Scottish Sheriff Court Decisions

SHERIFFDOM OF LOTHIAN AND BORDERS AT EDINBURGH

JUDGEMENT
of Sheriff N.A.Ross
in the Summary Application by
EDINBURGH WOOLLEN MILL LIMITED
PURSUER
against
SURINDER SINGH, GALAB SINGH, AND DILDAR SINGH, as partners and trustees for the firm of GOLD BROTHERS
DEFENDERS

Act: McLarty
Alt: Miller

Edinburgh, 4 September 2013: the Sheriff, having resumed consideration of the cause, refuses the pursuer's application in terms of the Tenancy of Shops (Scotland) Act 1949 to renew the lease of the premises at 453-455 The Lawnmarket, Edinburgh; appoints a hearing on expenses on a date to be afterwards fixed.

Note:

1. This is a Summary Application under the Tenancy of Shops (Scotland) Act 1949 (the "1949 Act"). The pursuer seeks an order under section 1 that a lease of subjects in the Lawnmarket, Edinburgh, be renewed for a period of one year or for such other period, and on such terms and conditions, as the court sees fit. Although the Summons also craves a declarator, parties were agreed that this was not competent to argue in this forum, and the case proceeded as if this were delete.

The evidence

2. The evidence was largely uncontroversial, and I will record it briefly. Each party led a surveyor's opinion evidence, and while that evidence differed on some points, it did not create any substantial factual dispute, and neither surveyor was invited to criticise the other's position.
3. The lease subjects are shop premises forming numbers 453 and 455 Lawnmarket, High Street, Edinburgh (the "subjects"). The pursuer trades from the subjects under the name "Edinburgh Woollen Mill". The subjects are leased on a 20 year lease between Maria Malan and the pursuer and registered in the Books of Council and Session on 9 March 1994. The lease terminates on 31 December 2013. In about 2007, the defenders acquired the leasehold interest, and are now the pursuer's landlords. By notice to quit dated 21 January 2013, the defenders' agents required the pursuer to remove on that date. There is no dispute, for present purposes, that the defenders have properly exercised their rights under the lease. The current rental is £36,000 per annum. Both sides agree that a fair rental, were the lease to be renewed in 2013, would be of the order of £44,320. The subjects are on a prime pitch for retail sales for tourists visiting the Castle.
4. It is a feature of this dispute that both sides have extensive trading interests. The pursuer has at least 300 trading outlets all over Scotland and England, aimed both at a domestic market and the tourist market. They also trade under a variety of other names in Edinburgh and nationwide. These names include Romanes and Paterson, Hector Russell, Forever Scotland, Gleneagles of Scotland, James Pringle Weavers and Jamie Scott's Mill Shop. Each has its own target market. The Edinburgh Woollen Mill brand has substantial goodwill. The pursuer's annual accounts to 25 February 2012 show turnover of £161million and profit after tax of £19million.
5. The pursuer and the defenders are direct competitors. Their market is, broadly speaking, Scottish-themed goods. In the subjects, the pursuer sells high street goods plus tourist-focused goods. The pursuer has enjoyed very successful trading from the subjects, and have enhanced their sales, market share, profit, prominence and goodwill. Were they to leave the subjects, they would lose significant sales, and the attendant benefits. The pursuer also owns four other stores on the Royal Mile, but these use other trading names. Neither of the pursuer's witnesses went as far as claiming hardship, in the event of closure, although there would be consequences for the employment of staff.
6. Mr Clark, the pursuer's area manager, spoke to the "critical" nature of the premises for the pursuer's trading, and what would be lost by way of trade. It was 100 per cent tourist trade at the Royal Mile site, which was a different mix from the site on Princes' Street. The subjects provided a substantial turnover and was their most important site in the city. His evidence was not contradicted, and I accept that the subjects form a significant and successful trading site for the pursuer.
7. The defenders have extensive trading interests but they are much more focused on the Royal Mile. Their various shops cover the whole market from inexpensive tourist souvenirs to sale of cashmere. They sell Scottish gifts, souvenirs, jewellery, tweed, cashmere and wedding and highland outfitting. They operate shop premises on and adjacent to the Royal Mile, which include: Heritage of Scotland.com, Heritage of Scotland, The Scotland Shop, John Morrison Kiltmakers, The Wee Gift Shop, The Wee Scotland Shop, I love Scotland, Clans of Scotland, Crest of Edinburgh, GL Attractions, Royal Mile Armouries, Ballantrae Cashmere, Royal Mile Cashmere, Cashmere Factory Outlet, Edinburgh Cashmere Boutique, Edinburgh Cashmere and Lambswool, Dunedin Cashmere, Barnets Shoes and Royal Mile Jewellery.
