For pursuers and respondents: Keen QC, Fairley; MacRoberts

For defenders and reclaimers: Campbell QC, McBrearty; Dundas & Wilson CS

22 June 2006

Introduction

[1] By Lease dated 28 and 29 August and 24 September 1990 and registered in the Books of Council and Session on 7 November 1990 (the head lease) Harper Collins Publishers Ltd let to the pursuers three areas of ground at Westerhill Road, Bishopbriggs for a period of 35 years from 30 August 1990. On part of the subjects there is the office building with which this action is concerned.

[2] By Lease dated 6 May and 11 June 1992 and registered in the Books of Council and Session on 6 August 1992 (the sub-lease) the pursuers sub-let to General Accident Fire and Life Assurance Corporation plc part of the office building consisting of the basement and the ground, mezzanine, first and second floors (the premises) from 1 October 1991 to 30 September 2006. The sub-lease was varied by Minute of Variation of Lease dated 24 February and 8 March 1997 and registered in the Books of Council and Session on 2 May 1997. The sub-lease is now held by the defenders.

[3] We shall refer to the pursuers as the head tenants in relation to the head lease and to the pursuers and the defenders as the landlords and the tenants respectively in relation to the sub-lease.

[4] The defenders use the premises as a call centre. They employ 719 people there. The current rent is £616,000 p.a. In 2005 the pursuers gave notice to the defenders of their intention to carry out extensive works of repair and renewal to the building. The proposed works relate mainly to the common parts and services, but some will be done on the defenders' premises. There were discussions between the parties' agents as to how the works could be carried out with least disruption. At first the defenders indicated that they wished to have an extension of the sub-lease; but in May 2005 they gave notice of termination of it. In August 2005 the pursuers intimated to the defenders a schedule of the proposed works. Since then, the defenders have refused to give the pursuers access to the premises to carry out them out. They deny that the building has deteriorated to the extent alleged by the pursuers. They say that the disruption to their business could cost them over £1m. The pursuers would seek to recover from them their share of the cost by way of a service charge, which would probably over £3m.

[5] The pursuers conclude for (1) declarator of the existence of the sub-lease; (2) declarator that in terms of clause SECOND of the sub-lease they have the full right and liberty to enter upon the defenders' premises as often as may be necessary to carry out their whole repairing, maintaining and other obligations under the sub-lease and the head lease; (3) decree ordaining the defenders to allow the pursuers to enter upon the premises to carry out those obligations, and an order ad interim to that effect in terms of section 47(2) of the Court of Session Act 1988; and (4) expenses.

[6] Lord McEwan heard parties before service of the summons. By interlocutor dated 12 May 2006 he granted an order ad interim in terms of conclusion (3). This is the interlocutor reclaimed against.

Contractual provisions

The head lease

[7] In terms of clause SECOND (a) of the head lease, the head tenants are taken to accept the premises as being in all respects fit for the purpose or purposes for which they are let and, notwithstanding their state of repair at the date of entry, the head tenants undertake inter alia to repair, maintain in good and substantial repair and condition, renew, rebuild and reinstate the premises, subject to certain exceptions, throughout the subsistence of the lease.

[8] Clause TWENTY THIRD is a strict irritancy clause in fairly standard terms. It is enforceable in the event of the head tenants' breach of clause SECOND (a).

The sub-lease

[9] Clause SECOND of the sub-lease defines the premises that are sub-let and provides that the tenancy includes inter alia a right in common with the landlord and any other tenants and occupiers of the remainder of the building to the common parts. Declaration (three) of this clause is to the effect that there are excepted and reserved to the landlords and to all others for the time being authorised by them

"the full right and liberty to enter upon the Premises as often as may be necessary to carry out the Landlords' whole repairing, maintaining and other obligations whether contained in the Head Lease or in this Lease."

[10] The obligation to maintain the building, the common parts and the services lies with the landlords, but the cost of maintenance is recoverable from the tenants by way of a service charge under clause SEVENTH (2). The service charge is expressed as a percentage of the annual cost to the landlords of fifteen specific elements of the maintenance obligation. Declaration (Primo) in that clause is that

"the Landlords shall be the judge as to the necessity for all such expenditure and shall see to the execution of all such works, services and others as are referred to in this sub-clause."

[11] Clause EIGHTH (5) obliges the tenants, subject to certain exceptions, to accept the premises as in good and substantial order and repair at the date of entry and to uphold, repair, maintain, renew and keep and, in certain events, to rebuild, reinstate and replace the premises and all additions thereto so that the same shall be in good and substantial condition and repair during the whole currency of the lease, all to the satisfaction of the landlords.

