Scottish Sheriff Court Decisions

SHERIFFDOM OF GLASGOW AND STRATHKELVIN AT GLASGOW

A1128/13

2014SCGLA66

JUDGMENT

by

SHERIFF S. REID, Esquire

in the cause

SAUCHIEHALL STREET PROPERTIES ONE LIMITED

PURSUER

against

E M I GROUP LIMITED

DEFENDER

______________________________

 

GLASGOW, 4^th December 2014.

The sheriff, having resumed consideration of the cause, Sustains the defender’s first plea-in-law; Dismisses the action; Finds the pursuer liable to the defender in the expenses of the cause as taxed; Allows an account thereof to be given in and Remits the same, when lodged, to the auditor of court to tax and report thereon; Sanctions the cause as suitable for the employment of junior counsel.

 

                                                                                                            SHERIFF

 

 

NOTE:

Summary

[1]        The pursuer is averred to be the landlord of commercial premises at 154-160 Sauchiehall Street, Glasgow. The premises are leased to HMV UK Limited (“the tenant”).  The defender is the guarantor of the tenant’s obligations under the lease.

[2]        The pursuer avers that the tenant has breached its obligations under the lease.

[3]        As a result, the pursuer has called upon the defender, as guarantor, to implement its obligations under the guarantee by paying accrued rental arrears and other sums allegedly due by the tenant.

[4]        Both the pursuer and the defender are domiciled in England.   

[5]        In pursuing the action against the defender in Glasgow Sheriff Court, the pursuer seeks to found jurisdiction upon the exclusive ground reserved for proceedings which have “as their object…tenancies of immovable property”, in terms of the Civil Jurisdiction and Judgments Act 1982 (“the 1982 Act”), sections 16 & 20, schedule 4, paragraph 11(a)(i) and schedule 8, paragraph 5(1)(a), as derived from Article 22 of Council Regulation (EC) No. 44/2001 (“the Brussels I Regulation”).

[6]        The preliminary issue for determination is whether the present proceedings, being proceedings by a landlord against the guarantor of a tenant’s obligations, have as their object a tenancy of immovable property.  If not, this court has no jurisdiction. 

 

 

The pleadings

[7]        The pursuer avers that in around 1990 Chatsworth Investments (1988) Limited entered into a lease with Thorn High Street Properties Limited of the premises at 154-160 Sauchiehall Street, Glasgow. The lease was executed on 28 February and 24 April 1990 and registered in the Books of Council and Session on 4 June 1990.  The tenant’s interest was then assigned by Thorn High Street Properties Limited to HMV UK Limited.  As a condition of agreeing to the assignation, Chatsworth required that a guarantee be granted by the defender.  The defender then granted a guarantee in favour of Chatsworth dated 25 September and 22 October 1997. All of the foregoing is admitted in answer 2 of the defences.

[8]        The pursuer avers that it acquired ownership of the premises in 2011 and that the landlords’ interest in the guarantee was assigned to the pursuer by a succession of deeds narrated in article 2 of condescendence.  Neither the acquisition of the premises by the pursuer, nor the assignation to the pursuer of the landlord’s interest in the guarantee, is admitted by the defender.

[9]        Clause 3.1 of the guarantee, upon which the pursuer founds, states, so far as material:

“The guarantor undertakes with the landlord that the tenant will throughout the currency of the lease pay the rent and all other sums due by the tenant on the due date for payment and fulfill all the non-pecuniary obligations undertaken by the tenant under the lease and that, if the tenant defaults in making any such payment or in fulfilling such obligations, the guarantor on demand will in each case make such payment to the landlord and fulfill such obligation and shall indemnify the landlord in respect of any loss or liability sustained or incurred by the landlord or any claim by a third party against the landlord arising out of or in connection with such default”.

 

[10]      The pursuer avers that the tenant is in breach of various obligations under the lease, specifically by failing to pay rent (in terms of clause 4 of the lease), by leaving the premises vacant (in breach of clause 6.2.1 of the lease) and by failing to meet its repairing obligations (under clause 6.4 of the lease).

[11]      As a result of these alleged breaches by the tenant of its obligations under the lease, the pursuer has demanded payment from the defender, as guarantor, under clause 3.1 of the guarantee. The pursuer seeks payment of an aggregate principal sum of £668,552.18, mainly comprising rental arrears for the period from 1 February 2012 to 1 May 2014, but including certain insurance payments.

[12]      For its part, the defender does not admit that the tenant is in default of its obligations under the lease. In addition, various substantive lines of defence are averred to the effect, broadly, that any guarantee obligation of the defender has been discharged by virtue of certain actings on the part of the pursuer and its predecessors (including structural alterations) which are said to have materially prejudiced the defender’s position as guarantor. 

