United Kingdom House of Lords Decisions

LORD JUSTICE-CLERK (Ross).—The defenders are tenants under a sub-lease of certain heritable property at Town Centre, Cumbernauld. The pursuers are the landlords. In terms of the sub-lease, the defenders were obliged to pay the pursuers rent calculated in accordance with the provisions of part II of the schedule to the sub-lease at the times and in the manner therein specified. In accordance with these provisions, the defenders were obliged to pay the pursuers rent on 11th November 1988. In terms of the sub-lease interest was also payable on said rent. The defenders did not pay the rent due to the pursuers on 11th November 1988. On 15th December 1988 the solicitor for the pursuers wrote to the defenders requiring payment of the rent due by 4th January 1989, and stating inter alia that if the defenders failed to make payment, the sub-lease might be terminated.

Payment was not made on 4th January 1989, but it is averred by the defenders that on that date the defenders sent to the pursuers' solicitor a cheque in payment of the rent payable on 11th November 1988 together with interest. On 5th January 1989 the pursuers' solicitor issued a further notice to the effect that an irritancy had been incurred and requiring the defenders to remove from the leased premises forthwith. Upon receipt of that notice the defenders' managing director on 6th January 1989 wrote to the pursuers' managing director enclosing a banker's draft for the sum outstanding in respect of rent and interest. This letter was delivered by hand to the pursuers' registered office in London on 6th January 1989. On the same date the pursuers returned the banker's draft to the defenders, and on 9th January 1989 the pursuers' solicitor wrote to the defenders' company secretary returning the cheque above referred to.

Thereafter the pursuers raised the present action which contains a number of conclusions. The first conclusion is for declarator that an irritancy had been incurred and for an order ordaining the defenders to remove from the subjects. The second, third and fourth conclusions are for sums of money claimed in respect of the defenders' occupation of the subjects since the alleged irritancy was incurred. The action went before the Lord Ordinary on procedure roll. Before him parties were agreed that a proof before answer was appropriate in respect of the monetary conclusions, and the argument on procedure roll was related to the relevancy of the averments in support of the first conclusion and the relevancy of the defenders' averments of oppression. Before the Lord Ordinary the defenders contended that the notice given in the letter of 15th December 1988 was inadequate because it failed to comply with the requirements of sec. 4 (2) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985, and that accordingly no irritancy could have taken place on the strength of that letter. The pursuers on the other hand argued that the letter complied with both the statutory requirements and the requirements of the lease, and they further contended that the defenders' averments of oppression contained in ans. 6 were irrelevant and that decree de plano should be pronounced in respect of their first conclusion. Before the Lord Ordinary counsel for the defenders expressly departed from the averments in ans. 5 questioning the effectiveness of the service of the letter of 15th December 1988. The Lord Ordinary held that the attack on the adequacy of the letter failed, and he also held that the defenders' averments, if proved, could not in any way establish oppression. He accordingly repelled the defenders' fourth and fifth pleas-in-law, sustained the pursuers' second and third pleas, and their fourth plea to the extent of granting decree de plano in terms of the first conclusion. Quoad ultra, of consent he allowed a proof before answer in respect of the remaining conclusions. Against that interlocutor of the Lord Ordinary the defenders have reclaimed.

Before this court counsel for the defenders intimated that they were no longer insisting on their submission that the notice did not satisfy the requirements of the statute, and that the only point being argued was as to the proper scope of the defence of oppression. They contended that the Lord Ordinary had erred in taking the view that the defenders' averments did not amount to a relevant defence of the oppressive use of irritancy by the landlords. They accordingly invited the court to recall the Lord Ordinary's interlocutor, to repel of consent the defenders' fourth plea-in-law, and quoad ultra to allow a proof before answer. They explained the pursuers' second plea-in-law should not be sustained at this stage since the averments relating to the notice of 15th December 1988 had a bearing upon the issue of oppression. Counsel for the pursuers, on the other hand, invited the court to refuse the reclaiming motion and to adhere to the interlocutor of the Lord Ordinary.

In seeking to support the granting of the reclaiming motion, counsel for the defenders submitted (1) that the question of whether there had been oppressive use of a conventional irritancy in a lease fell to be determined upon a consideration of all the circumstances of the case; (2) that for a defence of oppression to succeed, the defenders accepted that there must be some conduct (active or passive) on the part of the landlords which rendered exercise of their power of irritancy unfair in all the circumstances; (3) that this was not a case where the only ground relied upon for oppression arose from the consequences to the tenant of the lease being terminated, i.e. the defenders did not say merely that terminating the lease would have a harsh effect on the tenants; (4) nor was this a case where the tenants merely sought to be excused because there had been a mistake or oversight on their part in failing to pay the rent timeously; (5) they contended that the defenders' averments did establish oppression on the part of the pursuers; and (6) oppression is a self-contained doctrine and is not merely an aspect of a broader defence of fraud or personal bar. Counsel then proceeded to examine the relevant authorities namely Stewart v. Watson (1864) 2 Macph. 1414, McDouall's Trs. v. MacLeod 1949 S.C. 593, Lucas's Exors. v. Demarco 1968 S.L.T. 89, Dorchester Studios (Glasgow) Ltd. v. Stone 1975 S.C. (H.L.) 56, H.M.V. Fields Properties Ltd. v. Skirt 'n' Slack Centre of London Ltd. 1982 S.L.T. 477, and H.M.V. Fields Properties Ltd. v. Tandem Shoes Ltd. 1983 S.L.T. 114.

Counsel for the defenders maintained that it was necessary to consider all the circumstances and they submitted that the two principal factors upon which they relied for the defence of oppression were, first, the previous history of acceptance by the pursuers of late payments of rent, and, secondly, the averment that the defenders' staff were misled by the terms of the letter of 15th December 1988 into thinking that there could be no question of the sub-lease being terminated until court proceedings had taken place. These were said to be the two critical factors to be considered, although they also contended that these two critical factors had to be considered in the light of various other elements which had been averred including the fact that the defenders had intended to pay the rent on 4th January 1989, the fact that a cheque for the outstanding rent was sent then, the fact that any delay was minimal, the fact that the pursuers would be adequately compensated for any late payment by interest at the enhanced rate provided for in the sublease, and the disproportionality between the prejudice to the defenders on the one hand compared to the prejudice to the pursuers on the other hand if the irritancy were not enforced. They submitted that a combination of these circumstances amounted to a relevant defence of an unfair exercise by the pursuers of their power to irritate the lease.

The pursuers on the other hand emphasised that it was now accepted by the defenders that the notices sent on 15th December 1988 complied with both the conventional and the statutory requirements. They also stressed that before oppression could be held to have occurred, it would require to be shown that there had been oppressive acts on the part of the landlord. They submitted that the averments did not disclose any improper conduct or abuse or misuse of power on the part of the pursuers; the defenders' failure to pay the rent timeously was solely their own responsibility; the defenders had not offered any explanation for their failure to pay the rent prior to 20th December, i.e. there was no explanation for their failure to pay rent on 11th November 1988 or for the 39 days thereafter; what the pursuers were seeking to do was to enforce a contractual obligation; the pursuers had not sought to irritate the lease until the rent was unpaid for a period of at least 55 days; and when the decision to irritate was taken, there was no suggestion by the defenders that the pursuers had received any explanation or communication from them as to the position. Under reference to the authorities, counsel for the pursuers maintained that oppression required some improper conduct or misuse or abuse of power by the pursuers, and they submitted that it was not unfair or oppressive for a landlord to hold his tenant to his bargain. The fact that the consequences of the irritancy might produce hardship for the defenders was irrelevant as was any question of the pursuers' motive. They stressed that the defenders had not sought to advance any defence of waiver. They also submitted that the various factors founded on by the defenders were insufficient to instruct a defence of oppression.

