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GATSBY RETAIL LTD AGAINST THE EDINBURGH WOOLLEN MILL LTD [2019] ScotCS CSOH_49 (28 June 2019)
URL: http://www.bailii.org/scot/cases/ScotCS/2019/2019_CSOH_49.html
Cite as:
[2019] CSOH 49,
2020 SLT 122,
2019 GWD 23-347,
[2019] ScotCS CSOH_49
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Page 1 ⇓
OUTER HOUSE, COURT OF SESSION
[2019] CSOH 49
CA133/18
NOTE OF LADY WOLFFE
In the cause
GATSBY RETAIL LIMITED
against
THE EDINBURGH WOOLLEN MILL LIMITED
Pursuer
Defender
28 June 2019
Pursuer: T Young; Pinsent Masons LLP
Defender: D Thomson QC; DLA Piper Scotland LLP
Pursuer’s action for recovery of damages for breach of tenant’s repairing obligations
Background
[1] The parties were, respectively, landlord and tenant of commercial premises at 95-96A
Princes Street (“the premises”) under a lease (“the Lease”) which terminated on 30 April
2016 (“the ish”). From 1 May 2016 the defender occupied the premises under a licence (“the
Licence”) which imported the parties’ obligations under the Lease. In due course the
defender vacated the premises. The pursuer instructed the preparation of a schedule of
dilapidations (“the schedule”), served on the defender on 22 May 2017, which identified
tenant’s works (“the dilapidation works”) totalling about £170,000. The dilapidations works
Page 2 ⇓
2
were said to include removal of the defender’s fit out works, repairs to the damaged fabric
of the premises, certain internal and external cleaning, the removal of redundant cabling and
replacing damaged carpets.
The pursuer’s subsequent grant of the Nero Lease of the premises
[2] Meanwhile, the pursuer granted a lease of the premises to a new tenant, Nero
Holdings Limited (respectively, “the Nero Lease” and “Nero”) following missives
concluded between it and Nero by two letters dated 31 March 2017 (“the missives”). As part
of those arrangements, the pursuer paid Nero £110,000 (hereinafter “the Nero payment”,
referred to in the missives as “the Landlord’s Contribution”). The figure £110,000 is averred
to be supported by a Building Report detailing wants of repairs and which repairs Nero
would undertake in return for the Nero payment. This is the principal sum sued for. (The
pursuer also seeks payment of professional fees incurred, but that part of the pursuer’s case
was not discussed at debate.)
Outline of defender’s relevancy challenge
[3] The defender challenges the relevancy and specification of the pursuer’s averments
of loss. Its challenge arises from the pursuer’s subsequent dealings with the premises and,
in particular, the terms of the missives and of the Nero Lease. In short, it contends that the
pursuer has no relevant averments to establish that the Nero payment was a loss sustained
by the pursuer or recoverable as a consequence of any breach of obligation by the defender.
The terms of the missives between the pursuer and Nero
[4] The defender refers to several terms of the missives, including the following:
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3
(1) Clause 1.1: the definition of “Landlord’s Contribution” was:
“…the sum of One Hundred and Ten Thousand Pounds (£110,000) Sterling as a
contribution towards the costs of the Tenant’s Works exclusive of VAT”
And the definition of “Tenant’s Works” was:
“…the fitting out works to the Property.”
(2) Clause 1.4: this is headed “Whole contract” and provides:
“The Missives represent and express the full and complete agreement between
the Landlord and the Tenant relating to the Lease of the Property at the
Conclusion Date and will supersede any previous agreements between the
Landlord and the Tenant relating to the lease of the Property.”
(3) Clause 5.1.4:
”The Landlord will pay the Landlord’s Contribution by cleared funds direct to
the Tenant on the Date of Entry….”
(4) Clause 9: Under the heading “The Tenant’s Works”, this provided:
“9.1 The Tenant’s Works are to be approved by the Landlord. The Tenant will,
within 21 days of the Conclusion Date, submit drawings and
specifications of the proposed works to the Landlord to be approved in
writing (such approval not to be unreasonably withheld or delayed).
9.2 Upon the Landlords approval of the Tenant’s Works, the Landlord’s
Solicitor will complete the Licence for Works by inserting any relevant
information required (including any modification to reflect the Missive
terms), engross it and sent it to you with the engrossed Lease for
execution by the Tenant.
[…]
9.6 The Tenant must carry out the Tenant’s Works strictly in accordance with
the Licence for Works.”
Clause 1.4 was referred to by the parties in their submissions as an “entire agreement”
clause.
