Scottish Sheriff Court Decisions

(A2000/09)

JUDGMENT OF

SHERIFF PRINCIPAL EDWARD F BOWEN QC

 

in the appeal

in the cause

 

ALMONDALE INVESTMENTS (JERSEY) LIMITED

Pursuers and Respondents

 

against

 

TECHNICAL & GENERAL GUARANTEE COMPANY SA

 

Act: Garioch, Solicitor, Morisons

Alt: Jamieson, Advocate, instructed by BMK Wilson

 

EDINBURGH, 12 August 2010

 

The Sheriff Principal, having resumed consideration of the cause, refuses the appeal and adheres to the sheriff's interlocutor complained of dated 22 April 2010; finds the defenders and appellants liable to the pursuers and respondents in the expenses occasioned by the appeal and remits the account thereof when lodged to the Auditor of Court to tax and to report thereon; certifies the cause as suitable for the employment of junior counsel for the purposes of the appeal.

 

(signed) E Bowen

 

NOTE:

1. The pursuers and respondents are heritable proprietors of two commercial units at Europark, Bellshill. In terms of a series of Missives exchanged between 22 June 2005 and 20 April 2006 they let the subjects to Lowland Rubber Company Limited ("Lowland"). The premises were let "as an engineering workshop to shred and granulate tyres and materials and as a processing plant for the manufacture and distribution of rubber products". Lowland was placed in liquidation on 12 December 2008, and the lease was terminated on 28 January 2009.

 

2. In the present action the pursuers seek payment of £23,153.00 from Technical & General Guarantee Company SA, the defenders and appellants, who granted a Guarantee Bond dated 15 May 2008 in terms of which they guaranteed to the pursuers, as landlords, to indemnify them in respects of costs, or losses or damages arising out of the failure of Lowland, as tenants, to perform reinstatement works. The pursuers aver that upon termination of the lease Lowland failed to remove tyres, part processed tyres, tyre parts, granulated tyres, rubber products and earth movers from the premises. They required to instruct contractors to do so at a total cost of £42,308.00. The limit of the defenders' obligation to indemnify was £40,000.00. The defenders have paid £16,847.00 which, according to the defenders' averments, was paid under error in law. The principal sum sued for represents the balance said to be due under the defenders' indemnity; the defenders for their part counter-claim for return of £16,847.00.

 

3. The dispute centres on whether removal of the tyres and other items falls within the definition of "Reinstatement Works" as defined in the Guarantee Bond. To understand the nature of the dispute it is necessary to look at the whole contractual documentation. The opening communication in the series of Missives was an offer from Lowland's solicitors to the agents acting for the pursuers dated 22 June 2005. That was an offer to enter into a contractual arrangement "pursuant to which the Landlord will grant and the Tenant will accept the Lease as hereinafter defined" on certain terms and conditions. "The Lease" was defined as "a lease of the Subjects in terms of the draft forming part 1 of the Schedule" appended to the letter of offer.

 

4. Clause Fifteenth of the draft Lease is in the following terms: "The Tenants shall remove from possession and use of the premises and the Landlords' fittings and fixtures therein at the natural expiry or earlier termination of this Lease without any warning as to process of removal, leaving the premises and others in such repair and condition as shall be in accordance with the provisions of this Lease and making good any damage caused by the removal of any erections, fixtures, fittings, plant and machinery or trade fixtures or fittings fixed thereto by or belonging to the Tenants, and if the premises shall not be in such repair and condition then without prejudice to the provisions of Clause ELEVENTH of this Lease the Tenants shall without delay carry out and complete all works necessary to put the premises into such repair and condition, and shall further compensate the Landlords in respect of all costs expenses and losses incurred or suffered by the Landlords as a consequence of any failure or delay by the Tenants to perform the foregoing obligations."

 

5. The letter of offer further contained reference to a "Guarantee Agreement" and contained an obligation on the part of Lowland as Tenants to execute such agreement within 21 days of the date of entry. The "Guarantee Agreement" took the form of a draft Minute of Agreement and formed part 8 of the schedule to the letter of offer. That draft Minute of Agreement provided in essence that Lowland would procure the creation of a "Restoration Security" to cover "Restoration Obligations" as defined in the Minute of Agreement. The definition of "Restoration Obligations" was "(a) compliance with the terms of the WML (Waste Management Licence); and (b) the restoration and reinstatement of the Subjects pursuant to Clause Fifteenth of the Lease in the event of valid termination of the Lease by either party, valid irritancy of the Lease by the Landlord or the use of the Subjects in terms of the Lease ceasing for a continuous period of more than three months; (c) The removal of all tyres (whether intact or partly processed) and granulate tyres or rubber products from the subjects."

 

6. Neither the Lease nor the Minute of Agreement were ever formally executed. A series of revisals, immaterial to the present dispute, were made to the draft Lease, and as indicated a series of exchanges of Missives took place involving various amendments and qualifications until the bargain was finally concluded on 20 April 2006. Such a situation is by no means unusual in commercial matters; what is clear is that Lowland duly occupied the subjects.

 

7. The "Restoration Security" is the Guarantee Bond granted by the defenders on 15 May 2008. It is described as a Guarantee Bond made between the Tenant, Guarantor and Landlord. It commences in the following terms:

"WHEREAS:

(1) By a Lease ("the Lease") entered into between the Landlord and the Tenant particulars of which are set out in the Schedule annexed and executed as relative hereto the Tenant has agreed with the Landlord to remove from possession of the premises (as defined in the Lease) at termination of the Lease all in terms of Clause (FIFTEEN) of the Lease which obligation includes the removal of all tyres (whether intact or partly processed) and granulate tyres or rubber products from the premises (the "Reinstatement Works") upon and subject to the terms and conditions therein set out".