[12] In terms of clause TWENTY EIGHTH (1) the landlords warrant to the tenants that, without prejudice to the landlords' rights and provided that the tenants pay the rents and perform and observe the obligations incumbent on them under the sub-lease, the tenants shall have peaceable occupancy of the premises throughout the period of the lease without interruption by the landlords.

[13] Clause THIRTIETH obliges the tenants to undertake and accept that their obligations under the sub-lease shall, subject to certain exceptions, be those applicable to the landlords under the head lease and, accordingly, those obligations are treated brevitatis causa as being repeated in and forming part of the sub-lease.

[14] Clause THIRTY SECOND is an arbitration clause covering all disputes and differences of any kind which may arise between the landlords and the tenants in relation to the meaning, interpretation or implementation of the sub-lease or the rights, duties or obligations of the parties under it, or any other matters in any way arising out of or in connection with it, whether during the currency of or after the termination of it.

The Court of Session Act 1988

[15] Section 47(2) of the 1988 Act provides as follows:

"(2) In any cause in dependence before the Court, the Court may, on the motion of any party to the cause, make such order regarding the interim possession of any property to which the cause relates, or regarding the subject matter of the cause, as the Court may think fit."

The Lord Ordinary's decision

[16] In essence the Lord Ordinary held that the pursuers were the sole judges of the question whether the repairs were required (at para [25]) and that if they judged that they were, they had an absolute right to enter on the premises to carry them out (at paras [22]-[24]). He said:

"There are no qualifying words in the leases suggesting that there is some overriding test of reasonableness. In my view, on these contracts alone there is no room for the view that there is anyone other than the pursuers who can decide what is necessary. What has to be looked at is the whole repairing obligations and they must judge that. There is no suggestion here that the pursuers are acting in bad faith" (at para [25]).

He considered that an interim order in the terms sought would not be conclusive of the issues between the parties, that the issues were not governed by the arbitration clause and that such an order gave adequate specification to the defenders. On the question of balance of convenience, he was not persuaded that the disruption caused by the order would be as great as the defenders apprehended. On the other hand, without the order sought the pursuers would be put in breach of their own obligations under the head lease. If they could not carry out the work before the expiry of the lease, they would be unable to re-let the premises when they fell vacant. The pursuers' alternative remedy of damages was unsatisfactory. Such damages would be speculative and difficult to quantify (at para [27]).

Submissions for the parties

For the defenders

[17] Senior counsel for the defenders submitted that the essential issue was whether the pursuers were under an obligation in terms of the head lease or the sub-lease to carry out the proposed works. The defenders would contend that those works were not necessary to fulfil any such obligation, and that the sub-lease could not reasonably be interpreted to mean that the pursuers were the sole judges of the extent of the obligation. Clause TWENTY EIGHTH (1) and clause SECOND, declaration (three) of the sub-lease, read together, meant that (1) the pursuers were not entitled to disturb the defenders' possession unless they were compelled to do so in consequence of a maintenance obligation incumbent on them under the head lease or the sub-lease; (2) the defenders were entitled to uninterrupted possession unless and until the condition of the premises, judged objectively, was such as to give rise to the obligation; (3) the pursuers' own judgment on that matter was not enough; and (4) the critical factor was therefore the present state of repair of the building. Construed in its context, declaration (Primo) in clause SEVENTH (2) was part of a mechanism for conclusively determining the quantum of the service charge and allocating it among the occupants of the building. It did not give the pursuers sole right to determine the legal question on which their right of entry depended. The Lord Ordinary had concluded (at para [25], supra) that this question should be decided in the pursuers' favour on a reading of the contracts alone. He had erred in foreclosing these issues at this stage. There were real issues to try as to the current condition of the building and its plant and equipment and as to the pursuers' entitlement to dispossess the defenders.

[18] In any event, the Lord Ordinary erred in regarding the order pronounced as being an interim order. It was effectively a final order that would determine the only live issue. Once made, it could not be undone. The question should be approached in a similar way to the question of interim interdict (Va Tech Wabag (UK) Ltd v Morgan Est (Scotland) Ltd 2002 SLT 1290). The Lord Ordinary also erred in rejecting the comparison with a summary decree (at para [19]). Before granting a summary decree the court had to be satisfied that there was no relevant defence to the whole, or to part of, the action. To grant summary decree on any lesser test would be to deny a defender the opportunity to prove his defence (Henderson v 3052775 Nova Scotia Ltd 2006 SLT 489, Lord Rodger of Earlsferry at paras [15], [18] and [19]). In this case, the interim order had the same effect.