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4
The parties’ pleadings
The pursuer’s averments
[5] The pursuer’s averments in Article 7 of condescendence were subject to detailed
scrutiny. It is necessary to set these out. For ease of reference I have numbered each
sentence:
“(1) By letter dated 22 May 2017 the Pursuer's agents served the Schedule of
Dilapidations on the Defender. (2) The Defender did not remedy any of the wants of
repair identified in that Schedule. (3) The Pursuer reasonably estimated that it
would cost one hundred and seventy thousand, eight hundred and forty five pounds
(£170,845) sterling, exclusive of VAT, to correct the wants of repair. (4) The Pursuer
agreed a price of one hundred and ten thousand pounds (£110,000.00) sterling to be
paid by the Pursuer to the new tenant of the Property, [Nero], in respect of the wants
of repair detailed in a Building Report which was prepared by Riley Consulting. (5)
The Building Report is produced herewith and held to be incorporated herein for the
sake of brevity. (6) This sum was paid by the Pursuer in respect of Caffe Nero
performing the works identified in the Building Report. (7) The Pursuer's agent
prepared a comparison between the works and costs contained in the Schedule of
Dilapidations and the Building Report in July 2018. (8) A copy of this comparison
document is produced herewith and held to be incorporated herein for the sake of
brevity. (9) The works contained in the Building Report are all works which are
found within the Schedule of Dilapidations served on the Defender as hereinbefore
condescended upon. (10) The payment of £110,000.00 to Caffe Nero represents the
Pursuer's loss arising from the Defender's failure to discharge its repairing
obligations under the terms of the Lease and Licence as hereinbefore condescended
upon. (11) This is the sum first concluded for. (12) A meeting between the Pursuer's
agent and the Defender's agent took place on 5 September 2017. (13) On 6 September
2017, an offer to settle the sum due by the Defender was made by the Pursuer's agent
to the Defender's agent in respect of the works contained in the Schedule of
Dilapidations at £110,000.00, in addition to £25,007.81 due for professional fees. (14)
The Defender's agent required instructions from the Defender before agreement
could be reached. (15) However, that agent, the specialist surveyor instructed in the
matter by the Defender and having had a full opportunity of considering all material
relevant to the matter indicated, in what was presumably his professional view, and
without qualification, that what was proposed was a ‘good deal’. (16) The Pursuer's
agent requested an update from the Defender's agent by emails dated 18 September
2017, 3 October 2017, 16 October 2017, 23 October 2017, 24 October 2017 and 3
November 2017. (17) Copies of these emails are produced herewith and held to be
incorporated herein for the sake of brevity. (18) The Defender's agent provided no
update despite the Pursuer's agent's repeated requests. (19) By agreeing a sum with
the new tenants of the Property in respect of wants of repair, which was materially
less than the cost of the Pursuer remedying those wants of repairs, the Pursuer acted
reasonably. (20) With reference to the Defender's averments in answer, the letters
Page 5 ⇓
5
dated 22 December 2017 and 15 February 2018 are referred to for their terms beyond
which no admission is made. (21) The missives entered into between the Pursuer
and Nero Holdings Limited dated 31 March 2017 (the ‘Nero Missives’) are referred to
for their terms beyond which no admission is made. (22) The lease entered into
between the Pursuer and Nero Holdings Limited, registered in the Books of Council
and Session on 9 April 2018 (the ‘Nero Lease’) is referred to for its terms beyond
which no admission is made. (23) Quoad ultra, the defender's averments in answer
are denied save insofar as coinciding herewith. (24) Explained and averred that, as
hereinbefore condescended upon, the Pursuer identified that it would cost £170,845
to complete the works necessary to remedy the wants of repair caused by the
Defender's actions. (25) The Pursuer sought to mitigate its losses by entering into a
commercial arrangement with Nero Holdings Limited. (26) The sum of £110,000 was
paid by the Pursuer to Nero Holdings Limited in order for the incoming tenant,
[Nero], to put the property back into the state it ought to have been in when the
Defender quit the premises. (27) But for the actions of the Defender upon quitting
the premises, the Pursuer would not have had to make a payment of £110,000 to the
incoming tenant. (28) The losses thus incurred by the Pursuer were a direct
consequence of the actions and breach of the Lease and Licence terms by the
Defender. (29) It was in the reasonable contemplation of the parties that if the
Defender did not comply with its obligations under the terms of the Lease and
Licence, the Pursuer would suffer a loss. (30) Specifically, it was reasonably
foreseeable that failure to comply with Clause FIFTH of the Lease, Clause (Three) (a)
of Part III of the Schedule to the Lease, Paragraph (Eight) and (Eleven) of Part III of
the Schedule to the Lease, together with Clause 9.2 of the Licence, the Pursuer would
suffer a loss. (31) The Pursuer acted reasonably when mitigating its losses as a result
of the Defender’s failure to meet its obligations under the terms of the Lease and
Licence.”
