Scottish Sheriff Court Decisions

2015SCEDI33

SHERIFFDOM OF LOTHIAN AND BORDERS AT EDINBURGH

OPINION

of Sheriff N.A.Ross

in the cause

BEATSONS BUILDING SUPPLIES LIMITED

PURSUER

Against

MICHAEL GARDNER NOBLE and others, as trustees of the ALEX F NOBLE & SON LIMITED EXECUTIVE BENEFITS SCHEME

DEFENDERS

Act: Garrity

Alt: Martin Q.C., Sutherland

Edinburgh 28 April 2015: the Sheriff, having resumed consideration of the cause, sustains the defender’s first plea-in-law to the extent of refusing probation to the following averments, namely: the averments in Article 4;  in Article 5, the third and fourth sentence (“It does not form part…”); in Article 7, the first sentence (“The works necessary…”);.the averments in Article 8; the averments in Article 9; in the answers to the counterclaim, the last sentence of Answer 1 (“As is more fully…”); the last sentence of Answer 7 (“Explained and averred…”); repels the pursuer’s first and second pleas-in-law in the principal action and second plea-in-law in the counterclaim; appoints the cause to a case management conference on a date to be afterwards fixed for discussion of expenses and further procedure.

NOTE:

1. The pursuer is the tenant of premises at 96-98 Eastfield Industrial Estate, Penicuik, which are owned and leased to it by the defenders. The lease is dated 19 September and 29 October 2007. The premises comprise an industrial building, together with car parking and a service yard.
2. Beneath the subjects runs the Loon Burn, which flows through a culvert underneath the yard area, at a depth of approximately 4.5 metres. The culvert is formed of corrugated steel pipe approximately 2 metres in diameter. Sections of the culvert have become deformed and no longer support the yard above. The yard area above is paved in concrete, and the loss of support by the culvert has caused the yard to crack and break, and the yard to subside. The necessary repairs are claimed by the pursuer to be a landlord’s responsibility, whereas the defender identifies these as the tenant’s responsibility. The pursuer seeks an order for the defender to perform certain landlord’s obligations under the lease, or alternatively a sum of damages sufficient to carry out the work. The defender denies that it has any such obligations, principally because any works required are on the premises themselves, and accordingly become the pursuer’s responsibility. The defender has counterclaimed for declarator to that effect, failing which damages. The issue for debate focuses on the true construction of the lease. There are further claims which were not the subject of debate: the defender, in any event, blames the pursuer for the collapse, which is attributed to works carried out by the pursuer, including construction works on the yard, forming a concrete surface on the yard, and also to the pursuer’s use of the yard for frequent passage by heavy vehicles, while the pursuer claims that the defender has responsibility for extraordinary repairs. The present debate, however, focuses solely on the single issue of whether the leased premises included the culvert.

   Construction of the Lease

3. The lease provides (Schedule Part 1) that:

   “The Landlord grants to the Tenant (in common with the Landlord and all others entitled to the same and all other authorised in writing by the Landlord) the following rights:-
   …

   2. Of free passage of the Utilities and other services in and through that part of the Conduits serving inter alia the Premises.

   3. The right to install new Conduits to serve the Premises along the route of existing Conduits…together with a right of access over adjoining property owned by the Landlord at all reasonable times upon reasonable prior notice (except in the case of emergency) for the purpose of inspecting, repairing, maintaining, cleansing, testing, renewing, replacing and laying any such Conduits”

    

4. Schedule Part 2 provides:

   “The following rights and others are excepted and reserved to the Landlord and all other persons authorised by the Landlord or having the like rights:-
   The free and uninterrupted passage of the Utilities through the Conduits which are now, or may at any time be in, under or passing through or over the Premises.
   The right…to enter…the Premises in order to:-

   1. inspect, cleanse, maintain, repair, connect, remove, lay, renew, relay, replace with others, alter or execute any works whatsoever to or in connection with the Conduits…”

       

