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OUTER HOUSE, COURT OF SESSION

[2007] CSOH 92

CA12/07

OPINION OF LORD GLENNIE

in the cause

CLYDEPORT PROPERTIES LIMITED

Pursuers;

against

SHELL UK LIMITED

Defenders:

________________

Pursuers: Connal QC, Solicitor Advocate; McGrigors

Defenders: Haywood, Solicitor Advocate; Biggart Baillie

31 May 2007

Introduction

[1] By a lease dated 9 and 14 November 1988, the pursuers leased to the defenders premises known as Ardrossan Harbour, Ardrossan. It is the pursuers' case that the defenders purported to terminate the lease as at 11 November 1990 but that, thereafter, they remained in occupation of the premises and continued to make payment of rent in terms of the lease. In those circumstances, they contend that the lease continued after 11 November 1990 by operation of tacit relocation. In the alternative, the pursuers contend that by virtue of certain correspondence passing between the parties in the early 1992, the parties entered into a new lease on substantially the same terms as were contained in original lease. The defenders deny that the original lease extended beyond 11 November 1990 whether by tacit relocation or otherwise. They also deny that there was any new lease brought into being by the correspondence in the early 1992 or the subsequent actings of the parties.

[2 ] In the Summons, the pursuers put forward a number of claims. In addition to a claim for rent allegedly due from 2003 to the present day, reflected in Conclusion 7, there are claims relating to "remediation" of the premises. These fall into two distinct categories. The first is a claim for implement. This is reflected in Conclusion 6, which is in the following terms:

"for decree ordaining the Defender to implement its obligation to carry out the works specified in the Schedule of Remediation, prepared by EnviroCentre Limited, dated November 2006 within the reasonable period of 12 months or such other period as the court may direct from the date of decree to follow hereon; failing implement for payment by the Defender to the Pursuer of the sum of SIX MILLION EIGHT HUNDRED AND FIFTEEN THOUSAND POUNDS STERLING (£6,815,000) with interest at the rate of 8% per annum from date of citation hereof or such other date as the Court thinks fit until payment;"

The obligation of which implement is sought is contained in clauses FOURTH and TENTH of the Lease, to which I shall refer in due course. The second category of such claims is reflected in the terms of Conclusions 8, 9 and 10. Those Conclusions claim payment of, respectively, £74,165.42, £576,804.35 and £36,594.98. They are supported by averments in Articles 6, 7 and 8, in which the pursuers complain of contamination to the premises which, they say, was the responsibility of the defenders and by reason of which they contend that they have suffered damage.

[3 ] In their Defences, the defenders take two points which are relevant to the present debate. The first is that clause FOURTH of the Lease ceased to have application after termination of the Lease. The second is that, esto clause FOURTH of the Lease has application after termination, any obligation thereunder has prescribed in terms of section 6 of the Prescription and Limitation (Scotland) Act 1973.

[4 ] The matter first came before the court at a Preliminary Hearing on 30 April 2007. At that Preliminary Hearing, Ms. Motion, solicitor advocate for the pursuers, submitted that the prescription point raised by the defenders gave rise to a short point of law. Her contention was that the claim for remediation and the claims for damages (though not the claim for rent) were claims to enforce an "obligation relating to land" falling within paragraph 2(e) of Schedule 1 to the Prescription and Limitation (Scotland) Act 1973; and were therefore subject to the long negative prescription rather than the five-year prescriptive period. She submitted that this point could, with advantage, he resolved at debate. The reasoning which she advanced was set out subsequently in a Note of Argument for the pursuers lodged in process. I quote from paragraphs 1.3 to 1.5 of that Note of Argument:

"1.3 The pursuer's primary position in terms of the summons is of course that the 1988 Lease ... continues by tacit relocation, the defender being barred from objecting to that plea. The pursuer's case is that even if the 1988 Lease was validly terminated, a new lease in broadly the same terms, and with specifically the same obligations of repair, was entered into between the parties as evidenced by the change of letters in early 1992. If the pursuer is right on either of those hypotheses no issue of prescription would arise. However in order to prove either of those hypotheses it would be necessary to embark upon a potentially lengthy and inevitably expensive proof with evidence being led relating to conduct and exchanges between the parties dating back over a significant period.

1.4 This would similarly apply to arguments that the pursuer would seek to advance in relation to the defender having relevantly acknowledged the main claim; it is anticipated that this would be a matter in relation to which the pursuer would be put to proof.