The defender’s answers
[6] The latter part of Article 7 comprises the pursuer’s response to the defender’s own
averments inter alia in respect of the missives. It is helpful to understand how the defender
put this in issue. It admitted service of the schedule and the fact of the meeting on
5 September 2017 and the pursuer’s offer to settle the next day. In respect of the latter, it
avers that there were “without prejudice” discussions and it makes additional averments
that no binding agreement was reached. The defender then makes the following averments:
(1) The defender refers to correspondence passing between the parties’ agents:
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6
“By letter dated 22 December 2017, the Pursuer’s agents demanded payment
of the sum of £170,845 on the stated basis that, as a result of the alleged
breaches of the Lease and the Licence by the Defender the Pursuer ‘has been
under the necessity of entering into an arrangement with its new tenant and
have [sic] incurred losses amounting to £170,845’. By further letter dated 15
February 2018, the Pursuer’s agents stated inter alia as follows:
‘Pending conclusion of the works narrated within the schedule of
dilapidations it was impossible for our client to re-let the Property. In
order to resolve matters a commercial agreement was reached with
the incoming tenant, Nero, and in lieu of our client completing the
works. In terms of this agreement a payment of £110,000 (Clause 5.1.4
of the Missives [between the Pursuer and Nero]) was made by our
client to the new tenant of the Property when it took entry to meet the
cost of the works to be completed by the tenant, identified within the
Riley Report and which were not undertaken by [the Defender].’
The letter dated 15 February 2018 went on to demand payment of the sum of
£135,007.81. It is apparent from the terms of the foregoing letter that the
Pursuer has neither carried out any of the works detailed in the schedule of
dilapidations nor will it carry out any such works. On that basis, the alleged
estimated cost of repairs cannot represent a loss to the Pursuer.
Notwithstanding the foregoing, the Pursuer now seeks to recover from the
Defender damages quantified with reference to the alleged cost of repairs
which have not been, and will not be, carried out.”
(2) After an averment that the pursuer “has not incurred (and, for completeness, will
not incur)” any costs in respect of the dilapidation works, the defender makes
averments about the missives:
“Further and in any event, as to the Pursuer’s averments to the effect that it
paid the sum of £110,000 “in respect of the wants of repair detailed in a
Building Report which was prepared by Riley Consulting”, it is demonstrably
untrue that the Pursuer did so.”
(3) After quoting the clauses from the missives set out above (at para [3]), the
defences continued:
“Accordingly, the Nero Missives alone comprehensively set out the terms on
which the Pursuer agreed to pay the sum of £110,000 to [Nero]. Having
regard to the terms of the Nero Missives, as set out above, it is indisputably
the case that that sum was paid (assuming, which is not known and not
admitted that it has been paid) as a contribution towards the ‘Tenant’s
Works’. The ‘Tenant’s Works’, in terms of the Nero Missives were yet to be
identified and were instead agreed to be fitting out works which were to be
proposed by the Tenant [Nero]. In the circumstances, the Pursuer’s
agreement, in terms of the Nero Missives, to pay the ‘Landlord’s
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Contribution’, of £110,000, does not constitute or represent a loss incurred by
the Pursuer as a result of any breach of contract on the part of the Defender.
The Pursuer is in any event called upon to specify the co-relationship
between the individual wants of repair set forth in the schedule of
dilapidations and the sum of £110,000. Esto (which is not known and not
admitted) the Pursuer agreed to pay has paid the sum of £110,000 to [Nero],
payment of that sum (a) was not a loss incurred by the Pursuer as a result of
any breach of contract on the part of the Defenderres inter alios acta in a
question between the Pursuer and the Defender; (b) was not reasonable et
separatim was too remote from any breach of contract on the part of the
Defender; and (c) accordingly does not represent a recoverable loss from the
Defender.”
The parties’ submissions
Scope of the debate
[7] It is helpful first to clarify what was not, or was no longer, at issue.
1) First, the pursuer’s action is an action of damages for breach by the defender of
the tenant’s obligations in respect of the premises (it matters not for present
purposes whether those obligations derive from the Lease or the Licence). This
was made clear by the pursuer’s amendment at the outset of the debate to insert a
new plea-in-law. As a consequence, the defender departed from the first three
paragraphs of its note of argument.