5. Clause 4.5.1 of the lease provides that the tenant is:

   “To accept the Premises as in good and substantial repair and in all respects fit for the purpose for which they are let and to repair and maintain the Premises and keep the Premises in good and substantial repair and condition…and when necessary to replace, rebuild, renew, reinstate and restore the Premises all in good and substantial manner with good quality materials, irrespective of the cause of damage or destruction and regardless of the age or state of dilapidation of the same…(but excepting damage by the Insured Risks…excepting also all damage occasioned by acts and/or omissions of the Landlord or those for whom it is responsible or where such repairs or others fall within the landlord’s obligations hereunder)”

    

   The defender’s submission

6. Mr Martin for the defender submitted that the extent of the defenders’ title, shown on the Land Register title plan, was a coelo usque ad centrum. If the defenders leased the landlords’ interest, then it followed that the subjects of lease will be what is in the landlords’ title (Stair Memorial Encyclopaedia; Landlord and Tenant Reissue, paragraph 474). Accordingly, if the whole subjects have been let, they include the solum, and therefore the culvert, which became the tenant’s responsibility under the lease to maintain and repair. The pursuer’s position, namely that it had leased only part of the subjects excluding the culvert, was wrong. A lease grants a real right in land, and the only issue was the extent of that grant. While it is quite possible to separate the ownership of a horizontal section of land below ground, such as mineral bearing strata, or above ground, such as a tenement (Gordon: Scottish Land Law, paragraph 3-02), this would require to be expressly and specifically provided for. No such separation had been attempted in the lease.
7. As a contract, the lease should be construed in accordance with the general approach to construction of commercial contract, which included principles set out in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900; Multi-Link Leisure Developments Ltd v North Lanarkshire Council 2011 SC (UKSC) 53; Batley Pet Products Ltd v North Lanarkshire Council 2014 SC (UKSC) 174; Grove Investments Ltd v Cape Building Products Ltd [2014] CSIH 43.
8. One feature underlying construction of the lease would be consideration of the underlying common law of property, because this would form part of the background which the parties would have in mind in approaching the drafting. There appeared, however, to be no common law rule setting out any (horizontal) limits to the subjects of lease. A likely explanation for this is that no such rule was necessary, because the solum of land would self-evidently form part of the subjects of lease of land.
9. Senior Counsel noted that the subjects of let were the defined “Premises”, together with certain specified rights and privileges, but under exception and reservation of certain specified rights and privileges. No rights were reserved to the landlord under that description. One would expect, had reservation of a horizontal stratum been intended, that any such reservation would appear in that definition. The Premises are defined as:

   “ALL and WHOLE those industrial premises forming 96-98 Eastfield Industrial Estate, Penicuik shown outlined in red on the Plan; TOGETHER WITH (a) the whole buildings…(b)…fittings and fixtures…(c) the whole parts, privileges and pertinents of the said subjects; (d) the whole rights common, mutual and sole effeiring thereto; and (e) all additions, alterations and improvements thereto;”

    

10. The Plan referred to is annexed to the lease, and is demonstrative only.
11. He noted that the “whole rights, common, mutual and sole” was a wide description and had no exceptions or reservations. Similarly, the formula “ALL and WHOLE” meant what it says:

    “The words “all and whole” are exegetical and mean that the subject is conveyed as a complete unit with all its parts. In ordinary language the word “all” is used with reference to things differing in kind, and the word “whole” with reference to things of the same kind. Anyhow, the effect of these words is to show that the entire or universal subject is carried by the disposition…”

    (Craig: Jus Feudale, II, iii, 23, quoted in Gretton and Reid: Conveyancing (4^th ed) paragraph 12-08, albeit it goes on to note: “But in modern practice the words have become rather like a mere punctuation mark…”).