8. Mr Galab Singh of the defenders spoke to what would be lost if the defenders did not get possession of the subjects. He said that they had certain plans for the outlet, and had already committed to hundreds of thousands of pounds of stock, in preparation for delivery at the end of 2013. This is a new type of stock, which is not sold from other outlets. His evidence became entirely vague when asked to identify what suppliers were involved, and claimed he could not remember. Because the defenders' case does not turn on my accepting Mr Singh's good faith in giving evidence, I will not comment further.
9. The pursuer's estates manager, Mr Robbins, and the defender's surveyor, Mr Matheson, both experienced surveyors and valuers, spoke to the nature of the retail market in the Royal Mile, Edinburgh. The subjects are in the prime area, namely the Lawnmarket area between the George IV Bridge and the Castle Esplanade. Mr Robbins and Mr Matheson agreed that the prime pitch is the Lawnmarket where the subjects are situated. Retail property values remain strong down the High Street, becoming "off-prime" downwards from South Bridge, and very secondary below the St Mary's Street junction. They had differing views about the reduction in value for properties close to, but on intersecting streets to, the Royal Mile. Mr Robbins' view was that retail values dropped sharply even a fairly short distance off the Royal Mile. Mr Matheson did not support such a sharp drop in values, but acknowledged that they did diminish. They also had differing views about the availability of alternative shop premises, with Mr Robbins identifying more difficulty than Mr Matheson in the pursuer relocating on the Royal Mile. The pursuer had made at least two recent unsuccessful attempts to obtain alternative premises.
10. In my view, these differences of opinion were within understandable professional parameters, and I accept that the pursuer will have difficulty, but not insurmountably so, in relocating to suitable alternative premises in the Royal Mile, and that premises which are close to, but not on, the Royal Mile do not represent an equivalent to the subjects (as is demonstrated by the pursuer's unsatisfactory trading history from their existing premises at Cockburn Street, which has been on the market for several years.) The parties appeared to accept that there was mutual recognition that the lease was not to be renewed. Mr Robbins had "mentioned" the possibility during a rent review meeting, and was told it would not happen. It would be surprising if it did, because any renewal would deny the defender the opportunity to trade to the same customers from what is clearly a very successful site.
11. From the foregoing, it is clear that both parties are substantial trading concerns, and each has many retail outlets, which operate under a variety of trading names. Whatever the outcome of the present dispute, both parties will continue to operate substantial trading empires and will suffer no significant loss other than the loss of trade and income from the subjects themselves. Both sides recognise that the subjects are a prime trading location for the type of goods which they sell. The parties are competitors in the same market. They sell goods which can be identified broadly as Scottish-themed, and they arrange their various trading outlets to sell such goods appropriate to the location of each shop. Trading from the subjects will boost the income, profit and goodwill of their respective businesses. Ceasing trading from the subjects will cause a commensurate loss to the pursuer. It will not, however, cause any significant wider loss, and the goodwill in the name remains.
12. It will not be easy for the pursuer to find equivalent premises to the subjects, but suitable alternative properties in the Royal Mile do come on the market occasionally, possibly once or twice a year. The pursuer has made some unsuccessful attempts to obtain suitable alternatives. No reason for this lack of success was given in evidence. The defender has not offered alternative premises, and neither side has made any serious attempt to discuss renewal of the lease. If the present application is not successful, the defender will be duly entitled to enter into possession of the subjects and the pursuer obliged to vacate, all in terms of the lease.