2) The defender no longer argued that the missives were res inter alios acta. That
contention had been deleted from Answer 7.
3) This is not a case concerning transferred loss. The defender’s counsel clarified
this in his reply. Accordingly, I do not set out the pursuer’s counsel’s
submissions and the cases he referred to on that issue.
[8] Mr Thomson QC, senior counsel for the defender, reserved the defender’s position
on the issues of remoteness and foreseeability (see the end of Answer 7 (quoted at
Page 8 ⇓
8
para [6(3)], above), which therefore did not form part of the debate. Again, I need not record
the pursuer’s submissions on those issues.
[9] Mr Thomson accepted as a generality that a party who sustained loss and who
incurred expenses trying to mitigate it may recover those expenses. For the purposes of the
debate, the defender was content to assume the following:
1) that the pursuer had a relevant offer to prove that the premises were left in a
dilapidated condition at the expiry of the Lease,
2) that it was the defective state of the premises which caused the pursuer’s loss,
3) that the proper measure of the pursuer’s loss was the cost of remedial works to
restore the premises to the state they would have been in had the defender
complied with the tenant’s obligations.
It was noted that the pursuer did not contend that the principal sum represented a
contractually certified sum or one derived from a payment clause in the Lease (eg of the
kind considered by Lord Doherty in Tonsley (Strathclyde) Limited and Tonsley (Strathclyde
No 2) Limited v Scottish Enterprise [2016] CSOH 138). Its position was that this was a claim
for damages arising from the defender’s (assumed) breach.
Submissions on behalf of the defender
[10] The defender’s motion was to sustain its first three pleas-in-law, seeking (i) dismissal
of the action, (ii) deletion of the averments anent a meeting between agents on 5 September
2017 and the subsequent correspondence, and (iii) deletion of the pursuer’s averments on
quantum. The pursuer’s action fell to be dismissed if the court sustained either of the
defender’s first or third pleas-in-law.
Page 9 ⇓
9
Pursuer’s case as pled
[11] Mr Thomson outlined what he understood to be the pursuer’s position (as set out in
Articles 6 and 7 of condescendence): it offered to prove that the defender left the premises in
a dilapidated state; that this constituted a breach by the defender of the tenant’s obligations;
that the estimated costs of the dilapidation works was about £170,000; that the pursuer
agreed with the incoming tenant that it (Nero) would carry out and remedy some of the
defects in exchange for the pursuer paying the Nero payment to it. That payment is said to
represent the loss arising from the defender’s breach. He also referred to, and criticised as
irrelevant, the pursuer’s averments about the meeting and subsequent correspondence (in
sentences 12 to 19, the subject of his second plea-in-law), its “formulaic” averment of
causation (sentence 27) and its averments of foreseeability.
Pursuer’s position as revealed in the missives and Nero Lease
[12] Mr Thomson contrasted the foregoing with what was agreed in the missives, noting
in particular the definitions of the “Landlord’s Contribution”, the “Tenant’s Works” - which
he stressed were for “fitting out”, and the entire agreement clause (quoted at para [4(1)
and (2)], above). By reason of the entire agreement clause, the missives (and its definition of
“the Tenant’s Works”) were conclusive as regards what the pursuer actually agreed with
Nero. The Nero payment, defined as the Landlord’s Contribution, was a contribution
toward “the Tenant’s Works”, which were the fitting out works (per clause 9.1 of the
missives). He also noted that the scope of those works was not agreed as at the date of the
missives; they were to be agreed.
[13] From the Nero Lease, Mr Thomson highlighted clause 2.3 (in which Nero accepted
the premises “in their present condition and state of repair”, and which was said to displace
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the landlord’s warranty in respect of the premises under the common law), clause 2.5
(expressly excluding the landlord’s common law warranty), clause 4.6 (the tenant’s
obligations) and clause 4.22 (under which Nero undertook to return the premises at the end
of the Nero Lease having complied with its repairing obligation). In summary, as the
incoming tenant, Nero had assumed a full repairing obligation and it was not limited by
reference to a schedule of conditions. He also noted en passant the agreement between the
pursuer and Nero in respect of the incoming works.
