Scottish Sheriff Court Decisions

SHERIFFDOM OF GRAMPIAN, HIGHLAND AND ISLANDS AT LOCHMADDY

[2016] SC LOC 8

A5/13

JUDGMENT OF SHERIFF C DICKSON

 

In the cause

 

JOHN GRAY

Pursuer;

 

Against

 

RODERICK JOHN MACNEIL

(as Executor-nominate to the estate of the late Donald MacNeil)

Defender:

 

 

Lochmaddy,     January 2016

           

The sheriff, having resumed consideration of the proof before answer, finds the following facts admitted or proved:

 

FINDS IN FACT

1.   The pursuer is John Gray.  The defender is Roderick John MacNeil acting in his capacity as executor-nominate to the estate of the late Donald MacNeil (hereinafter referred to as “the deceased”).  The deceased was originally the defender in this action but died on 15 April 2015.   The current defender is the deceased’s son.

2.   At the time material to this action the deceased was the owner of Burnside Petrol Filling Station, Daliburgh, South Uist (hereinafter referred to as “the petrol station”).  The petrol station included three pumps, a forecourt shop and land.  In 1992 the deceased’s daughter, Michelle Gray (hereinafter referred to as “Mrs Gray”), returned to South Uist after having spent a period of time living in London.  Mrs Gray returned to South Uist at that time in order to help look after her mother, Flora MacNeil, who was in failing health, and to help run the petrol station business with the deceased.    Flora MacNeil subsequently died in 1996.  After her death Mrs Gray and the deceased continued to run the petrol station business until the forecourt shop was converted into a chip shop.

3.   The pursuer, John Gray, married Mrs Gray in October 1998.  After their marriage the pursuer and Mrs Gray resided in The Chalet [address] (hereinafter referred to as “The Chalet”).  The Chalet was owned by the deceased and located in the grounds of the deceased’s home at Burnside Cottage [address].  Burnside Cottage was owned by the deceased and located on land adjoining the petrol station. 

4.   In 1998 the pursuer worked in the salmon fish farming industry.  The pursuer continued to work in that industry until the summer of 2005.  The pursuer and Mrs Gray had five children together.  The children were born between March 2002 and December 2008.  Mrs Gray was the main carer for the children.

5.   By Autumn 2004 the petrol station business owed in the region of £70,000 to the Bank of Scotland.  At that time Mrs Gray recognised that the petrol station business would not be able trade out its financial difficulties.   The deceased was fully aware of the extent of the financial difficulties faced by the petrol station business.   The extent of the financial difficulties faced by the petrol station business resulted in discussions taking place between the deceased, Mrs Gray and the pursuer in relation to creating a new business that could be operated from the petrol station.  At that time the deceased would normally have an evening meal with the pursuer and Mrs Gray each day.  After much discussion, the said three persons struck upon the idea of converting the petrol station’s forecourt shop into a chip shop.  The said three persons then had numerous discussions in relation to converting the forecourt shop into a chip shop business.  The discussions included discussions about the pursuer: converting the forecourt shop into a chip shop; leasing the chip shop from the deceased; and attending training to learn how to fry fish.

6.   In around October 2004 the pursuer attended a fish fryer course in Leeds.  Whilst the pursuer was in Leeds attending the fish fryer course, he visited Martyn Edwards Limited, who were a fish and chip shop range manufacturer, in order to consider what equipment would be required for the conversion of the forecourt shop.

7.   The pursuer obtained funding for the conversion of the forecourt shop into a chip shop.  The pursuer obtained a £11,000 loan from the Royal Bank of Scotland.  The pursuer also obtained grants from Western Isles Enterprise and Western Isles Council.  In total the pursuer obtained approximately £50,000 in funding (hereinafter referred to as “the £50,000 funding”). 

8.   On an occasion in early 2005 a discussion took place between the pursuer, Mrs Gray and the deceased at the Chalet.  This discussion concerned the lease of the forecourt shop to the pursuer in order that he could operate it as a chip shop.  This discussion was the culmination of numerous previous discussions.   At the conclusion of the discussion, the purser verbally agreed a lease in respect of what was then the forecourt shop.  The following were the verbally agreed terms of the lease:

(1)  That the parties were the pursuer and the deceased.

(2)  That the property to be leased would be the forecourt shop.

(3)  That the forecourt shop would be converted to a chip shop.

(4)  That the rent for the forecourt shop would be that the pursuer would be responsible for the staffing and running costs of the petrol station business, save for the purchase of new fuel.

(5)  That the duration of the lease would be 15 years from the date when the chip shop opened for business.

The pursuer and the deceased shook hands on the above agreement (hereinafter referred to as “the verbal lease”).

9.   Mrs Gray asked the deceased whether the verbal lease should be put into writing.  The deceased told the pursuer and Mrs Gray that this was an agreement made by the family and that, as such,  he did not see the need for, and did not want to pay fees to lawyers for, putting the agreement into writing.   The pursuer did not obtain legal advice and the verbal lease was not reduced to writing.

10. The £50,000 funding was used to pay for the conversion of the forecourt shop into a chip shop.   The conversion included re-routing utility services, renovating the building, purchasing and installing equipment, and decoration of the shop building.

11. By March 2005 the petrol station business owed the Bank of Scotland over £80,000.  The deceased had known for a number of years that a substantial amount of money was owed to the Bank of Scotland by the petrol station business and that this debt had been increasing over time.   

12. The pursuer purchased the following equipment for use in the chip shop:

(1)  Frank Ford Fish Frying Range with griddle;

(2)  Fish Fridge;

(3)  Stainless Steel Fridge;

(4)  Bold Chipping Machine;

(5)  28lb Potato Rumbler;

(6)  Wet Well Baine Marie;

(7)  Eclipse Counter;

(8)  Serve Over Refrigerated Counter;

(9)  Fish and Chip Filtration Machine           ;

(10)      Stainless Steel Table with cut away corner;

(11)      Stainless Steel shelving;

(12)      Water Tanks and Boiler Unit

(13)      Signage

(14)      Uniforms and safety shoes

(15)      Utensils (including two batter trays)

(16)      Gas tank

(17)      Three picnic benches

(18)      White Marquee

(19)      Chip Barrel and Basket         

(20)      Four 80ltr Black Bins

(21)      Industrial Microwave

(22)      Radio

(23)      Kettle

(24)      New Motor for the fish frying range

13. The chip shop opened for business on 1 July 2005.  From 1 July 2005: (1) the chip shop business and the petrol station business was managed by the pursuer; (2) the pursuer paid for the staffing and running costs of the chip shop; (3) the pursuer retained the profits in the chip shop business; (4) the pursuer paid for the staffing and running costs of the petrol station business, save for the purchase of new fuel, which remained the responsibility of the deceased; and (5) the deceased retained any profits made by the petrol station business.

14. The pursuer opened new bank accounts with the Royal Bank of Scotland for the chip shop business and the petrol station business. The monies owed by the petrol station business to the Bank of Scotland remained outstanding.

15. The pursuer kept a record of takings and expenditure for the chip shop business in a cash book.  The purser recorded daily takings and expenditure in his cash book, with each month having a single page in his cash book.  The chip shop business was well received in the local community.  The chip shop was profitable and traded throughout the year between 2005 and the autumn of 2010.  Trade was at its peak in the summer months and at its lowest in the winter.  In the winter of 2010 the pursuer decided that it was not worth opening the chip shop during the winter months.  The pursuer closed the chip shop for the winter of 2010 with the intention of re-opening the chip shop in the spring of 2011.  At that time Mrs Gray remained on South Uist and managed the petrol station business in the pursuer’s absence.  The pursuer found work for the winter of 2010 in a chip shop in Blackpool.  In early 2011 the pursuer and Mrs Gray separated, however that did not affect the pursuer’s plan to re-open the chip shop in the spring of 2011.   In May 2011 the pursuer returned to South Uist, opened the chip shop, and resumed management of both the chip shop business and the petrol station business.  In the winter of 2011 the pursuer again closed the chip shop for the winter with the intention of re-opening the chip shop in the spring of 2012.  The pursuer found work for the winter of 2011 in a chip shop in Blackpool.  In February 2012 the pursuer returned to South Uist, opened the chip shop, and resumed management of both the chip shop business and the petrol station business.    The pursuer managed the chip shop business and the petrol station business until 20 October 2012. 

16. The relationship between the deceased and the pursuer had been deteriorating for several years.  By the end of 2008 the relationship was hostile and did not subsequently improve.  

17. In or around 2012 the pursuer reported the deceased to the police for a number of sexual offences allegedly committed [against named persons].   In October 2012 Mrs Gray took her five children to visit her brother, Donald John MacNeil, in London.  Mrs Gray, whilst in London, spoke to the deceased on the telephone.  The deceased alleged that a female, who had previously worked in the chip shop, was staying at the Chalet (Mrs Gray’s home) with the pursuer.  Mrs Gray was furious about this and immediately telephoned the pursuer.  The pursuer told Mrs Gray that the deceased was talking nonsense.  After that telephone call the pursuer went to see the deceased to confront him as regards why he was telling lies to Mrs Gray.  The pursuer verbally confronted the deceased but did not physically assault him.  The deceased subsequently alleged that the pursuer had assaulted him and reported the matter to the police.  The police subsequently interviewed the pursuer but took no further action.

18. On 20 October 2012, which was a day or so after the confrontation between the pursuer and deceased, the deceased cut the electricity supply to the chip shop and refused to let the pursuer into the chip shop.  As a result the pursuer was not able to manage the chip shop business or the petrol station business and the chip shop business was forced to cease trading.  The pursuer has not been able to operate the chip shop business since 20 October 2012.

19. The pursuer made repeated requests to the deceased to reconnect the power and allow the pursuer back into the chip shop.  The deceased declined all such requests.

20. The chip shop business had an accounting year end of 30 June.  David Adamson, Chartered Accountant, has prepared profit and loss accounts for the accounting years ending 30 June 2009, 2010, 2011 and a profit and loss account for the period 1 July 2012 to 20 October 2012.  The net profit for the chip shop business, after deduction of tax and national insurance, for the period 1 July 2008 to 20 October 2012 is as follows:

(1)  Year ending 30 June 2009                                               £16,351

(2)  Year ending 30 June 2010                                               £18,741

(3)  Year ending 30 June 2011 (closed 1/11 – 19/5)  £14,962

(4)  Year ending 30 June 2012 (closed 23/10 – 23/2)            £19,925

(5)  Period 1 July 2012 to 20 October 2012               £10,883

21. The average annual net profit of the chip shop business, after deduction of tax and national insurance, was £19,000. 

22. The majority of the equipment purchased by pursuer for the chip shop (as set out in finding in fact 12) would have had a lifespan of approximately 15 years.

23. The said equipment remains in the chip shop in the possession of the defender.

24. The value of the equipment set out in finding in fact 12, as at 20 October 2012, was £16,000.

 

FINDS IN FACT AND LAW

1.   The pursuer has a real right in the equipment set out in finding and fact 12.  The deceased, by cutting off the electricity supply and preventing the pursuer access to the chip shop, unlawfully  took possession of the equipment set out in finding in fact 12.  The deceased knew that he did not have title to the said equipment.  The deceased has now relinquished possession of the said equipment to the defender.    The defender currently has possession of the said equipment.  The defender does not have title to the said equipment. The deceased remains liable to the pursuer for the value of the said equipment unless or until it is vindicated from the defender.

