| OUTER HOUSE, COURT OF SESSION [2012] CSOH 77 |
| CA141/11 | OPINION OF LORD MENZIES in the cause (1) ROBERT MUIR PROW, (2) JAMES NIVEN, (3) MARGARET AVRIL PROW and (4) PENSIONEER TRUSTEES LIMITED as Trustees of the R M Prow (Motors) Limited Directors Pension Fund Pursuers; against ARGYLL AND BUTE COUNCIL Defenders: ________________ |
Pursuers: McClelland; Davidson Chalmers LLP
Defenders: D Thomson; Brodies LLP
9 May 2012
Introduction
[1] The first, second and third pursuers are individuals, and the fourth pursuer is a limited company; together they are the whole trustees of the R M Prow (Motors) Limited Directors Pension Fund ("the Fund"), and they bring these proceedings in that capacity. They are the owners of heritable property at 64A John Street, Helensburgh ("the property"). By lease dated 26 September and 3 October 2000 they let the property to the defenders. The lease runs until 31 March 2020. There is provision in the lease for the rent to be reviewed at the instance of the landlords at 1 October in each of the years 2005, 2010 and 2015.
[2] By letter dated 19 July 2010 a surveyor wrote to the defenders stating that he acted on the instructions of the landlord of the property in relation to a rent review. There were several errors in this letter; the terms of the letter are set out below. By letter dated 24 August 2010 the same surveyor wrote to the defenders; this letter was also in relation to a rent review for the property. The terms of this letter are also set out below. Each of these letters apparently gave notice that the landlord specified that the fair market rent should be £58,000 per annum (albeit that the relevant dates specified differed). The defenders have taken no steps to give a counter notice specifying an alternative rent. They have not paid the increased rent sought in these two letters, but have continued to pay the monthly rental payments which they paid up to October 2010. In this action the pursuers seeks declarator that the rent due under the lease was, with effect from 1 October 2010, increased to £58,000, and payment of the balance of rent which they claim to be due for each month since then. The defenders deny that the rent has been effectively reviewed, and deny that they are liable to make payment for any increased rent since October 2010.
[3] The matter came before me for debate on both parties' preliminary pleas. In broad outline, the issues between the parties were as follows:-
(a) Whether the letter dated 19 July 2010 was an effective notice of rent review in terms of Clause Twenty Fifth of the lease?
(b) Whether the letter dated 24 August 2010 was an effective notice of rent review in terms of that Clause?
(c) Were the defenders personally barred by their previous actions from asserting that the second letter was defective on a particular ground?
(d) Whether time was of the essence in respect of the service of a counter notice by the defenders (and, if it was in that regard, whether time was of the essence with regard to the service of the notices themselves)?
The relevant provisions of the lease
[4] Clause Twenty Fifth of the lease included the following provisions:-
"Notwithstanding the foregoing provisions of this Lease with a view to ensuring that the rent payable hereunder shall from time to time be adjusted so as to represent the fair market rent payable in respect of the premises, the rent so payable shall be subject to review at the instance of the Landlords at the First October, Two Thousand and Five, First October Two Thousand and Ten and First October Two Thousand and Fifteen, (each of the said terms being hereinafter called 'the relevant term') and such review shall be effected only in accordance with the following provisions:
(a) The Landlords shall give to the Tenants three months written notice prior to the relevant term of their intention to exercise their right to require a review of the rent. Such notice shall specify the rent which the Landlords propose as the fair market rent at the relevant term in lieu of the rent payable hereunder immediately prior to the relevant term (hereinafter called 'the current rent'). The rent payable from the relevant term shall be such sum as
(i) shall have been specified in the said notice or
(ii) shall be agreed between the parties within three months of the date of receipt by the Tenants of the said notice in substitution for the sum specified therein or
(iii) shall be determined (at the election of the Tenants, such election to be made by counter-notice in writing given by the Tenants to the Landlords within three months of the date of receipt of the said notice) by the independent surveyor aftermentioned, subject to the terms aftermentioned.
...
(c) In the event of the Landlords having failed to give due notice in terms of paragraph (a) of this Clause of their intention to exercise their right to require a review of rent at any relevant term or if the rent is not reviewed at the relevant term for any other reason they shall be entitled to require such a review as at the Twenty eighth day of any month following the relevant term by giving to the Tenants three months written notice prior to such term and the foregoing provisions of this Clause shall mutatis mutandis apply to such review provided (i) that the review of rent in terms of this provision shall have regard to the level of fair market rents current at the relevant term and not at the succeeding term and (ii) any increase in rent resulting from such review shall have effect from the relevant term and not from the succeeding term."
Clause Twenty Sixth provided as follows:-
"Any written notice or intimation given by the Landlords to the Tenants regarding or relating in any way to the premises and whether or not the same shall be in pursuance of a specific provision in this Lease for the giving of the same, shall be validly given if given by letter signed under the hand of an officer of the Landlords and posted in a prepaid recorded delivery envelope addressed to the Tenants at the premises and a copy thereof with a certificate of postage by the giver of such notice or intimation accompanied by the recorded delivery receipt by the Post Office shall be sufficient evidence as to the receipt thereof by the Tenants."
The terms of the two letters
[5] The letter dated 19 July 2010 addressed to the defenders (no. 19/7 of Process) was in the following terms:
"Dear Sirs,
Rent Review: 1st November 2010, 64a John Street, Helensburgh
Landlord - R M Prow (Motors) Limited Directors Pension Fund
Tenant - Argyll & Bute Council
I act on the instructions of the Landlord in connection with a rent review originally scheduled under the terms of the lease as at 1st October 2010 at the above location. The original Landlords were as stated above, now Proven Properties [Scotland] Ltd.
In terms of the lease contract, ref 00/40547, between the Landlord R M Prow (Motors) Limited Directors Pension Fund and Tenant Argyll & Bute Council, registered 17th November 2000, Clause 25th, there is provision for the annual rent to be reviewed as at 1st October 2010. The lease requires 3 months written notice to be given in advance of the rent review date however no notice was issued at the relevant time. Accordingly, as provided for in terms of said lease, the landlord wishes to have the rent review occur on the 1st November 2010 and you are hereby notified of the landlords' intention to review the rent in accordance with these lease provisions at 1st November 2010.
You are hereby given notice that the landlord specifies that the fair market rent as at 1st November 2010 shall be the annual sum of £58,000 exclusive [FIFTY-EIGHT THOUSAND PONDS STERLING].
I shall be grateful if you will acknowledge receipt of this notice intimating a rent review at the above subjects.
Yours sincerely
Signed as agent for and on behalf of the landlord"
The letter dated 24 August 2010 to the defenders (no. 19/10 of Process) was in the following terms:-
"Dear Sirs
Rent Review: 28 November 2010, 64a John Street, Helensburgh
Landlord - R M Prow (Motors) Limited Directors Pension Fund
Tenant - Argyll and Bute Council
I refer to the Lease between the Trustees for R.M. Prow (Motors) Limited Directors Pension Fund and you, Argyll and Bute Council dated 26 September and 3 October and registered in the Books of Council and Session on 17 November all 2000 as amended ('the Lease') of the subjects 64a John Street, Helensburgh ('the Property').
It has come to my attention that the notice that I sent you on 19 July 2010 in connection with the rent review for the Property under the Lease should have been notice to the 28th of a month and my notice referred to 1st November.
Accordingly, I hereby give you notice on behalf of the Landlord, that the Landlord requires a review of the rent under the Lease as at 28 November 2010.
As the review has regard to the level of rents at the relevant term (which is 1 October 2010) and any increase in rent resulting from the review has effect from that date, this has no practical impact on the Council, but the notice is given again to order to comply, strictly, with the provisions of the Lease.