I am satisfied on the basis of the authorities cited that where a landlord has sought to irritate a lease, the court has power to intervene if the landlord's action in irritating the lease can properly be regarded as oppressive or a misuse or abuse of power. For that proposition there is ample authority. (Stewart v. Watson, McDouall's Trs. v. MacLeod, Lucas's Exors. v. Demarco and Dorchester Studios (Glasgow) Ltd v. Stone .) In all these authorities it is stressed that where allegations of oppression are made, it is the conduct of the landlord which requires to be considered. Thus in Stewart v. Watson at p. 1420, Lord Justice-Clerk Inglis said:

"I think that the landlord went very reasonably about the whole matter."

Subsequently at p. 1421 the Lord Justice-Clerk said of the tenant:

"He was not taken by surprise by the sequestration, or by the action of removing. He had ample notice of both, and the circumstances of this case, so far from offering ground for saying that the landlord pressed this irritancy hardly and oppressively against the tenant, shew that he was dealing leniently with the tenant, because he might have raised the action of removing a month earlier than he did."

At p. 1422, Lord Benholme said:

"I have no longer any doubt that this is an effectual irritancy; it is a reasonable one; and, if it be fairly carried out, without undue harshness or catching, I do not think this court can interfere."

In McDouall's Trs. v. MacLeod Lord Justice-Clerk Thomson said at pp. 599–600:

"It is open to a tenant to invoke the equitable jurisdiction of the court and to plead that there has been a misuse or an oppressive use of the powers conferred on the landlord by the contract."

Subsequently (at p. 603) under reference to Stewart v. Watson, he added:

"Finally it reserves the right of the court to interfere to prevent oppressive use or abuse of irritancies."

In Lucas's Exors. v. Demarco where a defence of waiver was rejected, Lord Guthrie stated at p. 96:

"‘Oppression’ infers that there has been impropriety of conduct on the part of the landlord. ‘Misuse of rights’ or ‘abuse of irritancies’ involves that the terms of the contract have been invoked by the landlord to procure an unfair consequence to the tenant. These terms ‘oppression’, ‘misuse of rights’ and ‘abuse of irritancies’ are different expressions of the same idea. In this case the defender has not averred any improper conduct of the pursuers."

At p. 97 Lord Migdale after referring to McDouall's Trs. v. MacLeod said:

"The lease was clearly a lucrative one for the tenant. He should therefore have been careful to see that he did not imperil it by not complying with his obligation to pay his rent punctually. I am unable to see how it can be said that the landlord was hard and oppressive in insisting on his right to bring the lease to an end if payment was not made within 21 days. The consequences on the tenant are certainly severe but they are not harsh or oppressive."

At p. 98 Lord Cameron said:

"No doubt the right still rests with the Court to interfere with the actions of parties to prevent oppression, misuse or abuse of irritancies, but the circumstances in which the Court will be persuaded to interfere will be not only exceptional but must be precisely and pointedly averred."

In Dorchester Studios v. Stone in the opinion of the court delivered in the Inner House, it is stated at p. 60:

"It cannot be doubted that the court has a power to intervene when the exercise of a landlord's right to irritate a lease can be held to be ‘oppressive’ and a misuse or abuse of power."

Lord Kilbrandon in his speech stated at p. 67:

"The rule is subject to a power in the court to refuse to grant a decree of irritancy where there has been anything unfair about the landlord's conduct."

Under reference to Stewart v. Watson Lord Fraser of Tullybelton stated at p. 71:

"All the judges were careful to point out that in any case of abuse or oppressive use of an irritancy the court might refuse to enforce it."

Subsequently at p. 72 he stated:

"Finally, of course, the court always has the power to give relief to a tenant against oppressive use of the irritancy."

At p. 73 Lord Fraser stated that he entirely agreed with the opinion of the Lord President (Emslie) delivered in the Inner House.

Counsel drew attention to the report of the Scottish Law Commission on Irritancies in Leases which was presented to Parliament in February 1983. In para. 2.6 it is stated:

"The authorities, however, disclose that the Scottish Courts have interpreted oppressive use or abuse in an extremely narrow way in the context of irritancy of leases."

In the following paragraph, 2.7, it is stated:

"A commentator on Dorchester Studios observed in relation to the power to relieve from oppressive use of irritancy that, ‘although the equitable power has been acknowledged to be waiting in the wings, in all of the modern cases it has never been allowed on stage to affect the action’. The restricted scope of the common law power has been emphasised in two cases decided since Dorchester Studios and we think that the present interpretation of oppression makes it likely that the power will seldom, if ever, be exercised."

For myself, I am not persuaded that the Scottish courts have interpreted oppressive use or abuse in an extremely narrow manner, but if the Scottish Law Commission are correct in what they say, it is significant that Parliament has not sought to prescribe any different interpretation by legislation. Following on the report of the Scottish Law Commission, there was enacted the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985. In terms of sec. 4 of that Act if a landlord wished to rely upon a clause of irritancy for non-payment of rent, he required first of all to serve a notice on the tenant requiring the tenant to make payment within the period specified in the notice and stating that if the tenant did not comply with that requirement, the lease might be terminated. In the case of irritancy clauses not relating to monetary breaches of leases, it was provided in terms of sec. 5 that a landlord should not be entitled to rely upon the irritancy clause "if in all the circumstances of the case a fair and reasonable landlord would not seek so to rely". It is significant that no such provision was enacted in relation to irritancy clauses relating to monetary breaches of a lease, and accordingly it is plain that in cases like the present the common law rules relating to oppression remain in force.

Against that legal background which was not really disputed, it is necessary to consider whether the defenders have averred a relevant case of oppression. As already observed, the defenders intimated that they were relying upon two principal factors. The first of these was said to be the previous history of acceptance by the pursuers of late payments of rent. I am quite satisfied that the averments which are made in this respect are insufficient to support a case of oppression. It appears that throughout 1988 the defenders were late in making payment of rent, that they stopped payment of a cheque on one occasion, and that on another occasion a cheque required to be presented twice before it was honoured. It is not, however, contended that the pursuers in any way waived compliance with the terms of the lease relating to payment, and I am not persuaded that a landlord who has been indulgent to a tenant in the past about late payment of rent can be said to be acting oppressively if he subsequently requires the tenant to comply with the provisions in the lease regarding payment of rent. Indeed when the whole history of past payment of rent is considered, the only reasonable inference is that the pursuers, far from acting oppressively, had behaved leniently towards the defenders so far as prompt payment of rent is concerned. In this connection it is significant that the rent had been unpaid for a period of approximately 55 days before the pursuers took steps to irritate the lease. Moreover at the time when the pursuers decided to irritate the lease, the defenders had at no stage offered any explanation for their failure to pay the rent timeously.