2.   That in early 2005 the pursuer and deceased agreed a verbal lease of the chip shop.  The verbal lease contained the common law basic requirements to constitute a lease, namely (1) the parties; (2) occupation of heritable subjects; (3) a consideration; and (4) a period of time for which the subjects are let.  The parties were the pursuer and the deceased.  The heritable subjects were the chip shop.  The consideration was that the pursuer would be responsible for the staffing and running costs of the petrol station business, save for the purchase of new fuel.   The period of let was 15 years from 1 July 2005.  The pursuer and the deceased reached consensus in idem on each of those four basic requirements.

3.   The verbal lease was not in writing.  The parties intended that the pursuer should take possession and occupation of the chip shop on the faith on the verbal lease.

4.   The verbal lease sought the creation of a real right in land in terms of section 1(2)(b) of the Requirements of Writing (Scotland) Act 1995 (hereinafter referred to as “the 1995 Act”) and, as such, required to be in writing.

5.   The personal bar provisions in section 1(3) and 1(4) of the 1995 Act apply in relation to section 1(2)(a) of the 1995 Act but not section 1(2)(b) on the 1995 Act and therefore the pursuer is not entitled to rely of section 1(3) and 1(4) of the 1995 Act. 

6.   The verbal lease is accordingly invalid and the deceased was entitled to withdraw from it.  

THEREFORE repels pleas in law 2, 4, 5 and 6 for the pursuer; sustains plea in law 4 for the defender and grants decree of absolvitor in respect of crave 2; repels pleas in law 5 to 11 and 13 for the defender; and fixes a procedural hearing on 3 February 2016 at 9.30am to consider the proper disposal of crave 1 and the question of expenses.

 

NOTE 

Introduction

[1]        This action concerns a verbal lease of a forecourt shop that was converted into a chip shop.  In crave 1, the pursuer seeks delivery of moveable equipment that was installed in the chip shop, failing which, payment of the value of the moveable equipment.  In crave 2, the pursuer seeks payment of damages in respects of profits that were lost due to an alleged material breach of the verbal lease.

[2]        The pursuer is a private individual.  The defender is the executor-nominate of the estate of the late Donald MacNeil (Donald MacNeil is hereinafter referred to as “the deceased”).  The deceased, at the material times, owned the forecourt shop that was converted into the chip shop.

[3]        This action proceeded to a four day proof before answer on 14 October and 11 to 13 November 2015.  Closing submissions were made on 13 November 2015, however, for reasons given at para 65 below, I requested further written submissions and these were received by the court by the deadline set of 31 December 2015. The pursuer was represented by Mr Thompson, solicitor.  The defender acted on his own behalf.   Prior to the proof before answer proceeding, the deceased had given evidence before a commissioner at Uist and Barra Hospital, Benbecula.  This commission took place on 31 March 2015 and, at that time, the deceased was the defender in the action and was represented by a solicitor.  At the proof before answer the pursuer led evidence from four witnesses, namely the pursuer, David Adamson, Chartered Accountant, Mrs Gray, and, rather unusually, the defender.  The defender led evidence from his brother, Donald John MacNeil, and his brother’s son, Donald John MacNeil junior.  The report of the commissioner in respect of the deceased’s evidence was also relied on by both parties.

 

The Evidence

The pursuer – John Gray

[4]        The pursuer spoke to findings in fact 1 to 19, 22 and 23.    His evidence in relation to findings in fact 1 to 19 was fully supported and supplemented by the evidence of his estranged wife, Mrs Gray (who is the daughter of the deceased).

[5]        Although not directly relevant to the present case, the pursuer gave some evidence, about a further heritable property known as the Old School House [address] (hereinafter referred to as “the Old School House”).  The Old School House had featured in pleadings and in the evidence of deceased on commission and seemed to be a particularly tense issue between the parties. 

[6]        The pursuer explained that prior to 2007 the Old School House was owned by the deceased.  The deceased had become owner of the Old School House on the basis that it could be used by the defender when he retired from the priesthood.   By that time the defender had not retired and the Old School House was used as self-catering accommodation that was available for let.   By 2007 the pressure to pay the Bank of Scotland the circa £80,000 owed in respect of the petrol station business was mounting and the deceased sought to raise this money by granting a mortgage in respect of the Old School House.  However, given the deceased’s age, he was not able to obtain a mortgage.  The old School House was then transferred to Mrs Gray in order to see if she could raise a mortgage, but she could not.  The Old School House was then transferred to Mrs Gray and the pursuer because the pursuer was able to obtain a self-certification mortgage on the basis of his self-employed earnings from the chip shop business.  The pursuer and Mrs Gray then obtained a mortgage on the Old School House and borrowed £131,000.  The precise sum of £131,000 was selected because that was the total amount of money due by the petrol station business.  The £131,000 was used to clear the monies owed to the Bank of Scotland (circa £80,000) and the balance was used to clear the monies due to other creditors.  Neither the pursuer nor Mrs Gray used any of the money raised by way of the mortgage nor did they ever live in the Old School House.  The pursuer and Mrs Gray paid the mortgage repayments for the Old School House from the profits made from the chip shop business.  The deceased may have physically made some of the repayments to the mortgage holder but this was from money given to him by the pursuer and Mrs Gray from the profits of the chip shop business.  When the pursuer was prevented from operating the chip shop business by the deceased the pursuer and Mrs Gray were unable to pay the mortgage and it went into default.  The Old School House is currently in the process of being repossessed by the bank.

[7]        In cross examination it was suggested that the pursuer and Mrs Gray had used the balance of the £131,000 (after payment of the monies due to the Bank of Scotland) for their own purposes.  The pursuer rejected this as being untrue.  It was also suggested that the deceased had paid £146,000 to pay off the mortgage on the Old School House.  Again the pursuer rejected this as being untrue.

[8]        It was also suggested to the pursuer that the deceased did not like the pursuer and therefore would not have agreed a lease of the forecourt shop that became the chip shop.  The pursuer strongly denied this.  He explained that, as far as he was concerned, a lease of the chip shop was agreed in the living room of Chalet (see finding in fact 8).  As far as he was concerned it was a lease.  The deceased was a party to the lease and he told lies at the commission when he said that there was no lease.  The pursuer considered that the lease was agreed with a handshake, which was enough when honourable people were involved.  When discussing the duration of the lease the pursuer had asked the deceased for a lease of 25 years but the deceased had said 15 years.  The pursuer had agreed to 15 years and that was the period agreed when the pursuer and the deceased shook hands on the lease in the living room of the Chalet.

[9]        As regards the equipment in the chip shop (see finding in fact 12), the pursuer under brief passing reference to a number of invoices, lodged as productions 5/1/8 to 5/1/25, valued the equipment at £30,000.  He explained that he had made an enquiry about what the second hand value of the frying range was likely to be.  He was quoted a middle of the range price of £6000 but noted that he kept all his equipment in excellent condition.  The defender put a letter, dated 22 July 2013, from Martin Edwards – Frank Ford Limited (who are frying range manufacturers) to the deceased whereby that company offered the deceased £900 for the frying range.  The pursuer was of the view that £900 was far too low a value for the frying range.

 

Mr Adamson

[10]      Mr Adamson was an experienced chartered accountant who had been instructed by the pursuer.  Mr Adamson had been supplied financial information relating to the chip shop business, including figures for daily takings and expenditure.  He had also been supplied tax returns.  From the information that Mr Adamson had received he was able to reconstruct profit and loss accounts for the accounting years ending 30 June 2009, 2010, 2011 and for the period 1 July to 20 October 2012.  Mr Adamson’s reconstructed profit and loss accounts for the chip shop business showed a net profit, after deduction of tax and national insurance, for the period 1 July 2008 to 20 October 2012 as follows:

(1)  Year ending 30 June 2009                                               £16,351

(2)  Year ending 30 June 2010                                               £18,741

(3)  Year ending 30 June 2011 (closed 1/11 – 19/5)  £14,962

(4)  Year ending 30 June 2012 (closed 23/10 – 23/2)            £19,925

(5)  Period 1 July 2012 to 20 October 2012               £10,883

[11]      Mr Adamson had also seen invoices from Martyn Edwards Limited, who were the manufacturer that the pursuer had purchased the bulk of the equipment for the chip shop from.  The invoices from Martyn Edwards Limited totalled £27,286 excluding VAT (£32,061.93 inclusive of VAT).  Mr Adamson had discussed the lifespan of the said equipment with the pursuer who had estimated that it had a lifespan of 15 years from the date of purchase.  Mr Adams then used that information to apply depreciation to the equipment and confirmed that, as at 20 October 2012, the equipment would have been approximately fifty per cent through its life span and therefore would have depreciated by fifty per cent.

[12]      Mr Adamson explained how he had then calculated the likely average profit between 20 October 2012 until 30 June 2020 (30 June 2020 is 15 years from the opening of the chip shop on 1 July 2005 – i.e. the period of the verbal lease).  Mr Adamson applied weightings of 1, 2 and 4 to each of the net profit for years ended 30 June 2009, 2010 and 2012, on the assumption that any future profits would have been likely to follow the most recent years of trading. He discounted the year ended 30 June 2011 as being atypical due to the chip shop being closed for over 6 months of the year.  Mr Adamson then multiplied the net profit for the years ended 30 June 2009, 2010 and 2012 by the weighting attributed to them and then dived the total sum by 7 (1 +2+4=7) to arrive at a weighted average net profit of £19,076, which he rounded down to £19,000.  Mr Adamson therefore calculated future net profit after deduction of tax and national insurance for period 20 October 2012 to 30 June 2020 as follows:

(1)  Year ending 30 June 2013                      £8,117 (£19,000 less actual calculated profit to 20

                                                            October 2012 of £10,883)

(2)  Year ending 30 June 2014                       £19,000          

(3)  Year ending 30 June 2015                       £19,000          

(4)  Year ending 30 June 2016                       £19,000          

(5)  Year ending 30 June 2017                       £19,000          

(6)  Year ending 30 June 2018                       £19,000          

(7)  Year ending 30 June 2019                       £19,000          

(8)  Year ending 30 June 2020                       £19,000          

Total                                                    £141,117                    

 

Mrs Gray
[13]      Mrs Gray fully supported the pursuer’s version of events and spoke to findings in facts 1 to 19. 

[14]      Mrs Gray explained that after she came home to look after her mother, she took on joint responsibility for the petrol station with her father, the deceased.    The deceased lived next to the petrol station and was in overall control of it.  He knew every aspect of the petrol station business.  In particular, the deceased, at all times, knew of the significant overdraft due to the Bank of Scotland. Indeed she talked with the deceased about the overdraft all the time and incessantly talked about ways to reduce the overdraft. 

[15]      Mrs Gray explained how, after her marriage, she lived in the Chalet with the pursuer and that the Chalet was located in the grounds of the deceased’s house at Burnside Cottage.  The deceased came to the Chalet for his evening meal almost every night.  The deceased was a controlling character and knew every aspect of her life and knew exactly what was going on with the petrol station business and the financial difficulties it was in.  There were numerous discussions with the pursuer, the deceased and herself about how to transform the forecourt shop into a profitable business.  After much discussions, the pursuer, the deceased and Mrs Gray struck upon the idea of the converting the forecourt shop into a chip shop.  Thereafter the three then talked almost exclusively about “chips and children”.

[16]      Mrs Gray spoke vividly about the evening when a verbal agreement was reached for forecourt shop to be leased by the pursuer from the deceased.  The pursuer, the deceased and Mrs Gray were all in the Chalet.  They were talking about the pursuer running the chip shop and, as nothing at this point had been formally agreed, Mrs Gray asked the deceased what the pursuer would do if anything happened to the deceased.  This prompted a discussion about the basic terms of a lease and at the end of the discussion it was agreed that:

(1)  The deceased would lease the forecourt shop to the pursuer.

(2)  The forecourt shop would be converted into a chip shop.