The Lease provides that such a notice as this is to specify the rent which the Landlord proposes is the fair market rent at the relevant term in lieu of the current rent. The Landlord proposes a rent of FIFTY EIGHT THOUSAND POUNDS (£58,000) STERLING per annum.
I should be grateful if you would acknowledge receipt of this notice.
Yours sincerely
Agent for the Trustees for R.M. Prow (Motors) Limited Directors Pension Fund"
Submissions
[6] Both counsel helpfully provided written submissions and supplementary written submissions. I do not repeat these in detail in this Opinion, but I have taken them fully into account, together with the submissions made at the Bar. It should be noted that although there was an argument in the written submissions for the defenders to the effect that the action should be dismissed on the basis that the pursuers had periled their case on the weaker alternative, at the outset of the debate counsel for the defenders expressly departed from this argument, and stated that it should be disregarded. No arguments were advanced on behalf of either party on this point.
Submissions for the defenders
[7] Mr Thomson moved me to sustain the defenders' first plea-in-law and to dismiss the action. He observed that the pursuers accepted in their pleadings that there were errors in the letter dated 19 July 2010, but maintained that despite these errors, any reasonable recipient with knowledge of the terms of the lease would have been in no doubt that it was a notice from the landlord seeking to review the rent in accordance with the terms of the lease. This raises the question of the applicability of the "reasonable recipient" test to this letter. He submitted that the actual knowledge and belief of the defenders was not relevant to this test. Moreover, he pointed out that because of the mechanisms in the lease, if the landlord served an invalid rent review notice he was not required to live with the unreviewed rent until the next review date; the landlord might seek to review the rent from the 28th day of any month after 28 November 2010, and such a review will always operate retrospectively to 1 October 2010, being the relevant term. If this resulted in an upward review of the rent, there would be an accounting and the defenders would require to pay any shortfall. The pursuers do not aver that the figure of £58,000 was an unrealistically high rent and so they would suffer disadvantage as a result of such a review procedure. This is a relevant factor in considering some of the arguments which counsel would develop later, regarding whether time was of the essence, and personal bar. For their part, the defenders maintain that the reasonable recipient test was not engaged in relation to this letter, because the notice was formally invalid in terms of the lease; in any event, even if the relevant recipient test is engaged, this notice does not meet it. With regard to the letter of 24 August 2010, the defenders maintain that it was a mandatory requirement of a valid notice that it should be signed under the hand of an officer of the landlords, and as this letter was not so signed, it was not a valid notice. The pursuers' response was that the first to third pursuers are individuals, and have no "officers". Counsel submitted that the reasonable recipient of these two competing letters, which had different dates for the expiry of the three month counter-notice period, would be misled as to the intentions of the landlord. The pursuers' case based on personal bar is irrelevant as there is inadequate specification of any prejudice which the pursuers have suffered. Counsel accepted that if the pursuers' submissions on these notices, or on personal bar, were successful, the sums sought were payable by the defenders and remained unpaid; quantum is therefore not an issue.
[8] Clause Twenty Fifth of the lease provided for review of rent only at the instance of the landlords, at the three relevant terms specified. However, Clause Twenty Fifth (c) provided for a continuing right in the landlords to review after the relevant term, with the result of any such review being back-dated to the relevant term. Clause Twenty Fifth made it clear that any such review could be effected only in accordance with the mandatory requirements set out in Clause Twenty Fifth (a). In particular, the landlords must give to the tenants three months written notice prior to the relevant term, and this notice shall specify the rent which the landlords propose as the fair market rent at the relevant term. It is not enough to mention a sum of money - what requires to be specified is the landlords' proposal as to the fair market rent at the relevant term, ie 1 October 2010. On the basis of the authorities referred to below, a failure to comply with a stipulated mandatory requirement cannot be cured by the "reasonable recipient" test.
[9] A proper construction of the lease was also necessary to answer the fourth issue identified above, namely whether time was of the essence in respect of the service of a counter notice by the tenants. The parties were in dispute as to whether Clause Twenty Fifth (a) contains a deeming provision in this regard. The pursuers argue that the lease provides that if the tenants do not serve a counter notice within three months, the rent will be reviewed to the figure proposed by the landlords. The defenders argue that the lease contains no such provision. Clause Twenty Fifth (a)(iii) does not provide that failure to serve a counter-notice will result in the rent being fixed at the sum specified in the notice, nor does it specify that time is of the essence. The court must discern the intention of the parties; there is nothing in the language of Clause Twenty Fifth to support the argument that the parties agreed that failure to serve a counter notice within three months would result in the rent being fixed at the amount specified in the landlords' notice. The terms of Clause Twenty Fifth (c) tend to suggest that time was not of the essence in this regard - Legal and Commercial Properties Ltd v Lothian Regional Council 1988 SLT 463, particularly at 465L/466B.
[10] The letter dated 19 July 2010 failed to meet the stipulated requirements in several respects. Although the heading correctly designed the Fund as the landlords, this was undone by the first paragraph. It appeared from this that the surveyor was acting on the instructions of Proven Properties (Scotland) Limited, who were not the landlords of the property. The letter goes on to identify correctly that the lease provides for review of the rent at 1 October 2010, but then intimates that the landlords wish to have the rent review occur on 1 November 2010. It also states that the landlords specify that the fair market rent as at 1 November 2010 shall be £58,000 - which is irrelevant, because the proposal requires to be at the relevant term, namely 1 October 2010. Moreover, there is no mention in the letter of a review of the rent at 28 November 2010, which the pursuers aver to be the appropriate review date.
[11] The letter dated 24 August 2010 refers in the heading to the rent review being at 28 November 2010 (unlike the heading in the earlier letter, which specified 1 November 2010). The only error in the first letter which is identified in the second letter is that the rent review date should have been 28 November, not 1 November as specified. No mention is made of the incorrect information as to the landlords, nor does the letter explain what timescales should apply to any counter notice procedure. Moreover, like the first letter, the second letter fails to comply with the requirements of Clause Twenty Sixth, as it was not signed under the hand of an officer of the landlords. This defect related to a fundamental requirement for a valid notice, and cannot be cured by the "reasonable recipient" test. In any event, the reasonable recipient of the second letter would be misled by it, and would be confused as to its purpose and effect. The only error in the first letter to which reference is made in the second letter is the fact that the rent review should occur as at 28 November 2010. There is still confusion about the landlords; the two letters refer to different landlords, and create different timetables. The reasonable recipient would be in a position of doubt, faced with two different notices apparently from different landlords seeking to do different things.
[12] In support of his proposition that a notice must conform with the requirements specified in the lease, and that if there is a defect in an essential requirement it cannot be cured by the "reasonable recipient" test, counsel relied on Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, particularly per Lord Goff of Chieveley at 755/6, Lord Jauncey of Tullichettle at 765, Lord Steyn at 768 and 773, Lord Hoffmann at 776 and Lord Clyde at 781/2. He also relied on the decision of Sheriff Arthurson in Ethel Austin Properties Holdings Ltd v D & A Factors (Dundee) Ltd (unreported, Kirkcaldy Sheriff Court, 21 June 2005); Tawne Overseas Holdings v The Firm of Newmiln Farms [2008] CSOH 12; Ben Cleuch Estates Ltd v Scottish Enterprise [2008] CSIH 1, 2008 SC 252; Batt Cables Plc v Spencer Business Parks Ltd [2010] CSOH 81, 2010 SLT 860; and Scottish Life Assurance Company v Agfa-Gevaert Ltd 1998 SC 171. With regard to the defect in the second letter, he referred to Blythswood Investments (Scotland) Ltd v Clydesdale Electrical Stores Ltd (in receivership) 1995 SLT 150. On the basis of these authorities, and having regard to the fundamental flaws in each of these letters, neither operated as an effective notice of rent review (a) because they failed to meet the requirements specified in the lease and (b) because in any event it cannot be said that the reasonable recipient of these letters would be left with no reasonable doubt as to their effect. The action should therefore be dismissed.