[19] The Lord Ordinary had also erred in holding that the arbitration clause did not apply. The clause did not prevent the pursuers from raising the action; but it could not have the effect of ousting the jurisdiction of the arbiter on the central issue (Hamlyn & Co v Talisker Distillery (1894) 21 R (HL) 21, Lord Watson at p 25). The Lord Ordinary had identified the legal issues (paras [21]-[24]) and reached conclusions on them that were within the province of an arbiter.

[20] The order granted was devoid of content. It did not specify the works that were to be done or how long the works would take. It was not enough to refer to the schedule, as the Lord Ordinary had held. The specification should be in the interlocutor itself.

[21] The balance of convenience favoured the status quo. To require the defenders to decant from the premises would be disruptive and expensive. There was no evidence that the work was being proposed under compulsion from the head landlord or that a new sub-tenant had contracted to take entry in October. If the defenders' position was unsound, the pursuers would have a remedy in damages. The defenders were well able to meet any damages that might be awarded against them. In concluding that the status quo was that repairs were now deemed necessary, the Lord Ordinary had begged the question (at para [27]). The reality was that the pursuers were attempting to extract the maximum value from the service charge provisions before the sub-lease expired.

For the pursuers

[22] Counsel for the pursuers submitted that clause SECOND, declaration (three), reserved to the landlords the right to enter upon "the premises" as defined. That right was a limitation on the tenant's right of peaceable occupancy under clause TWENTY EIGHTH. Section 47(2) of the 1988 Act did not necessarily relate to exclusive possession. In section 47(2), possession was not a term of art. It had to be given its ordinary meaning. It could be synonymous with control. Conceivably, both parties could be in possession of those parts of the sub-let premises where the landlords' work was being carried out. Section 47(2) could enable the pursuers to have control of the premises, or any part of them, to the extent required for the execution of the proposed works.

[23] Clauses SEVENTH (2) and THIRTIETH imported the obligation of repair and renewal that was owed by the pursuers to the head landlords under clause SECOND (a) of the head lease. The pursuers were entitled to recover service charges for the maintenance work that was done and were the sole judges of the necessity of the relevant expenditure (cl SEVENTH (2), declaration (Primo)). The defenders could not challenge their decision. This was a contract between two commercial parties. If the works carried out were excessive, the defenders could contest the amount of the resulting service charge in an arbitration under clause THIRTY SECOND. The pursuers had to take that risk. On the other hand, they ran the risk of an irritancy of the head lease if they were to be in breach of their obligations under clause SECOND (a) of it. It was not suggested that the pursuers were in bad faith or were acting irrationally or for an ulterior motive.

[24] The remedy of the interim order was no different in nature from the remedy of interim interdict to enforce a keep-open clause. It would simply regulate possession of the premises until the end of the lease. The landlords' sole judgment on the issue under clause SEVENTH (2), declaration (Primo), was not within the scope of the arbiter's jurisdiction. Since the interim order essentially repeated the provisions of the sub-lease, the parties would know what it meant and what must be done to comply with it (Oak Mall (Greenock) Ltd v McDonald's Restaurants Ltd, Outer House, 9 May 2003).

[25] On the question of balance of convenience, the degree of harm likely to be suffered by the defenders was not the conclusive consideration. The court must have regard to the relative strengths of the cases on averment and in argument (Scottish Power Generation Ltd v British Energy Generation (UK) Ltd 2002 SC 516). The status quo was that the pursuers had a clear and unequivocal contractual right to carry out the works and were being prevented from exercising it. It was contemplated in the sub-lease that work of this nature might have to be done during its currency.

[26] If the works were not done before the expiry of the sub-lease, the defenders' obligation to share the cost of the work would fly off (Capital and Counties Freehold Equity Trust Ltd v BL plc (1987) 283 EG 563). The pursuers were concerned about the state of the building, their possible breach of the head lease and their possible breach of their obligations to other sub-tenants of the building. It was to be expected that the defenders had back-up systems. If the pursuers' position was unsound, the defenders would in due course have a remedy of damages.