(3)  The rent would be that the pursuer would be responsible for the staffing and running costs of the petrol station business, save for the purchase of fuel.

(4)  That the duration of the lease would be for 15 years from the date the chip shop opened.

Mrs Gray described that the last part of the agreement to be reached was the duration of the lease.  What had happened in that regard was that that deceased said to the pursuer “I will give you fifteen years.”  The pursuer and the deceased then stood up, shook hands on the deal and slapped each other on the back.  Mrs Gray described it as being an awkward but lovely moment because of what it meant for her family.  Mrs Gray became visibly and genuinely upset when she recounted this moment in her evidence.  Mrs Gray was in no doubt that a lease had been agreed.

[17]      Mrs Gray explained that she did ask the deceased whether the agreement to lease the forecourt shop should be put in writing. The deceased’s response was that the agreement was made by the family and that, as such, he did not see the need for, and did not want to pay fees to lawyers for, putting the agreement into writing.  The agreement was therefore not reduced to writing.

[18]      Mrs Gray explained how the pursuer obtained funding for the conversion of the forecourt shop to the chip shop.  She confirmed that the pursuer purchased all the equipment for the chip shop and arranged for the fit-out to occur.  The deceased, contrary to what he suggested in his evidence on commission, was heavily involved in planning of the layout of the chip shop.

[19]      The chip shop started trading on 1 July 2005 and was a fantastic success.  It was well received and supported by the community.  The chip shop was fitted with two tills, one for the chip shop takings and one for petrol station business takings.  The deceased often helped out in the chip shop by taking the takings for both the chip shop business and the petrol station at the end of a day of trading.

[20]      Mrs Gray explained how the chip shop business was managed well by the pursuer and provided a comfortable living for the pursuer, her children and herself.  She explained how the relationship between the deceased and the pursuer deteriorated.  One of the problems was that Mrs Gray had always favoured the deceased to the pursuer.  That had a serious impact on Mrs Gray’s relationship with the pursuer.  By 2008 the relationship between the pursuer and the deceased was openly hostile and did not subsequently improve.  The deceased used to berate the pursuer for any little thing and would do so in front of customers.

[21]      Mrs Gray explained how trade was at its peak in the summer and at its lowest in the winter.  She explained how the chip shop was closed in the winter of 2010 and 2011, when the pursuer went to work on the mainland, but was clear that the lease remained in place and that it was always the pursuer’s intention to re-open the chip shop once the winter was over (which is exactly what happened).

[22]      Mrs Gray explained how matters came to a head in October 2012.  At that time the relationship between the deceased and the pursuer was extremely poor and the relationship between the pursuer and Mrs Gray was in difficulty.  Mrs Gray decided to take her children to London in order to visit her brother, Donald John MacNeil.  Whilst in London, she spoke to the deceased on the telephone.  The deceased said that a female, who had previously worked in the chip shop, was staying at the Chalet (Mrs Gray’s home) with the pursuer, and that she was being made a fool of.  Mrs Gray was furious about this and immediately telephoned the pursuer.  The pursuer told the pursuer that the deceased was talking nonsense.  Mrs Gray’s understanding was that after the telephone call the pursuer went to see the deceased to confront him as regards why he was telling lies to Mrs Gray.  Mrs Gray’s understanding was that there was a verbal confrontation between the pursuer and the deceased.  The deceased subsequently alleged that the pursuer had assaulted him and reported the matter to the police.  The police subsequently interviewed the pursuer but took no further action.

[23]      Mrs Gray confirmed that on 20 October 2012, which was a day or so after the confrontation between the pursuer and deceased, the deceased cut the electricity supply to the chip shop and refused to let the pursuer into the chip shop.  The pursuer asked on numerous occasions to be let back into the chip shop but the deceased refused.  As a result the pursuer has not been able manage the chip shop business or the petrol station business and the chip shop business was forced to cease trading.  Mrs Gray confirmed that pursuer has not been able to operate the chip shop business since 20 October 2012.

[24]      Mrs Gray also gave evidence about the Old School House and agreed with the pursuer’s account of events in that regard.  She explained that it was nonsense to suggest that the deceased had paid £146,000 to pay off the mortgage because that would have paid off the mortgage.  He did not and the Old School House is currently being re-possessed.

 

Deceased’s Evidence on Commission

[25]      The deceased explained that he was owner of Burnside Cottage and the petrol station.  The petrol station was opened in the 1960s and managed by his wife Flora.  He had two sons, Roderick John MacNeil (the defender), Donald John MacNeil and a daughter, Mrs Gray.  Mrs Gray had worked for a period in the Metropolitan Police but returned home to South Uist when her mother became ill.  On her return the deceased provided her with the Chalet to live in.  The Chalet was located next to Burnside Cottage.   Mrs Gray then helped out in the petrol station business.  The deceased’s wife died in 1996.

[26]      Mrs Gray married the pursuer in 1997 or 1998.  At that time the petrol station business was successful.  The petrol station business was selling petrol and the forecourt shop was a general grocer.  The petrol station business had an account with the Bank of Scotland and traded as D & F MacNeil.  The “D” was for Donald and the “F” was for Flora.  There came a point when the deceased allowed Mrs Gray run the petrol station business.  A Co-op store then opened on the island and that ruined the petrol station business.  This resulted in a decision being made to open a chip shop business.   Mrs Gray had the idea to open a chip shop.  The deceased simply agreed that Mrs Gray could open up a chip shop.  The only discussions the deceased had regarding the chip shop were with Mrs Gray only.  The pursuer was never present when these discussions took place.  The deceased had no discussions with the pursuer at all about the chip shop because it was Mrs Gray who was in charge of the forecourt shop.  The deceased remembered the forecourt shop being converted and new equipment installed.  He had nothing to do with the purchase of the chip shop equipment.  He did not pay for the equipment or the installation of it.   As far as the deceased was concerned, the only involvement that the pursuer was going to have in the chip shop was that he would be working there.  The deceased acknowledged that the pursuer had attended a fish frying course for that purpose.

[27]      The chip shop business then opened.  The deceased considered that Mrs Gray was in charge of the chip shop business.  The deceased thought that the petrol station remained owned by him but unbeknown to him, the pursuer opened two new Royal Bank of Scotland accounts for the petrol station business and the chip shop business.  The deceased accepted that the chip shop staff were accepting payment for petrol on behalf of the petrol station business but, as far as the deceased was concerned, this was done because the pursuer simply agreed to do this.  There then came a point when the deceased received a phone call from the Bank of Scotland to say that the petrol station owed £90,000.  This, according to the deceased, was the first knowledge he had of the £90,000 overdraft.  He had never ever run up any overdraft and it must have been all down to Mrs Gray as she was handling the petrol station business.  When he became aware of this overdraft Mrs Gray said that the deceased could put the Old School House in her name and she could obtain a mortgage. The deceased agreed to that and the Old School House was put in Mrs Gray’s name.  However, she could not secure a mortgage so the Old School House was put in the name of the pursuer and Mrs Gray.  They then obtained a mortgage of £131,000 but did not pay any of the mortgage repayments.  £80,000 of the £131,000 mortgage raised was paid to the Bank of Scotland to pay off the petrol station business overdraft (with the inference being that £51,000 was used by the pursuer and Mrs Gray).  The deceased paid all the monthly mortgage repayments for the Old School House and paid a lump sum of £146,000 towards the mortgage.

[28]      There was no lease in relation to the chip shop.  Mrs Gray was going to inherit the shop and there was therefore no need for a lease.  There were no discussions about rent.  There were no discussions about the length of time Mrs Gray was going to use the chip shop.  There were no discussions about a period of 15 years and no mention of a period of 15 years.  There was no need to discuss any of this because Mrs Gray was going to inherit the chip shop anyway.  There was no discussion with the pursuer about a lease.  He was just going to be working in the chip shop.  If the pursuer or Mrs Gray suggest otherwise, they were lying.

[29]      Following the above evidence at the commission the deceased had the following exchange with his own solicitor in relation to the period after the chip shop was opened:

Q         “Who was paying the overheads of the shop at this time?

A         Well, the shop, he was getting the shop free for no charge at all, so he was actually paying the staff to put the money in the till, that was all.

Q         Who was paying the wages of the staff at this time?

A         John [the pursuer] was paying, the chip shop was paying the staff because he had the chip shop free of charge so, therefore, his own staff put the money in the till, that was all.

Q         Who was paying the electricity bill? 

A         I was paying them.   First of all, I had a supply going to the chip shop because the plugs are 5 amp fuses but when he put in the chip shop equipment he needed heavier equipment so he caught the electricity bill for that at the time because it was much heavier than….   So, he put in electricity in his own name [my emphasis]. “ 

[30]      In cross examination the deceased had the following exchange:

Q         “So, they were John’s staff, they were his staff?

A         Yes, aye.

Q         So, he was running the chip shop?

A         Yes, aye.

Q         Not Michelle [Mrs Gray]?

A         Well, as far as I was concerned it was Michelle.

Q         Well she seems to suggest here that it was his staff that ran the filling station too?

A         Yes, as far as I was concerned they just put the money in the till.

Q         Okay, but we might hear evidence that it was John that was running the business, not Michelle, what would you say about that?

A         No, I wouldn’t agree with that at all.

Q         So, Michelle was running the business?

A         As far as I am concerned, yes.

Q         Was it a full-time job was it, running the business?

A         She was, aye.

Q         Who was looking after the children when she was running the business?

A         Well, she was part time you know, I wasn’t involved.

Q         Right, so as far as you’re concerned John was not running the business?

A         Michelle was running the business.

Q         Right, well I’m suggesting to you that that’s not true and that John was, in fact, running the business?

A         Well, I didn’t know about that.

Q         If we were to hear evidence from Michelle that John was, in fact, running the business you’re not in a position to contradict that are you?

A         Well, I was never there.”

[31]      The deceased did not see or sign any documents regarding the chip shop.  He remained paying the fuel for the petrol station business.  The chip shop was open until 1 November 2010.  On that date the pursuer told the deceased that he was shutting the business down and moving to the mainland, leaving his wife and five children.  This came as a shock to the deceased.  There were rumours that the pursuer was having an affair with a woman who used to work in the chip shop.   Mrs Gray ran the petrol station business during the period when the chip shop was closed.   The chip shop was closed until the pursuer re-opened it on 20 May 2011.  The chip shop was open until October 2011 and then it was closed again by the pursuer.  The pursuer re-opened the chip shop in February 2012.

[32]      In October 2012 the pursuer came to the deceased’s house, attacked him, knocking his teeth out during the attack.  As a result of that attack the deceased cut the power to the chip shop.  The pursuer never asked for the power to be put back on and just left the island.  After the power was cut the chip shop closed and the pursuer has not operated it since.  The deceased let his grandson, Donald John MacNeil Junior, re-open the chip shop at some point after October 2012 but it is now closed.

[33]      As far as the deceased was concerned, the equipment in the chip shop was worth only scrap value.  He made enquiries with the equipment manufacturer and they had advised him that the equipment was specifically designed to go in the chip shop and therefore only had a second hand value.  He was also of the view that the equipment now belonged to him because the pursuer either owed the deceased money or it had become part of the building (i.e. the chip shop which he owned).

 

The Defender

[34]      The defender did not really have much first-hand knowledge of matters as he did not live on South Uist during the material time.  In particular, he was not present when the verbal lease was said to have been agreed.

[35]      The defender did not think that the deceased would have lied at the commission.  The defender explained that he knew about the significant overdraft due to the Bank of Scotland by the petrol station business and it was suggested to him that the deceased had clearly lied about having no knowledge of the overdraft.  The defender suggested this may have been down to confusion on the deceased’s part but would not accept that the deceased was telling lies. He did, however, accept that some of the evidence given by the deceased at the commission was inaccurate. 