[13] The pursuers seek to answer the defenders' attack that the letter dated 24 August 2010 was not signed under the hand of an officer of the landlords by arguing that the defenders are personally barred from asserting this. The pursuers' averments directed to personal bar are to be found in the last four sentences of Article 5 of condescendence. These are the only averments which support the pursuers' fifth plea-in-law. They are irrelevant. The requisites of a plea of personal bar are clearly set out in Cairncross v Lorimer 1860 3 Macq 827 at 829, Gatty v Maclaine 1921 SC (HL) 1 at page 7, and William Grant and Sons Ltd v Glen Catrine Bonded Warehouse Ltd 2001 SC 901. All that the pursuers offered to prove is the defenders' silence in the face of one similarly defective notice five years earlier. That cannot amount to a representation giving rise to personal bar - British Linen Co v Cowan (1906) 8F 704. Where all that has happened is silence - such as the failure to assert a similar right - bar is recognised only where the indicators of unfairness are strongly present - Blackie and Reid on Personal Bar paras 2-12 and 2-44.
[14] The pursuers submit that because of the contractual relationship between the parties, there was a duty on the defenders to speak out; their failure to assert that the 2005 notice was invalid induced the pursuers to take the view that the defenders would never take the point in future. However, the parties' contractual relationship was not particularly close, and there is an absence of the strong element of unfairness which is necessary for personal bar to be asserted merely on the ground of failure to maintain a challenge. The culpability of the defenders in 2005 was low, and there is no significant unfairness to the pursuers. This was a case of one failure to challenge, five years previously, which falls to be contrasted with a consistent course of conduct.
[15] In any event, even if the defenders' failure to challenge the 2005 notice on this ground opened the way for a plea of personal bar, this cannot be made out unless the pursuers have acted upon it to their prejudice. There must be something of significance, a serious impact on the pursuers' position, to enable the court to sustain the plea. There are no relevant averments of such a change of position or of prejudice. The lease makes provision for the landlords to seek review on the 28th day of any month, and for backdating to the relevant date. The pursuers do not offer to prove that the figure of £58,000 was an overstated figure and that they have lost the advantage of this. All they assert is that they would be put to the extra expense and inconvenience of serving further notices. There are no averments of unfairness, of significant alteration in their position, or of prejudice. The pursuers' averments in support of their plea of personal bar are therefore irrelevant, and the plea should be repelled.
[16] Mr Thomson's final submission was that the pursuers' averments were in any event irrelevant because in construing the provisions of the lease in relation to service by the tenants of a counter notice, time was not of the essence - United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904. The lease did not expressly state that time was of the essence, and no notice has been served by either party making time of the essence; there is no interrelationship between the rent review provisions in Clause Twenty Fifth and a break option. There are examples of leases in which there is a "deeming provision" indicating what is to happen in the absence of a counter notice - Visionhire Ltd v Britel Fund Trustees Ltd 1991 SLT 883; Charterhouse Square Finance Company Ltd v A & J Menswear 1998 SLT 720; Starmark Enterprises Ltd v CPL Distribution Ltd [2001] EWCA Civ 1252, [2002] 2 WLR 1009. However, there is no provision in the present lease to the effect that failure to serve a counter notice timeously will have the result that the rent proposed in the landlords' notice shall be payable. There must be clear language which amounts to such a deeming provision, particularly given the presumption (or principle of construction) against time being of the essence in such clauses. As the Lord President observed in Visionhire (at page 888L/889B), as the substance of a rent review clause is to provide machinery for ascertaining the market rent from time to time, stipulations as to time ought not to be strictly enforced unless there is something in a particular clause to indicate that time is of the essence in that case. In the present case, not only is there nothing to indicate that time is of the essence in the service of a tenants' counter notice, Clause Twenty Fifth (d) expressly provides that unless the rent payable is varied in accordance with the foregoing provisions of the clause, the current rent shall continue to be the rent payable. The conclusion that time is not of the essence in circumstances such as this, unless the parties have made express provision that it should be so, receives clear support (after an exhaustive review of the authorities) in the recent decision of East Dunbartonshire Council v Bett Homes Ltd [2012] CSIH 1.
[17] However, if time was of the essence in relation to the service by the tenants of a counter notice, it must also have been of the essence in respect of the other rent review provision in Clause Twenty Fifth, including the service by the landlords of their notice (or notices). If time was of the essence in the service of notices and counter notices under Clause Twenty Fifth, neither of the pursuers' notices were valid because they were not served exactly three months prior to the relevant term (nor exactly three months prior to the 28th day of the relevant month) - Yates, Petitioner 1987 SLT 86. The lease in that case provided that:
"The landlords shall give to the tenants three months written notice prior to the relevant term of their intention to exercise their right to require a review of rent."
The court held that these words required the landlord to give precisely, or in any event, substantially three months' notice prior to the relevant terms. The pursuers' argument that time is of the essence in relation to the service of the tenants' counter notice but not in relation to the initial "trigger" notice by the landlords is flawed; there would need to be a clear basis in the language of the clause to justify such a distinction between the two notices. The pursuers maintain that the court must give a commercially realistic interpretation to the parties' contract, and find support for this in Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900. Counsel did not seek to challenge the correct approach to construction set out by the Supreme Court in Rainy Sky, but it was not apparent that the pursuers' construction made more commercial sense than that of the defenders. Either time was of the essence for all notices in relation to the Clause Twenty Fifth procedure, or to none of them. There was no express provision nor principle of construction to justify a different approach to a landlords' notice from the approach to a tenants' counter notice.
Submissions for the pursuers
[18] Mr McClelland moved me to repel the defenders' first plea-in-law, to sustain the pursuers' fourth plea-in-law and to grant decree de plano in terms of the conclusions.
[19] In assessing the validity of a notice, the starting point is the lease under which it is served. The lease may require two things - (i) it may impose an indispensible requirement for the notice to be valid, or (ii) it may require information to be conveyed. The "reasonable recipient" test applies to the latter. It is important to identify into which category these notices fall. Clause Twenty Fifth (a) identifies the information to be conveyed, namely that the landlords intend to exercise their right to review the rent, and what sum they say the rent should be. There is no magic formula of words to convey this message. There is a difference between cases where the recipient of a notice is misidentified and cases where the sender is misidentified. A strict approach is taken to the former, but not to the latter. Counsel found support for these propositions in several of the authorities referred to on behalf of the defenders, including Mannai Investment, Ben Cleuch Estates and Batt Cables. In addition, counsel referred to Prudential Assurance Co Ltd v Smiths Foods 1995 SLT 369, A.W.D. Chase De Vere Wealth Management v Melville Street Properties Ltd 2010 SCLR 521 and Lay v Ackerman [2004] EWCA Civ 184; [2004] HLR 40. The standard for the "reasonable recipient" test is that of a reasonable man exercising common sense in the circumstances of the case; absolute clarity or lack of ambiguity is not required. A notice may be valid, even though it has a possible alternative meaning which would render it invalid, if the reasonable recipient would reject it as improbable. Dates in a notice can be wrongly stated without misleading a reasonable recipient; an important factor is if the date is fixed by the terms of the lease, and therefore known to the parties.
[20] In the present case there was no need for the landlords to state expressly in their notice what the relevant term date was - the lease fixed this as 1 October 2010, and this cannot be changed. There is nothing in the language of the lease to suggest that this date must be expressly stated in a notice. Counsel submitted that a notice in the following form would be valid and enforceable:
"Your landlords hereby give notice that we are exercising our right to review the rent this year. We propose an increase to £58,000 which we consider to be the fair market rent."
Such a formulation does not name the landlords and does not specify the relevant date, but it does everything that Clause Twenty Fifth requires. However Mr McClelland accepted that when considering whether the "reasonable recipient" test has been met, the notice must be read as a whole - particular parts cannot be considered individually, and the number and importance of any errors are relevant factors in the exercise of considering whether the test has been met.