[13]      In the first place, though, by way of a preliminary plea, the defender challenges the jurisdiction of the court.

 

 

 

Procedural history

[14]      On 21 November 2013, the initial writ was lodged for warranting. The action commenced as an ordinary cause.

[15]      On 18 March 2014, the action was served upon the defender

[16]      On 14 April 2014, defences were lodged.

[17]      On 20 June 2014, the action called at an options hearing. The hearing was continued, on the pursuer’s motion, for further adjustment.

[18]      On 18 July 2014, on joint motion, the action was remitted to the commercial roll under Chapter 40 of the Ordinary Cause Rules 1993. A diet of debate was allowed, on a date to be thereafter assigned.

[19]      On 23 October 2014, the action called before me at a diet of debate. The debate proceeded principally on the defender’s first plea-in-law, challenging the jurisdiction of the court. A separate submission, of comparatively minor importance, was also advanced in support of the defender’s second plea-in-law, challenging the relevancy of a discrete averment in the pursuer’s pleadings. I was advised that the pursuer’s preliminary pleas (pleas-in-law 2 & 3) were no longer insisted upon. Having heard parties’ submissions, I reserved judgment.

 

Submissions for the defender

[20]      At the debate, the defender’s counsel invited me to sustain the defender’s first plea-in-law and dismiss the action on the basis that the court had no jurisdiction.

[21]      Reference was made to the pursuer’s pleadings.  Jurisdiction was founded upon the averment that the action “has as its subject leased property” within the jurisdiction of the court.  Counsel understood that the pursuer sought to rely upon the ground of exclusive jurisdiction in the 1982 Act, Schedule 8, paragraph 5(1)(a). 

[22]      Reference was made to the 1982 Act, sections 16(1), schedules 4 & 8; the Brussels I Regulation, articles 1, 2, 3 & 22; and to the following authorities: Theodorus Sanders v Ronald Van Der Putte [1978] 1 CMLR 331; Rosler v Rottwinkel [1985] 3 WLR 898; Dansommer A/S v Gotz [2001] 1 WLR 1069; Cambridge Bionutritional Limited v VDC plc 2000 GWD 6-230.

[23]      In short, the defender’s counsel submitted that, in the present action, the pursuer was not seeking to enforce against the defender obligations arising under a tenancy of immovable property located within the sheriffdom.  Rather, the pursuer was seeking to enforce separate obligations arising under a guarantee.  The fact that the obligations guaranteed by the defender are obligations of a tenant under a lease was said to be immaterial. 

[24]      In the alternative, I was invited to sustain the defender’s second plea-in-law (to the relevancy of a specific in article 4 of condescendence) and to exclude that averment from probation.

 

Submissions for the pursuer

[25]      The pursuer’s solicitor invited me to repel the defender’s first and second pleas-in-law and to allow a proof. 

[26]      Reference was made to written outline submissions for the pursuer lodged in process.  Supplementing those written submissions, the pursuer’s agent identified the disputed issues between the parties, by reference to the parties’ averments in the closed record. She noted that the pursuer was being put to proof on inter alia the assignation of the landlord’s interest in the premises; the tenant’s alleged breaches of the lease; and the quantification of the sums said to be due by the tenant (and, by extension, the defender). 

[27]      In addition, to the authorities referred to by the defender’s counsel, I was referred to the Brussels I Regulation, recitals 8, 11, 12 & 15; Anton, Private International Law (3rd ed.), paragraphs 8.28-8.47; Hacker v Euro-Relais GmbH [1992] I.L.Pr 515; and Klein & Anr v Rhodes Management Limited [2006] ILPr 2.

[28]      The pursuer’s agent submitted that the key issue for the court was to determine the nature of the dispute between the parties as it had emerged at the date of the debate.  In the present case, most, if not all, of the issues now in dispute between the parties were directly concerned with the lease. I was advised that the governing law of the guarantee was Scots law. It was submitted that the defender’s obligations under the guarantee were wholly aligned and co-extensive with the tenant’s obligations under the lease; and that the same rights and pleas were available to the defender, as guarantor, under the guarantee as would have been available to the tenant against the pursuer under the lease and under the Scottish law of landlord and tenant. Having regard to the objective of the exclusive ground of jurisdiction, and to the key principles of certainty, sound administration of justice and the minimisation of irreconcilable judgments, it was submitted that the legal and factual issues in dispute in the present case were best considered by the local court in which the property was located. I was urged to distinguish form from substance.  It was submitted that the fact that the parties to the action were not landlord and tenant (but were, instead, landlord and guarantor) was not determinative of the non-application of paragraph 5(1)(a) of schedule 8 to the 1982 Act.  The true determining factor was the identification of the issues in dispute between the parties.  In the present case, given the nature of the disputed issues, and the close alignment in law and fact between the obligations owed by the defender to the pursuer under the guarantee, and the obligations owed by the tenant to the pursuer under the lease, “local evidence” was likely to be required for the resolution of those issues.  Accordingly, applying a purposive interpretation to the legislative provisions, the proceedings should properly be regarded as having “as their object” the tenancy of immovable property.