The Tenancy of Shops (Scotland) Act 1949 (the "1949 Act")

13. The 1949 Act is short and gives an extremely wide latitude to the sheriff, which is subject to appeal on a point of law only (Sheriff Court (Scotland) Act 1971 section 38(a)) or to judicial review (see, for example, Aberdeen City Council v Wokoma 2002 SC 352).
14. Section 1 provides that any tenant of "any premises consisting of a shop and occupied by a tenant" who has received notice of termination of tenancy, who is "unable to obtain a renewal of his tenancy on terms that are satisfactory to him", may apply to the sheriff for a renewal of his tenancy. On any application being made (subject to certain time and other constraints, which are not in issue here), under section 2, the:-

"sheriff may...determine that the tenancy shall be renewed for such period, not exceeding one year, at such rent, and on such terms and conditions as he shall, in all the circumstances, think reasonable, and thereafter the parties shall be deemed to have entered into a new lease of the premises for that period, at that rent and on those terms and conditions."

15. Section 3 enumerates certain disqualifying factors, and none of these are prayed in aid in the present case. Notably, the defender does not attempt to argue that renewal will cause "greater hardship" than refusal to renew. Section 4 allows multiple applications upon the expiry of each such lease.
16. On the wording of the 1949 Act, there are few constraints on the imposition of a new lease. The sheriff "may" renew the lease. If he or she does so, it must be on "reasonable" conditions in the circumstances. The sheriff "may" also dismiss any application "if in all the circumstance he thinks it reasonable to do so". Only if one of the conditions in section 3(a) to (f) applies is he or she forbidden to renew the lease. It appears that the only criterion is reasonableness, applied at different stages. As to what is reasonable, there is no guidance. The first task for the court is, therefore, to ascertain how the 1949 Act falls to be applied. Authorities are few, presumably because of the limited nature of appeal. Argument was advanced on various grounds.

Human Rights Act 1998 (the "1998 Act")

17. After taking time to consider the potential impact of the 1998 Act, neither agent relied on the 1998 Act as fettering the exercise of discretion under the 1949 Act. I agree with their submissions, and therefore will not develop the argument at any length, but summarise this as follows:-
18. The 1998 Act, section 6, obliges a court not to act in a manner incompatible with Convention rights. Protocol 1, Article 1 of the ECHR provides:-

"Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest..."

19. The parties referred to Sporrong and Lonnroth v Sweden (1983) 5 EHRR 35, James v UK (1986) 8 EHRR 123, Papamichalopoulos v Greece (1993) 16 EHRR 440, Scollo v Italy (1995) 22 EHRR 514 (cited in Gretton; The Protection of Property Rights in Boyle and others: Human Rights and Scots Law (2002)), Mellacher v Austria (1990) 12 EHRR 391, Fredin v Sweden (1991) 13 EHRR 784 and Karl Construction Ltd v Palisade Properties plc 2002 SC 270.
20. Protocol 1 sets out three distinct tests, but these authorities show that national governments have a wide margin of appreciation. "Public interest" receives an extensive interpretation. Limitations on the use of property can be significant without amounting to "deprivation of possessions". The second rule relates to extinction, not limitation, of rights and therefore has no application in a case such as the present. In some circumstances, a landlord being deprived of his property might amount to deprivation of property - this, however, would take extreme circumstances.
21. The pursuer submitted that, even given the extent of relatively unfettered interference by the court, the 1949 Act was reasonable and proportionate, and existed to achieve legitimate aims. Any lease would only be of one year duration, rent was still payable, and only occupancy was affected. Similar provisions could be found in English Law, in the Landlord and Tenant Act 1954 demonstrating that court-sanctioned renewal of leases was not restricted to the 1949 Act.
22. The defenders' agent agreed that the 1949 Act did not breach section 6 of the 1998 Act. It amounted to a control of property by the state in a proportionate manner, not a deprivation of property. It was still possible to sell the heritable interest, for example. The third rule of Protocol 1 covered the present situation. The exercise of this power was proportionate, or a "fair balance".
23. I accept these submissions. The 1998 Act does not, at least on the present facts, appear to place any realistic constraints on, or give practical guidance for, the sheriff's decision under the 1949 Act.

The purpose of the 1949 Act

24. In the absence of clear direction within the 1949 Act of how the powers are to be exercised, the next step is to apply general principles of statutory interpretation. Following the case of Pepper (Inspector of Taxes) v Hart [1993] AC 593, reference to Hansard and other contemporary parliamentary sources has become commonplace. I am obliged to parties for their efforts in this regard. They identified that there were two contemporary reports, the Taylor Report and the Guthrie Report, but neither was able to source a copy of either of these. I was given, however, a parliamentary report of the Third Reading of the amended Bill, dated 22 February 1949 (HC Deb volume 461 cc 1747-65). The following are some informative extracts:-

"(Member for Glasgow, Pollok) : We on this side of the House regret the circumstances which have made this Bill necessary, and I deplore the intervention of the State into new fields, unless the necessity for that intervention has been abundantly proved. Here, however, we have had the reports of two committees dealing with this subject, and the recommendations of these committees have been unanimous....

(Edinburgh North): For the past two years in Scotland, quite a number of shopkeepers have suffered enormous hardships as a result of the neglect of the party opposite in not giving to the shopkeepers any protection in the past...

The fact is that the shopkeepers when faced with this ramp, on the part of the private speculators in the main...found themselves without any protection at all. It is also a fact that a large number of them have lost their livelihood, and that ex-Service men who have put their gratuities into shops have also lost their livelihood..."

(Glasgow, Shettleston): - "There is no doubt that the sale of shops, the sustained eviction of tenants in Glasgow, was getting under way, and...the ramp would have increased tremendously in the city, and most small shopkeepers would have had the pistol put to their heads either to buy at exorbitant prices or to quit the premises...Many men have formed companies for the purpose of buying up shops and other property all over the country. Then they place the property on the market in an endeavour to extract from the public the highest possible figure...We do not need to worry about the large multiple traders, for they have the ability and funds to pay prices of a higher character. Large numbers of these small shopkeepers are being threatened...People now have redress in going to the sheriffs. On the whole, I have found the sheriffs in Glasgow very sympathetic in cases of this kind when dealing with injustices against any section of the community...The stopping of this ramp is important...