[21] Counsel submitted that several background facts should be borne in mind when considering the validity of the notices:
(i) When the parties signed the lease, the defenders knew that the pursuers (i.e. the trustees of the Fund) were the landlords.
(ii) From that date until they received the notice dated 19 July 2010 the defenders had been paying rent monthly to the pursuers.
(iii) The defenders had not received any other notice advising them of a change of landlord, and had not been asked to pay the rent to anyone else.
(iv) The defenders would know that the only person with any interest in triggering a rent review was the actual landlord - so the reasonable recipient would reject as implausible the possibility that someone other than the actual landlord had issued the notice.
(v) The notice dated 19 July 2010 came from the same man that sent the rent review notice in 2005.
[22] Looking to the notice dated 19 July 2010 the information about address, landlords and tenants in the heading is correct. Apart from the second sentence, this letter is exactly what the tenant would have expected. The second sentence sounded a discordant note. The reasonable recipient would ask - if the landlord has changed, why have I not been asked to pay my monthly rental payments to the new landlord? And, if the landlord really has changed, is it a coincidence that the new landlord has the same surveyor as the old one? He would conclude that the reference to "Proven Properties (Scotland) Limited" could not be right, and was simply a mistake. If the second sentence had caused confusion, the defenders could have checked the registers online to see if the landlord had actually changed.
[23] With regard to the relevant term, this is correctly identified as 1 October 2010 in the first paragraph, and in the third line of the second paragraph. It is suggested that the references in the heading and in the second and third paragraphs to 1 November 2010 would have caused confusion, but it would have been obvious to the reasonable recipient that these references were a mistake. It was clear that the landlords had simply got their dates wrong; there was no scope for confusion for the reasonable recipient about anything in this notice.
[24] Clause Twenty Sixth imposes no mandatory requirement that a notice must be signed under the hand of an officer of the landlords; the clause merely provides that notice given in a specified manner will be valid. It says nothing about alternative means of service, and does not exclude any. Reference was made to EAE (RT) Ltd v EAE Property Ltd 1994 SLT 627, and the cases of Blythswood Investments, Prudential Assurance and Batt Cables already referred to. By providing that one method shall be sufficient, the lease is not providing that other methods are insufficient. This construction accords with the natural meaning of the words used; the defenders' construction requires the clause to be read as meaning "shall be validly given if, but only if...". Commercial common sense favours the construction urged by the pursuers; rent reviews are routinely conducted, and rent review notices routinely served, by surveyors on behalf of landlords. There is no good reason why the parties should be thought to have restricted themselves from proceeding in that way. Moreover, three of the four trustees of the Fund are individuals, for whom the concept of "an officer" is inept. There is nobody who could be described as an officer of the trustees. This objection to the validity of the two notices (which is the only objection to the validity of the second notice) is ill founded.
[25] The defenders continue to maintain that there are four uncertainties about the second notice, namely (1) who is the landlord, (2) what is the review date, (3) what is the date of assessment of fair market rent, and (4) when does the three month period for service of a counter notice expire? There is no substantial uncertainty about any of these points. Regarding the first, the reasonable recipient would not have been confused by the notice of 19 July 2010 and would have understood who the landlords were; in any event, the second notice puts this matter beyond doubt, identifying the pursuers as the landlords in the heading, in the first paragraph, and below the signature. The earlier error regarding the review date is expressly corrected at paragraphs 2 and 3; the review date is specified as 28 November 2010, and there could be no confusion about this. The date of assessment of fair market rent is fixed by the lease as 1 October 2010, and that is expressly referred to as being the relevant term in the fourth paragraph, and the landlords' proposal of £58,000 as the fair market rent is stated in the fifth paragraph to be at the relevant term. Nor can the fourth point be said to give rise to any confusion - the landlords have chosen to serve a second notice, and the letter dated 24 August 2010 is clearly intended to be a formal notice of rent review under the lease. There can be no grounds for confusion on this matter - the three month period for service by the tenants of a counter notice expires three months after receipt of the letter dated 24 August 2010. For all these reasons, even if there was any confusion caused by the first letter, any points of confusion were cleared up by the second letter.
[26] On the issue of personal bar, Mr McClelland adopted in their entirety paragraphs 29 to 32 of his skeleton submission (No. 18 of process) and paragraphs 1-13 under the heading "Personal Bar" in his Further Written Submissions. The point only arises if the pursuers' submissions on the construction of Clause Twenty Sixth are wrong. In these circumstances the pursuers' averments of personal bar are relevant for proof. The pursuers offer to prove that the defenders acquiesced in a prior rent review notice being served by an agent. This became established as an accepted practice, and it was incumbent on the defenders to notify the pursuers if they wished to return to the strict requirements of the lease. The parties were in an existing legal relationship, and the defenders were under a duty to speak. They knew that if they did not do so, the pursuers would be misled into believing that the defenders remained willing to accept a notice by an agent. The pursuers also aver that, but for that acquiescence, they would have served their notices differently. There is sufficient averment that the pursuers have changed their position in reliance on the defenders' earlier acquiescence.
[27] Mr McClelland then turned to the issue of whether time was of the essence in the service of a counter notice by the defenders. The pursuers maintained that the defenders' failure to serve a counter notice within three months of receipt of the pursuers' notice resulted in the rent being fixed at the level specified in the pursuers' notice. The defenders' argument that the pursuers require to give a further ultimatum in order to make time of the essence is misconceived, and gives insufficient weight to the parties' intentions as expressed in the contract. Mr McClelland accepted that there is a general presumption that time is not of the essence in rent review clauses, but that does not override the expressed or necessarily implied intentions of the parties as set out in their lease. If the parties have specified a time limit, and the consequences which occur if it is not met, the presumption will not apply. This was recognised in Visionhire and in Charterhouse Square Finance. For example, the terms of the lease in Visionhire included the provision that:
"The lessee may at any time thereafter give to the lessors notice in writing containing a proposal as to the amount of such revised rent and the amount so proposed shall be the revised rent for the relevant quinquennium unless the lessors shall make such application as aforesaid within three months after the date of the service or such notice".
That is a deeming provision. Clause Twenty Fifth (a) of the present lease is sufficiently similar - the rent payable from the relevant term shall be such sum as shall have been specified in the landlords' notice, unless one of two events happen, namely the parties reach agreement as to a different sum within three months of receipt by the tenants of the notice, or the tenants make an election by counter notice within three months of the date of receipt of the notice. Once that three month timescale has passed, the parties have specified the consequence and there is no room for the presumption (or canon of construction) against time being of the essence. Lord President Hope made this clear in Visionhire at page 889A/B - the function of the rule of construction that time is not generally of the essence in a rent review clause was to fill a gap where there is an absence of provision or a lack of clarity on the point. In the present case, there is no such gap - the clear inference arises from Clause Twenty Fifth (a) that if there is no agreement or counter notice within three months, the rent is fixed in accordance with the landlords' notice. The reasoning at page 890E/I of Visionhire applies to the present case - parties have made express provision. The defenders' submission that an ultimatum from the landlords was required in order to make time of the essence is ill founded, and would have the effect of re-writing the parties' contract. The parties have agreed a whole and complete scheme in Clause Twenty Fifth (a), and there is neither any gap to be filled, nor any need for an ultimatum.
[28] This proposition received support from Lord Macfadyen's reasoning in Charterhouse Square Finance. Counsel accepted that the deeming provision in that case was clearer and more compact than in the present case, but the effect was the same. Clause Twenty Fifth (a) specifies the consequences of non-timeous service of a counter notice. Lord Jauncey's opinion in Legal and Commercial Properties predated the decision of the First Division in Visionhire, and should no longer be regarded as authoritative. The first paragraph of Clause Twenty Fifth (a) contains mandatory language - "The rent payable from the relevant term shall be such sum as...". This means that the rent will be fixed by one of the three mechanisms specified thereafter. Moreover, in the absence of agreement, after serving the landlords notice the landlords have no power to advance the rent review process - if the defenders interpretation were correct, and the three month period was not of the essence, the tenants could avoid a rent review ever taking place simply by doing nothing in response to a review notice.