Case-law on common law damages
[14] Mr Thomson turned to the case-law, commencing with the discussion in Prudential
Assurance Co Ltd v James Grant & Co (West) Ltd 1982 SLT 423 (at p 424), including its
consideration of the well-known case of Duke of Portland v Wood’s Trustees 1926 SC 640. He
accepted that there may be alternative ways to measure damages and, further, that prima
facie in a landlord’s dilapidations claim this included the estimated cost of repairs. That was
the starting point in the pursuer’s case and its reference to the sum of £175,000. The pursuer
then said it mitigated its loss by entering into a new agreement with a third party (Nero) to
remedy the want of repairs. He also accepted the observations in Prudential that it is for the
defender to establish if the wrong measure of loss had been adopted or if the landlord’s loss
was less than claimed. The defender did so in this case, by looking at the actual contract the
pursuer entered into with Nero in the form of the missives.
[15] Mr Thomson next referred to the more recent case of Grove Investments Ltd v Cape
Building Products Ltd 2014 Hous LR 35 (at paragraphs 12 to 20 ), as an illustration of the
proper approach of the common law, which is to strike a fair balance. He also noted that,
critically, landlord’s loss depended on what it actually did (see paragraph 18). The purpose
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of the common law rules was to compensate the pursuer for its true loss, not to give it a
windfall (paragraph 19). This approach was further vouched by the textbook discussion in
Dilapidations in Scotland (2nd ed, by Fleming et al) at paragraph 5.16. From these authorities,
he stressed that the pursuer’s loss depended upon what the pursuer in fact did with the
premises. Considered generally, if the pursuer had re-let the premises without a reverse
premium or a rent-free period, then prima facie there was no loss. By contrast, if a landlord
had to pay a reverse premium, that might constitute a relevant loss (see sentences 4 and 24 in
Article 7 (above, at para [5])).
[16] In Mr Thomson’s submission the Nero Lease categorically showed the pursuer did
not pay the sum of £110,000 to remedy any want of repair flowing from the defender’s
breach. That sum, he argued, was paid toward ”fitting out” works that had yet to be agreed
with the new tenant (Nero). Fitting out works were, paradigmatically, not works that were
the product of loss. If one tenant leaves, having fulfilled its obligations, the incoming tenant
will always having fitting out works. In this case, the outgoing tenant had operated the
premises as a woollen mill shop; the incoming tenant operated a well-known chain of cafés.
[17] Although the pursuer asserts that Nero, as incoming tenant, was going to restore the
premises to the condition that they should have been, the terms of the missives showed that
this was not correct. Section 1(3) of the Contracts (Scotland) Act 1997 (“the 1997 Act”) meant
that the missives were conclusive that the Nero payment was for the new tenant’s fitting out
works. It was not to “cure” the defender’s breach. The terms of the missives flatly
contradicted any assertion by the pursuer that the Nero payment was paid to put the
premises in the position they should have been in. If the court excluded the pursuer’s
averments, to the extent that they were inconsistent with the missives, and its formulaic
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averment on causation, no relevant case of loss flowing from any breach on the part of the
defender’s remained.
Submissions on behalf of the pursuer
[18] Mr Young, Advocate, who appeared for the pursuer, summarised its case as follows:
the defender’s breach of contract entitled the pursuer to take steps to mitigate its loss and to
recover the cost of doing so. That was what the pursuer was offering to prove. The
schedule of dilapidations was its primary loss and it had arranged for the incoming tenant
to do the works for a fixed sum of £110,000. Whether that was right, or whether that was the
reason for payment, went to the issues of reasonableness, remoteness and causation which
were all matters for proof.
[19] The defender was wrong to say that the relevancy of the pursuer’s case could be
judged at this stage. There was a difference between suffering a loss and quantifying it. The
defender accepts the issue in this case is one of quantification. The pursuer offers to prove
that the Nero payment was a reasonable and prudent step that arose directly from the
defender’s breach. He accepted that there must be a causal link between the defender’s
breach and the pursuer’s payment of the Nero payment. However, there was no rule of law
that that must be demonstrable from the face of the contract.
[20] Mr Young expanded his submissions under reference to (i) paragraphs 29 and 34 of
Mclaren Murdoch & Hamilton Ltd v The Abercromby Motor Group Ltd 2003 SCLR 323 (for the
propositions that the primary measure of loss is the cost of repair (so long as that is not
disproportionate) and that loss exists independently of remedial works) and to (ii) Grove (for
the general observations that ascertainment of the actual loss is fact-dependent). In this case,
the defender’s breach had resulted in dilapidated premises, and the cost of dilapidations
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13
works brought out by the schedule was prima facie the quantum of the pursuer’s loss and
recoverable. What the pursuer did next was relevant (for the reasons explained in Grove).