(Dumfries): I am sure the House will agree that the main purpose of this Bill is to stop the "buy or quit" racket..."

25. Parties also cited Robertson v Bass Holdings Ltd 1993 SLT (Sh Ct) 55 and MacLeod v MacTavish 1952 SLT (Sh Ct) 20. Robertson is not a case which sets down any particular principle, although the sheriff considered that the 1949 Act "suggested an inclination towards the granting of an application, which is then tempered by the provisions of s 1(3)". That view was not urged on me by the parties, and I regret I do not detect any such underlying inclination in the 1949 Act. Macleod, however, has the advantage of being considered shortly after the 1949 Act was enacted. In considering the drafting of the 1949 Act, it is noteworthy that neither counsel nor the court had any difficulty identifying the purpose of the 1949 Act:-

"Counsel for the respondents asked me to take into consideration the policy of the Act which he said was to prevent small shopkeepers being evicted by speculators who purchased properties and gave the shopkeepers the option of buying at an exorbitant price or being evicted. While no doubt that was one of the main purposes of the Act I cannot see that it helps the respondents..." (at page 21)

26. The defender's agent also referred to the scheme of the 1949 Act, which provides for interim orders of up to three months (section 1(5)) and orders for up to one year. This was indicative of a scheme for preservation of the status quo, but only in the short term, to allow parties rights to be adjudicated upon, and to avoid precipitate removal. This was consistent with a scheme of protection pending judicial oversight.

Decision

27. In my view, the present application must fail.
28. The statutory test of reasonableness in the circumstances has a clear context, as is made clear in contemporary parliamentary discussion and judicial decision. On considering these, it becomes straightforward to understand both the purpose of the 1949 Act and the reason for the judicial discretion being so minimally regulated. The mischief which the 1949 Act was designed to address is no longer self-evident today, but I have no doubt that in 1949 it was sufficiently notorious not to require spelling out. Small-scale traders were being unfairly treated and forced out of business by unscrupulous property speculators, who saw an opportunity for profit at the expense of community welfare. It was not necessary to tell sheriffs what considerations applied " when dealing with injustices against any section of the community", because it was publicly-known, and apparently within judicial knowledge, that this was a harmful and unjust socio-economic phenomenon.
29. The 1949 Act does not empower the court to act as a planning authority, or to regulate competition between businesses. It empowers, and requires, the court to act to avoid injustice, in the historic context of widespread economic oppression of small-scale shop traders. The types of protection envisaged includes allowing the trader time to relocate to another property (Robertson v Bass Holdings, above), to preserve his business and goodwill (Macleod v MacTavish, above), or to avoid the trader being forced out of business altogether through removal of premises from which to trade.
30. Turning to the present case, it is at once apparent that no such considerations exist. The parties have both known, since the defenders acquired the landlord's interest approximately six years ago, that the lease would not be renewed consensually. That has left the pursuer plenty of time to anticipate and prepare for the trading realities that this would bring. The pursuer's business will be somewhat diminished by ceasing trade from the premises, but otherwise continues uninterrupted, from its 300 other outlets. There is no threat to its goodwill or good name, as it can adapt other stores to carry their name, if they wish. The present dispute represents no more than an attempt to retain a highly successful site, and to keep it from a direct competitor. Such an attempt is understandable, and I have no doubt that Mr Clark's gloomy view of the effects of leaving is heartfelt. It is, however, only an economic blow. It is not an injustice, and there is nothing unreasonable in requiring the pursuer to remove at the end of the lease.
31. On the other hand, the lease is approaching its contractual expiry date. The parties do not dispute, at least for present purposes, that notice to quit has been properly given. There is nothing sudden, unexpected or unfair about the lease coming to an end. There is nothing unreasonable in the defender's motivation or conduct. The contract has run its course. If one were to have regard to Protocol 1 (above), there is no general public interest in the court controlling the use of the subjects so as to defeat the normal operation of property law. There are no identifiable overriding public policy concerns.
32. I am unable, therefore, to regard it as reasonable to renew the lease as the pursuer craves, and will refuse the application. As a passing observation, one wonders, if the subjects or the immediate area were so important for the pursuer, and given its considerable financial resources, why it did not outbid the market in order to obtain the landlord's interest, or else acquire suitable neighbouring properties before now.
33. Had I been renewing the lease, I would have done so on identical terms but at the undisputed rent level of £44,320. That, however, does not arise. I will allow a hearing on expenses. Parties should consider whether expenses can be agreed, and if so they should contact the clerk so the matter can be dealt with without further appearance. If not, they should contact the clerk so a date for a hearing can be arranged.