (the rent and service charges for June 2003, in which month the presentation of the winding up petition occurred, having been prepaid.) Secondly, sums are claimed respecting what may be broadly termed "dilapidations", being alleged breaches of either a continuing obligation on the tenant of maintenance and repair or an obligation to reinstate or repair prior to the tenant vacating the property.

[5] Central to the resolution of some of the area of the dispute between the parties is the date upon which the various leases terminated. The defender contends that termination occurred when the pursuer gave notice to the provisional liquidator on 9 June 2003 that the leases were terminated in terms of Clause 9, in other words when the irritancy for which that clause provided had been incurred. Termination having thus taken place by the pursuer's having invoked the irritancy clause, the defender contends that the tenant - and hence he as cautioner - has no liability for future instalments of rent or for obligations prestable only on the conventional ish. For his part the pursuer contends that the leases did not terminate on the date when he gave notice of termination. It is averred on his behalf that following receipt of the letter dated 9 June 2003 intimating that the leases had been terminated in terms of Clause 9 - "agents for the liquidator indicated that the termination was not accepted as valid". Certain correspondence detailed in the pleadings then ensued and it is averred on the pursuer's behalf that the result of that exchange of correspondence was "an acceptance by the pursuer that the leases had not been validly terminated". Thus the landlord contends that he accepted the liquidator's contention that the notice which he gave terminating the leases in terms of Clause 9 was not effective thereby bringing about the continuance of the tenancies whereas the cautioner for the tenant, for his part, contends that the termination was and remains effective.

[6] It is apparent from the productions in this case that on receipt of the irritancy notice of 9 June 2003 from the pursuer the liquidator's firm, Grant Thornton, CA, sought legal advice from Boyds, a firm of solicitors in Glasgow, and that advice was provided by a letter faxed by Boyds to Grant Thornton on 11 June 2003 which was in turn faxed by Grant Thornton to the pursuer on the same afternoon under a short covering memorandum (No 6/29 of process) which included the statement that the advice represented Grant Thornton's position. Since the letter advised on various possibilities, the reference in the memorandum to its being a statement of the liquidator's position is, at least with hindsight, a little infelicitous. However, among other things, Boyds advised that under the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 the pursuer was obliged to act as would a fair and reasonable landlord and that the liquidator had yet a right of access to the premises, it being "for the landlord to go to court and persuade the court to allow him to exercise his rights in terms of the lease". The pursuer responded personally by an undated letter (No 6/30 of process) which both Mr MacColl, who appeared for the pursuer and Mr Cowan, the solicitor for the defender appearing in the exercise of his extended audience rights, agreed had been faxed on 11 June 2003. Put shortly, it robustly rejected any suggestion that the invocation of the right to irritate the lease under Clause 9 was ineffective. The response includes the sentence that - "Any attempts to re-enter the property will be resisted".

[7] The reference to re-entry to the property invites mention at this point of the statements made at the Bar by counsel for the pursuer to the effect that prior to the presentation of the petition for their winding up the tenants had de facto ceased to occupy the premises, at least on a daily, trading basis. Counsel for the pursuer sought to assimilate this assertion of the cessation of trading with the vacation of the premises. This was disputed by the solicitor for the defender. However, the existence of some dispute between the liquidator and the pursuer regarding access to the premises has to be borne in mind as part of the examination of the correspondence which ensued between them. What appears from the documents is that the liquidator wished to have, but was not able to obtain, access to the premises subject to the leases in order that he might recover the records and the other moveable property of SRMC which was still located within the leased premises. The state of the de facto occupation of the properties at the time of the presentation of the winding up petition and thereafter is not the subject of any detailed averment in the pleadings.

[8] From the chronologically succeeding documentary production (No 6/32 of process) it appears nonetheless that there were some further oral communings between the liquidator and the pursuer which resulted in agreement on some matters. That production, (No 6/32 of process) is a letter dated 16 June 2003 from the liquidator to the pursuer and it is in these terms:

"I enclose herewith a cheque of £4,000 in full and final satisfaction of all outstanding electricity charges and various charges due and payable by the Company as at the date of my appointment. For the sake of clarity, I also enclose details of the electricity meter reading at the date of my appointment.