The other principal factor relied upon was the suggestion that the defenders' staff had been misled by the terms of the letter of 15th December 1988. It was contended that the letter caused them to conclude that there could be no question of the sub-lease being terminated until court proceedings had been taken. The terms of the letter are set out in art. 5 of the condescendence. In my opinion the terms of the letter are not such that they could reasonably be held to give rise to any misunderstanding on the part of the defenders' staff. In the final paragraph of the letter the pursuers' solicitor calls for the defenders to make payment of the amount outstanding failing which the pursuers will have no alternative but to raise a court action against them. In my opinion the reference to a court action must be a reference to taking proceedings in court to secure payment of the sum due. The letter then concludes with the following sentence:

"In addition to the other remedies open to CIN Properties Ltd. if you fail to comply with the foregoing requirements as to payment I have to inform you that the lease of the above subjects may be terminated."

In my opinion the language used in the final paragraph of the letter could not possibly have caused the defenders' staff to believe that there was no question of the sub-lease being terminated until court proceedings had been taken. What the pursuers' solicitor was doing in the final sentence of the letter was to comply with the requirements of sec. 4 (2) of the Act of 1985. The letter made it plain that it was written under reference to the lease, and it ought to have been read by the person to whom it was addressed against that background. In their averments in ans. 6, the defenders do not specify which members of their staff were not acquainted with the concept of an irritancy under Scots law and understood the notice to say that court proceedings would be necessary before there was any possibility of the sub-lease being terminated. In any event ignorantia juris neminem excusat. It is significant, moreover, that on the defenders' own averments, their managing director realised that the deadline of 4th January 1989 required to be met. The defenders' failure to make payment timeously was solely their own responsibility, and I can detect in their pleadings no basis upon which it could properly be held that the defenders had been acting oppressively when they decided to irritate the lease.

Counsel for the defenders conceded that if these two principal factors were not established the remaining factors were insufficient to support a case of oppression. I have considered each of these other elements to which I have referred above, and I am satisfied that they do not instruct a case of oppression. Indeed they are not, in my opinion, relevant to the issue of oppression.

In presenting their submissions counsel for the defenders referred to a passage from the opinion of the court in Dorchester Studios v. Stone at p. 60, and contended that the court was there holding that oppression might arise if there had been on the part of the tenants a misunderstanding as to the meaning and effect of the sublease. They submitted that the same would be true if there had been a misunderstanding on the part of the tenants as to the meaning and effect of the letter of 14th December 1988. I have read the passage in the opinion of the court, and in particular the words:

"It is not averred that the defenders' failure to pay the rent was in any way attributable to a misunderstanding of the meaning and effect of clause 7 of the sub-lease, nor is it suggested that the pursuers did anything which could have misled the defenders into thinking that the pursuers would be prepared to accept late payment of the rent and in so doing forego their right to irritate the lease."

In my opinion in that passage the court was simply considering what had been averred and what had not been averred, and the court was not saying that a defence of oppression could be founded upon the fact that the tenants misunderstood the meaning and effect of what was stated in the lease. As the court recognised, what was important was that there was no question of the landlords having done anything which could have misled the tenants into thinking that the rent did not require to be paid timeously. That is also true of the present case.

In all these circumstances I am satisfied that the Lord Ordinary reached the correct conclusion in this case, and I would accordingly move your Lordships to refuse the reclaiming motion and to adhere to the interlocutor of the Lord Ordinary.

LORD MAYFIELD .—This appeal is concerned with a conventional irritancy claimed in a lease in which the pursuers were the landlords and the defenders and reclaimers the tenants in a sub-lease. The defenders did not pay the rent due to the pursuers on 11th November 1988. It was provided in the lease that a clause of irritancy was applicable in several events one of which is the event of the defenders allowing the rent or any part thereof to be unpaid for a period of 21 days after the date appointed for payment, subject to a proviso that the irritancy should not be enforced until the tenant had been given written notice of the failure and, in the case of non-payment, allowed a period of 14 days from the service of the notice. Section 4 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 lays down in sec. 4 (2) the minimum requirements of an adequate notice. It is accepted that the irritancy concerned was a conventional one and that both statutory and contractual requirements had been met. The issue before this court is whether the written averments by the defenders relating to oppression were sufficient to go to enquiry by way of proof before answer. The Lord Ordinary thought not. Accordingly he granted decree de plano in relation to the first conclusion of the summons.

The facts were that the defenders did not pay the rent due on 11th November 1988. The solicitor for the pursuers wrote to the defenders on 15th December 1988 requiring payment of the rent due by 4th January 1989, stating that if the defenders failed to make payment the lease might be terminated. There was no immediate reply and on 5th January 1989 the pursuers' solicitor wrote a further letter intimating that an irritancy had occurred and requiring the defenders to remove from the subjects. On 6th January 1989 the defenders delivered by hand to the pursuers' registered office a bank draft for the sums demanded in the letter of 15th December. The draft and the cheque sent by post with a letter dated 4th January, said to have been received by the pursuers' solicitor on 9th January, were returned to the defenders. An action was then raised. The last paragraph of the letter of 14th December written on behalf of the pursuers stated:

"Accordingly on behalf of CIN Properties Ltd. I hereby require you to pay the said sum of £234,367.50 together with the interest before mentioned by 4th January 1989 failing which CIN Properties Ltd. shall have no alternative but to raise a court action against you. In addition to the other remedies open to CIN Properties Ltd. if you fail to comply with the foregoing requirements as to payment I have to inform you that the lease of the above subjects may be terminated."

In my view it is clear from the authorities that if oppression is to be established as a relevant defence it must be relevantly averred that there has been impropriety of conduct on the part of the landlord. That was accepted by counsel for the defenders. They conceded that if no impropriety of conduct could be established against the pursuers as landlords, they could not maintain that oppression had been relevantly averred. The essential averments relating to impropriety of conduct on the part of the landlord related to two factors, namely that there had been a previous history of delays in payment by the defenders to the pursuers of rent and other payments under the lease, and secondly, the terms of the letter referred to above were oppressive in that it misled the defenders' staff into thinking that court action would be raised before there was any possibility of the lease being terminated. It was submitted that if both those factors were considered together then there were sufficient averments of oppression to warrant a proof before answer. Putting it another way it was submitted that the defenders were lulled into a false sense of security because previously the landlords had not taken action when there had been delayed payments, combined with the allegation that the letter was misleading in that it conveyed the impression that court action would be raised before there was any possibility of the lease being terminated.

In my view the averments do not relevantly state a case of oppression. The pursuers carried out their contractual and statutory requirements. It is clear that the defenders did in fact delay in making payments prior to the present matter arising. The defenders were given every opportunity to make due payment. In fact the defenders' staff were instructed by the managing director to see that payment of the sums claimed was made by 4th January 1989. Though it is true that the events took place in the Christmas holiday period, nevertheless it was not suggested that those instructions could not have been carried out. What was suggested, however, was that the defenders' staff in London (not specified), were not acquainted with the concept of an irritancy under Scots law. These are not matters, however, related to the conduct of the landlords. There is no doubt that the landlords were entitled to rely on the conventional irritancy and one would have thought in the circumstances having regard to the large amount due that great care would have been taken to make payment. Nothing in the facts persuades me that in resorting to the use of an irritancy the landlords acted other than properly and within their rights. As regards the terms of the letter I have been unable to read it in such a manner as suggested by the defenders, namely that there would be no termination until there had been court action. In my view there are not sufficient pointed averments which lead me to the conclusion that a proof before answer on oppression should be granted. Counsel for the defenders referred to other factors which he submitted established that the actings of the landlords had been unfair to the tenants. I do not have to consider that submission because it was accepted that if all the circumstances were to be considered including unfairness, part of the circumstances had to include impropriety or abuse of the irritancy on the part of the landlords. In my view, however, as I have stated no such impropriety of conduct by the landlords has been relevantly averred. Accordingly I agree with the conclusion of your Lordship in the chair that the reclaiming motion be refused.