1.5 The importance of the long negative prescription point however is that the pursuers position is that even if the 1988 Lease was validly terminated and there was no new lease agreed (which is the argument advanced in the defences) the obligations requiring the defender to remediate are subject to long negative prescription, and still are still enforceable by the pursuer up to twenty years after the 1988 Lease was terminated - which on the defenders argument was November 1990."

It was said that if the court found for the pursuer in relation to this issue, there would be no requirement (save in relation to the claim for rent, which in the context of the other claims was relatively minor) to consider or determine the question whether the 1988 Lease continued or whether a new lease came into existence. The claims for implement and damages could be disposed of on the basis of evidence and arguments as to causation and quantum.

[5 ] After some discussion at the Preliminary Hearing, Mr Haywood, solicitor advocate for the defenders, agreed that a debate on this point might cut through some of the issues in dispute between the parties, albeit that on any view the claim for rent would remain outstanding. Accordingly, notwithstanding that neither party had adjusted its pleadings to focus the particular issue, I appointed the matter to debate and was able to fix that debate to take place on the first day of the following week, namely 10 May 2007.

[6 ] Parties exchanged Notes of Argument before the debate took place. In his Note of Argument for the defender, Mr Haywood raised an additional point. The debate proceeded upon the assumption that the Lease terminated in 1990; and that there was no new lease. On this hypothesis, he submitted, the pursuer's Conclusion for implement was not competent. At the hearing on 10 May 2007, Mr Connal QC, who appeared for the pursuers, agreed that the competency point could also be included within the debate.

The relevant terms of the Lease

[7 ] The clauses of the Lease relied upon by the pursuers are clauses FOURTH and TENTH. In terms of clause FOURTH, the defenders, as tenants, "blind and oblige themselves" to do a number of things, including

(Six) to maintain the subjects and in particular the walls and fences enclosing the same and all of the Tenants' of property thereon, the said access road, the said weighbridge and office, the said Switch House No.1and the oil supply pipes, water supply pipes, underground drainage system and interceptors and conductors for telephone cables and electric cables serving the subjects or used in connection with the subjects always in a good and safe condition and repair ..."

Clause TENTH provides as follows:

"At the expiration or sooner termination of this lease as herein provided the Tenants shall be entitled either to remove the installations and other property belonging to them from the subjects with the exception of all concrete brick or stone built buildings and walls and all boundary fences or to leave the said installations and other property in position. In either event, the Tenants shall leave the subjects in a reasonable state of repair and neat and tidy and shall make the subjects safe all to the satisfaction of the Landlords."

I shall refer to these clauses respectively as the "maintaining" and "terminal" conditions. It should be observed that the pursuers in their Summons rely only upon the maintaining conditions in Clause FOURTH. However, Mr Connal told me - and it was, in the event, obvious - that the pursuers intended also to rely upon the terminal conditions in Clause TENTH. With the agreement of Mr Haywood, the debate proceeded on the basis that both clauses required to be considered; and that, if necessary, the pleadings could be tidied up afterwards.

Prescription - the statutory framework

[8 ] Section 6 of the Prescription and Limitation (Scotland) Act 1973 lays down a five year prescriptive period for certain obligations to which that section applies. Those obligations are defined in Schedule 1. Section 7 of the Act provides, with certain exceptions, for a twenty year prescriptive period. That twenty year period applies inter alia to obligations which are within section 6; and, in respect of such obligations, it acts as a "long stop". Accordingly, the question at issue in the present case is not strictly whether the obligations which the pursuer seeks to enforce are obligations to which the long negative prescription of twenty years applies. More accurately, it is whether those obligations are also subject to the five year prescriptive period laid down in section 6.

[9 ] Schedule 1 comprises two paragraphs. Paragraph 1 states that "subject to paragraph 2", section 6 applies to the obligations defined in subparagraphs thereunder. Paragraph 2 states that, "notwithstanding anything in the foregoing paragraph", section 6 does not apply to certain obligations. Paragraph 2 can therefore be regarded as the dominant paragraph. It provides that section 6 of the Act does not apply:

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

Turning to paragraph 1, the relevant sub paragraphs are (a)(v), (d) and (g). By virtue of these sub paragraphs, and always subject to paragraph 2, section 6 of the Act applies:

"(a) 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 and a lease; ...

...

(d) to any obligation arising from liability (whether arising from any enactment or from any rule of law) to make reparation;

...

(g) to 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."

Unlike paragraph 1(a), paragraphs 1(d) and (g) are not identified in paragraph 2(e) as exceptions to the disapplication of section 6 to obligations relating to land. Accordingly, the crucial question in the present case is whether obligations underlying the pursuers' claims are obligations relating to land certain for within paragraph 2(e).

