Pursuers: Davis; Archibald Campbell & Harley WS

Defenders: MacKenzie, solicitor advocate; Pinsent Masons

30 April 2010

[1] The pursuers carry on business as retailers of jewellery and ancillary items. By a lease dated 25 November and 18 December 2000, they leased from the defenders for a period of 15 years a unit (Unit L31) at the Overgate Shopping Centre, Dundee ("the premises") from which to carry on their business. They commenced trading from the premises on 10 November 2000. At the time of negotiating the lease, two other units within the Overgate Centre had been let to jewellery retailers. Clause 4.3 of the lease provided:

"Exclusivity - For so long as [the pursuers] is the Tenant under this Lease, not in respect of any first letting (which means the first time the Landlord let the Lettable Unit in question and not in respect of any subsequent lettings) of any Lettable Unit to lease any such Lettable Unit (other than the Premises and two other Lettable Units only) with its Permitted Use having specified as its principal trade or business the retail sale of jewellery."

The pursuers complain that, in breach of their obligations under clause 4.3, in 2001 the defenders let another unit at the Centre (Unit U5) to Ortak Jewellery Limited ("Ortak"), who are also retailers of jewellery and other items. Ortak commenced trading there from that time. The pursuers claim damages representing the fall in turnover and loss of profit from then until September 2009, when the action commenced, and further sums in respect of future losses to the end of the lease. They commenced proceedings against the defenders in early December 2009. The defenders contend that the claim has prescribed. Their first plea-in-law is to that effect. That issue was argued before me at debate.

[2] The defenders relied on s.6(1) of the Prescription and Limitation (Scotland) Act 1973 ("the Act"), which provides that (unless there has been a relevant acknowledgement) an obligation to which the section applies is extinguished if it has subsisted for a continuous period of five years without any relevant claim having been made in relation to it In terms of Schedule 1 para.1(g), that section applies to an obligation arising from a beach of contract and thus to the pursuers' claim. The pursuers argued that the obligation under clause 4.3 was an "obligation relating to land", within para.2(e) of Schedule 1, and therefore not subject to the short negative prescription under s.6. In the alternative, they argued that the obligation was a continuing obligation which subsists for so long as the pursuers remain tenants under the lease; and, by the same token, the breach was a continuing breach for the purpose of s.11(2) of the Act, with the result that the obligation has not prescribed. Their third argument was that even if that part of the claim dating back more than five years before the commencement of the action had prescribed, the claim for damages arising out of the continuance of the Ortak lease from that time forward was unaffected.

[3] I consider first the question whether the obligation in question is an "obligation relating to land". It is clear from the authorities that that expression is not confined to real rights or burdens. It also covers personal obligations under contracts dealing with land and interests in land, unless, possibly, where the land or interest in land is merely incidental to an obligation arising under a contract, such as a contract for services: see Barratt Scotland Ltd. v. Keith 1993 SC 142, per Lord Penrose at p.148D-E, per the Lord Justice Clerk (Ross) at p.154A-C, per Lord McCluskey at p.158B-C and per Lord Kirkwood at p.159 E-F, Glasgow City Council v. Morrison Developments Ltd. 2003 SLT 263 per Lord Eassie at paras.[13] and [16], and Clydeport Properties Ltd. v. Shell UK Ltd. 2007 SLT 547 at para.[16]. In the present case it is not necessary to explore the boundaries of the definition. There is no doubt that clause 4.3 is a real condition inter naturalia of the lease and binding on singular successors of the defenders: see per Lord Drummond Young in Warren James (Jewellers) Ltd. v. Overgate GP Ltd. (unreported 9 November 2005, [2005] CSOH 142) at paras.[16]-[17]. The point was not referred to on appeal (unreported 15 February 2007, [2007] CSIH 14). That case involved the same parties and, indeed, the same clause in the same lease, the complaint there (which the court upheld) being of a separate breach of clause 4.3 by reason of the defenders having let yet another unit to yet another jewellery retailer.