LORD CAPLAN .—The pursuers and respondents in this case are tenants under a head lease of a shopping complex at Cumbernauld. The reclaimers have acquired rights as subtenants under a sub-lease granted by the respondents dated 8th November 1983 and 2nd February 1984. The rent payable under the sub-lease was considerable and in particular a rent instalment of £234,367.50 was due by the reclaimers to their landlords on 11th November 1988. Clause 5 of the sub-lease provided for a conventional irritancy of the sub-lease in the event of the subtenants falling more than 21 days behind with payment of any instalment of rent and failing to respond to a formal notice allowing them a further 14 days for payment. In the present case the reclaimers by 15th December had failed to pay the said rent due by them on 11th November of that year. Accordingly on that date the respondents' solicitor sent a notice to various offices of the reclaimers, the terms of which are accepted to have conformed with the requirements about such notice in the said irritancy clause. As is accepted the notice also complied with the statutory requirements for notice in monetary breaches of lease which are stipulated by sec. 4 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985. By 4th January 1989 the reclaimers had still failed to tender the said outstanding rent and accordingly by letter to them dated 5th January 1989 the respondents purported to exercise their irritancy rights under the sublease and forfeited it. In the present action the respondents seek inter alia to enforce the said irritancy. The reclaimers accept that the respondents were technically correct when they invoked their rights under the irritancy clause but they set out certain circumstances in their defences which they claim would entitle the court to refuse to enforce the said clause on the basis that in exercising it the landlords had acted oppressively. The Lord Ordinary, after hearing debate on the procedure roll, concluded that the defenders had not stated a relevant defence to the conclusions aimed at the enforcement of the irritancy and he therefore by interlocutor dated 19th June 1990 granted decree de plano in respect of these conclusions: see 1990 S.C. 351. It is this determination by the Lord Ordinary which the reclaimers now attack.

In the course of argument we had the benefit of comprehensive submissions on the law concerning the circumstances under which the courts will refuse to enforce a conventional irritancy where it can be said that the landlord has acted oppressively in exercising it or has abused his powers. Indeed it was accepted by both parties that there can be circumstances where the court will refuse to enforce an irritancy because the landlord has acted oppressively or abused his power. There was, however, between the parties a considerable divergence of view as to the precise circumstances which could lead to intervention by the court on an equitable basis. Some of the issues ventilated in the arguments were interesting and important. However as it eventually emerged they were somewhat academic in the context of this case. Senior counsel for the reclaimers conceded that it was critical to the relevancy of the defence that the reclaimers should aver that the landlords had at least contributed to the occurrence of the irritancy by actings on their part which were unfair or irregular. It was contended that it was sufficient if it could be demonstrated that the landlords, by their actings when viewed against the whole circumstances of the case, had been partly responsible for the occurrence of the irritancy notwithstanding that the tenants themselves may have contributed by fault on their part. The reclaimers claimed that in their pleadings they had set out two aspects of the landlords' actings in the matter which had been contributory causes of the irritancy and thus could be said to be the basis for a finding of oppressive conduct on the part of the landlords. The principal factor was said to be the notice from the landlords' solicitor dated 15th December 1988 which was said to have misled the reclaimers' staff into believing that the landlords would not irritate the lease without first taking court action. Secondly, by accepting dilatory payment of rent on other specified occasions the landlords were said to have contributed to the conclusion on the part of the reclaimers' staff that the notice of 15th December did not contain an immediate threat of irritancy. The reclaimers also alluded to a number of other circumstances which bore on the equity of allowing the irritancy to operate but it was accepted that their defence could not succeed if they could not show that the landlords themselves could partly be blamed for the irritancy by their own actings in the specific respects which I have mentioned. Thus the relevancy of the reclaimers' case can be tested by looking at their averments concerning the said two references to conduct on the part of the landlords and if these averments fail to measure up to a relevant attribution of fault on the part of the landlords the reclaimers' case must fail. If the reclaimers fail on this aspect of the reclaiming motion, as I think they clearly do, it is not necessary for the determination of the questions before us for me to express any concluded view on the other wide ranging legal issues which were discussed. Moreover, given the said concession, it is not necessary that I comment upon the various authorities which were cited for the important issue can be determined without any reference to them.

As I have indicated it is admittedly pivotal to the defence that the reclaimers should be able to show that they were misled by the terms of the notice of 15th December 1988. The final paragraph of that notice is in the following terms:

"Accordingly on behalf of CIN Properties Ltd. I hereby require you to pay the said sum of £234,367.50 together with the interest before mentioned by 4th January 1989 failing which CIN Properties Ltd. shall have no alternative but to raise a court action against you. In addition to the other remedies open to CIN Properties Ltd. if you fail to comply with the foregoing requirements as to payment I have to inform you that the lease of the above subjects may be terminated."

Before it could even be seriously suggested that the landlords must be held responsible for having misled their tenants it would have to be shown that the terms of their document under consideration were reasonably capable of inducing the alleged misunderstanding. It would not be sufficient merely to establish that in fact a recipient had misunderstood the communication. No matter how clearly and carefully a communication is framed it is always possible that someone or other would misunderstand it and that for a variety of reasons. The test must be objective. Are the terms of the communication such as could reasonably be expected to lead to a misunderstanding? In the present case we are dealing with a formal notification from a solicitor concerning a commercial lease of major significance. On any view the communication warns of the imminence of serious legal procedures. Any solicitor addressing such a communication to substantial commercial tenants would be entitled to expect that the document would be considered most carefully and given that it refers to failures by the tenants under the terms of the sub-lease it would be expected that the letter would be read under reference to the parties' respective rights and obligations under that sub-lease. It is accepted that the terms satisfy the requirements of both the statutory and conventional provisions of notice prerequisite to forfeiture of the sub-lease. Thus the terms of the letter were consistent with what the parties themselves in the sub-lease, and presumably the statute, regarded as a reasonable warning to a tenant faced with irritancy of the lease. Moreover we are considering a document which on any view is a formal notification of the possible termination by the landlords of a lease said by the reclaimers to be worth £4 million. In my opinion it is difficult to see how any sufficiently serious and careful consideration of the notice could have led to the misunderstanding alleged. If there was such a misunderstanding then it is difficult to see how the author of the notice could possibly have anticipated it. The first sentence of the paragraph I have quoted refers to recovery of rent and recovery of rent alone. Accordingly the plain reading of the sentence in question is that failing payment of rent court action will be taken to recover it. The next sentence contains a clear warning that in addition to "other remedies" the lease may be terminated. It is nowhere suggested or even hinted that court action would be required to exercise the forfeiture. Indeed if the solicitor who framed the letter assumed that his letter would get reasonably informed consideration (as in the circumstances he was entitled to do) it would have been expected that the tenants would either know, or if need be seek advice on, the landlords' right to terminate the lease as set out in its provisions. The notice contained the precise requirements which the reclaimers in accepting the sub-lease equally accepted as being sufficient to give rise to forfeiture, namely notice of the failure to pay rent and an opportunity to rectify such failure.

