Scottish Court of Session Decisions

Act: Webster; Bell & Scott LLP

Alt: Clubb; HBJ Gateley Wareing

12 November 2009

[1] By a lease dated 4 November and 20 December 2004, the defenders (as landlords) leased to the pursuers (as tenants) subjects known as and forming The First Floor Suite, Cornerstone House, 2 Melville street, Edinburgh. The lease was to run from 29 July 2004 until 28 July 2014, subject to the right of the tenants in terms of clause 2 of the lease, to break the lease after 5 years.

[2] In this action, the pursuers seek declarator that the lease was terminated on 29 July 2009. At the first preliminary hearing in terms of Rule of Court 47.11 on 30 October 2009, parties were agreed that the issue turned entirely upon the effectiveness of the notice served under clause 2 of the lease and, further, that this question could be resolved at debate without the need for evidence. If the notice was effective, then the lease came to an end on 29 July 2009. If it was not, the lease continues until 28 July 2014. Both parties wished the issue to be resolved without undue delay, and the court was able to hear the debate on 6 November 2009. The Commercial Court aims to provide a service to the business community and will endeavour, where possible, to meet the legitimate desire for despatch where it can do so consistently with the requirement of fairness. The commercial procedure under Chapter 47 of the Rules of Court provides the flexibility to enable this to happen. This case, in which the continued life of a contract depends on a short point of construction, is but one example of the type of case suitable for early resolution. Another example is shown by the recent decision of Lord Hodge in MacDonald Estates plc (unreported, 15 September 2009, [2009] CSOH 130), subsequently upheld on appeal. The court is only able to offer this service where parties co-operate, and the parties and their advisers are to be commended on their constructive approach to the litigation.

[3] The resolution of the issue between the parties involves a consideration both of the terms of the clause and of the contents of the notice. The material part of clause 2 provides as follows:

"...Declaring that the Tenants shall be entitled to terminate this Lease as at the 29 July 2009 by serving not less than six months' prior written notice to that effect on the Landlord and in the event of timeous service by the Tenant of such notice then These Presents shall terminate with effect from 29 July 2009 with no claims or expenses being due to or by either party other than claims relating to any prior breach of this Lease by either party..."

Clause 5.7 set out certain formalities with which any notice to the landlord had to comply. However, in light of the arguments presented to me, it is not necessary to set these out. I should note also that clause 3.24.2 precluded any assignation of the lease without the prior written consent of the landlord.

[4] The break notice was given by letter dated 29 September 2008 from Messrs Kuit Steinart Levy LLP, English solicitors acting for the pursuers, to the pursuers. It was sent by recorded delivery, as required by clause 5.7, and was in the following terms:

"Dear Sirs

Notice to Determine the Lease of 1^st Floor, Cornerstone House, Edinburgh, EH3 7NS dated 20 January 2005

Parties: Melville Street Properties Limited (1) and Thomsons Wealth Management Limited (2)

We confirm that we act on behalf of AWD Group Services Limited who are the current tenants of the above property under a Lease dated 20 January 2005 registered in the Books of the Lords of Council and Session on 20 January 2005.

We hereby give you notice on behalf of our clients that they hereby exercise their right to bring the Lease to an end pursuant to Clause 2 of the Lease which requires the Tenant to serve not less than six months prior written notice upon the Landlord.

The Lease will therefore determine on 29 July 2009.

We request you acknowledge receipt by signing and returning this Notice.

Yours faithfully"

In the heading to the letter the tenants are identified as "Thomsons Wealth Management Limited". That is how the tenants are named in the lease. It is agreed, however, that that the tenants changed their name to AWD Wealth Management Limited, and that this change of name occurred before the lease was entered into. They subsequently changed their name to AWD Chase De Vere Wealth Management Limited. That is their current name and the name by which they sue in these proceedings.

[5] The letter of 29 September 2008 ought, if it was to name the tenants at all, to have named them as AWD Chase De Vere Wealth Management Limited. In error, however, it named the tenants as AWD Group Services Limited, a company in the same group as the pursuers, who are not and have never been tenants under the lease. The defenders contend that that error renders the notice ineffective as a break notice under the Clause. By letter dated 4 February 2009, their solicitors set out their case in this way:

"We have been advised that there has been no assignation of the tenant's interest in the lease of the Property to AWD Group Services Limited. Accordingly, AWD Group Services Limited are not the tenants under the lease, and the break notice is therefore invalid and of no effect. AWD Chase De Vere Wealth Management Limited remains the tenant under the lease, and remains inter alia liable for payment of the rent."

This passage potentially raises two discrete points. The first relates to formality. Did the notice comply with the formal requirements of the clause? The second relates to the content of the notice. Was it effective to convey to the landlord what the clause required it to convey? That these fall to be addressed as distinct points is made clear in Mannai Investment Co. Limited v. Eagle Star Life Assurance Co. Limited [1997] AC 749, per Lord Hoffman at p.776A-C, Scrabster Harbour Trust v. Mowlem Plc 2006 S.C. 469 at para.[45] and Ben Cleuch Estates v. Scottish Enterprise 2008 SC 252 at paras.[60] and [64].