     

12. Against that background, where could the pursuer say that any boundary was created between the surface of the ground and the culvert? The pursuer had laid concrete, presumably forming a (minor) incursion into the airspace above the yard. If the concreting had required foundations, then they had formed an incursion into the ground. The pursuer had not thought it necessary to ask, or the defender to grant, permission for any such works. There was no logical basis to identify any horizontal boundary to the premises let. The lease amounted to a grant of the whole of the landlord’s interest in the premises, which extended a coelo usque ad centrum. Senior Counsel submitted that it would not, for example, be necessary for a tenant of farm land (in the absence of express contractual provision) to ask permission to plough land, which on the defender’s analysis would be an incursion into a horizontal stratum not leased to the farmer.
13. The pursuer’s position was further assisted by the lack of any stipulation of an obligation of support. There is no need for an obligation of that type, because the pursuer has leased the whole of the solum. And there is no room for doubt that the pursuer knew all about the culvert – the initial obligation upon the landlords to form (but not to maintain) a culvert for the Loon Burn is set out in detail in the Burdens section of the Land Certificate, which any competent conveyancer would have inspected with care.
14. Senior counsel also prayed in aid some ancillary features of the lease. As a matter of further construction, the right to form “further Conduits” should be read as implying that these are additional to existing Conduits (including the culvert). The tenant is given a right over adjoining land to maintain the Conduits, such a right over the Premises not being granted. This also points to such a grant being unnecessary, the tenant already having a right to dig down to the culvert on the Premises let. By contrast, the landlord had reserved a right of passage of utilities through the culvert (as one of the Conduits) – hardly necessary if the landlord already owned and maintained the culvert.
15. It followed that the case for the pursuer was irrelevant, as the obligation to repair the culvert fell on the pursuer, not the defender, and the action should be dismissed so far as it related to the principal proposition.
16. Senior counsel also submitted that the question was not one of dilapidations, but one of the scope of the Premises. Accordingly cases such as Marfield Properties (infra) and Grove Investments Ltd (infra) were not in point. It was also no argument to claim that the depth of the tenant’s title was only so much as was necessary (for example, to provide foundations for buildings). Such an argument was entirely circular. In addition, reference to extraordinary repair obligations was not helpful: while normally these would be retained by the landlord, clause 4.5.1 clearly transferred any such obligations to the tenant.

    The pursuer’s submission

17. Mr Garrity submitted that the culvert was not part of the Premises let. He submitted that a lease should be interpreted differently from a disposition. The Land Certificate (6/1/2 of process) sets out the description of the landlord’s title, including an obligation to form the original culvert for the Loon Burn. There is a reservation of the minerals. The parties agree that it is possible to separate the strata of the property.
18. The definition of the Premises was, he submitted, different from the extent of the property in the Land Certificate, and was not a conveyancing description. Accordingly, it could not be taken to show an intent to convey the whole of the landlord’s interest. A deliberate drafting position had been taken, to define the Premises and impose a repairing obligation.
19. It was necessary to recognise that the definition of Conduits (“means all sewers, drains, pipes, gullies, gutters, ducts, mains, watercourses, channels, subways, wires, cables, conduits, flues and other conducting media of whatsoever nature”) would incorporate, for example, wires passing between pylons above the Premises. Conduits were therefore not necessarily serving the premises (although the rights granted in Schedule Part 1 were only (paragraph 2) in respect of Conduits “serving inter alia the premises”). Schedule Part 2 gave the landlord the right to enter the Premises to inspect (etc.) the Conduits. There was no question of the landlord having leased to the tenant (for example) overhead wires. There could be no repairing obligation in relation to the overhead wires simply because they crossed the airspace of the Premises. It followed that the pursuer would not necessarily have a repairing obligation in relation to any Conduit, including the Loon Burn culvert.
20. Had a full transfer of the property been intended, the landlord could have put the matter beyond doubt by using a full conveyancing description of the property, but had not done so. In a single occupancy lease (as here) the description of property is very often by reference to the landlord’s own title, which has the advantage for the landlord in leaving no liability to repair on the landlord (McKinlay, McMillan and Fleming: Dilapidations in Scotland (2^nd edition) paragraph 2.6; see also Cockburn and Mitchell: Commercial Leases (2^nd edition) at paragraphs 3.3 and 3.4) It should be inferred that the landlord had deliberately intended not to convey the full extent of its property interests to the pursuer, including the culvert.
21. Counsel was content to agree the defenders’ submission on the canons of construction to be applied, based on the case law cited. He relied in particular on the dictum of Lord Drummond-Young in Grove Investments Ltd (supra) at paragraph 11:

