Scottish Sheriff Court Decisions

CA305/05

JUDGMENT

OF

SHERIFF PRINCIPAL

JAMES A TAYLOR

in the cause

Little Cumbrae Estates Ltd

APPELLANTS/PURSUERS

against

Island of Little Cumbrae Ltd

RESPONDENTS/DEFENDERS

The case has been appealed to the Court of Session.

GLASGOW, April 2006.

The Sheriff Principal having resumed consideration of the cause, Refuses the appeal and Remits the cause to the sheriff to proceed as accords; Finds the appellants and pursuers liable to the respondents and defenders in the expenses of the appeal procedure; Allows the respondents and defenders to make up an account and upon said account being lodged, Remits it to the auditor of court to tax and to report; Finds the appeal procedure to be suitable for the employment of junior counsel.

NOTE:-

[1] The appellants are the landlords and the respondents the tenants in a lease dated 5 and 10 May 2002. The premises let were the Island of Little Cumbrae, the motor vessel named "Bean Mhadh" and the dumb barge. The landlords sued the tenants for payment of rent and insurance premia said to be due in terms of the lease. The tenants sought to compensate against the liability to pay rent and insurance premia, monies which they had expended in making good damage to the premises occasioned by storm in about January 2005.

[2] Clause 5.(1) of the lease was in the following terms:-

[3] It was a matter of agreement between the parties that the appellants had made a claim against their insurers for the damage caused by the storm. The insurers had settled some of the claim but not all of it. As I understood the position the sum counterclaimed represented the shortfall between that claimed by the landlords and what was received from the insurers.

[4] Part II of the lease contained by virtue of Clause 3 the following provisions:-

[5] The parties differed in how Clause 3 of Part II of the lease fell to be interpreted. The tenant's position was that properly construed the lease was silent upon who should carry out repairs in the circumstances which pertained. Accordingly they submitted that a term required to be implied into the lease imposing an obligation on the landlord to effect repairs. That implied term is set out in the pleadings at the foot of page 8 to the top of page 9 and is in the following terms:-

[6] The submission for the landlord was that on any view the lease did not impose upon them any obligation to effect repairs. The landlord had limited rights to access the premises as could be seen from the terms of the lease. Their function was to insure the premises and should an insured peril arise, to claim upon the insurance and see to it that the monies recovered were expended in effecting the requisite repairs. The landlord's position was that they had fulfilled their obligations in this particular case. Insurance monies had been recovered and expended. The fact that the insurers had not paid the sum necessary to make good all of the damage was neither here nor there. The landlord only had an obligation to effect repairs if there was a total failure to recover any of the insurance monies. There was no room for a term such as contended for by the respondents. The business efficacy rule was best illustrated by the decision in Eurocopy (Scotland) plc v Lothian Health Board 995 SLT 1356 at pages 1359 to 1360. To contend for an implied term such as did the tenant could mean that where the insurance company paid some of the claim the result would be that both landlord and tenant had a responsibility to repair the roof. That would be contrary to business sense and not what the parties would have had in contemplation at the time the lease was entered into.

[7] In my opinion the construction of the lease contended for by the appellant is not sound. Even if one leaves aside the interpretation of Clause 3 of Part II of the lease one can deduce from the terms of the lease that it was in the contemplation of the parties that the landlords might well effect repairs to the lease. Clause 4 of Part II of the lease permits the landlord to enter the leased premises "with or without workmen...to exercise the rights reserved to or conferred upon the landlord by the lease". The position is therefore other than that which was submitted on behalf of the landlord. Furthermore there might well be said to be support for the proposition that the landlord has an obligation to effect repairs by the terms of Clause 5(2) of the lease. That provides that in the event of the premises being so damaged or destroyed as to render the premises unfit for occupation and use in whole or in part, then the liability to make payment of rent is suspended. If the tenant alone had the responsibility for repair there seems to me to be no reason whatsoever to include such a provision in the lease.