As agreed by you, you will now allow me and my staff unfettered access to the premises occupied by the Company. I can confirm that I shall undertake to make payment of all electricity used during the period of access."

The documentary productions do not include any letter from the pursuer which bears to be in response to that letter. However, by a letter dated some ten days later, namely on 26 June 2003 (No 6/33 of process) the pursuer wrote to the liquidator's firm in the following terms:

"Having considered your solicitors letters of 11 and 12 June we accept that the notice sent to you on 9 June terminating the leases did not give you the proper notice under the Law Reform (miscellaneous Provisions) (Scotland) Act 1985 and therefore can be considered void. We have not re-entered the premises and have allowed you to operate from all the offices in question.

We confirm that have (sic) received settlement for part of the outstanding electricity charges and have reinstated the power to the offices on 16/6/03.

However I would be grateful if you would confirm the position with ongoing rent for all the studios leased by Solutions in view of your fax of 9 June 2003 not to adopt the leases."

To this letter it appears the liquidator did not reply. At all events no reply is included in the documents lodged in the court process.

[9] As already indicated, the position adopted by the pursuer in his pleadings is that he acceded to the representation from the liquidator that the notice of irritancy would not be effective in terms of the 1985 Act. He contended that agreement was thus achieved that the leases continued in force. Among other matters, counsel for the pursuer invited a proof before answer on this issue. The solicitor for the defender by contrast invited a determination on the pleadings alone.

[10] Before dealing with those competing submissions on the proper construction to be placed upon the communings between the liquidator and the pursuer it is, in my view, convenient first to deal with a preliminary but, if sound, determinative point advanced by counsel for the pursuer. The point turns on an admitted inaccuracy in the irritancy, or termination, letter of 9 June 2003, namely that the landlord purportedly sought to terminate the lease on, among others, the ground that the company was in receivership whereas it was in fact in liquidation. Either winding up or receivership would, of course, have constituted a valid ground of irritancy. I was informed by both Mr MacColl and Mr Cowan that they had respectively been unable to find any judicial authority bearing on whether, as Mr MacColl contended, this inaccuracy on the landlord's part rendered the irritancy notice fundamentally ineffective.

[11] Counsel sought to support his position by invoking what he described as the policy underlying the 1985 Act, namely that the tenant have an opportunity to remedy the breach of the terms of his lease. Accordingly, it was necessary, said counsel, that the breach be accurately described so that the tenant might properly know what was necessary by way of remedial steps. However, as Mr Cowan pointed out, an insolvency event was not remedial. The provisions of section 4(2)-(5) and section 5(3) of the 1985 Act were concerned with giving of notice, in advance of irritancy, of a remedial breach.

[12] In my view the reliance of counsel for the pursuer on the 1985 Act is misplaced for the reason advanced by Mr Cowan. The considerations which apply respecting a warning notice in advance of irritancy do not apply to intimation of the exercise of the right to irritate on the ground of an irremediable event. Leaving those inapplicable considerations aside, I have to say that I regard as important the fact that in the present case any inaccuracy in the letter intimating the exercise of the right to irritate appears to have arisen from the pursuer's apparent misreading of the provisional liquidator's faxed letter of 9 June 2003, which preceded the pursuer's terminating the leases. The letter made plain that a winding up petition had been presented. But for some reason in writing to Mr McGruther the pursuer appears to have formed the understanding that Mr McGruther had been appointed as a receiver. No issue was raised by Mr McGruther, his firm, or his solicitors, respecting the pursuer's misdescription of the insolvency event intimated to him. Indeed, no point is raised respecting this in the pursuer's pleadings or the note of argument lodged on his behalf. It is thus apparent that the misdescription was not regarded as being of any significance at the time. In effect the landlord is now seeking to take advantage of an error, not induced by the tenant or its liquidator, in the description adopted by him of the insolvency event notified to him which led him to terminate the lease. The argument advanced by counsel on the pursuer's behalf involves disputing the validity of the pursuer's own act. There is, I believe, a general principle, recognised in the maxim "nemo venire contra factum proprium potest", to the effect that a person may not challenge the validity of his own act, at least where the ground of invalidity is uninduced. I think the maxim apposite to the present case. Accordingly, in my view, this preliminary point is unsound.