[29] It clearly did not follow from the fact that a tenant must serve a counter notice within three months that the landlords must serve their notice precisely three months before the review date. First, the language of the clause does not state that the landlords' notice must be served precisely three months before the relevant term. The natural construction of the words is "not less than three months". Second, the purpose of the notice is to give the tenants warning, and to give them time to consider the notice and to obtain professional advice. The notice should not be less than three months before the relevant term, but its purpose will be achieved if it is given more than three months before the term. That is consistent with business common sense, and with the approach of the Supreme Court in Rainy Sky. This clause might mean "exactly three months notice", or "no less than three months notice", or "substantially three months notice". The first of these options would serve no commercial function and would be contrary to business commons sense. Either of the second or third options are to be preferred. Why should the parties agree that a notice served on the exact day three months before the relevant term is valid, but that a notice served on the day before is invalid? The question of whether time is of the essence in any given circumstance is simply an exercise in the proper construction of the clause (cf Visionhire, and Charterhouse Square Finance). It is therefore quite possible for time to be of the essence in relation to one time limit, but not in relation to another. That is the correct construction in the present case. Lord Davidson's decision in Yates, petitioner is out of line with the subsequent reasoning in Visionhire, Charterhouse Square Finance and Rainy Sky, and is no longer authoritative. In any event, Yates stopped short of requiring a landlord to give precisely three months notice - Lord Davidson qualified this (at 92E) with the words "or in any event substantially". In the present case the August notice was served three months and three days before the review date, and the July notice was served four months and eight days before the review date. Neither was served so early as to be invalid.
Response for the defenders
[30] Counsel for the defenders disputed the suggestion that the identity of the sender of a notice was treated less strictly than the identity of the recipient - Lay v Ackerman was concerned with a counter notice, in which inevitably the identity of the sender was of less importance. This does not apply to the present case. Moreover, all the cases relied on for the pursuers were cases in which it has been conceded, or held, that the power under which the notice was served did not contain a fundamental requirement which was breached. They were therefore properly concerned with the "reasonable recipient" test. The present case is not in that category. For example, in Prudential Assurance the court did not address the question of whether there had been a breach of a fundamental requirement under which the notice was served. In A.W. Chase De Vere there was originally a contention that there was a failure to comply with a fundamental requirement, but this argument was dropped and the court did not require to address the issue.
[31] For practical purposes it is readily understandable that the specification of the date of the rent review should be a fundamental requirement. For example, a notice served four months before the 2015 rent review might be thought to relate to the 2015 relevant term, or might be backdated to the 2010 relevant term. The clause requires the fair market rent to be stated as at the relevant term, and the relevant term must be specified.
[32] It had been submitted for the pursuers that the reasonable recipient of the second notice would be in no doubt as to what he would have to do when he received this, and it was obvious that the three month period for counter notice ran from the date of receipt of the second notice. However, that is not the pursuers' case on record - the pursuers aver that each notice was valid, and that the three month period ran from the receipt of each. The pursuers' submissions with regard to whether time was of the essence were misconceived, and proceeded simply on the basis that because there were stipulations as to time, time must have been of the essence. That is not so. The contract in Charterhouse Square Finance was significantly different from the present contract. There is a gap in Clause Twenty Fifth of the present contract. Counsel also drew attention to the fact that, although the pursuers sought to argue that the decision in Legal and Commercial Properties had been superseded by Visionhire, the Lord President referred to that case in his opinion in Visionhire and approved Lord Jauncey's reasoning therein.
[33] The pursuers' argument that time must be of the essence in relation to service of a counter notice otherwise the landlords could not advance the rent review process is specious. The landlords can easily advance this process, by service of an ultimatum making time of the essence.
Discussion
[34] I address each of the issues identified in paragraph [3] above in turn, as follows.
The letter of 19 July 2010
[35] It is not a matter of dispute between the parties that there may be provisions in a lease (or other empowering document) which specify fundamental requirements which a notice to be given under the lease must meet if it is to be valid. There may be other provisions in the lease which deal with the imparting of information to another party, but which do not stipulate an indispensible or fundamental requirement for a notice to be valid. It is therefore necessary to decide into which category the provisions of Clause Twenty Fifth of the present lease fall. If, properly construed, the provisions as to notices in Clause Twenty Fifth fall into the second category, it is possible that any defects may be overlooked (or, for practical purposed, cured) by the application of what has come to be known as the "reasonable recipient" test. If, on the other hand, these provisions are properly categorised as fundamental requirements stipulated in the lease, and if a notice given under the provisions fails to meet these requirements, the "reasonable recipient" test will not apply, and the notice will be invalid.
[36] In looking to the authorities on this subject, it is necessary to bear in mind that many of these related to provisions in leases (or other empowering documents) which were held not to amount to fundamental stipulations or requirements, and to which the "reasonable recipient" test was therefore applicable. However, some of the dicta in these authorities serve to highlight the distinction between the two categories of contractual provision.
[37] In Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd the majority of the House of Lords held that the provisions in the leases did not stipulate fundamental requirements which notices served thereunder must meet. However, they were in agreement as to the approach which should be adopted when a lease did stipulate fundamental requirements. As Lord Goff of Chieveley observed (at 755/6):
"It is, in my opinion, correct in principle that a notice under such a clause will only be effective if it conforms to the specification in the clause. The specification in the clause is contained in a document which has been agreed between the parties, and so prescribes the requirements with which the notice must comply if it is to achieve the desired effect. ... The principle is therefore clear. The agreement between the parties provides what notice has to be given to be effective to achieve the relevant result. The question in each case is: does the notice which was given, properly construed, comply with the agreed specification? If it does, it is effective for its purpose. If it does not, it is not so effective; and the mere fact that the person serving the notice plainly intended, and was trying, to give an effective notice under the clause, and that the recipient of the notice realised that he was doing so, makes no difference. This is because the notice, properly construed, did not comply with the agreement between the parties. The key does not fit the lock, so the door will not open."
[38] Lord Jauncey of Tullichettle observed (at 765):
"It would be tempting to say that where a notice is disconform to that stipulated in the relevant empowering provision due to a slip which was obvious to any reasonable receiver thereof it may be construed so as to conform. However I can see considerable difficulties arising out of the application of such a principle. On one view it could be said that a giver of a notice empowered by a contractual provision always intends to comply with that provision thus however far such a notice departed from what was contractually required it could be construed to conform with such requirements. On another view it could be argued that a notice which departed substantially from what was required cannot have been intended to conform but was intended to depart from contractual requirements or given in ignorance thereof. Where is the line to be drawn between defective notices which can and those which cannot be construed so as to conform?"
[39] Lord Steyn held that the notices in that case were effective, notwithstanding the errors contained therein, by the application of the "reasonable recipient" test. However, he did so on the basis that it was not a case of a contractual right to determine which prescribes as an indispensible condition for its effective exercise that the notice must contain specific information. In such a case, he held that if notices under contractual rights reserved contain errors they may be valid if they are sufficiently clear and unambiguous to leave a reasonable recipient in no reasonable doubt as to how and when they are intended to operate. He observed that that test postulates that the reasonable recipient is left in no doubt that the right reserved is being exercised. Lord Hoffman agreed with the distinction between a fundamental requirement stipulated in the lease, and a provision relating solely to the communication of information. He agreed that the notices in Mannai fell into the second category, and observed (at 776B):
"If the clause had said that the notice had to be on blue paper, it would have been no good serving a notice on pink paper, however clear it might have been that the tenant wanted to terminate the lease. But the condition in clause 7(13) related solely to the meaning which the notice had to communicate to the landlord."