[8] In my opinion Clause 3 of Part II imposes an obligation upon the tenant to repair, maintain and renew the premises. This obligation however is subject to an exception. That exception occurs when there is damage caused by an insured risk and the tenants have done nothing to cause the sum claimed from the insurers to be irrecoverable. It was admitted that there had been damage caused by an insured risk. It was also admitted that there was a shortfall in the sum recovered from the insurance company. There was no offer by the landlord to prove that the shortfall was in any way attributable to the act or the fault of the tenant. Thus in my opinion the exception to the general obligation upon the tenant to repair, maintain and renew applies. The tenant is therefore in my opinion relieved of its obligation to effect repairs by virtue of the exception in Clause 3 of Part II of the lease.

[9] It may be thought that one did not require to go much further to decide the case. If the obligation to repair is not the tenant's obligation then it must be the landlord's obligation. At common law the obligation to repair would fall upon the landlord. Thus in order to avoid that obligation the landlord needs to make provision in the lease to transfer the obligation to the tenant. I have held that the lease does not achieve that.

[10] The tenant submitted that there was a term implied into the lease as I have set out supra. Parties were agreed on the law to be applied in determining whether a term should be implied into a contract. I accept counsel for the landlord's warning that when dealing with the law of landlord and tenant a Scottish court should be slow to place much reliance on English authority. He relied upon the opinion of Lord Hamilton, as he then was, in McCall's Entertainments v South Ayrshire Council (No 2) 1998 SLT 1421. This stricture notwithstanding, I did find the case of Barrett v Lounova (1982) Ltd [1990] 1 QB 348 instructive. In that case a lease was silent as to who should have the responsibility to keep the outside of a leased dwellinghouse in reasonable repair. The tenant brought an action claiming that there was an implied covenant on the landlord to carry out external repairs. The English Court of Appeal held that the test as to whether a term could be implied into a contract of lease was no different than for other contracts. In my opinion Scots law does not differ in that respect. Kerr L J then set out the common law of England in relation to the landlord's obligation to repair. He quoted from Woodfall's Law of Landlord and Tenant 28^th edition (1978) Vol. 1, page 618, para 1-1465 which is in the following terms:-

"In general, there is no implied covenant by the lessor of an unfurnished house or flat, or of land, that it is or shall be reasonably fit for habitation, occupation or cultivation, or for any other purposes for which it is let. No covenant is implied that the lessor will do any repairs whatever..."

That falls to be contrasted with the common law of Scotland in regard to the repair obligation for urban tenements. The third edition of Rankine on Leases puts the matter thus:-

"By the law of Scotland the lease of every urban tenement is, in default of any specific stipulation, deemed to include an obligation on the part of the landlord to hand over the premises in a wind and watertight condition, and if he does not do so, there is a breach of contract and he may be liable in damages. He is also bound to put them into a wind and watertight condition if by accident they become not so." per Lord President Dunedin in Wolfson v Forrester 1910 SC 675 at 680.

[11] Modern texts do not differ. A similar duty is narrated in the second edition of Halliday: Conveyancing Law & Practice at paragraph 44-27. It can thus be seen that there is a considerable difference between the two jurisdictions. The Court of Appeal in Barrett v Lounova held that the implied covenant contended for by the tenant was incorporated into the lease. It seems to me that if the English courts are prepared to imply a term into a lease of a dwellinghouse the argument in favour of a lease governed by Scots law having a similar term implied is even stronger. I appreciate that in the present case the damage extends beyond that occasioned to the heritable property which forms part of the subjects of let. However, I have considered carefully the reasoning adopted on pages 14 and 15 of the learned sheriff's Note in holding that there is an implied term as contended for by the defenders. I cannot fault it in any respect. Thus the appeal fails.

[12] Both parties were of the view that expenses should follow success and I have so found. I was informed that there had been a prior interlocutor certifying some aspects of the case or perhaps even the whole case as suitable for the employment of junior counsel. I have not been able to find such an interlocutor. Accordingly I have certified the appeal procedure as suitable for the employment of junior counsel. It is still open to parties to move that sanction for the employment of junior counsel should be extended beyond that narrow scope.