Submissions
[10 ] Mr Connal argued that the pursuers sought implement of repair obligations arising under the 1988 lease, under which the defenders were to keep the premises in good and safe condition and repair and were to leave them in that condition on departure. He submitted that an obligation in a lease to keep subjects in good repair is an "obligation relating to land" within para 2(e) of Schedule 1 to the Act. He relied upon the ordinary meaning of the words used in the Act. The position, put simply, was that this was an obligation to repair land in a lease relating to land. Para 2(e) was not concerned only with real rights or real burdens. It covered, as well, personal obligations under contracts dealing with land and interests in land, providing that the land was not merely incidental to the obligation. Schedule 1 was drafted in such a way as to make it clear that an obligation to pay rent or other periodical payment was included within the expression "any obligation relating to land"; otherwise it would not have been necessary to except such obligations from the disapplication of section 6 of the Act. This construction was consistent with the Opinions in Barratt Scotland Ltd v. Keith 1993 SC 142. In the present case it could not be said that the land was merely incidental to the obligations of the tenant under the maintaining and terminal conditions; on the contrary, the obligations on the tenant under those clauses were intrinsic to his rights under the lease. In addition to Barratt, he referred me to the following authorities: Lord Advocate v Shipbreaking Industries Ltd 1991 SLT 838; Glasgow City Council v Morrison Developments Ltd 2003 SLT 263; and Smith v Stuart 2004 SLT (Sh Ct) 2. He also referred me to Johnston, Prescription and Limitation, at paras.6-56 - 6-63.

[11] For the defenders, Mr Haywood submitted that the court should ask: what is the obligation which the pursuers are seeking to enforce? He took me through the Conclusions in the Summons and to the Articles of Condescendence relating thereto. Conclusions 8, 9 and 10 were Conclusions for payment. The obligations which the pursuers were seeking to enforce in those conclusions were not obligations relating to land but obligations on the defenders to make reparation, or pay damages, for their breach of their obligations to do something on the land. In a short written submission, put in after the hearing, he also drew my attention to Miller v City of Glasgow District Council 1988 SC 440 and Hobday v Kirkpatrick's Trustees 1985 SLT 197.

[12 ] In opening his argument on the competency point, Mr Haywood submitted that, on the hypothesis on which the debate proceeded, the lease had come to an end and with it the defenders obligations thereunder. The defenders might, depending on the evidence and subject to the argument on prescription, be found liable in damages for breach of such obligations, but they could not now be ordered to carry them out. He relied upon PIK Facilities Limited v Shell UK Limited and BP Oil UK Limited 2005 SCLR 958, Sinclair v Caithness Flagstone Company Limited (1898) 25 R 703 and A & J Faill v Wilson 1899 36 SLR 941. Sinclair, as interpreted in PIK, was binding authority on this point.

[13] Mr. Connal joined issue with this. He submitted that the decision in Sinclair was founded upon the difficulties facing an outgoing tenant being required to go back onto the premises to carry out remedial work. In the present case there were no such difficulties, since the pursuers were agreeable to the defenders entering upon the land for that purpose. Insistence on specific implement implies an offer of access: Matthey v Curling [1922] 2 AC 180, 240. There was no other bar to a conclusion for implement.

[14 ] During the discussion, I was referred also to the Opinion of Lord Allanbridge in Coventry v British Gas Corporation (15 August 1984, unreported) and to Duke of Portland's Trustees v Clarke 1926 SC 640; and to passages in Walker, The Law of Civil Remedies in Scotland, at pp.276-284, Rankine, A Treatise on the Law of Leases in Scotland, 3^rd ed. (1916) at pp.453-6, Volume 13 of the Stair Memorial Encyclopaedia, at pp.5-6 and McBryde, The Law of Obligations in Scotland, 2^nd ed. (2001) at Chapter 23.

Discussion

[15 ] I start by considering the question of prescription. As is apparent from the summary of their submissions, the parties approached the question from markedly different positions. Mr Connal, for the pursuers, focused his submissions on the claim for implement; while Mr Haywood, for the defenders, concentrated on the claims for payment. As the discussion developed, it became apparent that there was, in fact, little or nothing between the positions of the parties. Thus, in the course of argument, Mr Connal accepted that insofar as the pursuers' claims were for damages rather than implement (as they were in Conclusions 8, 9 and 10), such claims were subject to a five-year period of prescription under section 6 of the Act. Mr. Haywood, for his part, accepted that, insofar as the pursuers' claim was for implement of the maintaining or the terminal conditions, it fell within para 2(e) of Schedule 1 to the 1973 Act and not within any of the exceptions to that paragraph; and was therefore not subject to the five-year period of prescription.