None of this changed the fact that the pursuer had sustained a loss or that the pursuer had a
duty to mitigate its loss. In the context of a landlord pursuer, its other head of loss would
usually include loss of rent. The pursuer had mitigated that, too. The context was relevant
and the missives enabled the pursuer to avoid any gap in the rent. The whole assessment of
loss was intensely factual.
[21] Furthermore, what the pursuer was offering to prove was a relevant payment of a
contribution which was a reasonable and prudent step arising out of the defender’s breach.
If a party in fact avoided suffering loss, then the law did not allow it to pretend that it did.
The law looks at the substance of what a party has actually suffered. If, however, a party
has only avoided loss by incurring expenses, those expenses are recoverable. Contrary to
what the defender argued, the pursuer had sufficient averments (reading sentences 10 to 11
and 24 to 28 together) that linked in a commercial sense the pursuer’s loss and its entering
into the missives and making the Nero payment as part of that arrangement. If the tenant
did the work it would prove the cost of what was required. If the situation were reversed, ie
if the pursuer did not refer to the missives and just sued for the whole figure brought out by
the schedule, the court would nonetheless be entitled to look at the new arrangements to
prevent the pursuer recovering more than it should. The pursuer should not, he submitted,
be in a worse position because of the mitigatory steps it took.
[22] In relation to the entire agreement clause, the pursuer was not seeking to argue there
was another term of the missives or an implied term. Mr Young went through the terms of
the missives and the Nero Lease. He accepted that Nero had entered into a full repairing
lease and that there was no qualification because of the state of the premises. The tenant’s’
Page 14 ⇓
14
works under the Nero Lease went beyond what had been encompassed in the defender’s
repairing obligation. The sequence was that the £110,000 was a contribution and then the
tenant (Nero) undertook more elaborate works. The effect was to mitigate the pursuer’s
claim down from £170,000 to £110,000. The only question for the court was the causal link
between the defender’s breach and the Nero payment of the £110,000. None of the other
terms was relevant to the enquiry. The entire agreement clause was irrelevant. Just because
the link that the pursuer avers was not apparent on the face of the documentation does not
mean it was precluded from proving that link.
The defender’s reply
[23] After noting what was not in issue (which I have recorded above, at para [7]),
Mr Thomson submitted that the defender’s short complaint was that, having regard to the
approach of Scots law, as explained in Grove and other cases, the pursuer was under an
obligation relevantly to identify its loss. The case did not involve any broad principle of
law: it was a more prosaic question of the deficiency in the pursuer’s pleadings. The
defender’s criticism was of the pursuer’s pleaded case. The correct question to ask was
whether there was a relevant offer to prove that the Nero payment is a recoverable loss
flowing from the breach of contract by the defender. The contractual basis on which the
pursuer made the Nero payment cannot be dismissed.
[24] While the pursuer purports to say “ignore the terms of the missives” and look at the
averments setting out the purpose of the Nero payment, its averments do not in fact do this.
The pursuer’s averments amount to an offer to prove an agreement with an incoming
tenant. That, Mr Thomson submitted, had nothing to do with stepping back and looking at
causation. He maintained that on no view did the pursuer’s averments say what the
Page 15 ⇓
15
missives or Nero Lease say. The pursuer appeared to offer to prove a different agreement.
In light of the entire agreement clause, the pursuer’s averments must be irrelevant. Any
coincidence between the works Nero carried out and the dilapidation works was mere
happenstance. It did not make this a recoverable loss. While the pursuer might have
averred that the premises were so dilapidated that there was a need to offer an incentive
(such as the Nero payment), the pursuer does not aver this. A “but for” averment (see
sentence 27) was not sufficient. The pursuer must aver why there was a causative
relationship between its loss and the missives. There was an irreconcilable tension between
the averment about the dilapidations works and the Nero payment which was referable to
“the Tenants’ Works”.
[25] The pursuer was not entitled to disregard the entire agreement clause. While one
may presume that the statutory provision was directed at the parties to the contract, here the
pursuer wants to recover a sum of money paid pursuant to a contract. The pursuer was not
entitled to depart from that contract and to say that the payment was for a different purpose
and in different terms. The missives and Nero Lease refer to the payment as referable to the
tenant’s fitting out works; that is wholly at odds with the cost of the dilapidation works. If
these are to be relevant surrounding circumstances, it must be in the common contemplation
of the parties.