The fact that on previous occasions the landlords may have shown indulgence in respect of late payment of rent does not in my view affect the significance of the notice. It was I think accepted on behalf of the reclaimers that by showing indulgence in the past the landlords were not bound to endure late payment of rent for ever. Moreover, it was accepted that if the landlords had wanted to show that their patience was exhausted they could scarcely do more than send a formal solicitor's letter to the tenants to that effect. It was not suggested that on previous occasions the landlords had sent such formal warning to the tenants thus encouraging them to think that such a communication could be disregarded. It is therefore difficult to see why the landlords' indulgence on previous occasions should have affected a proper consideration of the terms of the said formal notice of 15th December. It is equally difficult to see how the reclaimers could ever prove on the foundation of the averments which I have been considering that the landlords by their actings in allowing dilatory payment of rent on former occasions and in drafting the said notice in the terms it contained (whether or not such actings are considered separately, together, or in conjunction with other circumstances) by their own conduct must take some responsibility for the occurrence of the irritancy. In that situation the defence in respect of the enforcement of the irritancy must fail.

As a final throw senior counsel for the reclaimers argued that since the law concerning the effect of oppressive actings on the part of the landlords was difficult and not finally settled it would be appropriate to allow a proof before answer of the relevancy of the defenders' averments before any decision was taken about that matter. It may therefore be worth saying that in my view it is difficult to see how on any equitable consideration of the circumstances of this case the landlords could be said to have acted unfairly or unreasonably or oppressively. It is said that the sub-lease is immensely valuable, but equally the rent exigible under it is very substantial. The landlords were sufficiently concerned about prompt payment of the rent to reinforce their rights with an irritancy clause. Thus in accepting the sub-lease the tenants knew that they risked forfeiture of their rights if they failed to pay the rent within the prescribed time limits. They had a previous history of dilatoriness in the payment of rent. In the instance under consideration they allowed the 21 days of grace to pass without tendering either payment of rent or an explanation for failure to pay. When their managing director received the notice dated 15th December he is said to have ordered his staff to pay the rent before 4th January. If the seasonal holidays were imminent this should have been perfectly obvious and special steps should have been taken to ensure that the managing director's instructions could be carried out particularly when such valuable interests were involved. The principal reason why the reclaimers' present difficulty has arisen seems to be not that the staff failed to understand the landlords' intentions but rather that the managing director's instructions were not carried out. If the staff had done what they were told to do no problem would have arisen. In any event the reclaimers' staff knew that the landlords had intimated that they were prepared to consider various remedies open to them if the rent was not paid by 4th January. Yet they cavalierly ignored the deadline and apparently took no reasonable steps to discover what remedies were open to the landlords if the deadline was not met. On 5th January the rent was 55 days late and the landlords did not know on that day when if ever they might expect to receive their rent. They had received no communication at all from the tenants on the subject. Thus any serious loss which has befallen the reclaimers in the circumstances set out in their defences must inevitably be attributable to their own failure to honour the terms of the lease. They can blame no one but themselves. In my view the conclusion arrived at by the Lord Ordinary, that in the respects we are considering the defence is irrelevant, was correct and inevitable.

I therefore agree that the reclaiming motion should be disposed of as your Lordship in the chair proposes.

The defenders appealed to the House of Lords. The appeal was heard in that House before Lord Keith of Kinkel, Lord Goff of Chieveley, Lord Jauncey of Tullichettle, Lord Browne-Wilkinson and Lord Mustill on 30th and 31st March and 1st April 1992.

At delivering judgment, on 21st May 1992,—

LORD KEITH OF KINKEL .—My Lords, I have read the speech to be delivered by my noble and learned friend, Lord Jauncey of Tullichettle and I agree with it. In particular, I agree that in the light of the decision in Dorchester Studios (Glasgow) Ltd. v. Stone 1975 S.C. (H.L.) 56 and of the limited reform of the law relating to irritancy clauses concerned with non-payment of monetary obligations in leases which Parliament enacted in sec. 4 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985, following consideration of the matter by the Scottish Law Commission, it is not open to this House to bring about any more far-reaching development of the law in this field than was thought appropriate by Parliament.

I am bound to say, however, that I do not regard the result in this case as satisfactory. The appellants will lose their investment of £2.2 million, which is the sum they paid for the assignation in their favour of the sub-lease, and the respondents will have the benefit of the whole development including not only the buildings, which they paid for, but the site, which they did not, for £1 per annum over a period of some 120 years. It is true that the appellants had over a considerable period been dilatory in the payment of rent and they failed to respond timeously to the warning given them on 15th December 1988 that failing payment of the 11th November instalment by 4th January 1989 the lease might be terminated. It may be that their failure was due to some extent to the intervention of the Christmas and New Year period and to unfamiliarity with the rigour of Scots law in this field as compared with the more benign regime in England, but whether the failure was due to inadvertence or to incompetence there can be no doubt that the penalty for it is a most severe one.

The basis of the distinction between a conventional irritancy in a feu contract, which is purgeable, and one in a lease, which is not purgeable, is said to be that a feu confers a right of property while a lease is merely a personal contract. But feus are in most instances granted with a view to a dwelling house or some other building being erected on the land, and it must be of some materiality that irritancy after that had been done would result in the value of the building being lost to the feuar. For practical purposes it is not possible to see a distinction of any real significance between a feu and a building lease for 99 or 125 years. While the rule excluding the opportunity of purgation may be entirely fair in cases where the payment of rent is the bare counterpart of the right of occupancy of, say, a farm, it is clearly capable of operating with extreme harshness in the case of a long building lease. In the Dorchester Studios case Lord Fraser of Tullybelton observed at p. 72, that if a tenant had agreed to a lease containing an irritancy it was not in principle unfair to hold him to his bargain. However, the tenant may not himself have negotiated the lease but may be an assignee of it, as in this case.

A not uncommon situation in which irritancy of a lease may be incurred is where the tenant becomes bankrupt or goes into liquidation. It cannot be regarded as a satisfactory state of affairs that when this happens the landlord should receive the adventitious benefit of what may be extremely valuable buildings erected by the tenant on the land to the exclusion of the tenant's creditors. The Scottish Law Commission considered this matter in paras. 5.9 to 5.14 of its Report No. 75 of 1983 [Irritancies in Leases], but did not think it practicable to make any recommendation about it. It did not consider as a possible solution that the court might be empowered to annex conditions to the exercise of a right of irritancy. The passage from the opinion of Lord Shand in Hannan v. Henderson (1879) 7 R. 380 at p. 383, cited in the speech of my noble and learned friend, Lord Jauncey of Tullichettle, adumbrates the possibility of annexing conditions to the granting of a decree of irritancy. There does not, however, appear to be any reported case where this has been done. Had it not been for Parliament's intervention by sec. 4 of the Act of 1985, I should have considered favourably a submission that the law might appropriately be developed on those lines. There seems much to be said for the view that where irritancy of a lease would confer a substantial benefit on a landlord at the expense of the tenant or his creditors the landlord should as a condition of securing a decree of irritancy be required to pay compensation for the value of improvements to the subjects which have been brought about by the tenant or his predecessors in title. As the law now stands, the effect of it may well be to inhibit commercial development in Scotland. It is evident that a tenant whose principal asset is a lease containing an irritancy clause in the usual terms would have considerable difficulty in raising finance.