[13] On the basis that the notice of irritancy was not formally invalid, the focus then turns to the contention in the pursuer's pleadings that agreement was reached between the liquidator and the pursuer that the liquidator's objections to notice of irritancy should be accepted and that the leases should accordingly continue.

[14] In attacking the relevancy of what was put forward in averment in support of that contention, the solicitor for the defender advanced a number of points but the contentions playing the central role were first that since the landlord had terminated the leases there had to be demonstrated a subsequent bilateral agreement that the tenant's liabilities should be restored; and secondly, while also submitting that the pleadings did not support such a conclusion, Mr Cowan submitted, crucially, that any agreement that the leases should continue would be a new, or separate, agreement to which the defender as cautioner would not be party. In response to this branch of the argument, counsel for the pursuer pointed out that the liquidator was the agent of the tenant company and an agreement between him and the landlord that the notice of irritancy be ignored did not result in the constitution of a new tenancy. Counsel instanced the case of a landlord accepting rent after irritating the lease. The landlord would in those circumstances be held to have waived his right to insist in the irritancy but that did not result in a new tenancy. The same lease simply continued.

[15] On this particular part of the argument I consider that the submission for the defender is unsound. In my view it is clear that if by conduct such as the acceptance of rent after service of notice of irritancy a landlord is held to have waived or abandoned his right to insist on termination of the tenancy, no new contract of location arises but the original contract continues. The position cannot, in my view, be different if the waiver is done expressly. And if what is agreed between the tenant (or his agent) and landlord is that the invocation of the irritancy was "invalid" the position is, in my view, a fortiori. Since the result of any of these situations is simply that the lease continues the cautioner cannot escape on the basis that there is a new contract for which he does not stand caution.

[16] One is therefore left with the issue whether there was indeed agreement between the liquidator and the pursuer that the liquidator's objections to the efficacy of the notice of irritancy were accepted and that the leases were consequently still continuing. The position of counsel for the pursuer was that a proof before answer was appropriate on this - and indeed all other matters - and as I ultimately understood Mr Cowan, if the argument which I have addressed in the preceding paragraph were not successful, he too accepted that enquiry might be appropriate before this matter could be finally resolved. I have come to the view that it is indeed appropriate that this aspect of the dispute between the parties be the subject of inquiry, before answer. Given the existence on the face of the documents of oral discussions and agreements regarding the liquidator's obtaining access to the premises and the information tendered at the Bar (but without agreement as to is factual accuracy) respecting the state of de facto occupation I think it would be unwise to reach any view on the correspondence in isolation from such oral evidence as may be available.

[17] While the first chapter of the debate was thus concerned with whether the leases had terminated on 9 June 2003 by reason of the notice of irritancy, argument was also advanced in a second chapter respecting the consequences for the dilapidations claim were it to be the case that the leases had been so terminated.

[18] The principal repairing obligation is contained in Clause 6(f) of the leases. The clause makes provision that the tenant (described as "the Occupant") shall throughout the duration of the lease keep, maintain and repair the premises in good and substantial repair and good decorative internal repair. At least, that is a summary of the opening part of Clause 6(f) which is expressed with greater verbosity. However, Clause 6(f) also includes this provision:-

"Before the tenant (sic) vacates the property (unless the Landlords (sic) indicate otherwise) to prepare and paint in a proper and workmanlike manner all to the satisfaction of the Landlords (sic), all the inside wood and metal and other work of the Premises interior which ought to be so painted (including the inside window frames notwithstanding the definition of the Common Parts) with two coats at least of good quality paint and also with every such internal painting to whitewash, colourwash, varnish and otherwise decorate in a proper and workmanlike manner, all to the satisfaction of the Landlords (sic), all such internal parts of the Premises now or which ought to be so treated.

To procure that the tints, colours and patterns of all such works of internal decoration are such as shall have been approved in writing by the Landlords (sic)."

The pursuer also invokes Head (r) of Clause 6 which is in these terms:-

"(r) quit and vacate the Premises and the Business Centre forthwith upon the termination of this Lease howsoever and whensoever terminated, and that without any further warning, notice or process of law whatsoever and on vacating the Premises leave the same clean, tidy and in all respects in accordance with the Occupant's obligations hereunder."