Thereafter it narrates that the Guarantor has agreed with the Landlord at the request of the Tenant to guarantee the performance of the obligations of the Tenant under the Lease to perform the Reinstatement Works.

 

8. "The Lease" is defined as "The Lease entered into between the Landlord and the Tenant entered into pursuant to missives entered into between MacRoberts, Solicitors, on behalf of the Tenant and Morisons. WS on behalf of the Landlord comprising formal letters dated 27 and 29 June 2005 and any amendments thereof."

 

9. The first full provision of the Bond is that "The Guarantor, subject to the provisions of this Guarantee Bond, guarantees to the Landlord that in the event of a breach by the Tenant of its obligation to perform the Reinstatement Works in terms of the Lease the Guarantor shall pay to the Landlord all costs properly incurred by the Landlord in remedying any such breach by the Tenant of its obligation to perform the Reinstatement Works in terms of the Lease and indemnify the Landlord against all costs, losses or damages arising out of such failure by the Tenant to perform the Reinstatement Works".

 

10. The argument advanced by the defenders and appellants in resisting the pursuers' claim for payment is a concise one. In terms of the Minute of Agreement there were three types of Restoration Obligations, namely compliance with the terms of the WML; restoration of the subjects "pursuant to Clause Fifteen of the Lease"; and the removal of all tyres and rubber products. The parties thus clearly intended that removal of the tyres was an obligation distinct from restoration of the Subjects in terms of Clause Fifteenth of the Lease. That was consistent with the terms of Clause Fifteenth which, given its plain and ordinary meaning, related simply to the structure of the premises and was the normal type of clause to be found in a commercial Lease in which full repairing obligations rested on the Tenant. When one looked at the preamble to the Guarantee Bond it referred to "Termination of the Lease all in terms of Clause (Fifteen) of the Lease". The obligation so described did not include the distinct obligation for the removal of tyres and related materials, and in that situation the defenders' obligation did not extend to that matter.

 

11. In support of this argument Mr Jamieson, Advocate, cited a number of passages in Chapter 8 of McBryde, The Law of Contract in Scotland (3^rd Edition) in relation to the approach of the court in construing commercial contracts, and drew attention specifically to the well known passage in the Judgment of Lord President Dunedin in Muirhead and Turnbull v Dickson 1905 7F 686 (at page 694): "Commercial contracts cannot be arranged by what people think in their inmost minds. Commercial contracts are made according to what people say". It was not the function of the court to rescue parties from a bad bargain: City Wall Property (Scotland) Limited v Pearl Assurance PLC 2004 SC 214 (per Lord Clark) paragraph 23). Reference was also made to a number of passages in Gilbert-Ash (Northern Limited) v Modern Engineering Bristol Limited 1974 AC 689.

 

12. In reaching the view that "restoration works" included removal of tyres etc the Sheriff, it was submitted, had fallen into the area of looking to see what the parties might have intended as distinct from what was clearly provided. Mr Jamieson conceded, properly in my view, that his argument necessarily involved disregarding, or treating as an error, the reference to the obligation in Clause Fifteenth as including "the removal of all tyres (whether intact or partly processed) and granulate tyres or rubber products from the premises" in the preamble to the Guarantee Bond.

 

13. Whilst this argument is not without merit in my judgment the Sheriff was correct to reject it. The preamble to the Guarantee Bond is in somewhat curious terms for more than one reason. As at the date when the Bond was granted (15 May 2008) no formal Lease had been entered into between the pursuers and Lowland and one wonders whether the drafter had that in mind when defining "The Lease" not by reference to a specific document but by reference to the Lease having been "entered into between the Landlord and Tenant...pursuant to missives...comprising formal letters dated 27 and 29 June 2005 and any amendment thereof". Be that as it may there is specific reference to Clause (Fifteen) of the Lease, although the reference to that Clause is in relation to removal at termination. Given that Clause (Fifteenth) is headed "Removal" it may be that it was never intended that there should be reference to Clause Fifteenth for the purposes of defining the reinstatement works.

 

14. Mr Garioch, solicitor for the pursuers did not, however, present his argument on that basis. His primary submission was simply to the effect that the meaning of the term "obligation to perform the Reinstatement Works" which was the subject of the guarantee was to be found in the preamble and on a plain reading included the removal of all tyres etc. His submission was that this was what parties agreed and it could not be clearer.

 

15. I am inclined to accept that submission, but the matter does not end there. It is clear that the Guarantee Bond was granted in implement of Lowland's obligation to procure a restoration security. That obligation arose from the draft Minute of Agreement being Part 8 of the Schedule to the Missive of Offer. The "Restoration Obligations" in terms of that document included removal of tyres etc. It is thus plain (1) that Lowland were under an obligation to remove tyres etc at termination of the Lease and (2) that it was intended that this should be covered in the Restoration Security. Interpreting the contract as a whole (as one should: see McBryde, supra, para 8-17) leads to the conclusion that the proper interpretation of the Guarantee Bond is that the term "Reinstatement Works" was intended by all parties to include the full range of works as contended by the pursuers. The appeal is accordingly refused.