Discussion
[26] The common position between the parties which emerged by the end of the debate
was that it was presumed that the state in which the defender left the premises was such as
to cause loss to the pursuer, and for which prima facie the measure of its loss was the cost of
repair of the dilapidation works in the schedule. It was also accepted that expenses incurred
Page 16 ⇓
16
in mitigating loss were recoverable in principle. Furthermore, the defender confirms that it
does not argue that the missives discharged the loss; they are not founded on as
constituting res inter alios acta; and the defender is not contending for any new black hole.
[27] The narrow point, as the defender framed it, was whether the pursuer had relevantly
averred a causal link between the Nero payment and its loss as measured by the schedule.
The gravamen of the defender’s criticism is the disjunction (it is said) between the Nero
missives, whose entire agreement clause is said to be preclusive of any other explanation
inconsistent with it, and the pursuer’s pleaded case. Indeed, this submission is critical to the
defender’s argument that (in effect) the court must at debate accept the terms of the missives
(and Nero Lease) and must perforce disregard anything in the pursuer’s pleadings
inconsistent with those deeds. This argument is predicated on the entire agreement clause
in the missives having the effect Mr Thomson contended for, and it is also the basis on
which the pursuer’s “but for” averment of causation is challenged.
[28] I am not persuaded that section 1(3) of the 1997 Act compels this approach. I
gratefully adopt Lord Reed’s analysis in Macdonald Estates plc v Regenesis (2005) Dunfermline
Ltd 2007 SLT 791 (at paragraphs 126 to 131) of section 1(3), which included consideration of
the Scottish Law Commission Report (Scot Law Com No 152). It is apparent that the
principal purpose of an entire agreement clause is to preclude parties to an agreement
containing such a clause subsequently contending that there is, in fact, an implied term or
some collateral agreement additional to the one in which the entire agreement clause was
contained. I accept Mr Young’s submission that in this case the pursuer is not seeking to
augment the terms of the missives or the Nero Lease.
[29] In light of the arguments the defender advanced, it must be stressed that the entire
agreement clause precludes the parties to the contract in which it is contained from seeking to
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invoke extraneous matters or evidence to contend for an additional term. In my view, a
simple entire agreement clause (such as the one in the missives) does not preclude
consideration of the commercial rationale or underlying purpose for which an agreement
was entered into, at least in a question between one of the parties (ie the pursuer) and a third
party (ie the defender in this case, who is not a party to the missives or the Nero Lease).
Even in respect of the parties to a contract containing an entire agreement clause, I note that
in Macdonald Estates plc Lord Reed did not consider that an entire agreement clause (or one
as simple as the one under consideration in that case) barred consideration of the
surrounding circumstances for the purpose of interpreting the agreement at issue in that
case. (It may be noted that the entire agreement clause Lord Reed was considering in that
case was expressed in simple terms (see paragraph 126), as is the entire agreement clause in
the missives.)
[30] It should also be noted that the pursuer does not itself rely on the missives and Nero
Lease as part of its case. As can be seen from the latter part of Article 7 (sentences 20 to 23),
averments in relation to those deeds arose in response to the defender’s averments invoking
their terms. Accordingly, the tension that Mr Thomson identifies is not between features of
the pursuer’s case (ie its pleaded case versus the missives and Nero Lease); it arises because
of the pursuer’s and defender’s discrete arguments about the import and effect of those
deeds. In other words, a matter that is classically resolved at proof. (The pursuer does no
more than refer to those deeds for their terms; they are not self-proving.) It would be a
novel position if averments of deeds in the defences, which are not admitted by the pursuer
(and whose terms are not agreed), could nonetheless be used at debate to negate or override
a pursuer’s positive averments which are contended to be inconsistent. Accordingly, I do
not accept Mr Thomson’s submission on the effect of the entire agreement clause in the
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missives. Putting it another way, I do not regard the definition of “the Tenant’s Works” in
the missives as necessarily precluding proof in a case between the pursuer and the defender
(i) that the work de facto comprehended within that definition overlapped with the
dilapidations works, or (ii) that the Nero payment was referable to the state of the premises
faced by the incoming tenant.
[31] Turning to the pursuer’s pleadings, I do not find that these are as limited as
Mr Thomson contends. The pursuer avers that it took steps to mitigate its loss and that this
informed the terms of the missives and Nero Lease (sentences 24 to 26). (While Mr Thomson
complained that the pursuer did not plead that the dilapidated state of the premises meant it
was difficult to re-let the premises, its agents did assert precisely that (referring to the
“impossibility” of doing so) in their letter of 15 February 2018 whose terms are quoted in
Answer 7 (see para [6(1)], above).)