    “In construing contracts it is also important to bear in mind that a contract is a cooperative enterprise, entered into by parties for their mutual benefit. It is intended to achieve objectives that are common to both parties; that is why a purposive construction must be adopted. Thus a contract should be construed in such a way that the benefits that may reasonably be expected from the contract accrue to both parties. It should likewise be construed in such a way that an excessive or disproportionate burden does not fall on one party through the application of a contractual provision. By “excessive” or “disproportionate”, we mean results that are objectively excessive or disproportionate according to what would be the expectations of reasonable parties in the particular contractual context. Further, commercial predictability is usually regarded as an important feature of any contract. We are accordingly of opinion that a contract should normally be construed in such a way as to avoid arbitrary or unpredictable burdens or impositions, and conversely arbitrary or unpredictable benefits, in the nature of windfalls; to do otherwise would frustrate one of the most elementary commercial objectives.”

     

22. Here, the culvert would not be evident to the tenant, who would not have it in mind in entering the lease. The tenant would not be anticipating liability for Conduits which may cross the Premises but would not necessarily serve the Premises (such as overhead wires). The lease itself drew a distinction between the Premises and the Conduits, thereby indicating that the two were not indivisible or covered by the same grant. It was not a question of the law of property, but the correct interpretation of the contract.
23. In Marfield Properties v Secretary of State 1996 SC 362 it was observed that “there may be some force in the point that the more onerous or unusual the burden is, the greater is the requirement for clarity” (at page 365H). As this was an onerous burden, it required to be clearly imposed. Counsel suggested that the lease ended at the roof of the buildings, and the foundations of the buildings and yard. It could not include anything beneath the yard from which the tenant did not derive any benefit.
24. Applying the principles of construction, the culvert was owned by the landlord and responsibility for this would require to be clearly transferred to the tenant, which had not been done.

     

    Decision

25. The starting point for the construction of contracts is, self-evidently, the terms of the contract itself. In my view, in construing a lease of heritable property, it is also necessary to bear in mind that the contract is seeking to build on the underlying default position, namely the common law of contract (and, where applicable, any statutory regulation of property rights)
26. The obligation to repair is contained in clause 4.5.1 of the lease. This is set out above. It obliges the pursuer to accept the Premises in good and substantial repair, and to keep them in good and substantial repair and condition. Plainly, if the culvert falls within the definition of “Premises”, then the obligation to repair falls on the pursuer. Any potential subsidiary argument, to the effect that there may be a separate and free-standing obligation to repair and support the surface area, is excluded by the exception to clause 4.5.1, which excepts liability for damage occasioned by the acts or omissions of the landlord. If the collapse of the surface is caused by the culvert, and if the culvert remains the responsibility of the landlord, then the landlord is not liable.
27. Accordingly, the whole argument depends on within whose title the culvert is incorporated. The defender points to the terms of the grant of the lease, and in particular the extent of the Premises. The pursuer points to inferences to be taken from reservations or rights ancillary to the grant of the Premises.
28. In my view, the landlords’ position is clearly to be preferred.
29. The definition of Premises is central. The definition is:

    “ALL and WHOLE those industrial premises forming 96-98 Eastfield Industrial Estate, Penicuik shown outlined in red on the Plan; TOGETHER WITH (a) the whole buildings…(b)…fittings and fixtures…(c) the whole parts, privileges and pertinents of the said subjects; (d) the whole rights common, mutual and sole effeiring thereto; and (e) all additions, alterations and improvements thereto;”

     