Conclusions

A preliminary question under section 47(2)

[27] In terms of the sub-lease the pursuers grant warrandice of peaceable occupancy of the premises to the defenders. In terms of conclusion (3) the pursuers do not seek to dispossess the defenders. They seek to enforce the lesser right of entry to the premises for the limited purpose of carrying out the works referred to. Section 47(2) of the 1988 Act, however, relates to orders regulating the interim possession of property. There is, in our view, a preliminary question as to whether an order under section 47(2) is a competent remedy in a process in which the pursuers seek to enforce only a right falling short of possession itself. It will be open to the defenders to take a plea on this point in their formal defences, as senior counsel for the defenders is now minded to do. We are not convinced by the submission of senior counsel for the pursuers that the interim possession to which section 47(2) refers can mean a right of interim access to and control of those parts of the premises where the pursuers' work may have to be done, still less that it can mean a right of occupancy of those parts in common with the defenders.

The main issue - the interpretation point

[28] Under clause SECOND of the sub-lease the pursuers' right to enter on the premises applies only if entry is necessary to carry out their whole repairing, maintaining and other obligations, whether contained in the head lease or in the sub-lease. On the submission for the defenders, the issue is whether the pursuers are under any such obligation. On the submission for the pursuers, that question does not arise because under the sub-lease the pursuers themselves are the sole judges of whether the expenditure on such work is necessary.

[29] The Lord Ordinary has held that on the contracts alone there is no room for the view contended for by the defenders (at para [25]). We do not accept that proposition. In our opinion, there are at least two related questions to try.

[30] First, it is at least arguable, to put it no higher, that the existence of an obligation on the pursuers, under the head lease or the sub-lease, to carry out the proposed works is a pre-condition of their right of entry under clause SECOND, declaration (three); and that, in the absence of any other criterion in clause SECOND, that pre-condition must be satisfied objectively by reference to the state of the premises and the terms of the head lease and the sub-lease. It could be argued that it is unlikely that the question whether that obligation exists should be a matter for the subjective judgment of the obligee. Secondly, it is at least arguable that the question of which the pursuers are the sole judges, a question that arises under clause SEVENTH, is not the necessity of the carrying out of the proposed works but the necessity of the expenditure involved in doing so. That interpretation could be said to be consistent with the apparent purpose of clause SEVENTH, namely to provide a mechanism by which the landlords' expenditure on maintenance is to be recovered by way of a service charge on the sub-tenants. It is arguable that, in its context, declaration (Primo) can be satisfactorily construed to mean that the work of maintenance, where the landlords' obligation to do it exists, is not to be obstructed by arguments from the sub-tenants about the necessity for, or the amount of, individual items of expenditure.

[31] However, the question for the moment is not whether that is a correct approach to the interpretation of these provisions. The court should not attempt to decide such a point in advance of a full hearing, at a debate or after enquiry. It would certainly be wrong to do so on the basis of unadjusted pleadings or, as in this case, a summons and a set of draft defences.

[32] It is sufficient for us to say that on the documents, the pleadings and the submissions for the parties, we cannot affirm that the defenders' case is bound to fail.

The specific points

[33] That being our approach to the main issue, we can deal shortly with the four specific points of controversy.

[34] In our opinion, the interim order, if granted, would in effect be final. It would result in the irreversible completion of much or all of the proposed work before the sub-lease expired and it would create a liability for the service charge, thereby pre-empting the central issue. Since we do not accept that the landlord's argument on the main point of interpretation is necessarily sound, and since we have refrained from attempting to decide it at this stage, we consider that the question of the scope of the arbitration clause in relation to this dispute will stand or fall by the decision that remains to be made on the main point. The specification point is a matter to be decided on finalised pleadings.

[35] We do not accept the submission of counsel for the pursuers that the status quo is that the pursuers have "a clear and unequivocal contractual right to carry out the works." That, in our view, is exactly the issue to be tried. In our opinion, the status quo is that the defenders are in peaceable occupancy of the premises in terms of the sub-lease. The order reclaimed against would cause significant disruption and expense to them. In our view, the idea that the pursuers could exercise a right of entry to certain parts of the premises to carry out the proposed works while the defenders remained in occupancy of them, even if legal on health and safety grounds, would be unworkable. While the pursuers are anxious to carry out the proposed works, it has not been suggested that there is any incoming sub-tenant having a right of entry to the premises on the expiry of the present sub-lease. While the pursuers may lose the opportunity of recovering the cost of the work by way of a service charge if the work is not done before that date, they will be entitled, if their position is well founded, to recover the same cost in the form of damages for breach of contract. It is not disputed that the defenders will be able to meet any award of damages that may in due course be made.

Decision

[36] For all these reasons we consider that the interim order should not have been granted. We shall allow the reclaiming motion, recall the interlocutor reclaimed against and return the case to the Lord Ordinary to proceed as accords.