My Lords, with considerable reluctance I would dismiss this appeal.

LORD GOFF OF CHIEVELEY .—My Lords, I have had the advantage of reading in draft the speeches prepared by my noble and learned friends Lord Keith of Kinkel and Lord Jauncey of Tullichettle. While sharing the anxiety expressed by the former, I agree with the latter that, for the reasons he gives, the appeal must be dismissed.

LORD JAUNCEY OF TULLICHETTLE .—My Lords, by agreement dated 30th May and 27th September 1979 ("the 1979 agreement") the respondents and Cumbernauld Development Corporation ("CDC") it was agreed inter alia that CDC would grant to the respondents a head lease for 125 years of a site of 6.73 acres to be developed by CDC as a shopping centre with finance to be provided by the respondents to the extent of £5 million. The respondents undertook, on completion of the development, to grant a sub-lease thereof to CDC for a term of 99 years with an option in favour of CDC to extend such sub-lease for a further period of 26 years. In implement of the 1979 agreement CDC by a head lease dated 4th and 12th March 1980 let the site to the respondents for 125 years at a yearly rent of £1. The development was duly completed and by sub-lease dated 8th November 1983 and 2nd February 1984 the respondents let the site to CDC for 99 years, with an option to extend, at a rent payable in quarterly instalments which broadly speaking was 77.5 per cent of the rents receivable by CDC from sub-sub-leases of the shops. The sub-lease contained the following irritancy clause:

"5. (i) PROVIDED ALWAYS AND IT IS HEREBY AGREED that these presents are made upon the express condition that if the rent or any other payment under this Lease or any part thereof shall be unpaid for twenty-one days after any of the days hereinbefore appointed for payment thereof whether the same shall have been lawfully demanded or not or if the Tenant while the leased premises or any part thereof remain vested in it shall be wound up compulsorily or voluntarily (except for reconstruction or amalgamation) or in the event of a receiver being appointed to any of the Tenant's property or in the case of an assignee of the Tenant not being a corporation shall become not our bankrupt or make any assignment for the benefit of his creditors or make any arrangement with his creditors for the liquidation of his debts by composition or otherwise or if the Tenant or its Subtenants or any other person deriving occupancy from it shall at any time fail to implement or shall contravene any of the conditions, provisions, restrictions and others herein contained then and in any of these events the Tenant shall forfeit all right and title under these presents and the Lease hereby granted and all transmissions and subleases thereof with all that has followed or can competently follow thereon shall become ipso facto void and null and that without the necessity of any declarator, process or removal or other procedure at law and the leased premises shall thereupon revert to the Landlord and it shall be lawful for the Landlord or any person or persons duly authorised by the Landlord in that behalf to enter upon the possession of the leased premises or any part thereof in name of the whole and to uplift rents, eject the Tenant, Subtenants and occupiers and thereafter use, possess and enjoy the same free of all claims by the Tenant, Subtenants and others as if these presents had never been granted without prejudice to any right of action or remedy of the Landlord in respect of any antecedent breach by the Tenant, Subtenants and others of any of the conditions in this Lease which irritancy is hereby declared to be pactional and not penal and shall not be purgeable at the Bar;PROVIDED ALWAYS that this irritancy shall not be enforced in the case of any failure to implement or contravention of any of the conditions or obligations in this lease (including non-payment of rent or any other payments payable hereunder) until the Tenant has been given written notice of such failure or contravention and an opportunity to rectify such failure or contravention within a reasonable time which in the case of non-payment of rent or other payments shall be fourteen days from the service of such notice; …"

Thereafter CDC sold the town centre of Cumbernauld including their reversion under the head lease to the appellants for £10 million and by assignation dated 21st October 1987 assigned to the appellants their interest under the sub-lease. Your Lordships were informed that £2.2 million of the total of £10 million fell to be attributed to the value of CDC's interest under the sub-lease.

During 1988 the appellants' payments of quarterly rent were late and erratic. In July of that year they sent a cheque for payment of rent due in May and stopped it five days later. Not until early October did they pay the instalment due in May. They failed to pay the instalment due on 11th November and on 15th December the respondents' solicitor wrote to them requiring payment by 4th January 1989 and informing them inter alia that "the Lease of the above subjects may be terminated". No payment was received by the latter date although the appellants claimed to have posted a cheque to the respondents' solicitor on that day. On 5th January the respondents' solicitor wrote to the appellants stating that an irritancy had been incurred and requiring the appellants to remove. On 6th January the appellants delivered by hand a banker's draft to the respondents' registered office in London. The draft was returned to the appellants on the same day and on 9th January the respondents' solicitor returned the cheque said to have been posted on 4th January. On 12th January the respondents raised the present action concluding inter alia (first) for declarator that the appellants having failed to pay the rent payable on 11th November 1988 had incurred an irritancy of the sub-lease and were bound to remove themselves from the subjects let. In answer the appellants averred inter alia that (1) the letter of 15th December 1988 did not satisfy the requirements of sec. 4 (2) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 and did not therefore constitute a notice thereunder, and (2) that in the circumstances the operation of the irritancy clause being oppressive, decree of declarator and removing should be refused. The respondents challenged the relevancy of the appellants' averments in relation to the above two matters.

After a hearing in procedure roll the Lord Ordinary (Lord Morton of Shuna), by interlocutor of 19th June 1990, sustained the respondents' preliminary plea to the relevancy of the above averments of the appellants and granted decree de plano in terms of the first conclusion of the summons: 1990 S.C. 351. The appellants reclaimed but restricted their argument to the relevancy of their averments as to oppressive exercise of the irritancy. By interlocutor of 29th May 1991 the Second Division refused the reclaiming motion.

Before this House senior counsel for the appellants, who had not appeared in the courts below, obtained leave to amend the appellants' pleadings by making reference to the 1979 agreement. He then advanced certain submissions which had not been made before the Second Division and which may be summarised as follows: (1) The circumstances surrounding this sub-lease were such as to differentiate it from the normal lease containing an irritancy clause; (2) An irritancy clause in a lease will only be enforced if it is reasonable; (3) The irritancy clause in the sub-lease was unreasonable in that it was penal and confiscatory, particularly if no opportunity to purge was allowed; (4) The courts have recognised the right to purge a conventional irritancy; and (5) By reason of the terms of the 1979 agreement the head lease and sub-lease were commercially interdependent with the result that irritancy of the latter would not terminate the whole contractual relationship between the parties, which termination was essential to the effective operation of an irritancy.

My Lords, it has been well-established in the law of Scotland for nearly 130 years that a conventional irritancy in a lease for non-payment of rent cannot be purged unless it is being enforced oppressively. For this proposition I find it necessary to refer only to two authorities. In Stewart v. Watson (1864) 2 Macph. 1414 the lease of a farm provided that in the event of the tenant suffering a sequestration of rent at the landlord's instance the lease should become null and void. The landlord applied for and obtained sequestration four days after the rent was due and thereafter raised an action of removing. One day later the tenant paid the rent. The court held that the irritancy must be enforced. Lord Justice-Clerk Inglis at p. 1420 said:

"The first question is, whether this is a lawful stipulation, and I cannot entertain any doubt that it is. I do not think that it is in the least unreasonable that the landlord should say, I will not, under any circumstances, have a tenant who allows his affairs to get into such a condition that he is sequestrated. An intending tenant may or may not agree to such a stipulation, but if he does, I think there is no doubt that he must be bound by it."