[36]      The defender accepted that he was not in position to contradict the evidence of the pursuer and his sister, Mrs Gray, that a verbal lease had been agreed between the pursuer and the deceased at the Chalet.   However, the defender sought to support the deceased’s version of events in relation to there being no verbal lease agreement by pointing to his knowledge of the deceased and how he operated.  He explained that he was man that knew about money and business.   He explained that the deceased would have insisted on a lease being in writing and that if he had agreed a lease it would have been a year to year lease.  The defender used to speak to the deceased on the telephone every day and he would have expected to have told him about a verbal agreement to lease the forecourt shop.  The deceased did not tell him about any such agreement, which suggested to the defender that no such lease had been agreed.  The defender maintained that the deceased would not have agreed a verbal lease with the pursuer.  In his own mind, the defender did not believe there to be a lease, but even if there was a verbal lease it was not in writing and therefore it should not be binding.

 

Donald John MacNeil

[37]      Donald John MacNeil was the son of the deceased, brother of the defender and the sister of Mrs Gray.  Donald John MacNeil was a [occupation] in 2005 and lived in London.  He was not present in South Uist when the verbal lease was said to have been agreed.  Indeed he conceded that he did not really have an understanding of arrangements with the chip shop until he spoke to Mrs Gray and his father in around the year 2012/2013.

[38]      Donald John MacNeil explained that he was aware that the chip shop was opening in July 2005.  At that point in time he had a good relationship with his sister, Mrs Gray, and spoke on the telephone to her every few months.  Mrs Gray was excited about the opening of the chip shop.   Donald John MacNeil was delighted for her and, as a gesture of good will, paid for the pursuer to attend the fish fryer course in Leeds. At that time Mrs Gray never mentioned any sort of lease of the chip shop and he was now of the view that that was because there was no lease.

[39]      Donald John MacNeil explained that the deceased did not like the pursuer and would not have granted a lease for that reason.  He did not think that the deceased would have shaken the pursuer’s hand on an agreement.  In his view anything that the pursuer mooted to the deceased would have fallen on deaf ears.   He considered that a 15 year lease made no sense and that the deceased would either have granted a year to year lease or a lease for life.  To his mind, there was no lease, it was simply a change of use of the forecourt shop.

[40]      Donald John MacNeil sought to contrast the pursuer’s position with that of his own son, Donald John MacNeil junior.  When his son had come to South Uist to operate the petrol station and chip shop business in 2013 the deceased had required Donald John MacNeil junior to sign a lease [although this purported lease / contract appears to be granted over a year after entry was allegedly taken].  Donald John MacNeil advised that the defender had countersigned this lease as he was now the owner of the petrol station and chip shop business.  I then enquired how the deceased could grant a lease if the defender was the owner and Donald John MacNeil explained that what the deceased was doing was granting a lease of the business.  Donald John MacNeil’s view was that Mrs Gray’s evidence about a verbal lease being agreed between the pursuer and the deceased was “completely untrue”.

 

Donald John MacNeil Junior

[41]      Donald John MacNeil junior was 20 years old at time of giving evidence.  He explained that he had been living at the Chalet (Mrs Gray’s former home) since April 2013.  He moved from London to South Uist in February 2013 in order to help his aunt, Mrs Gray, to move from the Chalet to her current address.

[42]      Donald John MacNeil junior explained that his grandfather, the deceased, then asked him to run the petrol station and chip shop businesses.  The deceased taught him step by step how to operate the petrol station business.  The deceased had a sharp business sense and the first thing the deceased did was draw up a written contract covering his use of the petrol station business and the chip shop business. This purported contract (which can be found at production 6/2/8 and is hereinafter referred to as “the purported contract)” was in the following terms:

“I Donald MacNeil, residing at Burnside, Daliburgh, Isle of South Uist in order to settle the succession to my means and estate after my death do hereby transfer ownership of my business interest, known as, D & F MacNeil, Burnside Filling Station to my grandson Donald John MacNeil, presently residing at Burnside Chalet, [address] with effect from First of April Two Thousand and Fourteen.

 

Furthermore I am granting my aforementioned grandson an indefinite lease of the shop premises in order that he can continue his business interest and that being the operation of a fish and chip shop.  Lease of the shop area is deemed to have commenced on First of May Two Thousand and Thirteen.  I am transferring ownership of all business assets including electrical equipment, furnishings and fittings and any other items pertaining to the shop to my grandson Donald John MacNeil with immediate effect.

 

I grant my grandson Donald John MacNeil with an indefinite lease of the premises known as Burnside Chalet.

 

The above testament is not intended to revoke a prior will but serves to modify it.

 

Donald MacNeil                                [signature] 31.5.14

Donald John MacNeil                                    [signature] 31.5.14

Iain Macdonald, Accountant                        [signature] 31.5.14 (witness)

I hereby agree with the terms of the above statement :

Roderick MacNeil                              [signature]

Donald MacNeil                                [signature]”

[43]      Donald John MacNeil Junior would, knowing the business sense of the deceased, have expected the deceased to have drawn up a similar written agreement in relation to the pursuer.  He did not think that the deceased would have agreed a lease without a written agreement being in place.

[44]      Donald John MacNeil junior opened the chip shop in May 2013.  At some point he had seen a solicitor letter saying that the deceased owned all of the equipment in the chip shop.  Donald John MacNeil junior had operated the chip shop in 2014.  The chip shop was profitable in 2014.  He has not operated the chip shop in 2015 [his evidence was given in November 2015] because he had decided to attend a diving course instead, however, he thought he would re-open the chip shop at some stage.

 

Disputed Issues

[45]      Although this was a complex and tense family dispute, the case ultimately boiled down to two disputed issues:

(1)  Whether the pursuer was entitled to delivery of the chip shop equipment, failing which, payment of the value of the chip shop equipment.

(2)  Whether the pursuer could rely on the personal bar provisions in the Requirements of Writing (Scotland) Act 1995 (hereinafter referred to as “the 1995 Act” – all references will be to this Act unless otherwise stated) in order to recover damages for the loss of future profits on the basis of material breach of the verbal lease.

I propose to deal with each issue in turn.

 

Issue 1 – Delivery

Parties’ Submissions

[46]      The submissions in relation this issue were brief.  The pursuer contended that there was no dispute that the pursuer purchased the equipment set out in production 5/1/2 and narrated in finding and fact 12 (hereinafter referred to as “the chip shop equipment”).  It was submitted that the only argument advanced by the defender was that the chip shop equipment had acceded to the land. There had been no evidence that could justify a finding that the chip shop equipment had acceded to the land.   Under reference to Miller, Corporeal Moveables in Scots Law, 2^nd Ed at para 3.12, the pursuer’s solicitor submitted that accession was determined on the basis of three elements.  First, there are the purely physical features of the relationship - how the thing is annexed, affixed or connected to heritable property - with the criterion being one of permanence.  Secondly, it may be relevant to look at the circumstances of the relationship from the abstract point of view of its purpose, function or design.  Thirdly, the intention behind the act of placing a moveable in a certain position in relation to heritable property may be material to the issue of accession.   In a very brief submission the pursuer’s solicitor submitted that virtually no evidence had been led in relation to the three elements identified and such evidence as there was pointed away from the chip shop equipment acceding to the land.  What was agreed was a 15 year lease and it could not be said that the installation of the chip shop equipment was of a permanent character.  Rather it was of a temporary character and that was clear from the circumstances.  In all the circumstances there was not any evidence to support a finding that the chip shop equipment had acceded to the land. 

[47]      During the pursuer’s submission I pointed out that there had only been limited evidence in relation to the value of the chip shop equipment.  The pursuer’s solicitor accepted this but noted that there was evidence from the pursuer and Mr Adamson which showed the value of the chip shop equipment when purchased and then evidence from Mr Adamson that, as at 20 October 2012, the chip shop equipment was likely to have been worth half of the purchase price, as a result of depreciation.  The pursuer’s solicitor made clear that what he was seeking was delivery and that the pecuniary element of crave 1 was merely a fall-back position.   I was not addressed on the test for granting decree of delivery nor was I directly addressed on who had current possession of the chip shop equipment.  However, it seemed clear from the thrust of the pursuer’s submission that it was contended that the defender was currently in possession of the chip shop equipment. 

[48]      The defender’s submission on this issue was extremely brief.  He submitted that this issue turned on ownership of chip shop equipment, with his position being that it had acceded to the land (the defender’s pleadings erroneously state that the chip shop equipment has “accresced” to the land).  The defender did not elaborate on this general proposition and did not refer me to any authority.  His fall-back position was that the chip shop equipment was of limited value and pointed, firstly, to the evidence of Mr Adamson, which suggested the chip shop equipment had depreciated by fifty per cent, as at 20 October 2012 and, secondly, to a letter, from Martin Edwards – Frank Ford Limited, where that company had offered to purchase the frying range from the deceased for £900. In making his submissions the defender seemed to accept that he currently had possession and control of the chip shop equipment and he certainly did not make any submissions which suggested otherwise.

 

Applicable Law

[49]      The normal judicial remedy for recovery of possession of corporeal moveables is an action of delivery.   In this case the pursuer asserts he is the owner and therefore has a real right in chip shop equipment.  In an action founded on a real right, the pursuer is entitled to recover the property from the person currently in possession without regard to the history of that possession or to considerations of good faith (see Scottish Central Rly Co v Ferguson (1863) 1 M 750). Where a possessor dies or is sequestrated, an action of delivery is available against his executor or trustee, but in their capacity as possessors rather than as judicial successors in title (Reid, The Law of Property in Scotland at para 158).

[50]      There are four defences to an action of delivery, namely (1) that the defender is not or is no longer in possession, (2) that the defender is entitled to possession and the pursuer is not, (3) that the title of the pursuer to possession is no better than the title of the defender, and (4) that, while the defender has no title to possess, the title of the pursuer is vitiated by illegality (Reid, The Law of Property in Scotland at para 158 and footnote 13, where Professor Reid confirms that possession is not used in its technical sense and includes custody). Unlike the other defences, the first defence is not a complete defence because where a party, in the knowledge of his own lack of title, relinquishes possession, whether by alienation or by destruction, he will remain bound in restitution for the value of the thing formerly possessed unless or until it is vindicated from a subsequent possessor (Stair I, 7, 2).

[51]      In this case the defender seeks to advance the second defence on the basis that the chip shop equipment has acceded to land.  In my view, assuming the pursuer has proved, on the balance of probabilities, the necessary elements to succeed in action of the delivery, the burden of proving that defence falls on the defender (in other words the maxim ei qui affirmat, non ei qui negat, incumbit probatio (on he who asserts, not he who denies, is the obligation to prove) applies – see Walker and Walker, The Law of Evidence in Scotland, 4^th Ed, para 2.2.4 and 2.4.1).

[52]      As regards accession, the factors necessary in order for accession to take place have been analysed in different ways by different authors.  However, there is general broad agreement as regards their nature and relative importance (although there is some disagreement about subjective intention).   In The Law of Property in Scotland at para 579 to 583 Professor Reid identifies three conditions.  First there must be some physical connection, and normally attachment, between principal and accessory. Secondly, the accessory must be subordinate in function to the principal.  Thirdly, the attachment must be permanent, or at least more than merely temporary.  Usually all three conditions must be satisfied, at least to some degree, before accession can take place.  In relation to the third condition Professor Reid identifies four additional factors.  First, there is the question of whether the degree of attachment employed is greater than strictly necessary.  Secondly, there is the issue of mutual special adaption.  Thirdly, there is the question of whether the article is of a kind which is usually left or usually taken, when a building changes occupancy.  Fourthly, there is the question of installation and removal time. 