30. Notably, this appears to be a full and unlimited definition. The language is expansive and inclusive. There is no hint of reservation or separation of rights as between tenant and landlord. In particular, the “whole rights…” appears to award the whole rights of the landlord. The words “ALL and WHOLE” are also words of inclusion – it may be true that “in modern practice the words have become rather like a mere punctuation mark…”, but that does not rob them of content, particularly for real estate lawyers, who should be assumed to understand the words they use. It was not disputed that the landlord owns the solum of the Premises. There is nothing to show that the solum is being reserved or separated from the grant to the tenant: indeed, quite the opposite.
31. The pursuer points to the difference between the description on the Land Certificate (“Subjects being an area of ground at EASTFIELD INDUSTRIAL ESTATE, PENICUIK tinted pink, yellow, blue and brown on the Title Plan…””) and the definition of the Premises, The pursuer invites the inference that, because there is a difference in description, the parties must be assumed to have intended a difference in the extent or quality of what is leased, from what is owned.
32. I do not accept that argument, for three reasons. First, a careful comparison of the Land Certificate plan and the plan annexed to the lease shows that the two do not convey identical plots of ground. For example, the former includes (to the south east) a longitudinal half-share of a roadway, beyond what appears to be a pavement, as well as differences to the north-east boundary. That is sufficient to explain any dissimilarity in description.
33. Second, the “normal” use of the same description is no more than a customary or common practice, according to the text books referred to. That is too insubstantial an observation to found, by itself, any clear inference that the parties intended this in the present case.
34. Third, any discrepancy in description does not diminish the full and inclusive definition of Premises. If any difference were intended between the disposition and the lease, no such difference has been effectually stated, or even indicated. There is not the slightest indication in the lease drafting, far less a clear direction, that any difference in the extent of the property (at least horizontally) was intended as between disposition and lease. That might be effective if the default position was as the pursuer claims, but parties agreed that they had not been able to discover any such default position – the common law is silent on any implication of deemed horizontal boundaries. To the contrary, the implication is that the common law imposes no such horizontal boundaries. Accordingly, the further implication is that the parties did not intend any such horizontal boundaries. As a result, there appears to be a clear prima facie position that the whole of the landlord’s property interest in, amongst other things, the solum was conveyed to the pursuer for the purposes of the lease.
35. The pursuer then invites inference from the ancillary terms of the lease, and in particular from the reservation and grant of certain rights as between the parties. I pause to note that, if this was really intended to procure a horizontal split in the subjects, this would be the most oblique and uninformative way of achieving it. I would not lightly assume that responsible drafters would knowingly adopt such an oblique, Delphic method, particularly in a lengthy and otherwise detailed document, such as the present lease.
36. In developing this point, the pursuer points to the definition of Conduits, which covers all sorts of wires and pipes, some of which will not serve the Premises. It is therefore unlikely, the pursuer maintains, that Conduits were intended to form part of the Premises, because no tenant would take on an obligation to maintain Conduits of which it does not have the benefit. I do not accept that argument.
37. As a generality, it is true that some Conduits do not serve the Premises, but the parties have expressly recognised and regulated this situation. That is enough to show that the parties had that distinction in mind and were making express provision concerning the nature and extent of liabilities attaching to different classes of Conduit. As a generality, therefore, I should not readily infer that the parties intended to leave any distinction to inference alone.
38. Further, no such inference is supported by the terms to which the pursuer refers. At Schedule Part 1, a distinction is drawn between Conduits in general and those Conduits serving the premises. That provision grants the tenant the right over Conduits which are outside the Premises, for the purposes of transporting services and Utilities to the Premises. Such a provision would be necessary whether or not the tenant owned the culvert, and accordingly does not necessarily create any other inference.
39. In addition, Schedule Part 2 gives the landlord a mirror right, which prevents the tenant blocking any Conduit which runs through the Premises and which serves other properties. It recognises that the landlord can enter the Premises to repair the culvert (for example, to preserve a water supply downstream), but does not create an obligation to maintain the culvert. In my view this tends to demonstrate that the parties considered that, in the absence of such a provision, the tenant might be entitled to block, or neglect, the culvert. Such a right of use and abuse is a tenet of ownership (or at least possession). If the pursuer’s argument were correct, and the tenant had no rights or duties in respect of the culvert, the landlord’s reservation of a right to use it would be unnecessary. The fact that such a reservation is made tends to indicate that the pursuer’s argument is not correct.
40. For these reasons, I am unable to agree with the pursuer’s analysis of these ancillary provisions.