[6] In his submissions on behalf of the defenders, Mr Clubb initially argued that the notice did not comply with the formal requirements of the clause. The notice had to comply with certain formalities. One of these was that it had to be sent by or on behalf of the tenants. In the summons the pursuers did not offer to prove that the notice was sent on behalf of and with the authority of the tenants. Mr Webster, for the pursuers, took issue with this interpretation of his pleading but offered, if it were necessary, to amend to plead such a case. After some discussion, Mr Clubb stated, on behalf of the defenders, that he would not seek to take the pursuers to proof on this issue if it were properly raised. The debate therefore proceeded upon the basis that the notice had been sent on behalf of the pursuers and with their authority. It is, accordingly, unnecessary to consider this argument further.

[7] The argument as to the effectiveness of the notice turns on the question whether a reasonable landlord in the position of the defenders would have understood the letter of 29 September 2008 as being a letter sent on behalf of the actual tenants, the pursuers, purporting to break the lease in accordance with clause 2; or whether the error in naming AWD Group Services Limited as "the current tenants" would have introduced such uncertainty into the mind of the reasonable landlord that he would feel that he could not safely rely upon the notice. Parties were agreed that the construction of the notice had to be approached objectively. The question was how a reasonable recipient, circumstanced as the actual recipient was, would have understood the notice: see Mannai Investment per Lord Steyn at 767G‑768D, Lord Hoffman at 774D-777C and Lord Clyde at 781D‑782F, and see also Scrabster Harbour Trust. No precise form of words is required, but the notice must clearly and unambiguously convey to the landlord the information that the tenant is exercising his right to break the lease under clause 2. The test is a "functional" one, to use the expression of Lord Drummond Young in Whitbread Group plc v. Goldapple Limited (unreported, 19 November 2004) at para.[7]. Mr Webster referred me to three Scottish cases, namely Prudential Assurance Co. Limited v Smiths Foods 1995 S.L.T. 369, Yule v Jewson Limited 1991 S.L.T. 291 and Lin Pac Containers (Scotland) Limited v Kelly 1983 S.L.T. 422 where the question asked by the court was variously whether the recipient was misled or whether the notice "clearly and explicitly" conveyed the necessary information. I do not think that these cases suggest a different approach to that set out above.

[8] It is important to emphasise that the notice is not to be interpreted as though received by a stranger to the contract, however reasonable that stranger might be. It is treated as received by a reasonable landlord in the position of the landlord under this lease. Lord Steyn makes this clear in Mannai in his expression: "circumstanced as the actual parties were"; and Lord Hoffman explains that the notice must be construed in light of all the knowledge that the parties must be taken to have had available to them. In a case such as the present, the landlord will know of the terms of the lease. He will know - and it is in fact clear from the terms of the letter of 4 February 2009 from his own solicitors that he did know - that the tenants named in the lease have changed their name and are currently known as AWD Chase De Vere Wealth Management Limited. He will also know that he has not consented to any assignation of the lease; and, since there is no averment in the defences to suggest it, he will know that there has not been any request for consent to an assignation nor any question raised about a possible assignation. He would also, I suggest, be likely to assume (even if he did not know) that AWD Group Services Limited was a company in the same group of companies as the tenants, AWD De Vere Wealth Management Limited. These are important considerations to have in mind when considering whether the letter could have given rise to any uncertainty in the mind of a reasonable landlord as to what notice was being given and by whom.

[9] In a cogent argument relying for support on certain English authorities to which I shall refer, Mr Clubb submitted that a reasonable landlord in the position of the defenders might have been misled into thinking that, despite the lack of the necessary consent in terms of clause 3.24.2 of the lease, the tenants had assigned the lease to AWD Group Services Limited; or, at least, that Messrs Kuits might have taken their instructions from AWD Group Services Limited on the misapprehension that they were assignees. After all, the terms of the letter suggested that the solicitors had given careful consideration to the lease and the notice requirements in clause 2. In those circumstances it would not be unreasonable for the landlord to assume that the naming of AWD Group Services Limited as tenants was deliberate and done on the basis of careful instructions. Another explanation might be that they had simply overlooked the need for consent to any assignation; or had overlooked the requirement that the notice be given by the tenants. Those were all possibilities which might reasonably occur to the landlord receiving such a notice. In those circumstances it could not be said that the letter clearly and explicitly gave notice to the landlord of the exercise by the tenant of the break option in clause 2.