Lord Neaves at p. 1422 said:

"I am of the same opinion. In all consensual contracts the agreements of parties ought to be enforced. I speak specially of consensual contracts, because location, which is the contract here, is a consensual contract. I do not speak of feus, which confer a right of property. But in a lease, which gives no right of property, the parties may stipulate for any conventional irritancies they please, provided they are not contrary to law. That being so, I think it is not an unreasonable stipulation for the landlord to say, that if the tenant compels him to resort to sequestration for rent, their connection shall be at an end."

The judges rejected the suggestion that the landlord had acted oppressively but pointed out that if he had done so the court might have refused to enforce the irritancy. More than 100 years later this House heard the case of Dorchester Studios (Glasgow) Ltd. v. Stone 1975 S.C. (H.L.) 56 which concerned an irritancy clause in a sub-lease of shop premises. The clause provided that if the rent remained unpaid for a period of 21 days after the stipulated date for payment the principal tenants were entitled to terminate the sub-lease. Owing to an oversight on the part of the sub-lessees an advance instalment of rent was not paid until 32 days after the due date, notwithstanding notice to pay having been given to the sub-tenants 12 days before that date. It was held that in the absence of oppressive use of the irritancy the same was not purgeable and the subtenants were bound to remove. Lord Fraser of Tullybelton at p. 71 considered that Stewart v. Watson was "a clear authority that, in the absence of oppression, a conventional irritancy for non-payment of rent is enforceable and cannot be purged". Lord Fraser carried out a detailed analysis of the case law on the subject from Hay v. Moffat (1586) M. 7226 to McDouall's Trs. v. Macleod 1949 S.C. 593 in which the court followed Stewart v. Watson in holding that an irritancy for non-payment of a farm rent could not be purged by late payment. At p. 72 he said:

"In my opinion it is hopeless to suggest that the decision in McDouall's Trs. was not soundly based on authority, particularly having regard to Stewart v. Watson which has stood since 1864. Moreover, the decision in McDouall's Trs. and that of the First Division in the present case, seem to me sound in principle. The argument for the appellants was that there was something unfair or harsh in holding that a tenant who was late (perhaps only one day late) with his rent had forfeited his lease which might be of great value. Speaking for myself, I am not impressed by that argument. In the first place, if the tenant has agreed to a lease containing an irritancy I do not think it is in principle unfair to hold him to his bargain. In the second place, leases which are of great value are likely to be leases of commercial, rather than of residential, property and tenants of commercial property should be able to manage their affairs so as to avoid accidental late payment of rent. In the third place, if the late payment is not accidental, but is either deliberate or due to impecuniosity, I see nothing unreasonable in the landlord's relying on an irritancy to get rid of an unsatisfactory tenant. Finally, of course, the court always has the power to give relief to a tenant against oppressive use of the irritancy."

Lord Kilbrandon after expressing agreement with the conclusion reached by Lord Fraser, stated at p. 66:

"The law was firmly laid down, after some uncertainties, in Stewart v. Watson (1864) 2 Macph. 1414, to the effect that (a) such a provision in a lease is a conventional irritancy and not the mere expression of a legal irritancy which might have been purged before decree, (b) as such it is not purgeable, (c) it is a reasonable and lawful stipulation, (d) it is not to be compared with a stipulation in a few contract, by which a right of property is conferred in a sense in which it is not conferred under a lease. Nearly a century later that decision was confirmed in the case of McDouall's Trs. v. MacLeod 1949 S.C. 593, and, by necessary implication, in the case of Lucas's Exors. v. Demarco 1968 S.L.T. 89."

Both Lord Kilbrandon, and Lord Fraser expressed the view that the doctrine of non-purgeability of an irritancy for non-payment of rent might properly be considered by the Scottish Law Commission in the light of the advent of long-investment commercial leases in Scottish cities.

Senior counsel for the appellants did not seek to challenge the principles laid down in the above cases but argued that these principles did not apply where, as in the present case, operation of the irritancy would result in a substantial capital loss to the tenant. The position in such cases was more akin to that obtaining in feu charters where forfeiture would involve loss of valuable heritable rights and where an irritancy for non-payment of feu duty was purgeable prior to decree of declarator. My Lords, this argument has certain attractions. Although the payment of a grassum by a tenant at the commencement of a lease has not been unknown, the granting of long urban leases for the purposes of development in circumstances where the tenant incurs a substantial capital commitment is a relatively modern development in the law of Scotland. In none of the cases analysed by Lord Fraser had the tenant lost valuable property when the irritancy clause was operated. What he had lost was the right to continued possession of the subjects in return for payment of rent. In this case had the irritancy clause been operated against CDC that body would have lost for the duration of the sub-lease all the benefit accruing to it from the site which it had leased to the respondents for development. In the event, because of the assignation, the appellants would lose the £2.2 million which they had paid to CDC. It could thus be said with some justification that the loss which the appellants would suffer was much more like the loss suffered by a vassal on forfeiture of a feu than the loss suffered by a tenant under the normal lease with no grassum.

However, in considering the foregoing argument regard must be had to two events which have occurred since the decision in Dorchester Studios (Glasgow) Ltd. v. Stone . The report of the Scottish Law Commission (No. 75) on Irritancies in Leases was presented to Parliament in February 1983. The report was in response to a reference by the Secretary of State in the following terms:

"Without prejudice to the Commission's freedom to offer advice on any possibilities of reform of this branch of the law I should be glad if the Commission would in the light of Dorchester Studios (Glasgow) Ltd. v. Stone and the observations made in the judgments in that case consider and advise on the operation of irritancy clauses in leases of commercial and industrial property (including leases of land for commercial or industrial development) and on related matters."

In para. 5.10 the report stated inter alia:

"We recognised that a serious commercial imbalance might arise if, say, a tenant's interest under a lease which could have been assigned at a substantial premium by the tenant were to be irritated on an insolvency, to the disadvantage of the creditors and to the advantage of the landlord. It was agreed by consultees that such problems could certainly arise in practice. The example most commonly cited was the problem which would arise if the value of a landlord's reversionary interest had been substantially increased by the tenant's own expenditures on the subjects of let and the reversion to the landlord was accelerated by irritancy following the insolvency of the tenant. In such circumstances, it was pointed out, a lease which the tenant might have been able to assign at a substantial premium would cease to be capable of being turned to account by his trustee, liquidator or receiver and an adventitious benefit would be conferred on the landlord."

Although this paragraph appeared under the heading "Tenants' creditors" it is obvious that the loss to the tenant and corresponding benefit to the landlord would equally occur where the tenant was solvent. What is important is that the Commission clearly had in mind situations where the tenant could, as a result of an irritancy, suffer serious commercial loss. Having considered these and other situations the Commission's first recommendation was in these terms:

"A landlord should not be entitled to rely on a tenant's default in making any monetary payment due under a lease as a ground for termination of the lease unless he has served on the tenant written notice specifying a period of not less than 14 days for the remedying of the default and stating that irritancy may result if the default is not remedied within that period. (Paragraph 4.3; Clause 1 (1), (2) and (3) (a).)"

It is to be noted that this recommendation was in entirely general terms applicable to all leases.

The Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 came into force on 30th October of that year and secs. 4 and 5 thereof were inter alia in the following terms:

"Irritancy clauses etc. relating to monetary breaches of lease. 4. (1) A landlord shall not, for the purpose of treating a lease as terminated or terminating it, be entitled to rely—(a) on a provision in the lease which purports to terminate it, or to enable him to terminate it, in the event of a failure of the tenant to pay rent, or to make any other payment, on or before the due date therefor or such later date or within such period as may be provided for in the lease; or (b)on the fact that such a failure is, or is deemed by a provision of the lease to be, a material breach of contract, unless subsection (2) or (5) below applies. (2) This subsection applies if—(a) the landlord has, at any time after the payment of rent or other payment mentioned in subsection (1) above has become due, served a notice on the tenant—(i) requiring the tenant to make payment of the sum which he has failed to pay together with any interest thereon in terms of the lease within the period specified in the notice; and (ii) stating that, if the tenant does not comply with the requirement mentioned in subparagraph (i) above, the lease may be terminated; and (b)the tenant has not complied with that requirement. (3) The period to be specified in any such notice shall be not less than—(a) a period of 14 days immediately following the service of the notice; … 5. (1) Subject to subsection (2) below, a landlord shall not, for the purpose of treating a lease as terminated or terminating it, be entitled to rely—(a) on a provision in the lease which purports to terminate it, or to enable the landlord to terminate it, in the event of an act or omission by the tenant (other than such a failure as is mentioned in section 4 (1) (a) of this Act) or of a change in the tenant's circumstances; or (b) on the fact that such act or omission or charge is, or is deemed by a provision of the lease to be, a material breach of contract, if in all the circumstances of the case a fair and reasonable landlord would not seek so to rely. (2) No provision of a lease shall of itself, irrespective of the particular circumstances of the case, be held to be unenforceable by virtue of subsection (1) above."

Section 4 gives effect to the first recommendation of the Scottish Law Commission and the contrast between the two sections is significant. Whereas in the case of irritancy clauses relating to monetary breaches, operation thereof is limited only to the extent that appropriate notice must be given by the landlord to the tenant before operation of the notice, in the case of such clauses relating to non-monetary breaches operation is limited by consideration of whether in the circumstances a fair and reasonable landlord would seek to rely on the clause.

Parliament, with the Commission's report before it, has legislated in sec. 4 of the 1985 Act in relation to irritancy clauses for non-payment occurring in all leases without distinction. The appellants invite this House to do what Parliament was not prepared to do, namely to treat leases of the kind with which this appeal is concerned, differently from other leases. However, given Parliament's consideration of the matter, I do not consider that it would be appropriate for this House to develop the law further than Parliament has seen fit to do. It must therefore follow that the common law as modified by sec. 4 of the 1985 Act applies to this lease and the appellants' first submission fails.

The appellants' second and third submissions can be taken together. As I understand it these submissions are directed not to the mode of exercise of the irritancy but to its essential validity. If it is unreasonable in its terms it is unenforceable irrespective of the circumstances in which enforcement is sought. It must now be taken as well established that a conventional irritancy for nonpayment of rent is a reasonable and lawful stipulation (Dorchester Studios (Glasgow) Ltd. v. Stone, per Lord Kilbrandon at p. 66, Lord Fraser of Tullybelton at p. 72). It follows that these submissions could only succeed if this lease possessed characteristics which distinguished it from other leases considered in the authorities. However even if it is assumed that it does possess such characteristics an immediate difficulty is presented by the position of irritancy clauses for non-payment of feu duty. Such clauses, although purgeable by payment prior to decree, are not ipso facto unenforceable with the result that if a vassal fails to purge the clause can be enforced by the superior. The loss to a vassal resulting from forfeiture of the dominium utile may well be just as great as that resulting to a tenant under a lease such as this one. Since irritancy clauses for non-payment of feu duties are not treated as unreasonable and hence unenforceable I do not see how an irritancy clause for non-payment of rent in a lease such as this could be treated differently. I therefore reject the appellants' second and third submissions.

In support of his fourth submission senior counsel for the appellants relied on Hannan v. Henderson (1879) 7 R. 380, in which case a partnership agreement contained a clause whereby, in the event of a partner becoming bankrupt, he should cease to be a partner and have any share in the partnership property, which share should then vest in the remaining partners to the exclusion of his creditors. A further clause provided that his creditors should be entitled to any sums paid in by him together with interest. Lord President Inglis at p. 383 said:

"But it is said that this is an irritancy which may be purged at the bar. I have some doubt whether it is an irritancy. It is so, no doubt, in this sense, that it puts an end to certain rights as well as obligations. But assuming it to be an irritancy, it is in the most proper sense a conventional irritancy, and the ordinary rule of law is that conventional irritancies must be enforced according to their terms. When once incurred they cannot be got the better of."

Lord Shand on the same page said:

"I am of the same opinion. If the stipulation had been of a penal nature, and had involved not only the forfeiture of the defender's position, but the loss of large vested rights of property in the partnership funds, I am by no means sure that another principle might not have come in, and that the Court might not have allowed the irritancy to be purged, or at least might not have annexed conditions to the granting of a decree such as that now proposed."

Senior counsel founded particularly on Lord Shand as support for the proposition that a conventional irritancy which was penal was purgeable. However I do not think that this dictum adds anything to the appellants' first submission. Even if, contrary to the view of the Lord President, it were correct in the context of a partnership agreement, the matter in relation to leases is now governed by Dorchester Studios (Glasgow) Ltd. v. Stone and sec. 4 of the Act of 1985.

The appellants' final submission involved the proposition that an irritancy could only operate to terminate the whole contractual relationship between the parties and that the continued relationship between these parties under the head lease would prevent such operation. My Lords, in my view this is a fallacious argument. An irritancy clause, if operated, will terminate the relationship of parties under the contract in which the clause appears. It has no concern with other contracts to which they may also be party. The matter can be tested in this way. If CDC had retained their reversion under the head lease or sold it to someone other than the appellants, the argument would not run. The appellants' obligations under the sub-lease were entirely unaffected by the identity of the owner of the reversion to the head lease. It mattered not whether that owner was the appellants or someone else. This irritancy clause is concerned only with the sub-lease and with no other contract. It follows that this submission also fails.

Although the Scottish Law Commission and Parliament have considered the serious commercial imbalance which could result from the operation of an irritancy clause in a commercial lease, it does appear to me that further consideration could profitably be given to situations where a tenant, because of an oversight or omission on his part, stands to lose huge sums of money with consequent benefit to the landlord. Lord Kilbrandon in Dorchester Studios (Glasgow) Ltd. v. Stone doubted whether the common law doctrine applicable to irritancy clauses for non-payment of rent fairly reflected social policy in the case of long-investment leases. I must confess to sharing these doubts even now that the common law has been modified by sec. 4 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985. It would be very unfortunate if potentially valuable commercial development were to be frightened away from Scotland by fear of what English lawyers may regard as the draconian measures available to a landlord for non-timeous payment of rent.

My Lords I have however no doubt that as the law now stands this appeal must be dismissed.

LORD BROWNE-WILKINSON .—My Lords, for the reasons given in the speech of my noble and learned friend Lord Jauncey of Tullichettle, but with the reluctance expressed by Lord Keith of Kinkel, I too would dismiss the appeal.

LORD MUSTILL .—My Lords, for the reasons given by my noble and learned friend, Lord Jauncey of Tullichettle I, too, would dismiss this appeal.