[40] The distinction between the two categories was described by Lord Clyde (at 781D) as follows:
"Where a notice of termination complies precisely and unambiguously with the provision which empowers the sending of the notice then its validity should be unquestioned. Where the terms of the notice do not altogether accord with the provisions of the contract that may or may not render the notice unenforceable. The problem then may come to be one of finding a fair and reasonable construction of the notice. But there can be cases where the validity of the notice cannot be saved by any construction and will have to be regarded as bad."
[41] The distinction between a provision containing an indispensible requirement and one dealing with the imparting of information has been recognised in Scotland. In Tawne Overseas Holdings Ltd v The Firm of Newmiln Farms Lord Malcolm held that the failure to comply with a fundamental requirement or indispensible condition could not be cured by resorting to the "reasonable recipient" test. A similarly strict approach to a failure to meet a fundamental requirement was taken by the Inner House in Ben Cleuch Estates Ltd v Scottish Enterprise. Lord Hodge adopted the same approach in Batt Cables Plc v Spencer Business Parks Ltd. He set out (at paragraphs [24] to [27]) four propositions which summarised the correct approach to the validity of a notice under a lease, and the "reasonable recipient" test. I am in complete agreement with the views expressed there. It is perhaps worthwhile repeating here the passage in the Opinion of the Court in Scrabster Harbour Trust v Mowlem Plc [2006] CSIH 12, 2006 SC 469, at paragraph [47] to which Lord Hodge referred:
"Our conclusion from an analysis of the speeches in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd, so far as relevant for present purposes, is that the courts should interpret and apply commercial instruments in a common sense 'commercial' or 'business' way, eschewing linguistic and legalistic niceties. Where a contract gives one party the right unilaterally to bring the contractual relationship to an end, or to alter it in some other way, then that party must, if he chooses to exercise that right, comply with the agreed conditions for its exercise. If strict compliance with a particular condition is called for, then strict compliance will be enforced."
[42] Against the background of this line of authority, I turn to consider what Clause Twenty Fifth (a) of the lease in the present case required the landlords to do by way of notice in order to exercise their right to require a review of the rent. It seems to me that there are six requirements - (1) the notice must be in writing, (2) it must be given by the landlords, (3) it must be given to the tenants, (4) it must be given three months prior to the relevant term, (5) it must specify the rent which the landlords propose as the fair market rent, and (6) it must specify the relevant term at which that fair market rent is to be assessed and payable. I consider that each of these is a fundamental requirement for a valid notice. The language of the Clause in mandatory. The parties have stipulated the conditions for a valid notice, and if the landlords seek to exercise their right to require a review of the rent, they must comply strictly with these agreed conditions or requirements. I observe that none of these conditions is unusually complex or onerous; one might think that compliance with them should pose no difficulties for the landlords.
[43] It is not disputed in the present case that the letter dated 19 July 2010 contained several defects or "errors". It was in writing, and it was addressed to the tenants. However, although the fund is mentioned as the landlord in the heading, the letter begins with the words "I act on the instruction of the landlord ..." and then states that "the original landlords were as stated above, now Proven Properties (Scotland) Ltd." I cannot construe these words as meaning anything other than that the author of the letter is writing in the capacity of agent for Proven Properties (Scotland) Ltd - who are not the landlords.
[44] Mr McClelland submitted for the pursuer that although the court takes a very strict approach to misidentification of the recipient of a notice, it takes a less strict approach to the misidentification of the sender. Without wishing to suggest a rule of wider application, this may possibly be the case when the court is applying the "reasonable recipient" test. In support of the proposition, Mr McClelland relied on four authorities. The decision in Prudential Assurance Co Ltd v Smiths Foods predated the detailed analysis of this issue by the House of Lords in Mannai Investment Co Ltd and Lord Morton of Shuna appears to have proceeded solely on the basis of the "reasonable recipient" test, without considering the fundamental requirements specified in the lease. Lord Hodge at paragraph [33] of Batt Cables was again considering the "reasonable recipient" test against the background of a case in which the error in the notice did not cause a mismatch between the notice and the power under which the notice was given. Lord Glennie's approach in A.W.D. Chase De Vere Wealth Management Ltd was confined to the "reasonable recipient" test, the argument that the notice did not comply with the fundamental requirements of the lease having been withdrawn. Lay v Ackerman was concerned with a landlord's counter notice to an earlier notice of claim by a tenant. It was a statutory requirement of the notice of claim that the full name of the tenant should be stated; perhaps unsurprisingly, there was no such requirement in relation to the landlord's counter notice, and the observations of Neuberger LJ at paragraphs 26/27 must be seen in that context. I am not persuaded that this proposition applies where it is a fundamental requirement of the lease that a notice shall be given by the Landlords. In a situation where a notice appears to have been given on behalf of a named company which is not the landlord, I consider that this amounts to a failure to comply with a fundamental requirement of the lease.
[45] The notice went on to state that the landlord specifies a fair market rent as at 1 November 2010. This is another significant mismatch with the requirements of the lease. The fair market rent requires to be specified as at the relevant term, being 1 October 2010. This is a clear stipulation of the lease, and I consider it to be a fundamental requirement for the validity of a notice. The pursuers aver that this made no substantial difference, and that the fair market rent would have been the same on 1 November 2010 as on 1 October 2010. This may or may not be so, but it is nothing to the point. The parties have agreed that the landlords shall specify the rent which they propose as the fair market rent at the relevant term. This is entirely logical in the context of the agreed mechanisms for rent review. I regard this as another failure by the pursuers to meet the stipulated requirements of the lease.
[46] For these reasons I do not consider that the letter dated 19 July 2010 operated as an effective notice of rent review for the purpose of Clause Twenty Fifth of the lease.
[47] In the event that I am wrong in categorising these requirements as fundamental requirements of the lease, the "reasonable recipient" test would fall to be applied. In that event, I do not consider that the various defects or "errors" in this letter could be cured by the application of this test. As counsel for the pursuers accepted, not only the quality of the defects but their quantity must be taken into account when considering the reaction of the reasonable recipient. If there is scope for confusion in the reasonable recipient, the test will not apply - it can only be satisfied where the reasonable recipient could be left in no doubt whatever. The notice must communicate the required message clearly and unambiguously. (Mannai at 768G, 773B and 776B). I do not consider that the letter of 19 July 2010 clearly and unambiguously communicated the required message. It did not merely omit the landlord's name and designation - it named an entirely different company as the landlords, and bore to be signed as agent for and on behalf of that company. It stated that the landlord wished to have the rent review occur on 1 November 2010, when there was no provision in the lease for review of the rent at that date. It went on to give notice that the landlord specified that the fair market rent as at 1 November 2010 should be a specified sum, but the relevance of this date was unclear (particularly given the earlier reference to provision in the lease for the annual rent to be reviewed as at 1 October 2010). Far from communicating the necessary information clearly and unambiguously, this letter combines wrong information, misleading information, irrelevant information and omissions. For these reasons, even if it met the stipulated fundamental requirements of the lease, I do not consider that it satisfied the "reasonable recipient" test.
The letter dated 24 August 2010
[48] The defects discussed above in relation to the first letter are not repeated in the second letter. It satisfies the fundamental requirements stipulated in Clause Twenty Fifth of the lease - it is in writing, the landlords and the tenants are each correctly named, it is timeously given (a point which I consider further below), it correctly specifies the review date as 28 November 2010, and it specifies the rent which the landlord proposes as a fair market rent at the relevant term, which is correctly identified as 1 October 2010. The defenders' principal attack on this letter (which also applied to the first letter) was that it failed to meet the requirements of Clause Twenty Sixth of the lease that it should be signed under the hand of an officer of the landlords. The defenders mount a secondary attack that, against the background of the first letter, the second letter fails the "reasonable recipient" test.