[10] I am unable to accept this argument. I do not consider that the terms of the letter, unfortunate though the description of AWD Group Services Limited as "the current tenants" was, would have caused a reasonable landlord in the position of the defenders to doubt that notice was being served on behalf of the actual tenants. It is clear from the letter that the solicitors sending it were aware of the terms of the lease. They name the tenants by their original name, or at least the name used to describe them in the lease. In the first paragraph they confirm that they act on behalf of the current tenants of the property under the lease, albeit that they misname them as AWD Group Services Limited. In the second paragraph they give notice on behalf of "our clients" that they are exercising their right to bring the lease to an end pursuant to clause 2, which, they say, requires "the Tenant" to serve six months notice on the landlord. It is, therefore, clear from the terms of the notice that the solicitors are aware that the notice has to be served by the tenant. That being the case, the only possibilities to explain the reference to AWD Group Services Limited are: (a)  that there has been an assignation from the actual tenants, AWD Chase De Vere Wealth Management Limited to AWD Group Services Limited: or (b)  that the solicitors had simply made an error in identifying the tenants under the lease. In my opinion, a reasonable landlord who knew the terms of the lease, knew that his consent was necessary before there could any assignation, knew that he had not given consent and knew further that he had not even been asked for consent, would discount the possibility that the notice was given on behalf of an assignee of the tenant. Rather, he would assume that the solicitors probably acted for all the companies within the group and that in serving the notice they had simply got the wrong company. As Mr Webster put it, he would assume cock up rather than conspiracy.

[11] As I have said, Mr Clubb drew my attention to certain English authorities in which break notices had been served incorrectly naming the tenant. These were Lemmerbell Limited v. Britannia L.A.S. Direct Limited [1999] L&TR 102 (Court of Appeal), Havant International Holdings Limited v. Lionsgate (H) Investment Limited [2000] L&TR 297 (Hart J), Procter & Gamble Technical Centres Limited v. Brixton Plc (unreported, Neuberger J, 19 December 2002, [2002] EWHC 2835 (CH)) and Prudential Assurance Company Limited v. Exel UK Limited (unreported, Jeremy Cousins Q.C., sitting as a Deputy Judge of the Chancery Division, [2009] EWCH 1350). As Mr Clubb recognised, such cases are of assistance not in laying down any particular principle but in providing illustrations of the way in which the courts have applied the relevant tests to fact situations which are not dissimilar from those of the present case. Each case depends upon a detailed analysis of its own facts. I do not propose to cite passages from those cases. What they illustrate - and it hardly needs illustration - is the potential for confusion where the notice bears to be served on behalf of a party who is not in fact the tenant under the lease. Without intending any disrespect to the careful reasoning in the judgments in those cases, I do not consider that it would be safe to place too great a weight on them even as guidance on the facts, standing the very wide differences between English and Scots law in the field of landlord and tenant: see Scrabster Harbour Trust v Mowlem Plc 2006 S.C. 469 at para [36]. Given these differences, it would be wrong to assume that the result on similar facts will necessarily be the same in Scotland as it might be in England. The need for care is illustrated by reference to the discussion in these cases. There appears to be one singular aspect of English law, as explained in the cases, which parties were agreed differed from the law of Scotland. It appears to be the case in England that an assignment of a tenancy without consent will be effective as an assignment, even where consent to the assignment was a term of the lease: see Lemmerbell per Peter Gibson LJ at p.115 and Proctor & Gamble per Neuberger J at para 41. Accordingly, receipt of a notice served on behalf of someone other than the known tenant may in England give rise to real uncertainty whether there has in fact been an effective assignment of the tenancy, albeit without consent. Parties were agreed that that would not be the case in Scotland. I was referred to Rankine on Leases, 3^rd edition, at pp.174-179, from which that is clearly to be inferred. The difference is important. Receipt of a notice under a lease, misnaming the tenant, would not, in Scotland be likely to give rise to a similar uncertainty on the part of the landlord; nor would he be likely to receive advice from Scottish solicitors that there was a real risk that the tenancy had been assigned, particularly where there had previously been no issue between the parties as to a possible assignation. I am, of course, aware that the question of assignment was not the only matter relied upon in the English cases to justify the conclusion that a reasonable landlord might well be uncertain as to the effect of the notices, but it does serve to emphasise the need for caution in seeking to draw any parallels from the English cases.

[12] In the three Scottish cases to which I was referred (see para.[7] above), the court had held a notice valid notwithstanding an error in the name of one of the parties, on the basis in each case that the other party could not have been misled by that mistake. Mr Clubb sought to distinguish these cases on the grounds that they involved errors in the description of the same party, rather than the use of the name of a separate legal entity. I do not consider that this is a valid ground of distinction: if, as parties were agreed, the test is how the communication would be understood by the reasonable recipient, it can make no difference what was the source of the particular error. However, I do not place much weight on the particular decisions, since they too are simply illustrative of the application of a well-known test to a particular set of facts.

[13] None of these cases persuades me that I should reach a different view of the effectiveness of the letter than that which I have set out in para [10] above. I have come to the conclusion that the letter was an effective notice under clause 2, notwithstanding the error in the designation of the party named as tenant. I shall therefore pronounce decree in terms of the conclusions of the summons and assoilzie the pursuers from the conclusions of the counterclaim.