 

Discussion

[29]      In civil and commercial matters falling within the scope of Council Regulation (EC) No. 44/2001 (“the Brussels I Regulation”), the primary and general ground of jurisdiction is that a person domiciled in a member state shall, whatever their nationality, be sued in the courts of that member state (article 2).  In addition to the defender’s domicile, the Brussels I Regulation provides for certain alternative grounds of “special jurisdiction” based on a close link between the court and the action or in order to facilitate the sound administration of justice (recital 12; articles 5 to 7). 

[30]      However, article 22 of the Brussels I Regulation confers “exclusive jurisdiction” on particular courts, regardless of domicile, in certain specified situations.  This rule is exclusive in the sense that, where it applies, no other rules of jurisdiction may be invoked.  The parties may not even prorogate or submit to the jurisdiction of another court in matters to which the rules of exclusive jurisdiction apply (Brussels I Regulation, article 23(5); 1982 Act, schedule 4, paragraph 13(2) & schedule 8, paragraph 7(2)); and where another court has exclusive jurisdiction, or would otherwise have had such jurisdiction, the court is bound to declare of its own motion that it has no jurisdiction (Brussels I Regulation, article 25; 1982 Act, schedule 4, paragraph 14 & schedule 8, paragraph 8). 

[31]      In short, article 22 of the Brussels I Regulation supersedes all other potentially relevant rules.  Accordingly, it is crucial to understand the precise scope of its application.

[32]      In the present case, it was not in dispute that the pursuer sought to found upon the ground of exclusive jurisdiction in the 1982 Act, sections 16 & 20, schedule 4, paragraph 11(a) and schedule 8, paragraph 5(1)(a); and that these provisions derive from, and broadly reflect, article 22 of the Brussels I Regulation.

[33]      To understand the scope of this exceptional ground of jurisdiction, it may be convenient to begin by considering the key principles underlying the Brussels I Regulation and the application of the rules concerning the allocation of jurisdiction. These key principles are simplicity (recital (2)), certainty and predictability (recital (11)), the minimisation of a multiplicity of proceedings and irreconcilable judgments (recital (15)), and the sound and harmonious administration of justice (articles (12) & (15)). 

[34]      Applying those principles, jurisdiction is generally based on the defender’s domicile (and, indeed, must always be available on that ground), save in a few well-defined situations in which the subject matter of the litigation warrants a different linking factor (recital 11).

[35]      Given that article 22 (and the corresponding provisions in the 1982 Act) represent an exception to the general rule of jurisdiction based on domicile, and deprive parties of the choice of forum which would otherwise be open to them (indeed, in certain cases, will result in the parties being brought before a court which is not that of the domicile of any of them), it is now well-established in the jurisprudence of the European Court of Justice (“ECJ”) (now the Court of Justice of the European Communities) that a uniform and strict interpretation of article 22 (and of its derivative national provisions) is to be applied.  Article 22 must not be given a wider interpretation than is required by its objective.

[36]      In short, the concept of “proceedings which have as their object… tenancies of immovable property”, in the context of article 22 of the Brussels I Regulation, has an autonomous meaning in European law and has been interpreted strictly.

[37]      The ECJ jurisprudence provides a number of helpful pointers when seeking to determine whether proceedings have as their object a tenancy of immovable property.