[16 ] Such concessions were, in my opinion, properly made. It is clear from the authorities that the expression "obligation relating to land" as used in para.2(e) of Schedule 1 to the 1973 Act is not confined to real rights or burdens. It includes also a personal obligation. The authorities suggest that it may not always be easy to determine whether a particular obligation is one "relating to land" for the purposes of that paragraph. In Barratt Scotland Ltd v Keith, at p.148D-E, Lord Penrose expressed the view that the role of the words "relating to land" was that they "define the subject matter to which the obligation relates" but "provide no other qualification on its scope". He added:

"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 of these examples would not adequately define the expression."

Yet, clearly there must be some limit, if the disapplication by paragraph 2 of the five year prescriptive period is not to be very extensive. In the passage quoted above, Lord Penrose appears to have taken that view. His suggested exception is of cases in which land is dealt with "incidentally only". In the Inner House, the Lord Justice-Clerk, at p.154A-C, took this exception to refer to the sort of situation "where someone was instructed to dig a ditch on land or a plumber was instructed to carry out repairs to heritable fixtures". Agreeing that these examples could be regarded as cases in which land is dealt with incidentally only, he added:

"... I regard these cases as examples of contracts for services in which land is merely the environment within which the services are to be performed. In these situations the obligations to be performed are not to be regarded as obligations relating to land."

Lord Kirkwood, at p.159E-F, expressed tentative agreement, though he emphasised that each case had to be decided in light of its own particular circumstances. Lord McCluskey, at p.158B-C, appeared to take a similar view but thought it unnecessary, in the circumstances of the particular case, to reach a decision as to where to draw the line. In Glasgow City Council v Morrison Developments Ltd, Lord Eassie adopted a similar approach: see paras [13] and [16]. In the latter passage, when considering an obligation in a lease upon the tenant to construct buildings, he spoke of that obligation being part of the "counter prestation respecting which the interest in the land is created". He concluded that

"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."

I respectfully agree with such observations. It is not necessary in the present case to identify precisely where the line is to be drawn, even assuming that a line can be drawn in the abstract. Each case must be considered on its own facts; and the phrase "cases in which land is dealt with incidentally only" is as good a guide as one is likely to get to help identify obligations which involve land but are not obligations "relating to land". It is clear to me that the present case falls within the ambit of para.2 of Schedule 1 to the Act. Implement is sought of obligations to remediate, or restore to good condition, the subjects of a lease, which obligations are themselves contained within the lease and are an intrinsic part of the lease or, to use the expression in Glasgow City Council v Morrison Developments Ltd, correlative with the grant of the interest in the land. It cannot, on any view, be said that the land is only incidental to the obligation which the pursuers seek to enforce.

[17 ] The claims in Conclusions 8, 9 and 10 fall to be treated differently; and I consider that Mr. Connal was right to concede that these claims were subject to the five year period of prescription. In my opinion, such claims are claims to enforce obligations arising by reason of an alleged breach of contract. They are claims for damages, not reparation, and therefore fall within para.1(g) of Schedule 1 to the Act, rather than para.1(d) of that Schedule: see Miller v City of Glasgow District Council. I respectfully agree with Lord Coulsfield in Lord Advocate v Shipbreaking Industries Ltd at p.840J-K that an obligation arising out of a breach of an obligation relating to land is not the same thing as an obligation relating to land. The distinction is justified not only in terms of the construction of the Schedule, but also as a matter of basic contract law, which finds its classic exposition in the speech of Lord Diplock in Photo Production v Securicor Ltd. [1980] 1 AC 827 at 848 where he says that, except in cases where the obligation in a contract is specifically enforceable, "breaches of primary obligations give rise to substituted or secondary obligations on the part of the party in default". The claims for damages in Conclusions 8, 9 and 10 are based on the substituted or secondary obligation to pay damages for breach of the primary obligations in the lease. The relevant obligation is not an obligation relating to land but an obligation to pay damages.

[18 ] It is necessary to touch briefly upon the terms of Conclusion 6, which is a conclusion for implement, which failing payment. Such a Conclusion is in common form; payment is claimed only as an alternative to implement. The Conclusion proceeds on the basis that implement is competent; if implement is not possible for whatever reason or is refused as a matter of discretion, then the court may order payment. As such, the obligation upon which the claim is based is, in the present case, an obligation relating to land, the prescription period for which is 20 years. However, it is important to note that, under a Conclusion in that form, payment can only be ordered where implement is competently sought. If the claim for implement is incompetent, then the whole Conclusion falls, though it would still be open to the pursuer to conclude separately for payment. In such a case, the underlying claim, being one for damages for breach of contract, would be subject to the five year period of prescription.