[53]      The original sanction for failure to comply with a decree for delivery was civil imprisonment but, in an application for warrant for imprisonment, the court now has discretion to recall the decree on which the application proceeds and make an order for the payment of a specified sum or make such other order as appears to the court to be just and equitable in the circumstances including a warrant to officers of court to search any premises and to take possession of, and deliver to the applicant, the goods in respect of which the decree was granted (section 1 of Law Reform (Miscellaneous Provisions) (Scotland) Act 1940).

 

Discussion

[54]      There was only limited evidence in relation to this issue.  Both the pursuer and Mrs Gray spoke to the pursuer funding the conversion of the chip shop and purchasing the chip shop equipment.  In particular the pursuer spoke to purchasing and owning the equipment set out in production 5/1/2 and narrated at finding in fact 12.  I accepted the pursuer and Mrs Gray as credible and reliable throughout their evidence.  The pursuer was a straightforward witness who I considered to be telling truth about how events unfolded.  Mrs Gray was, in my view, an impressive witness.  She found herself giving evidence in a dispute which was initially between her father (the deceased) and her estranged husband (the pursuer) and was now between her estranged husband and her brother (the defender).  She was cross examined by her brother (the defender).  She had no particular loyalty to the pursuer given that she had separated from him and admitted in evidence that “she was not his biggest fan”.    She gave her evidence with dignity and understandably became emotional at times.  She had lived in the next house to the deceased for approximately 20 years and gave a compelling account of events, which was peppered with details that only enhanced the credibility and reliability of her account.   I had no difficulty in accepting that Mrs Gray was entirely truthful.  Where the evidence of the other witness differed to that given by the pursuer and Mrs Gray, I preferred the evidence of the pursuer and Mrs Gray.  On the basis of the evidence of the pursuer and Mrs Gray I had no difficulty in concluding, subject to the argument about accession, that the chip shop equipment was owned by the pursuer.

[55]      There was minimal evidence about who was currently in possession of the chip shop equipment.  At the commission on 31 March 2015 the deceased asserted that he owned the chip shop equipment based on either it forming part of land he owned or because the pursuer allegedly owed him money.  In evidence Donald John MacNeil described the defender as the ‘owner’ of the petrol station and chip shop.  The defender did not challenge this description.  The purported contract between the deceased and his grandson, Donald John MacNeil junior was, on its face, agreed on 31 May 2014, after the commencement of this action, and had been countersigned by the defender ‘as owner’, according to Donald John MacNeil.  I did not regard Donald John MacNeil junior as a completely credible witness.  He had clearly benefited from the events in October 2012 in that he moved in to the Chalet (Mrs Gray’s home) and took over the petrol station and chip shop business.  He seemed to me to be partisan towards the defender’s position and was dismissive of Mrs Gray (who I found to be an impressive witness).  The purported contract allegedly transferred some unspecified business assets pertaining to the chip shop.  No evidence was led as regards whether this was the chip shop equipment or some other business assets.  Indeed the deceased’s evidence on commission, which was given 10 months after the alleged transfer of the business assets, was that he was still the owner of the chip shop equipment.  Such evidence points against the chip shop equipment being included in the purported contract and also points against the deceased having an intention of transferring ownership of the chip shop equipment.  Further, assuming that the chip shop equipment had not, by that stage, acceded to the land, the chip shop equipment was owned by the pursuer and, accordingly, the deceased’s title was void and any transfer to Donald John MacNeil junior would be void on the basis of the nemo dat quod non habet principle (see Reid, Law of Property in Scotland at para 669).  In any event, the evidence of Donald John MacNeil junior and the deceased was that Donald John MacNeil junior had not operated the chip shop since 2014 and that the chip shop had been closed for over a year.  In such circumstances it seemed to me that the weight of evidence, although limited, pointed to the defender being currently in possession and control of chip shop and the contents within it.  Such a conclusion was consistent with the defender relying on the second defence (and not the first defence) to an action of delivery (see para 50 above)

[56]      As regards that second defence, the defender led no evidence about the three elements or four factors identified in para 52 above.  In such circumstances I have no difficulty in holding that the chip shop equipment had not acceded to land.  That means that the defender’s defence to the action of delivery cannot succeed and that any purported transfer of the chip shop equipment to Donald John MacNeil junior is void.

[57]      In the circumstances, I was satisfied, to the required standard, that the pursuer was the owner of the chip shop equipment, that the chip shop equipment had not acceded to land and that the defender was currently in possession and control of the chip shop equipment. Had the action been directed against the defender in both his representative capacity and as an individual I would have concluded that the pursuer was entitled to delivery of chip shop equipment.  However, the death of the deceased during the course of the action has resulted in technical difficulty for the pursuer.  That difficulty is that the defender is only sued in his representative capacity and, as we have seen at para 49 above, the defender ought to have been sued, for the purposes of the delivery crave (crave 1), in his individual capacity as possessor rather than as judicial successor in title.  The Ordinary Cause Rules does provide a mechanism for curing such a difficulty by amendment (see OCR 18.2(2)(b)(iii); but see also Macphail (Edited by Welsh QC), Sheriff Court Practice, 3^rd Ed at para 10.22)  but, at this stage, no such amendment has been moved (and I would reserve my position as regards whether such an amendment would be in the interests of justice).

[58]      Crave 1 seeks delivery, failing which, payment of the value of the chip shop equipment.  I consider that the deceased knew of his lack of title to the chip shop equipment and that he has now relinquished possession of the same to the defender.  In those circumstances I am of the view that the deceased remains liable for the value of the chip shop equipment that he formerly possessed unless or until it is vindicated from a subsequent possessor (here the defender).   I do not think that the alternative remedy of payment of the value of the chip shop equipment in crave 1 is affected by the technical difficulty set out in para 57 above, however, the alternative remedy does not, as matters stand, appear to be supported by a plea in law.  As I have already indicated, there was minimal evidence about the value of the chip shop equipment.  The evidence that was available was that the purchase price of a significant amount of the chip shop equipment was £32,061.93 (£27, 286 excluding VAT) and that, as at 20 October 2012, the equipment had depreciated by fifty per cent.  In such circumstances, and on the basis of the limited evidence available, it seemed to me that £16,000 was a reasonable valuation of the chip shop equipment. 

[59]      Given that crave 1 is framed in the alternative and that a difficulty has arisen in relation to both the primary and alternative remedy sought,  I will, in the circumstances, fix a procedural hearing to be addressed on, and give further consideration to, the proper disposal of crave 1.

 

Issue 2 - The verbal lease and personal bar

Parties’ Submissions following the Proof Before Answer

[60]      The pursuer’s solicitor invited me to accept the pursuer and Mrs Gray as credible and reliable witness.  In particular, he submitted that the evidence of Mrs Gray was compelling.  She gave a detailed account of the evening when the lease was discussed and agreed and, in particular, described the awkward moment when the pursuer reached agreement with the deceased.  He submitted that the evidence of the defender, Donald John MacNeil, and Donald MacNeil junior was of little assistance in determining whether a lease had been agreed as they had not been present when that had occurred.  Only the pursuer, Mrs Gray and the deceased had been present and it was only they who could confirm what had been agreed. The evidence of the deceased had been shown to be littered with inconsistencies and where there were differences between the evidence of the deceased on the one hand, and the pursuer and Mrs Gray on the other hand, the evidence of the latter two witnesses should be preferred.  Their evidence accorded with common sense and should be preferred to that of the deceased whose evidence was littered with inconsistencies.

[61]      The pursuer’s solicitor, under reference to the Stair Memorial Encyclopaedia, Laws of Scotland, Landlord and Tennant (Reissue) at para 4, submitted that the four essentials for a lease at common law were:

(1)  parties who have reached consensus in idem;

(2)  occupation of heritable subjects;

(3)  a consideration of rent; and

(4)  a period of time which the subjects are let.

In the present case all four elements were present.  The parties were the pursuer and deceased.  The subjects were the chip shop.  The consideration was that the pursuer would be responsible for the staffing and running costs of the petrol station business, save for the purchase of new fuel.  The period of let was 15 years from 1 July 2005.  The pursuer and the deceased had reached consensus in idem on each of those four elements in the Chalet and as such had agreed a verbal lease.  

[62]      The pursuer’s solicitor referred me to the current version of the 1995 Act and submitted that a lease for more than one year normally required to be in writing but in this case the statutory personal bar provisions in section 1(3) and (4) applied and therefore the pursuer could rely on the verbal lease even though it was not in writing.  In this case the verbal lease fell within section 1(2)(a)(i) of the 1995 Act.  This meant that section 1(3) and (4) could be engaged.  In terms of section 1(3) the pursuer had acted in reliance of the verbal lease with the knowledge and acquiescence of the deceased.  In terms of section 1(4) the pursuer had, as result of acting in reliance of the verbal lease, been affected to a material extent.  He had carried out improvements, built up the business, and then lost substantial profits after being prevented from entering the chip shop.  In all the circumstances the conditions set out in section 1(4) had been satisfied and the lease was, accordingly, valid.

[63]      Having established the validity of the verbal lease, the pursuer’s solicitor submitted that the deceased’s actions of cutting the power to the chip shop and preventing the pursuer access was a material breach of the verbal lease which therefore meant that the pursuer was entitled damages.  Under reference to Hadley v Baxendale (1854) 9 Ex 341, the pursuer’s solicitor submitted that the appropriate test for the assessment of damages was either those that may fairly and reasonably be considered either arising naturally i.e. according to the usual course of things, from the deceased’s material breach of contract or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.  In this case the latter test was appropriate.  What was in the contemplation of the parties was a 15 year lease.  Accordingly, it would have been within the reasonable contemplation of the parties that if the pursuer was prevented access to the chip shop he would lose profits as a result.  In the circumstances the evidence from Mr Adamson had shown that £19,000 per year was a reasonable estimate of the annual loss of net profits suffered and therefore £141,000 was a reasonable estimate of the pursuer’s loss between 20 October 2012 and the date when the lease was supposed to come to an end.

[64]      The defender submitted simply that it had not been proved that a lease had been agreed between the deceased and the pursuer.  The deceased was a man of standing in the community and had given evidence at the commission under oath.  His evidence was credible and he had said there was no lease.  He was a man who was astute in business and he would not have entered into such a lease without it being in writing.  He had subsequently entered into a lease with his grandson (Donald John MacNeil junior) which was in writing.   The evidence of both the pursuer and Mrs Gray were coloured by the poor relationship they had with the deceased.  As regards the critical evidence about whether or not a lease had been agreed, the deceased’s evidence should be preferred over that of the pursuer and Mrs Gray and the court should find that there was no consensus in idem and, accordingly, no lease.  In any event, even if a verbal lease had been agreed it was for more than a year and, as such required, in terms of section 1 of the 1995 Act, to be in writing.  The lease was not in writing and was therefore invalid.

 

Parties’ subsequent written submissions

[65]      During initial closing submissions the solicitor for the pursuer referred me to the current version of the 1995 Act but not any case law.  Whilst I was preparing this Opinion I identified a number of potentially relevant authorities including The Advice Centre for Mortgages v McNicoll 2006 SLT 591, Caterleisure Ltd v Glasgow Preswick International Airport Ltd 2006 SC 602 and  Gyle Shopping Centre General Partners Ltd v Marks and Spencer PLC [2014] CSOH 122.  In the circumstances, I requested and was provided with further written submissions addressing, against the background of the cases I have referred to, how section 1 of the 1995 Act ought to be applied to the facts of this case.   I also requested submissions on the applicable version of the 1995 Act.  Those written submissions are lodged in process and I therefore only intend briefly summarise them here.