[38]      Firstly, in order to fall within the concept of a tenancy of immovable property under article 22, the principal subject matter of the agreement in question must involve the transfer of a right of use of immovable property (Klein, supra, paragraph 27).  Thus, if the agreement in question is a “complex contract” concerning, for example, “a range of services provided in return for a lump sum” then such an agreement will not fall within the concept of a tenancy of immovable property for the purposes of article 22.  By way of illustration, in Klein, supra, a club membership agreement which included, among various services, the time-share use of an undesignated holiday property within a hotel complex did not constitute a tenancy of immovable property within the meaning of article 16 of the Brussels Convention on Jurisdiction 1968, the predecessor of article 22 of the Brussels I Regulation. Likewise in Hacker, supra, a travel contract between a commercial tour operator and a customer involving a number of elements (including travel, information, advice, travel and accommodation reservations, reception on arrival, and insurance against trip cancellation, as well as short term holiday home rental) did not constitute a tenancy of immovable property for the purposes of article 16 of the 1968 Brussels Convention.  Both were complex contracts concerning a range of services, of which, properly interpreted, the principal subject matter was not the transfer of a right of use of immovable property.  Lastly, in Sanders, supra, the ECJ (again interpreting the predecessor provision in article 16 of the 1968 Brussels Convention) concluded that the exclusive jurisdiction provision did not apply to a so-called “usufructuary lease” between two Dutchman of a florist’s business carried on in a shop located in Germany.  Properly interpreted, the principal aim of the agreement in question was the operation of a retail business, albeit carried on in immoveable property rented from a third party. 

[39]      In contrast, where the principal “aim” (Sanders, supra, paragraph [16]) or “subject matter” (Hacker, supra, paragraph [11]) of the contract in question is indeed the letting of immovable property, its status as a tenancy of immovable property will not be altered merely because of the existence of ancillary provisions in the contract relating to other services. Thus, in Dansommer A/S, supra, the existence of “ancillary” clauses within the agreement (relating to insurance in the event of cancellation and to the guarantee of repayment of the price in the event of a third party’s insolvency) did not affect the essential nature of the contract in question as a “tenancy of immovable property” within the meaning of the European jurisprudence. 

[40]      Secondly, in order for the proceedings to have “as their object” the tenancy of immovable property, and thereby attract the application of the exclusive jurisdiction rule, the dispute between the parties must be directly related (or “directly linked” to use the language in Dansommer, supra, at paragraph 25) to the tenancy. If the dispute between the parties, and the resulting “object” of the proceedings, is “only indirectly related” (Rosler, supra, at paragraph 29) to the tenancy, the proceedings will fall outwith the exclusive jurisdiction conferred by article 22.  Thus in Rosler, supra, the agreement in question was held to be a tenancy of immovable property (albeit a short term holiday let).  However, to the extent that the “object” of the proceedings involved a claim for loss of enjoyment of a holiday in the property (due to alleged breaches of the tenancy), and the cost of travelling to and from the property, such disputes were held to be “only indirectly related” to the tenancy agreement, and therefore fell outwith the exclusive jurisdiction conferred by article 16 of the 1968 Convention. In contrast, to the extent that the proceedings related to repayment of charges in respect of gas, electricity and water, and of cleaning services, payable directly under the tenancy agreement, such disputes fell within the exclusive jurisdiction provision. (Likewise, it may be inferred that in Dansommer A/S, supra, if the ancillary provisions in the lease in that case (relating to insurance or the insolvency guarantee) had formed the subject of the dispute in the proceedings in that case, the exclusive jurisdiction provision might not have been capable of being invoked (see paragraph 38D)). 

[41]      The decision in Rosler, supra, illustrates most clearly, perhaps, the narrow interpretation that is to be applied to the exceptional ground of exclusive jurisdiction conferred by Article 22.

[42]      Lastly, interestingly, nowhere in the European jurisprudence is it suggested that a dispute between parties other than a landlord and a tenant (or parties deriving title directly through them, by assignation or subrogation) can fall within the exceptional ground of exclusive jurisdiction conferred by article 22 or its predecessor provision. In Dansommer, supra, the dispute was not directly between the landlord and tenant of the immovable property.  However, in that case, the exclusive jurisdiction rule still applied because the claimant had been subrogated to the rights of the owner of the immovable property, which was the subject of the lease, and thereby stood in the shoes of the landlord (paragraph 36).

[43]      Therefore, drawing these threads together, as a broad rule of thumb, when considering whether proceedings have as their object a tenancy of immovable property within the meaning of article 22 (and its derivative national provisions), a convenient starting point may be to consider, firstly, whether the parties to the proceedings are landlord and tenant (or parties deriving title directly therefrom by assignation or subrogation); secondly, whether the contract in question in the proceedings is a tenancy of immovable property, as that concept is understood in European jurisprudence (being an agreement the principal aim or subject-matter of which involves the transfer of a right of use of immovable property); and, if so, thirdly, whether the object of the proceedings is directly linked to rights and obligations under that tenancy (or substitutional redress, in the form of damages, for breach thereof).