[19 ] I turn to consider the question of competency. Putting to one side, for the moment, the authorities to which I was referred, it seems to me that, as a matter of principle, implement can only be ordered of a subsisting obligation. Where that obligation is found in a contract, the question whether at any particular moment there is a subsisting obligation depends for its answer upon the proper construction of the contract. In some cases, the contract wording will be clear. In PIK Facilities, the "working conditions" in clause 2(8) of the lease imposed an obligation on the tenant "during the said term", i.e. during the term of the lease. In other cases there may be room for implication. It is by no means impossible for a repairing obligation in a lease to subsist beyond the expiry of the lease. An example of an obligation to re-instate being construed in such a way as to extend for a reasonable time after the end of the lease is to be found in the speech of Lord Atkinson in Matthey v Curling at 240. In such a case, there is no reason in principle why specific implement should not be ordered of the re-instatement obligation within a reasonable time after the lease has come to an end. What matters is that the obligation should be live at the time when the court orders specific implement.

[20 ] In the present case, it was not contended that the parts of clause FOURTH or TENTH upon which the pursuers rely could sensibly be read as imposing upon the defenders obligations of maintenance or re-instatement subsisting beyond the expiry of the lease. It was accepted by Mr. Connal that, in this respect, there was no material distinction between the clauses with which I am concerned and those before the court in PIK Facilities. Even if it had been possible to construe the clauses in this case as imposing repair or re-instatement obligations on the defenders for a reasonable period after the expiry of the lease, such a reasonable period must by now have expired, standing the hypothesis on which this debate proceeds, namely that the lease came to an end over 16 years ago in November 1990. It follows, in my opinion, that since, on that hypothesis, those clauses of the lease impose on the defenders no subsisting obligation to "remediate", a Conclusion seeking specific implement of such obligations is, on that hypothesis, incompetent.

[21 ] That view is, in my Opinion, supported by authority. In Sinclair, Lord Kinnear put the matter in this way (at p.706):

"If the tenants have failed to perform their obligations for the proper working of the quarries the landlord's remedy is an action of damages, but I know of no authority in support of the pursuer's claim to require his tenants after the termination of a contract of lease to re-enter the subjects, which, by their contract, they are bound to quit, in order to perform, after their possession has come to an end, obligations which were applicable only to the period of their possession, and which they are alleged to have already broken. They cannot be liable for a decree for specific performance, except by virtue of their contract. They have contracted to work in a certain way for a definite term which is exhausted. If they have failed they may be liable in damages for a breach of their contract which they committed while it still subsisted. But they have made no contract to do anything after the lease has expired. It appears to me therefore that in so far as it concludes for a decree for specific implement, the action must be dismissed."

Although in that passage Lord Kinnear speaks of the difficulties in requiring the tenant to re-enter premises which they were bound to quit, it seems to me that the ratio of the decision is contained in that part of it which focuses on the fact that the obligations of which implement was sought were applicable only to the period of possession under the lease. As such, it is binding on me, even if I might have come to a different view. This was also, as I understand it, the view taken of that case by Lord Kingarth in PIK Facilities. I respectfully agree with him. Although Lord Kinnear appears to address expressly only the "working obligation" and not the "terminal obligation", and the same is true of A & J Faill v Wilson, I do not think that this can make any difference, subject of course to the possibility that in any particular case such an obligation might be construed as extending for a period after the lease has ended. It follows that I too differ from the Opinion of Lord Allanbridge in Coventry v British Gas Corporation.

Disposal

[22 ] I have held that in so far as the pursuers' case is based on the original lease which came to an end in 1990 (rather than a lease continued by tacit relocation or a lease on substantially the same terms arising from correspondence in 1992), the Conclusion for implement is incompetent. I have held, further, that the claims for damages (for breach of the obligation therein to remediate) are subject to prescription after 5 years in terms of section 6 of the 1973 Act. Whilst I have not been asked to decide whether all, or at least some, of the claims for damages have in fact prescribed on that hypothesis, it seems likely that they have and that, in consequence, the pursuers will require to prove either tacit relocation or a new lease arising from the 1992 correspondence. This debate has not, therefore, provided them with the result which they wished to achieve of being able to avoid the need for proof on these matters. It has, however, enabled parties to know where they stand; and, to that extent, it has been worthwhile.

[23 ] The appropriate course, in my view, is to fix a further preliminary hearing in this matter, allowing parties in the meantime, if so advised, to adjust their pleadings to take account of my decision and to deal with any matters in the pleadings to date which require to be addressed.