[19] The solicitor for the defender submitted that where a landlord exercised his right to irritate a lease claims by the landlord for damages against the tenant were confined to breaches of obligation committed prior to the invocation of the irritancy and did not extend to obligations which arose only on outgo, since the landlord had, by electing to irritate, anticipated that date. In support of the proposition that on irritancy a landlord was confined in his claim for damages to breaches of obligation antecedent to the termination of the lease by virtue of the irritancy, the defender's solicitor referred to Bidoulac v Sinclair's Trustee(1889) 17 R 144; Tait v Geddie (1897) 24 R 1128; and, particularly, HMV Fields v Skirt 'n Slack Centre of London Limited 1987 SLT 2. Mr Cowan drew particular attention to the passages in the Opinion of the Lord Ordinary (Clyde) in the last of those cases at p. 4F in which, having referred to, among others, the other two cases, the Lord Ordinary said that the effect of the exercise of the irritancy clause in that lease was -

".... to disentitle the landlord, on the exercise of his right to irritate, of any right to claim damages on the ground of any subsequent breach of contract. By operation of that clause, the tenant loses all right to possess the subjects. The contractual relationship between the parties is terminated. After irritation the continued possession by the former tenant is merely an invasion of the proprietor's ordinary right of possession and cannot be in respect of any continuing breach of contract. The effect of the irritancy is to evacuate the tenant's right and also to free him from any further obligations incumbent on him under the contract. In respect of what happens after irritation, the proprietor has no rights against the former tenant based on contract."

A clause in the lease in HMV Fields imposed certain obligations of repair and paintwork upon the tenant which were to be performed at stated intervals during the existence of the lease and in the last year of the lease "howsoever determined". As respects that clause the Lord Ordinary said (5F):-

"I find it difficult to see how that obligation can be performed in the event of an irritancy since it cannot be discovered until the irritancy happens that the last year of the lease has not only arrived but come to an abrupt end."

Similarly, according to Mr Cowan's submission, the obligation in fine of Clause 6(f) of the lease in the present case could not be performed ab ante any termination by irritancy since irritancy terminated the lease without any opportunity being available to the tenant to set in process the necessary work of redecoration. Accordingly, the heads of claims relating to failure to decorate at outgo were excluded by this rule of law.

[20] Counsel for the pursuer did not take issue with the basic proposition which the solicitor for the defender drew from these authorities, namely that a landlord having, non-consensually, exercised his unilateral right of irritancy could not seek damages for the non-performance of the obligations which were not continuing but prestable only on the conventional termination of the lease. Instead, counsel advanced an argument to the effect that since - on his statement at the Bar - the tenant had de facto vacated the premises prior to the letter invoking the irritancy, the termination obligations under Clause 6(f) in fine had already "cut in" and had been therefore breached prior to the disputed termination by notice of irritancy. So, said counsel, on ceasing occupation without having redecorated in terms of the concluding part of Clause 6(f) the tenant was in an antecedent breach committed prior to the exercise of the right to validity.

[21] To at least some possible extent, this response turns on the factual state of possession, which as matters have turned out, neither party has hitherto addressed in the written pleadings. I have to say that I am currently not attracted to Mr MacColl's proposition that "vacate" in Clause 6(f) in fine is to be equiparated with the mere ceasing of daily occupation where no overt steps, such as the return of the keys or an express renunciation of the lease on the part of the tenant exist. Had such a renunciation occurred, it would of course not have been necessary for the landlord to invoke the irritancy clause.

[22] It was accepted by the defender's solicitor that the practical effect of his contention that a landlord who irritated could not claim in respect of an obligation which the lease contemplated as being performed only at the outgo could not be resolved simply on the pleadings as they stand. The schedule of leases, No. 16 of process, was helpful but it was clear that there were practical problems to be resolved in deciding whether certain items of alleged disrepair fell within the continuing obligation or an obligation prestable only on outgo at a conventional date.

[23] In these circumstances I consider that - apart from the issue whether the notice of irritancy is formally invalid by reason of its erroneous reference to receivership rather than liquidation, which is a matter upon which I have reached a concluded decision - a proof before answer is necessary. I shall put the case out By Order in order that there may be a discussion as to the appropriate way in which further procedure may be arranged.