[32] The pursuer also avers that the Nero payment was agreed and paid “in respect of the
wants of repair” of the premises as detailed in the Building Report (sentence 4). It avers that
the Nero payment was paid by the pursuer to the incoming tenant “to put the [premises]
back into the state [they] ought to have been in” when the defender quit the premises
(sentence 26). Further, the pursuer offers to prove a comparison between the dilapidation
works and those in the Building Report, and that all works in the Building Report were
contained in the schedule of dilapidation works. The Nero payment is averred in terms to
represent the pursuer’s “loss arising from” the defender’s breach of the repairing obligations
under the Lease and Licence (sentence 10). Finally, the pursuer makes the requisite
averment of causation, that “but for” the defender’s breach, the pursuer “would not have
had to make” the Nero payment to the incoming tenant (sentence 27). This is augmented by
the averment that this was a “direct consequence” of the defender’s breach of the Lease and
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Licence (an averment no doubt directed to countering the defender’s argument about
remoteness of damage).
[33] In relation to Mr Thomson’s criticism of the pursuer’s averment of causation, it is not
possible to resolve this (or, generally, any issue of causation) on the pleadings at debate.
Causation, like remoteness, is pre-eminently a matter of fact and on which evidence is
almost always required. The pursuer avers that it entered into these third party
arrangements to mitigate its loss; the very nature of it as a mitigatory step has the potential
to reinforce the causative link between that expenditure (which the defender accepts is in
principle recoverable) and the defender’s breach.
[34] This is sufficient in my view to constitute a relevant averment of a causal link
between the defender’s breach and the Nero payment. The pursuer avers that the terms of
the missives, and the Nero payment, were driven by the need to mitigate its loss. That raises
an issue about the commercial rationale or imperative that led the pursuer to conclude the
missives and Nero Lease when it did, and in the terms that it did. In my view, proof of the
underlying purpose is a discrete issue from the terms of those deeds. Consideration of that
matter does not, for the reasons already explained, constitute an impermissible disregard of
the entire agreement clause in the missives. In relation to Mr Thomson’s reliance on the
definition in the missives of the “Tenant’s Works” as constituting “fitting out”, the pursuer
is (as already noted) offering to prove that there was in fact a considerable overlap between
the works Nero was to undertake in order to restore the premises to the state that they
should have been in (and defined as the tenant’s fitting out works) and the dilapidation
works. That does not amount to the pursuer seeking to alter the definition of the “Tenant’s
Works” in any question with Nero; nor in my view does the entire agreement clause render
that necessarily impermissible.
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[35] The foregoing accords with the case-law. As the discussion in Grove makes clear, and
which both parties accepted, a landlord’s subsequent dealings in relation to dilapidated
premises consequent upon breach by the tenant of a repairing obligation may be highly
relevant to the question of whether the landlord sustained any loss. In circumstances where
the landlord is able to re-let the subjects without a diminution in the rent received or
without having to make a reverse payment or to provide a rent-free period, it may not suffer
a loss. Lord Drummond Young in Grove canvassed some of the reasons why an incoming
tenant may be unconcerned by the dilapidated state left by the defaulting outgoing tenant.
Nor is this the kind of case where the landlord is seeking sums for work it will never carry
out (eg because it has disposed of the dilapidated premises without diminution in value or it
simply does not intend to apply any damages recovered on remedying the dilapidations
flowing from its tenant’s default). Prima facie this is not a case where there is no loss; the
defender accepts this (for the purposes of the debate). Nor is it suggested that the pursuer is
seeking to obtain a windfall.
[36] Read short, the pursuer avers that its lease of the premises in a dilapidated state to
Nero was not without a cost to it, in the form of the Nero payment, and it expressly relates
the Nero payment to the defender’s default. In my view, the pursuer pleads a relevant case
and the defender’s relevancy challenges fail.
Averments anent a meeting and correspondence between the parties
[37] Mr Young did not seek to defend his averments anent a meeting and correspondence
between the parties contained in sentences 12 to 19 of Article 7. In any event, in my view
they are patently irrelevant. I will therefore uphold the defender’s second plea-in-law and
exclude these averments from probation.
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Decision
[38] It follows from the foregoing that, apart from the averments at which the defender’s
second plea is directed, the defender’s criticisms made in support of its first and third
pleas-in-law fail. I shall repel the defender’s third plea-in-law. As I understand there are
other matters which may fall within the defender’s preliminary plea, after proof, I shall
reserve its first plea-in-law at this stage. I shall put the matter out By Order to discuss
further procedure. I reserve the question of expenses meantime.