[4] In my opinion the obligation in clause 4.3 of the lease is clearly an obligation relating to land within the meaning of that expression as used in para.2(e) of Schedule 1 to the Act. However, that is not the end of the matter. The pursuers do not sue to enforce that obligation. They sue for damages for its breach. There is a significant difference between the two. As Lord Coulsfield said in Lord Advocate v. Shipbreaking Industries Ltd. (No.1) 1991 SLT 838 at p.840J-K, an obligation arising out of a breach of an obligation relating to land is not the same thing as an obligation relating to land. As I sought to explain in Clydeport Properties Ltd. v. Shell UK Ltd. at para.[17], though the point was ultimately conceded in that case, that distinction is justified as a matter of basic contract law. The obligation sued on here is an obligation to pay damages for breach of the covenant in clause 4.3. That is not an obligation relating to land. It is subject to the short negative prescription in s.6(1) of the Act. I therefore reject the pursuers' first submission.

[5] I turn to consider the pursuers' second argument. It was not in dispute that an obligation to pay damages for breach of contract becomes enforceable for the purposes of s.6 on the date when the loss, injury or damage occurred or, as it is classically expressed, on the concurrence of iniuria and damnum: Dunlop v. M'Gowans 1980 SC (HL) 73. Prima facie that occurred soon after Ortak were granted the lease and commenced trading from their unit in the Centre, but since the action was not commenced for at least eight years after the Ortak lease was granted it is not necessary to enquire too minutely into this. On the basis that there was a single breach committed when the Ortak lease was granted, it is accepted that the action was not brought within five years of the obligation becoming enforceable. The pursuers argue, however, that the breach was a continuing breach, with the consequence that, in terms of s.11(2) of the Act, the loss is deemed to have occurred when the breach ("the act, neglect or default") ceased. In one sense, of course, this proves too much, since the breach, if a continuing one, has not ceased and the loss and damage is deemed not yet to have occurred, with the consequence that the action would be premature. But I put this to one side. The real question is whether the breach was a continuing breach. That must be answered by reference to the pursuers' pleadings. What is the breach on which they sue? The answer is given in the averments in Article 5 of Condescendence where they plead that the grant of the lease to Ortak was a breach of the defenders' obligations under the lease. It is the only breach relied on. The loss and damage is said to flow from that breach. That seems to me to be conclusive of the point. But it also reflects the reality of the situation. Having granted the lease to Ortak, the defenders are in no position to get out of it. It is artificial to speak in terms of their breach continuing. They breached the lease by granting a lease of another unit to Ortak, and what has happened since is the consequence of that breach, not of some continuing breach thereafter.

[6] I was referred in connection with this argument to Johnston v. Scottish Ministers 2006 SCLR 5 and to Phonographic Performance Ltd. v. Department of Trade and Industry [2004] 1 WLR 2893. The former case approaches the matter on the basis of looking at the breach relied on in the summons. That is the approach that I have taken in this case. The latter case is concerned with breach of statutory duty, which by its nature is a continuing breach so long as the duty persists; and seems to me to be based, in part, upon the specialities of an action in tort, where damage is an essential part of the cause of action: see in particular at para.28. It does not point me to a conclusion in this case different from that which I have already indicated.

[7] The pursuers' third argument involves the proposition that the claim may be divided, so that an action can be brought for that part of the loss and damage which occurs within the five years immediately preceding the raising of the action. That argument is heretical. As is made clear in Dunlop v. M'Gowans, an obligation to make reparation for loss and damage is a single and indivisible obligation. Only one action can be brought to enforce it. The right to raise the action commences on the concurrence of iniuria and damnum. The cause of action accrues when any actionable loss is sustained. If the obligation has prescribed, no action having been commenced within five years of that moment, it has prescribed for all purposes, even if some loss has occurred at a later date. This is made clear in the recent decision of the Inner House in A v. Glasgow City Council 2010 SLT 358. Although that case was concerned with a claim in delict, I see no reason to doubt that the same principle applies to a claim for damages for breach of contract. I note that no distinction between a claim in delict and one for breach of contract was drawn in Dunlop v. M'Gowans, where the action was framed under both heads. I therefore reject the pursuers' third argument.

[8] For these reasons, I shall sustain the defenders' first plea in law and grant decree of absolvitor.