[49] I do not consider that Clause Twenty Sixth of the lease, properly construed, stipulates as a fundamental requirement for a valid notice by the landlords that it must be signed under the hand of an officer of the landlords. The fundamental requirements for a valid rent review notice are stipulated by Clause Twenty Fifth. The purpose of Clause Twenty Sixth is quite different, and is not confined to rent review notices. It is simply concerned with specifying one means of service of any notices required in terms of the lease which shall be sufficient. The language of the Clause is not consistent with a mandatory requirement, nor is there anything in the Clause which suggests a different method of service will result in invalidity. As Lord Cullen put in Blythswood Investments Ltd,
"It merely provides for a method by which the sufficiency of service can be put beyond question. It does not provide an exclusive prescription as to the methods by which sufficient service can be achieved."
As Lord Clyde put it in EAE (RT) Ltd,
"The following provisions of Clause Tenth simply provide in my view that certain methods shall constitute a sufficient service but do not exclude the possibility that service by some other method shall not also suffice ... these provisions seem to me concerned with matters of proof rather than matters of procedure and I do not regard Clause Tenth as prescribing the exclusive methods of giving notice."
[50] Not only is the language of Clause Twenty Sixth inconsistent with a stipulation of a fundamental requirement that service of a notice must only be given under the hand of an officer of the landlords, such a construction appears to me to be contrary to commercial common sense. As Mr McClelland submitted, rent reviews are routinely conducted, and rent review notices routinely served, by surveyors on behalf of landlords. There is no good reason why the parties to this lease should be thought to have restricted themselves from proceeding in this way.
[51] I am also not persuaded by Mr Thomson's submission that the second letter fails the "reasonable recipient" test. While I accept that the first letter forms part of the relevant background in the application of that test, it seems to me that the second letter clears up the confusion, ambiguities and misleading information contained in the first letter. It clearly and unambiguously communicated the required message to the defenders. There is no force in the defenders' complaint that the reasonable recipient would be confused by two different three month time periods running for the purpose of service of a tenant's counter notice. Whatever is averred on behalf of the pursuers in this regard, the provisions of the lease on this matter are quite clear - the defenders have three months from the date of receipt of the second letter within which to serve a counter notice.
[52] For these reasons, I consider that the letter dated 24 August 2010 operated as a valid notice of rent review for the purpose of Clause Twenty Fifth of the lease.
Personal Bar
[53] In light of my decision as to the effect of the letter of 24 August 2010, this issue does not arise. However, standing the careful submissions made to me by both counsel on this point, it is appropriate that I should state briefly my views on the issue.
[54] The pursuers claim that the defenders are personally barred from insisting on a rent review notice being signed under the hand of an officer of the pursuers, because they did not take objection to a notice dated 14 June 2005 which was signed by a surveyor on behalf of the pursuers (being the same surveyor that signed both notices in 2010). They say that if the defenders had taken such an objection in 2005, the pursuers would have issued the 2010 notices under their own hand, and by insisting on this requirement now, the defenders will put the pursuers to the extra expense and inconvenience of serving further notices.
[55] In short, I consider that the defenders' submissions on this matter are well founded in their entirety. Although there was a contractual relationship between the parties which might give rise to a duty on the defenders to speak out in certain circumstances, I do not consider that such a duty arises on the facts averred by the pursuers. All that the pursuers can point to is one occasion, five years earlier, on which the defenders failed to take the point which they now seek to take. There were no other actions, statements or representations by the defenders - merely silence on that occasion. This is not a case of a course of conduct continuing over a protracted period, but silence on one previous occasion. Moreover, the contractual relationship between the parties is that of landlord and tenant - this is not a contract uberrimae fidei.
[56] In this regard the discussion of the elements of personal bar contained in Chapter 2 of Blackie & Reid on Personal Bar is instructive. As the authors observe, inconsistency and unfairness are required in all cases if personal bar is to be applied, but the measure of unfairness is highly dependent upon context.
"An unequivocal representation that a right will not be exercised may readily be regarded as supporting bar, even where the indicators of unfairness are relatively weak. Where, however, the rightholders' conduct is constituted by silence - such as the failure to assert a similar right - bar is recognised only where the indicators of unfairness are strongly present."
(Paragraph 2-12).
"The issue of culpability requires careful attention when silence is the mode of inconsistency. Where there was a relationship of trust between the parties, as in contracts uberrimae fidei (caution, insurance and partnership) for example, silence is likely to be regarded as culpable ... Less blame attaches when silence relates not to disclosure of information but to the rightholder's intended to challenge to the obligant's actions. Even here, however, a 'duty to speak' is imposed when proximity in the relationship creates the reasonable expectation that an objection would be notified."
(Paragraph 2-44).
[57] In the present circumstances, where all that is complained of is silence on one previous occasion, and there is in my view a comparatively low level of culpability, I have strong doubts as to whether the defenders can be said to have barred themselves from asserting their rights on this occasion.
[58] In this regard, the observations of the Lord President (Rodger) in William Grant & Sons Ltd v Glen Catrine Ltd 2001 SC 901 are instructive. He observed (at paragraph [48]):
"While acquiescence may indeed be capable of barring action in the case of future wrongs, it will have that effect only in those rare cases where it can be inferred that the pursuer intended to consent not only to wrongs which had occurred without objection, but also to all similar wrongs, whenever they might occur. In other words, he had given his irrevocable consent."
The Lord President went on to quote from Gloag on Contract at page 169, and then made observations about the plea of personal bar based on silence at paragraph [49] as follows:
"I should add that the defenders' plea of acquiescence is based on an inference which they seek to draw from the pursuers' silence or failure to object. Inferences of that kind are legitimate only where the party concerned is under a legal duty to speak or object. See, for instance, British Linen Bank Co v Cowan. I can find no relationship between the pursuers and the defenders in this case which would have given rise to such a duty."
[59] Even if the pursuers were able to rely on the defenders' failure to take objection to the 2005 notice, in order to found a plea of personal bar they would at least require to prove that they had altered their position in reliance on this. The classical definitions of personal bar in Cairncross v Lorimer and Gatty v Maclaine both state that the party seeking to argue personal bar must have acted upon his believe to his prejudice. The First Division in William Grant & Sons Ltd appear to have retreated from the words "acted to their prejudice" and preferred the expression "altered their position". For present purposes it is unnecessary for me to explore this distinction. However, it seems likely that any alteration in the position of the party pleading personal bar cannot be to that party's benefit - it must be to that party's disadvantage or (perhaps) prejudice. I also consider that such disadvantage or prejudice must be more than de minimis - it must be significant enough to justify the extinction of the right which the other party would otherwise be entitled to assert. I do not consider that the pursuers' averments in this regard are sufficient to found a relevant plea of personal bar.
[60] For these reasons, had it been necessary for me to do so, I should have answered the third question posed in paragraph [3] above in the negative, repelled the pursuers' fifth plea-in-law, and refused to admit the last four sentences of Article 5 of Condescendence to probation. However, standing the view I have taken on the second issue, this is unnecessary.
Was time of the essence for service of the defenders' counter notice and/or the pursuers' notice?
[61] There is clearly a canon of construction - indeed, it is regarded in English law as a presumption - which may be stated in unduly general terms that time is not of the essence in a rent review clause - United Scientific Holdings Ltd v Burnley Borough Council (per Lord Diplock at 930 F/H), Visionhire Ltd v Britel Fund Trustees Ltd (per Lord President Hope at 888) and East Dunbartonshire Council v Bett Homes Ltd (at paragraphs [28] and [29]). However, that general statement is subject to qualifications. This canon of construction cannot supersede or ignore what the parties themselves have agreed. Lord Diplock's statement of principle in United Scientific Holdings began with the words "I would hold that in the absence of any contra-indications in the express words of the lease or in the interrelation of the rent review clause itself and other clauses or in the surrounding circumstances...", and as Lord Fraser of Tullybelton observed (at page 959) "It seems to me that stipulations as to time ought not to be strictly enforced unless there is something in a particular clause to indicate that time is of the essence in that case." Lord President Hope observed in Visionhire (at page 889 A/B):
"The function of the rule is to fill the gap where there is an absence of provision or a lack of clarity on the point, not to override express provisions in the contract which show either expressly or by necessary implication that the parties intended that the time limit was to be strictly applied."