41. Turning to consider the canons of construction, it is of course only if the language were ambiguous that I could have reference to these canons of construction which both parties agreed would apply. I do not, however, identify any uncertainty in the wording. I do not accept that the definition of the Premises is properly to be regarded as vague or uncertain or ambiguous. That is because I have no basis to dispute the pursuer’s starting point, that land is owned (and therefore, in the absence of express provision, held by a tenant) a coelo usque ad centrum. It would follow that, on a strict view, it becomes unnecessary, and indeed irrelevant, for me to examine these.
42. Even if I were wrong, and there is ambiguity to be found, an exercise of construction would require to start from the factual (and legal) background known to the parties at the date of execution in 2007. Part of that background must be the underlying legal position if the agreement remains silent on any matter, namely the common law of how tenements of this nature are horizontally divided. Neither party was able to find a statement of the common law in this respect. In my view, the only realistic conclusion to be drawn, is that there is no rule of the Scots common law of property which imposes or infers any horizontal division of land. Such division can, of course, be arranged, but as a matter of express contractual provision, not an effect of the common law. The absence of such a common law rule is, in my view, eloquent that no horizontal boundary is implied by law, and that ownership (and possession) of land is a coelo usque ad centrum, at least in the absence of any agreement to the contrary, such as the express reservation of mineral right.
43. It follows that, unless otherwise agreed, or displaced by statutory provision, the default common law position means that the lease of the Premises carries with it all rights a coelo usque ad centrum, with a corresponding obligation of maintenance and repair. The fact that the lease does not deal with this is demonstrative, in my view, that the drafters did not intend to change this position. Any ambiguity would be resolved in favour of the status quo.
44. The pursuer’s submission to the effect that the tenant would not expect to be maintaining Conduits from which it does not benefit, does not assist here, because the tenant’s expectations are not a clear guide to contractual intent, and in any event the maintenance of public electricity wires (the pursuer’s example) is likely to be expressly regulated by statute, rendering unnecessary any mention in the lease.
45. The pursuer’s counsel submitted that the pursuer would not anticipate any liability relating to a culvert, the existence of which it may not even be aware. In my view, that submission fails entirely once it is realised that the existence and formation of the culvert is a matter of extensive regulation on the face of the burdens section of the Land Certificate. No tenant, exercising even basic due diligence, could be unaware that the culvert existed. Even if it were unaware, it is not a strong point – awareness is not a precursor for liability.
46. A further difficulty for the pursuer is that, even if I were wrong on the foregoing, there is no possible mechanism for identifying the extent of the pursuer’s rights, as tenant, to the depth or height of the Premises. Do they have a right, for example, to prevent a crane over-swinging the Premises, or to prevent neighbours installing an overhead (or underground) telephone line? Do they have a right to dig a hole, for example as an inspection pit for vehicles? Or a deeper hole into which to install a light fixture? These questions arise because counsel for the pursuers submitted that the vertical extent of the Premises was “what is necessary for the tenant to use the yard”. These illustrations (leaving aside, for the sake of argument, any contractual provision) show that no clear boundary suggests itself, either above or below the yard. The pursuer’s submission was, in effect, that if they need it, they possess it. I agree with the defender’s position that this is a circular argument. The pursuer relies on the obverse of that argument, namely if they don’t need it, they don’t possess it. I cannot find any provision of the lease which allows such an elastic, one-sided view of the extent of the premises. Further, I cannot find any provision which, even if such a position were tenable, would enable a court to identify where the property starts and finishes including, of course, whether the culvert falls within or outside the Premises.

    Disposal

47. For the foregoing reason, I agree with the defender’s arguments and I repel the pursuer’s arguments. The definition of the Premises leased to the pursuer includes the Loon Burn culvert. This is not sufficient to dispose of the action, as the pursuer has an alternative argument based on the classification of the repair works as extraordinary repairs, for which the landlord is responsible. That argument was not addressed at debate. The parties will require to consider how this is to be addressed. I was invited to dismiss the first crave, but it seems to me that, pending resolution of the alternative case, it would be premature to do so. The defenders, for their part, have an argument that the pursuer caused the loss by, in effect, overloading the yard. That is also an argument for another day.
48. For present purposes, I will dispose of the debate by sustaining the defender’s first plea-in-law to the extent of refusing probation to those averments which support the pursuer’s principal position. I have identified these in the interlocutor.
49. Parties should consider further procedure and confer. I will fix a case management conference but leave the date unspecified. Parties should please email me direct to fix a CMC, failing which my clerk will arrange one.