[66]      The pursuer’s solicitor submitted that the three cases referred to above disclosed potentially contradictory lines of authority.  On the one hand there were the Outer House decisions in The Advice Centre for Mortgages and Gyle Shopping Centre and, on the other hand, there was in the Inner House decision in Caterleisure Ltd.  It was submitted that all three cases could in fact be reconciled, but if they could not, the Inner House decision in Caterleisure Ltd should be followed.  The pursuer’s solicitor, under reference to Campbell v Mclean 1870 8M (HL) 40, submitted that a lease was a personal contract where the occupancy of the subjects contracted for created a real right.  It follows, it was submitted, that there can be a breach of contract concerning personal rights, and there can be a breach of the contract concerning real rights, with the remedy sought for the corresponding breach being potentially different.  What the pursuer was doing in this case was seeking damages for the breach of contract concerning personal rights and that therefore brought the lease within section 1(2)(a)(i) and therefore allowed the pursuer to rely on the statutory personal bar provisions in section 1(3) and (4). 

[67]      The pursuer’s solicitor submitted that The Advice Centre for Mortgages case could be distinguished because, in that case, the pursuers sought declarator against a successor in title to the original landlord on the basis of the real rights created by the purported lease.  As regards the Gyle Shopping Centre case the pursuer’s solicitor submitted that the remedy sought by the pursuer was again declarator on the basis of the real rights created under the lease, and, accordingly, could again be distinguished from the present case because what the pursuer sought was damages based on personal rights.  The pursuer’s solicitor submitted that the Caterleisure Ltd case concerned a 12 year licence agreement.  In that case the Inner House, it was said, had held that a licence agreement should not be treated any differently to a lease and that the statutory personal bar provisions in section 1(3) and (4) could apply to a licence agreement.  That was contrary to both The Advice Centre for Mortgages and Gyle Shopping Centre cases which held that the statutory personal bar provisions could not apply to a lease.   The decision in Caterleisure Ltd was on all fours with the present case and, being a decision of the Inner House, should be followed.  The pursuer’s solicitor did not make any submissions as regards the applicable version of the 1995 Act.

[68]      The defender submitted under reference to the Gyle Shopping Centre case at para 12 that the applicable version of the 1995 Act was the one that existed at the time the purported lease was entered into.  The defender submitted that The Advice Centre for Mortgages case confirmed that where it can be inferred that the intention of the parties to a lease is that possession should be taken on faith of a lease or the lease should be registered then the lease would fall within section 1(2)(b) and, accordingly, reliance could not be placed on the statutory personal bar provisions in section 1(3) and (4).  The Advice Centre for Mortgages was recently affirmed in Gyle Shopping Centre.  In the present case the verbal lease fell within section 1(2)(b) and, accordingly, the pursuer could not rely on the statutory personal bar provisions in section 1(3) and (4). 

[69]      The defender also set out a fall-back position in the event that I found that there was a licence agreement as opposed to a verbal lease.  I have not made such a finding and therefore it is not necessary to rehearse the defender’s fall-back position.

 

The Applicable Law

[70]      I consider the correct version of the 1995 Act to be the version that was in force at the time that the verbal lease was entered into (i.e. early 2005).  At that time section 1 of the 1995 Act provided as follows:

“(1) Subject to subsection (2) below and any other enactment, writing shall not be required for the constitution of a contract, unilateral obligation or trust.

(2) Subject to subsection (3) below, a written document complying with section 2 of this Act shall be required for—

(a) the constitution of—

(i) a contract or unilateral obligation for the creation, transfer, variation or extinction of a real right in land;

(ii) a gratuitous unilateral obligation except an obligation undertaken in the course of business; and

(iii) a trust whereby a person declares himself to be sole trustee of his own property or any property which he may acquire;

(b) the creation, transfer, variation or extinction of a real right in land otherwise than by the operation of a court decree, enactment or rule of law; and

(c) the making of any will, testamentary trust disposition and settlement or codicil.

(3) Where a contract, obligation or trust mentioned in subsection (2)(a) above is not constituted in a written document complying with section 2 of this Act, but one of the parties to the contract, a creditor in the obligation or a beneficiary under the trust (“the first person”) has acted or refrained from acting in reliance on the contract, obligation or trust with the knowledge and acquiescence of the other party to the contract, the debtor in the obligation or the truster (“the second person”)—

(a) the second person shall not be entitled to withdraw from the contract, obligation or trust; and

(b) the contract, obligation or trust shall not be regarded as invalid,

on the ground that it is not so constituted, if the condition set out in subsection (4) below is satisfied.

(4) The condition referred to in subsection (3) above is that the position of the first person—

(a) as a result of acting or refraining from acting as mentioned in that subsection has been affected to a material extent; and

(b) as a result of such a withdrawal as is mentioned in that subsection would be adversely affected to a material extent.

(5) In relation to the constitution of any contract, obligation or trust mentioned in subsection (2)(a) above, subsections (3) and (4) above replace the rules of law known as rei interventus and homologation.

(6) This section shall apply to the variation of a contract, obligation or trust as it applies to the constitution thereof but as if in subsections (3) and (4) for the references to acting or refraining from acting in reliance on the contract, obligation or trust and withdrawing therefrom there were substituted respectively references to acting or refraining from acting in reliance on the variation of the contract, obligation or trust and withdrawing from the variation.

(7) In this section “real right in land” means any real right in or over land, including any right to occupy or to use land or to restrict the occupation or use of land, but does not include—

(a) a tenancy;             

(b) a right to occupy or use land; or

(c) a right to restrict the occupation or use of land,

if the tenancy or right is not granted for more than one year, unless the tenancy or right is for a recurring period or recurring periods and there is a gap of more than one year between the beginning of the first, and the end of the last, such period.

(8) For the purposes of subsection (7) above “land” does not include—

(a) growing crops; or

(b) a moveable building or other moveable structure.”

 

[71]      I consider that the key issue in this case is whether the verbal lease falls with section 1(2)(a)(i) or section 1(2)(b).  If the verbal lease falls within section 1(2)(a)(i) the pursuer will be able to rely on the statutory personal bar provisions in section 1(3) and 1(4).  If the verbal lease falls within section 1(2)(b) of the 1995 Act the pursuer will not be able to rely on section 1(3) and (4).

[72]      In The Advice Centre for Mortgages v McNicoll 2006 SLT 591 the purported commercial tenants of premises sought inter alia declarator that they were tenants of the subjects in either terms of missives of let or an unsigned lease.  Lord Drummond Young held that the missives of let did not disclose consensus in idem between the parties and were irrelevant to the pursuer’s case.  As regards the unsigned lease the pursuers sought to rely on the statutory personal bar provisions under section 1(3) and (4).  At para 17 and 20 Lord Drummond Young considered this argument and stated:

“[17] Thirdly, subss (3) and (4) of s 1 set up a form of personal bar. The requirements of those subsections correspond closely to the classical requirements of personal bar in Scots law as set out, for example, in the well known statement of the doctrine by Lord Birkenhead in Gatty v Maclaine at 1921 SC (HL), p 7; 1921 1 SLT, p 54 . In essence the second person, as defined in subs (3), has entered into a transaction with the first person that lacks the prescribed formalities, and the first person has acted upon that transaction to his prejudice, with the knowledge and acquiescence of the second person. That by itself is a strong indication that the rights created by subss (3) and (4) are personal in nature. Furthermore, the rules in subss (3) and (4) are designed to supersede the common law rules of rei interventus and homologation, as subs (5) makes clear. Those common law rules have always been classified as a form of personal bar. The fact that the provisions of subss (3) and (4) set up a form of personal bar has two important consequences. In the first place, where those provisions apply they operate as a defence available to the first person; they prevent withdrawal from the contract, obligation or trust in question, and the contract, obligation or trust is not to be regarded as invalid. Those subsections do not, however, make any claim or positive right available to the first person. According to the classic metaphor, they operate as a shield rather than a sword. In the second place, because they set up a form of personal bar, subss (3) and (4) only operate between the parties to the original transaction. They have no effect in relation to third parties, including singular successors. This is of importance in the present case, because the defender is a singular successor…

 

[18] Fourthly, the personal bar provisions of subss (3) and (4) are confined to the categories of contract, obligation and trust mentioned in subs (2)(a); they have no application to the types of transaction specified in subs (2)(b). Subsection (2)(a)(i) refers to “the constitution of … a contract … for the creation, transfer, variation or extinction of an interest in land”. Subsection (2)(b), by contrast, refers to “the creation, transfer, variation or extinction of an interest in land”, subject to certain exceptions. The intention is clearly to separate contracts relating to land on one hand from dispositions and other deeds that actually effect the creation or transfer of an  interest in land on the other hand. That is a distinction between a transaction that gives rise to merely personal rights and a transaction that gives rise to real rights, or at least rights that will be made real when another legal step is taken, that step being registration or, in the case of a lease, the taking of possession. Counsel for the defender submitted that the personal bar provisions in subss (3) and (4) should be confined to transactions that create rights that are purely personal. If, by contrast, a transaction creates rights that can be made real by registration or taking possession, personal bar is not intended to operate. I agree with this submission. In the first place, s 1(2) draws a clear distinction between contracts and unilateral obligations for the creation, transfer, variation or extinction of an interest in land on one hand (subs (2)(a)(i)) and the actual creation, transfer, variation or extinction of such an interest on the other hand (subs (2)(b)). That distinction is between personal rights on one hand and real rights on the other. Subsection (3) is confined to the former category of transactions, namely those that create personal rights. In the second place, the wording of subs (3) refers to the creditor and debtor in the obligation, who are referred to as “the first person” and “the second person”. That wording is plainly habile to deal with personal contractual obligations, but it does not fit well with the creation of real rights, which of course affect the whole world, not merely a particular debtor and creditor. In the third place, at a purely conceptual level, the notion of personal bar does not fit comfortably into a system of real rights. It is true that under the pre-1995 law the concepts of rei interventus and homologation were applied to real rights; an example of this is found in Clark's Exrs v Cameron. Nevertheless, the critical feature of a real right is that it is a good against the whole world, and it is clearly desirable that exceptions to this norm should be narrowly confined. In this connection, it is significant that the Scottish Law Commission, in their Report on Requirements of Writing (Scots Law Com No 112), which led to the 1995 Act, recommended at para 2.50 that there should be a general statutory requirement of writing for the voluntary creation, transfer, variation or extinction of an interest in land. They commented on this recommendation as follows: “We do not think that there should be any provision for actings in relation to the matters covered by [the foregoing recommendation]. There is a distinction in this respect between the underlying contract or obligation for, say, the creation or transfer of an interest in land and the actual creation or transfer of it. The distinction is clearest in the case of missives for the sale of land and the disposition of the land, but exists in other cases too, although it becomes very blurred in the case of leases. It is reasonable to say that a person cannot back out of an obligation if the requisite actings have followed on it. It also seems reasonable to say that an actual conveyance is either valid or invalid whether or not actings have followed on it”.

 

The commentary goes on to point out that that in cases where actings have followed missives they can be used to set up the missives, which can then be subject to an action for implement or damages for breach of contract. In any event, it is pointed out that the whole question of rei interventus will become much less important if the sole requirement for formal validity is subscription. In my opinion the foregoing commentary discloses a clear intention in the legislation to distinguish obligations that create purely personal rights from those that create real rights, and to confine the personal bar provisions to the former.