[62] The exercise in which the court is engaged is to ascertain what the parties to the lease intended. The presumption or canon of construction is intended only to assist the court in that exercise - as Lord President Hope put it, to fill the gap where there is an absence of provision in the lease. It is worthwhile remembering the passage in Halsbury's Law of England (4th Edition) Volume 9 at para 482 (quoted in Visionhire at page 886K):
"Apart from express agreement or notice making time of the essence, the Court will require precise compliance with stipulations as to time wherever the circumstances of the case indicate that this would fulfil the intention of the parties. Broadly speaking, time will be considered of the essence in 'mercantile' contracts and in other cases where the nature of the contract or of the subject matter or the circumstances of the case require precise compliance."
[63] The lease itself (together with any relevant surrounding circumstances) must be the starting point. The modern approach to interpretation of contracts, since Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, has been to rely less on principles of construction and more on "the common sense principles by which any serious utterance would be interpreted in ordinary life". Lord Hoffman observed in that case that "almost all the old intellectual baggage of 'legal' interpretation has been discarded" - although as Evans L J commented in the BOC Group v Centeon (quoted at paragraph [29] of East Dunbartonshire v Bett Homes Ltd):
"The old intellectual baggage has been discarded but the courts are not travelling light. The cabin trunks have been replaced by airline suitcases; the contents are much the same though they are expressed in more modern language."
[64] Looking to the terms of Clause Twenty Fifth (a) of the present lease, the parties have agreed a reasonably detailed and rational mechanism for review of rent. The opening paragraph of the clause makes it clear that this mechanism is mandatory, and no other mechanism can be used - "such review shall be effected only in accordance with the following provisions". The first (and perhaps the only) step is for the landlords to serve a notice. I have already discussed the requirements of that notice. Unless one of two events occur, the rent payable from the relevant term shall be the sum specified in that notice. If the notice is not served by the landlords timeously, by virtue of Clause Twenty Fifth (c) the specified rent shall become payable three months after the receipt by the tenants of the notice, but shall be backdated to the relevant term. The two events which may prevent the revised rent specified in the landlords' notice from becoming payable are that the parties have agreed a different rent within three months of receipt of the notice by the tenants, or the tenants have given counter notice to the landlords within three months of receipt of the notice requiring the rent to be fixed by an independent surveyor. If neither of these events occur, the rent specified in the landlords' notice is the sum payable.
[65] The defenders contend that, because of the presumption or canon of construction, this is wrong, that time of service of the counter notice is not of the essence, and that in order to make it of the essence the landlords must serve a further notice or ultimatum on the tenants requiring payment within a specified time, and making time of the essence. I do not agree. The wording of Clause Twenty Fifth is sufficient to set out a clear mechanism for rent review, and that mechanism provides that the rent payable shall be the sum specified in the landlords' notice, unless agreement to a different sum, or service of a counter notice, is effected within three months of the date of receipt of the landlords' notice. There is no requirement for a further notice or ultimatum by the landlords to enable them to rely on this provision - they are entitled to rely on their notice unless one of the two specified events occurs. I see no practical reason, nor anything in commercial logic or business sense, for requiring the landlords to serve a further notice or ultimatum. The parties have already set out what will happen in the absence of a timeous agreement or counter notice - the rent specified in the notice shall be payable. This amounts to a deeming provision. As Lord President Hope put it in Visionhire (at 889I):
"In any event declaration (6) provided its own ultimatum procedure, and since the pursuers had followed that procedure by giving notice in writing to the defenders as lessors they were entitled to rely on what the declaration said about the effect of the expiry of the time limit and were not required to do anything else to bring this into effect." ... "I agree with the Lord Ordinary that this is itself a kind of ultimatum procedure which the parties have agreed as part of their contract, and that there is no room here for imposing a requirement on the lessee to embark on a further ultimatum procedure since the parties have already set out in the declaration what the consequences are to be if the period of three months is allowed to elapse."
[66] It is fair to observe that the deeming provision in the present lease is not as clearly or concisely stated as in the clauses considered in Visionhire or Charterhouse Square Finance. In the latter case, the lease provided for intimation by the tenants of a counter notice, and concluded with the words:
"Failing such intimation the rent payable under this lease shall from and after the relevant date be the rent specified in the said notice."
As Lord McFadyen observed in that case (at page 725J):
"In my opinion the existence of what has been variously called a deeming or default provision, ie a provision providing for the consequences of failure to adhere to the agreed time limit, will in general demonstrate that the parties intended the time limit to be strictly enforced."
[67] If there had been such clear, concise provision in the present lease, I am inclined to the view that Mr Thomson would not have been able to make the submissions which he did so ably and persuasively. However, looking to Clause Twenty Fifth as a whole, I have reached the view that this does indeed amount to a deeming provision, and that if the defenders wished to initiate the procedure for rent to be determined by an independent surveyor, they required to do so within three months of their receipt of the letter dated 24 August 2010. I have considered the arguments to the effect that the pursuers would suffer little prejudice by requiring them to serve an ultimatum, and also the backdating effect of any landlords' notice, but these do not cause me to change my view on this matter. The parties have agreed a mechanism for rent review and it is not for the court to interfere with or change that mechanism.
[68] It does not follow from my decision that time was of the essence in the service of a counter notice that time must also have been of the essence in the service of the landlords' notice. Again, this is an issue which must be determined on a proper construction of the lease. In this respect I agree with the submissions for the pursuers that the lease does not require the landlords to serve a rent review notice precisely three months before the rent review date. Clause Twenty Fifth (a) requires the landlords to give to the tenants "three months written notice prior to the relevant term...", and Clause Twenty Fifth (c) entitles them to require such a review as at the twenty-eighth of any month following the relevant term by giving to the tenants "three months written notice prior to such term". I agree that the natural construction of these provisions is that notice must be given not less than three months before the relevant term. I cannot construe this as requiring the landlords to give such notice on the precise day falling three months before the term, nor can I see anything in commercial common sense or business logic to favour such a construction. The purpose of the three month period is to give the tenants adequate warning, and to allow them time to consider the notice, obtain professional advice, and if so advised, serve a counter notice. As long as at least three months notice is provided, that purpose is served. There is no business sense in the interpretation that service exactly three months before the relevant term is sufficient, but that service one or two weeks earlier than that is not sufficient. Neither the wording of the clause, nor anything in the surrounding circumstances nor any other provisions of the lease, nor anything in business sense supports such a construction.
[69] For these reasons, I consider that if the defenders wished to avail themselves of the right to have the rent determined by an independent surveyor they required to serve a counter notice on the pursuers within three months of receipt by them of the letter dated 24 August 2010. The pursuers were not required to serve an additional ultimatum or further notice that time was to be of the essence in this regard. The fact that the letter dated 24 August 2010 was not served precisely three months before the relevant review date, but was served three months and three days before the relevant date, does not invalidate the notice.
Result
[70] For the reasons given above, I consider that the letter dated 24 August 2010 was an effective rent review notice for the purpose of Clause Twenty Fifth (c) of the lease, and that because the defenders have failed to serve a counter notice within three months of receipt of that letter, they are obliged to pay the rent specified therein. According I shall sustain the first to fourth pleas in law for the pursuers, repel the pleas in law for the defenders, and grant decree in terms of the conclusions of the summons.