[44]      In Sanders, supra, at paragraphs 14 to 16, the ECJ sought to give some practical illustrations of the (restricted) application of the exclusive jurisdiction ground. The ECJ stated that the rule applies to:-

“…disputes relating to tenancies of immovable property properly so called, that is to say, in particular, disputes between lessors and tenants as to the existence or interpretation of leases or to compensation for damage caused by the tenant and to giving up possession of the premises…

 

In Rosler, supra, at paragraphs 26 & 27, the ECJ provided further practical illustrations. Acknowledging that the Sanders list was not exhaustive, the ECJ clarified that the concept of “proceedings which have as their object…tenancies of immovable property” also covers disputes concerning the payment of rent, or a multitude of other obligations generally owed between landlord and tenant under a lease, such as disputes concerning the tenant’s entry into possession, the use to which the property is to be put, the obligations of the landlord and tenant regarding maintenance of the property, the duration of the lease, the giving up of possession to the landlord, and the rent and incidental charges to be paid by the tenant such as water, gas and electricity charges.

[45]      In determining questions of jurisdiction, the Scottish courts are obliged to have regard to principles laid down by the ECJ (1982 Act, section 16(3)). 

[46]      Applying these principles to the present case, in my judgment the instant proceedings do not fall within the exclusive jurisdiction of this court, in terms of the 1982 Act, sections 16 & 20, schedule 4, paragraph 11(a) and schedule 8, paragraph 5(1)(a). I reach this conclusion for the following reasons. 

[47]      Firstly, the parties are not landlord and tenant. Instead, the parties are creditor and debtor under a guarantee.   Secondly, the aim or subject matter of the agreement in question (being the contract upon which the action is founded) is not a tenancy of immovable property at all. It is a guarantee. Thirdly, the object of the proceedings is not to enforce (or to seek substitutional redress for the alleged breach of) an obligation owed to a landlord by a tenant under a lease but, rather, to enforce an obligation owed to a landlord by a third party debtor under a guarantee.  In other words, the object of the proceedings is “only indirectly related” (Rosler, supra) to a tenancy of immovable property, in that the guarantee relates to the obligations of a tenant under a lease.

[48]      The rationale for the attribution of exclusive jurisdiction is that the courts of the locus rei sitae enjoy special advantages of legal and geographical proximity to the issues in dispute. Such tenancies can be complex and are generally governed by special rules, with the result that local courts may be said to be best placed to deal with them. The pursuer’s agent founded strongly upon this rationale in seeking to persuade me of the practical benefits of entertaining jurisdiction in the present case. However, these practical considerations do not apply where, as here, the “principal aim” or subject matter of the agreement in question is not a tenancy of immovable property at all, but an agreement “of a different nature” (Sanders, supra, paragraph [16]), namely, in this case, a guarantee. While it is correct that a guarantor’s obligations under a guarantee of this type may (and in this particular case, might well) coincide, in whole or in part, with the obligations of the tenant under the lease, they need not necessarily do so. The legal and factual issues between creditor and debtor under a guarantee, and between landlord and tenant under a lease, are not necessarily co-extensive. (It is not uncommon, for example, for the governing law of a guarantee of this type to be different from the governing law of the lease.) The tenancy agreement may provide the backdrop or setting for the dispute in the present case, but it is not the “object” of the proceedings.  The object of the proceedings is the enforcement of obligations under a guarantee. In my judgment, that conclusion is consistent with the key principles (of simplicity, certainty, predictability and the minimisation of a multiplicity of proceedings) underlying the Brussels I Regulation, and with the narrow interpretation that is to be applied to Article 22 (and its derivative provisions in national law).

[49]      As the pursuer does not offer to prove any other basis on which the defender is subject to the jurisdiction of this court, the defender’s first plea-in-law must be sustained and the action dismissed.

 

 

Relevancy plea

[50]      In light of my decision in relation to the defender’s first plea-in-law, it is not strictly necessary to determine the merits of the defender’s second plea-in-law (in relation to relevancy).  However, if it had been necessary to do so, I would have sustained the defender’s second plea-in-law to the extent of excluding from probation the pursuer’s averment in Article 4 of condescendence to the effect that “a further quarter’s rent will fall due on 1 August 2014 in the sum of £113,070 and will further increase the sum sued for”.

[51]      This averment is irrelevant because the quarter’s rent referred to has not yet become due and payable and, in consequence, cannot (and does not) form part of the sum sued for or the issues in contention.

 

Expenses

[52]      In accordance with the normal rule, as the defender has been wholly successful, I shall award the expenses of process as taxed in favour of the defender.

[53]      At the debate, the defender’s counsel sought sanction for the employment of junior counsel in the cause.  The motion was opposed by the pursuer.  In my judgment, having regard to the relative novelty and complexity of the jurisdictional issues involved, the cause is suitable for the employment of junior counsel. I shall grant sanction to that effect.