 

[19] As is pointed out in the passage quoted from the Scottish Law Commission's report, the distinction between a contract for the creation of legal rights and the actual creation of those rights can become blurred in the case of leases. On one hand, a lease is itself a contract for the creation of an interest in land. On the other hand, it creates an interest in land, which will give rise to real rights when possession is taken or the lease is registered. For present purposes it is not necessary to determine any general criteria for allocating leases to one or other of the two categories. It is sufficient to hold that, where it can be inferred that the intention of the parties to a lease is that possession should be taken by the tenant on the faith of the lease document, or the lease document should be registered, thus creating real rights in the tenant, that document will create an interest in land and will accordingly fall within subs (2)(c) of s 1[this appears to be an error and should read “(2)(b) of s1”]. In that event the personal bar provisions contained in subss (3) and (4) will not apply. In my view that is the clear intention of subs (2). That subsection draws a fundamental distinction between documents that create property rights on one hand and mere contracts on the other hand. That distinction must be given effect in the case of leases. While that task may in some cases be difficult, if the document in question is one that is clearly intended, objectively speaking, to create a right of property in the tenant, it must be treated as falling within para (b) of the subsection and not para (a)(i).

 

[20] In the present case the lease is a formal document. Moreover, it was clearly designed to follow antecedent missives. In the circumstances I am of opinion that it must be inferred that the parties' intention was that possession should be taken on the faith of the lease. It follows that the lease is a document intended to create an interest in land, falling within s 1(2)(b), and not a mere contract for the creation of an interest in land, which would fall within s 1(2)(a)(ii). The consequence is that the personal bar provisions contained in subss (3) and (4) do not apply. That is sufficient for me to hold that the pursuers' averments are irrelevant to the extent that they seek to apply those two subsections to the lease. The personal bar provisions would be potentially applicable to the missives, but for the reasons stated above at paras 9–14 I am of opinion that no consensus can be discovered in the missives.”

 

The relevant version of section 1(2)(a) and section 1(2) (b) for the purposes of Lord Drummond Young’s Opinion referred to “an interest in land”.  The Abolition of Feudal Tenure etc (Scotland) Act 2000 substituted the expression “a real right in land” for “an interest in land”, however, that amendment does not, in my view, have any effect on Lord Drummond Young’s Opinion.

[73]      In Gyle Shopping Centre the pursuer was the owner of a shopping centre who had leased a retail space of the shopping centre to the defender.  The defender‘s lease included real rights in “shared areas” of the shopping centre.  The pursuer wanted to build a new retail store on land that formed part of the “shared areas”.  The pursuer contended that the defender had entered into a contract or undertook a unilateral obligation for variation and partial extinction of the real rights they had in respect of the land that the pursuer wanted to build on.  That contract or obligation was said to have been entered into verbally at a Management Committee meetings and by signature of minutes of these meetings “for and on behalf of” the defender.  The pursuer submitted that they could then rely on the statutory personal bar provisions in section 1(3) and 1(4).  At para 14 to 17 Lord Tyre addressed that issue:

“14 The first proposition is not controversial. The second is [that section 1(3) of the 1995 Act can apply to lease], at least as regards a lease which creates or varies a real right in land. Section 1(3) applies to a contract, obligation or trust mentioned in section 1(2)(a); it does not apply to anything else. In particular, it does not apply to the creation or variation of a real right in land for which a written document is required by section 1(2)(b). The argument for the pursuer is based upon the fact that a lease may also be a contract and is accordingly capable of falling within section 1(2)(a)(i) as well as section 1(2)(b). The relationship between section 1(2)(a) and 1(2)(b) in the context of leases was discussed by Lord Drummond Young in The Advice Centre for Mortgages v McNicoll 2006 SLT 591. At paragraph 18, Lord Drummond Young observed that the legislative intention is clearly to separate contracts relating to land (i.e. transactions giving rise to merely personal rights) on the one hand from dispositions and other deeds that actually effect the creation or transfer of an interest in land (i.e. transactions giving rise to real rights) on the other hand. He accepted a submission that the personal bar provisions should be confined to transactions that create rights which are purely personal and were not intended to apply to a transaction creating rights that could be made real by registration or taking possession. That fundamental distinction had to be given effect in the case of leases. Where, therefore, it could be inferred that the intention of the parties to a lease was that real rights would be created in favour of the tenant, the document would fall within section 1(2)(b) and the personal bar provisions in section 1(3) would not apply.

 

15 Counsel for the pursuer invited me not to follow Lord Drummond Young's decision. It was submitted that common law rules concerning rei interventus applied to leases and there was nothing to indicate that Parliament intended to give the new statutory personal bar in the 1995 Act a more restrictive application. In any event, The Advice Centre for Mortgages was distinguishable in that it concerned the creation of a lease whereas the present case was concerned only with real rights in the car parking area etc which were pertinents ancillary to the pursuer's lease of their store.

 

16 I respectfully agree with Lord Drummond Young's analysis. I agree in particular that the 1995 Act draws a fundamental distinction between the creation of personal rights, where a party's actings may bar him from founding upon a failure to constitute the contract in a written document complying with section 2, and the creation of real rights, good against third parties, as regards whom a party's actings can have no such effect. As Lord Drummond Young explained, there are sound policy reasons for drawing such a distinction, and it respects the “personal” character of the doctrine of personal bar explained by Lord President Rodger in William Grant & Sons Ltd v Glen Catrine Bonded Warehouse Ltd 2001 SC 901 at paragraph 29. It also accords with the views of the Scottish Law Commission, expressed in their Report no 112 on Requirements of Writing which led to enactment of the 1995 Act. As the Commission put it at paragraph 2.50 of the Report, in a passage applicable to leases as well as to dispositions of land:

 

“It is reasonable to say that a person cannot back out of an obligation if the requisite actings have followed on it. It also seems reasonable to say that an actual conveyance is either valid or invalid whether or not actings have followed on it.”

 

As the Act makes it clear (in section 1(6)) that the same rules apply to transfer, variation and extinction of rights as apply to creation of rights, it follows that the statutory personal bar provisions of section 1(3) have no application to the variation of a real right in land. I see no reason to distinguish between a real right in the principal subjects leased and a real right which is granted as a pertinent to the principal subjects.

 

17 Applying this analysis to the circumstances of the present case, the statutory personal bar would be capable of applying to an agreement to vary the terms of the defender's lease, but not to a variation of the lease itself. The difficulty for the pursuer is that its case is necessarily based on the latter, not the former, having occurred. It is not averred by the pursuer, and there has been no evidence to suggest, that the agreement said to have been reached at Management Committee meetings was an agreement to vary the terms of the lease; on the contrary, it seems from the evidence of the pursuers' witnesses that no thought was ever given by the Management Committee to the terms of the lease. It must follow, in my opinion, that no relevant case is made by the pursuer that the lease has been varied, as a consequence of the pursuer's actings, known to and acquiesced in by the defender, in reliance upon an oral agreement reached at a Management Committee meeting that the pursuers should construct the building for letting to Primark.

 

18 The first basis upon which the pursuer's case is presented accordingly fails as a matter of law.”

 

[74]      At para 19 to 20 of his Opinion Lord Tyre went to hold (in agreement with the opinion of Lord Drummond Young in The Advice Centre for Mortgages at para 22) that the plain meaning of section 1(5) of the 1995 Act was that the pre-1995 Act law of rei interventus and homologation was replaced in its entirety by the personal bar provisions in section 1(3) and 1(4) of the 1995 Act.  As such the informal agreements falling within section 1(2)(b) of the 1995 Act could not rely on the common law rules of rei interventus.   

 

Discussion 

[75]      In relation to this issue, and for the reasons previously stated, I found the pursuer and Mrs Gray credible and reliable.  I accepted the evidence of the pursuer and Mrs Gray and where there was dispute with other witnesses, and in particular with the deceased, I preferred the evidence of both the pursuer and Mrs Gray.  I considered that there were a number of difficulties with the deceased’s evidence.  First, the deceased’s evidence that he had no discussions with the pursuer about opening the chip shop was contrary to common sense.  At the material time the undisputed evidence was that the pursuer and Mrs Gray lived in the Chalet next to the deceased’s house and that the deceased came to the Chalet for his evening meal almost every evening.  In such circumstances, where a family is looking to embark on a new business project, it defies logic that the pursuer would not have been involved in discussions about the chip shop.  Mrs Gray’s evidence was that almost all that was talked about was “chips and children” and I consider that accords with common sense and that she was telling truth.  Secondly, the deceased’s evidence that the pursuer was simply a worker in the shop was contradicted by his own evidence which I have narrated in question and answer format at para 29 and 30 above.  That passage of evidence shows the deceased describing the pursuer as has having control of the chip shop staff but still insisting that Mrs Gray is running the chip shop.  When it was put to him that she was looking after young children he then claims that he “was never there” (i.e. never in the chip shop),which, standing the evidence of the pursuer and Mrs Gray, is simply untrue.  Thirdly, the deceased’s evidence about being completely unaware of a £80,000 or £90,000 overdraft to the Bank of Scotland is incredible.  Mrs Gray explained how the overdraft was constantly discussed.   I could see from the way she gave her evidence that she was the type of person who would be worried and anxious about the overdraft and indeed common sense would suggest that such a significant overdraft would be discussed.  Fourthly, the deceased’s claim that he paid £146,000 towards the mortgage on the Old School House was contrary to the undisputed evidence that the mortgage on the Old School House was in significant arrears and that the Old School House was in the process of being repossessed.  I did not consider that I could place any reliance on the deceased’s evidence where it differed from that of Mrs Gray and the pursuer.  Importantly, I accepted their evidence in respect of the events that took place in the Chalet when the verbal lease was agreed.  Mrs Gray’s account about that evening was compelling.  She described the moment the lease was agreed as being an awkward but lovely moment because of what it meant for her family.  I had no difficulty in accepting Mrs Gray’s evidence about the verbal lease being agreed at the Chalet (see finding in fact 8 and para 16 above).  Her evidence on this point was corroborated by the pursuer.  Again I accepted the pursuer’s evidence on this point.  There was no significant dispute about the events of 20 October 2012 and it was accepted that the deceased had cut the power to the chip shop and prevented the pursuer from accessing it. 

[76]      Having set out the applicable law in paras 70 to 74 above, one can see that the critical question is whether or not the statutory personal bar provisions in section 1(3) and (4) apply.  That depends on whether the verbal lease falls within the meaning of section 1(2)(a)(i) (in which case the statutory personal bar provisions will apply) or 1(2)(b) (in which case the statutory personal bar provisions will not apply).  The reasons for the statutory personal bar provisions only applying to section 1(2)(a)(i) and not section 1(2)(b) are  explained by Lord Drummond Young at para 18 of The Advice Centre for Mortgages under reference the Scottish Law Commission Report No 112 at para 2.50.  Para 2.50 of that report recommended that there should be a general statutory requirement of writing for the voluntary creation, transfer, variation or extinction of an interest in land.  The commentary to that recommendation provides:

“We do not think that there should be any provision for actings [i.e. personal bar] in relation to the matters covered by [the above recommendation]. There is a distinction in this respect between the underlying contract or obligation for, say, the creation or transfer of an interest in land and the actual creation or transfer of it. The distinction is clearest in the case of missives for the sale of land and the disposition of the land, but exists in other cases too, although it becomes very blurred in the case of leases. It is reasonable to say that a person cannot back out of an obligation if the requisite actings have followed on it. It also seems reasonable to say that an actual conveyance is either valid or invalid whether or not actings have followed on it. If a person receives, say, an invalid disposition or lease when he was entitled to a valid one, then he can insist on implementation of the underlying agreement or damages for its non-implementation. The underlying agreement could be completed by actings under our recommendations. In any event the whole question of rei interventus in this area will become much less important if the sole requirement for formal validity is subscription. A major role of rei interventus has been to cure formal defects in genuine subscribed writings. There would be no need for that in future.”

 

In that commentary the Scottish Law Commission can be clearly seen to have considered whether personal bar should apply to what became section 1(2)(b) but ruling it out because of the distinction they draw.  The Scottish Law Commission then highlight that the distinction is blurred in relation to leases but then note that a party to an invalid lease may be able to rely on the underlying agreement to recover damages.  However, the difficulty with that solution is that when it comes to leases, there may be no underlying agreement.  Often there is simply a lease or missives of let. A lease can both create the tenant’s real right (once it is registered or possession is taken), and also constitute a contract.  Missives of let constitute a contract for the creation of a lease, but may also form the basis for the real right.  In both The Advice Centre for Mortgages and Gyle Shopping Centre the court had to consider whether a lease fell within section 1(2)(a)(i) or section 1(2)(b).  In both cases it was recognised that a lease could be capable of falling within either section 1(2)(a)(i) or section 1(2)(b) but the court in both cases ultimately concluded that the statutory personal bar provisions should be confined to transactions that the create rights which were purely personal and were not intended to apply to a transaction creating rights that could be made real by taking possession or registration (Gyle Shopping Centre at para 14).  Accordingly, where it could be inferred that the intention of the parties to a lease is that possession should be taken by the tenant on the faith of the lease, thus creating a real right in the tenant, the lease will fall within section 1(2)(b) and the statutory personal bar provision will not apply (The Advice Centre for Mortgages at para 19). 

[77]      In the present case the pursuer’s averments are clear that what was agreed in the Chalet in early 2005 was a lease of the chip shop for 15 years.  There was no averment that could be construed as meaning that this was an agreement for a lease (i.e. an underlying agreement), which could fall within section 1(2)(a)(i) of the 1995 Act).   Nor did the pursuer aver any alternative case based on the verbal lease being construed as an annual lease, renewable by tacit relocation (see The Advice Centre for Mortgages at para 21).   The evidence of both the pursuer and Mrs Gray, which I have accepted as both credible and reliable, was that it was a lease of the chip shop that was agreed at the Chalet in early 2005 (see finding in fact 8).  There was no evidence of a separate underlying agreement. Both section 1(2)(a)(i) and 1(2)(b) refers to a “real right in land”.  The meaning of that phrase “is any real right in or over land, including any right to occupy or to use land or to restrict the occupation or use of land”.  In my view both the pursuer and Mrs Gray were of the view that the pursuer had verbally agreed a lease and that the clear intention of the parties to the lease was that possession and occupation of the chip shop would be taken by the pursuer on the faith of that lease.  In other words, all the parties thought the verbal lease would create a real right in land.   Accordingly, what we are left with is a single agreement which was, on the one hand, a contract for the creation of a real right in land (section 1(2)(a)(i)) and, on the other hand, was capable of creating a real right in land (section 1(2)(b)).  In such circumstances, the verbal lease could not be described as creating purely personal rights (see The Advice Centre for Mortgages at para 18 and Gyle Shopping Centre at para 14).  Therefore, according to The Advice Centre for Mortgages and Gyle Shopping Centre, the verbal lease falls within section 1(2)(b) rather than section 1(2)(a)(i).   This leads to the unfortunate result that the pursuer cannot rely on section 1(3) and (4). 

[78]      In my view, this does seem a harsh result given the facts of the case.  It also seems to result in the statutory personal bar provisions being narrower in scope than the common law of re interventus in relation to informally constituted leases.    I gave careful consideration as to whether section 1(3) ought to be construed as simply identifying the nature of the right to be recused from challenged.  The argument in this case being that as the verbal lease straddled both section 1(2)(a)(i) and section 1(2)(b), the contractual or purely personal right could nevertheless be recused from challenge if the conditions in section 1(3) and (4) were met (although the real right could not be recused standing the terms of section 1(3))  (the foregoing argument has some support: see Reid, Personal bar: three cases, Edin LR  2006, 10(3), 437 - I was not referred to this article).   Had I accepted that argument (which I ultimately have not), it would have resulted in the pursuer being able to rely on a contractual right against the deceased.  I also had some reservation as regard whether the pre-1995 Act law of rei interventus could still apply in relation to section 1(2)(b) and (c) given that section 1(5) specifically refers only to section 1(2)(a) (that argument also has some support - see Rennie, Requirements of Writing: Problems in Practice [1996] SLPQ 187, which is referred to in Gyle Shopping Centre at para 19).  However, the pursuer did not advance a case under pre-1995 Act  law and I have, in any event, ultimately come to view that I respectfully agree with the analysis of both Lord Drummond Young and Lord Tyre set out in para 72 to 74, summarised at para 76 and applied to the facts of this case at para 77 above.

[79]      I am therefore of the opinion that the verbal lease falls within section 1(2)(b) and therefore the pursuer cannot rely on the statutory personal bar provisions in section 1(3) and (4).  The verbal lease was therefore invalid and the defender was entitled to withdraw from it (see McBryde, The Law of Contract in Scotland, 3^rd Ed at para 5-76).  The deceased clearly withdrew from the verbal lease on 20 October 2012.  Accordingly, the pursuer’s claim for damages for loss of profits is based on a material breach of an invalid lease from which the deceased was entitled to withdraw from and did in fact withdraw from.  In such circumstances I consider that the pursuer’s claim for damages must fail.

[80]      For avoidance of doubt, I did not consider the Extra Division’s Opinion in Caterleisure Ltd to be on all fours with the present case.  In that case the parties entered into a license agreement and a management agreement in respect of the provision of retail and catering services by the pursuers to the defenders.  The pursuers averred that drafts of these agreements had been negotiated to a point which it was orally agreed that a deal had been struck and that the pursuer should commence operations on 8 January 2001.  The pursuers did commence operations on that date but on same date the defenders intimated that the contract was at an end.  The draft license agreement contained an expiry date on 7 January 2013 and provided an option to bring the license to an end early on giving 6 months notice.  The pursuers raised an action for damages for premature termination of the agreements.  The pursuers’ averred that the license agreement fell within section 1(2)(a)(i) and that was not an averment that was challenged and therefore the court did not hear argument on whether, as matter of law, that was correct.  In particular, given that the court was considering a license agreement, it did not require to consider whether a lease would fall within section 1(2)(a)(i) or 1(2)(b).  Rather, what the Extra Division was concerned with was, first, whether, as a matter of construction, the license agreement was for a duration of 12 years or, due to the option, a period of less than one year, and secondly, if the license was for a period of 12 years, whether the pursuers had averred a relevant case under the statutory personal bar provisions in section 1(3) and (4).   The Extra Division ultimately decided that the license agreement was for a duration of 12 years and that the pursuer had averred a relevant case under the statutory personal bar provisions.  In my opinion, the Extra Division’s opinion in Caterleisure Ltd is not at odds with the The Advice Centre for Mortgages and Gyle Shopping Centre because different points of law were being considered.  Both the latter cases were considering whether a lease fell within section 1(2)(a)(i) or 1(2)(b).   Caterleisure Ltd was not considering that point.  I also cannot find anything in Caterleisure Ltd to support the pursuer’s solicitor’s submission that Caterleisure Ltd is authority for the proposition that leases should not be treated any differently from license agreements for the purposes of considering section 1 of the 1995 Act. What the Extra Division say, at para 14, is that when considering the question of construction of the license agreement in relation to the duration of the license, that should not be treated differently to the question of construction of a lease in relation to the duration of a lease.  In the circumstances, I consider Caterleisure Ltd can be distinguished from the facts in the present case.

[81]      That is sufficient to determine this issue, but given that my decision turns of a point of law which could potentially be considered by a higher court, I consider it appropriate to consider the pursuer’s claim for damages in the event that I am wrong and the verbal lease does fall within section 1(2)(a)(i). 

[82]      If the verbal lease had fallen within section 1(2)(a)(i) of the 1995 Act I would have found:

(1)  that the pursuer had acted in reliance of that verbal lease by: (i) giving up his former career; (ii) carrying out renovations to the chip shop; (iii) opening bank accounts; (iv) taking possession of the subjects; (v) providing consideration for rent; and (vi) building up trade and goodwill in the business by successfully trading for a number of years. All this occurred after the verbal lease had been agreed and on specific reliance of the verbal lease (I have not included the fish fryer course attended by the pursuer as that pre-dated the verbal lease). 

(2)  that the pursuer’s actings, referred to in para 82(1) above, were all done with the knowledge and the acquiescence of the deceased. 

(3)  that as a result of the pursuer acting in the manner above that he has been affected to a material extent in that he has: (i) given up his former career; and (ii) incurred significant expenses in renovating the chip shop.

(4)  that as a result of the deceased’s actions on 20 October 2015 and subsequently (by refusing repeated requests of the pursuer to reconnect the power and allow the pursuer back into the chip shop) the pursuer has been adversely affected to a material extent in that he has lost a profitable chip shop business and is now unemployed.

Accordingly, I would have found that the conditions set out in section 1(4) of the 1995 Act were satisfied and that section 1(3) of the 1995 Act applied in relation to the verbal lease.  Having made such a finding I would have found: (1) that the deceased’s actions on 20 October 2015 amounted to a material breach of the verbal lease; (2) that there was nothing to suggest that the verbal lease did not bind the deceased’s representative; and (3) that that the pursuer could recover damages for the losses caused by the deceased’s breach of the verbal lease.

[83]      If I had reached the point of considering damages I would have been of the view that the damages sought could have fallen within either the first or second rule set out Hadley v Baxendale, namely that the loss of profits between 20 October 2015 and the end of the lease on 30 June 2020 (hereinafter referred to as “the relevant period”) were losses that that may fairly and reasonably be considered as arising naturally i.e. according to the usual course of things, from the deceased’s breach of contract and such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. 

[84]      I considered that Mr Adamson was a highly experience forensic accountant who had given careful scrutiny to the financial records of the chip shop and had used the past performance of the chip shop to calculate the estimated future profits of the chip shop.  I considered Mr Adamson’s approach and calculations fairly and reasonably estimated the annual loss of profit after tax and national insurance at £19,000 (which when considered against the relevant period gave total loss of profit of £141,117).  I would have found that the deceased knew his actions would have caused the pursuer such a total loss of profit and that this was a loss that could not have been reasonably avoided.  I therefore would have found that payment to the pursuer of £141,117 would have placed the pursuer in the same position, as nearly as regards profits, as he would have been had there been no breach of contract by the deceased.  

[85]      In summary, had I found the verbal lease had fallen within section 1(2)(a)(i) of the 1995 Act, I would have granted decree, in terms of crave 2, awarding damages to the pursuer of £141,117 (but I would have fixed a hearing to be addressed on the question of when interest should run from - see McBryde, The Law of Contract in Scotland, 3^rd Ed at para 22-130 to 22-131).

 

Disposal
[86]      I have found that, as matters stand, there is a difficulty with granting the primary and alternative remedy sought in crave 1 of delivery.  In such circumstances, I have fixed a further procedural hearing to be addressed on the proper disposal of crave 1.  I have also found that the pursuer is not entitled to recover the damages sought in crave 2.  In the circumstances I will:

(1)  repel pleas in law 2, 4 , 5 and 6 for the pursuer;

(2)  sustain plea in law 4 for the defender and grant decree of absolvitor in respect of crave 2.

(3)  repel pleas in law 5 to 11 and 13 for the defender.

(4)  allow plea in law 1 and 3 for the pursuer and pleas in law 1 to 3 and 12 for the defender to remain standing as they relate to crave 1.

At the procedural hearing fixed to consider the proper disposal of crave 1, I will also consider the question of expenses.