DEM-MASTER DEMOLITION LIMITED AGAINST HEALTHCARE ENVIRONMENTAL SERVICES LIMITED
OUTER HOUSE, COURT OF SESSION
[2017] CSOH 14
CA40/15
OPINION OF LADY WOLFFE
In the cause
DEM-MASTER DEMOLITION LIMITED
Pursuers
against
HEALTHCARE ENVIRONMENTAL SERVICES LIMITED
Defenders
Pursuers: Logan; Campbell Smith LLP
Defenders: Brown; Lindsays
31 January 2017
Introduction and Scope of Preliminary Proof
[1] The pursuers are the assignees of the landlords’ interest in a lease of industrial subjects at Unit 3, Centrelink 5, Calderhead Road, Shotts (“the Premises”). The defenders are the tenants. The pursuers seek a variety of orders based on the lease or arising out of the defenders’ occupation of the Premises. Lord Doherty heard a debate between the parties, the principal issue discussed before him was the incidence and extent of the repairing obligations under the lease. Conclusions 7 to 9 of the Summons are the conclusions relative to that issue.
[2] However, by Opinion dated 13 November 2015, [2015] CSOH 154, Lord Doherty held that it was not possible to determine that issue without proof of the material circumstances surrounding the execution of the lease. As Lord Doherty said:
“[14] In my opinion I am not currently in a position to determine the proper construction of the repairing provision in Clause 6. That exercise cannot be conducted in a vacuum, without knowledge of all the material circumstances surrounding the execution of the lease. There is only very limited agreement in relation to those matters. Perhaps most significantly, there is dispute as to the state of the Premises at the date of entry. The state of the Premises might be a very material circumstance. Without inquiry as to the relevant factual matrix I do not think I am able as a matter of relevancy to uphold one of the suggested constructions and reject the other; nor without that assistance do I think that I can safely conclude that one or other of the constructions is not a possible construction of the provision. Both counsel accepted that were I to reach that view some form of inquiry into the surrounding facts would be necessary.”
[3] A preliminary proof was accordingly fixed to cover “…the circumstances surrounding the execution of the lease and the proper construction of the repairing obligations therein”. The same counsel who appeared at the debate before Lord Doherty also appeared in the preliminary proof before me, which was conducted over four days. Before turning to the pleadings and evidence, I record the relevant terms of the lease.
The Lease
[4] By a lease dated 27 and 28 December 2009 and 8 January 2010 CNC Investments Limited let the Premises to the defenders (“the Lease”). The Premises comprise part of Centrelink 5 (“the Building”). The Building has been subdivided into the Premises and four further units. The Lease also included separate office facilities. These formed part of the first floor of another unit and were adjacent to the Premises. In terms of the Lease the date of entry was 1 January 2010. The duration of the Lease was five years from the date of entry (“the Duration”) with an option for either party to break after three years. Neither party exercised the break option. The rent was £82,000 per annum exclusive of VAT.
[5] In terms of Clause 4 of the Lease (“USE”) the defenders undertook not to use or permit the use of the Premises or any part thereof “otherwise than as for storage and distribution and ancillary office space in accordance with their business of waste management services save with the prior written consent of the landlords”.
[6] Clause 6 (“REPAIR”) provided:
“The Tenants accept the Premises as being in such condition as shown on the attached Photographic Schedule and in all respects fit for the Tenants’ purposes and shall at their sole expense and, to the reasonable satisfaction of the Landlords, repair and maintain and renew (and, if necessary for the purposes of maintenance and repair, to replace and rebuild) and decorate and keep the Premises and all permitted additions and new buildings, if any, in like condition as is evidenced on the said Photographic Schedule and in a clean and tidy condition, clear of all rubbish, for the Duration, declaring always that the Tenants’ liability under this Clause 6 shall not apply where any works of repair, maintenance and renewal arise directly or indirectly as a result of (a) any latent and/or inherent defects in the design and construction of the Premises and/or the Building; (b) any act, omission or default of the Landlords or those for whom they are responsible at law; and (c) the occurrence of any of the Insured Risks, save to the extent that the insurance monies are rendered irrecoverable in consequence of some act, omission or default of the tenants or those for whom they are responsible at law.”
However, no photographic schedule as referred to in Clause 6 was ever prepared (“the Photographic Schedule”).
[7] Clause 8 (“LANDLORD’S ACCESS”) provided that the landlords and their agents should have access to the Premises inter alia to carry out any repairs or alterations or improvements which the landlords acting reasonably may deem necessary. The Clause continues:
“…Without prejudice to the foregoing generality the Tenants shall permit the Landlords … to enter, examine and record the condition of the Premises and upon one month’s written notice being served by the Landlords, the Tenants shall execute all repairs, renewals, replacements, removals and other works as may be required in order to comply with their obligations in terms of this Licence within three months (or sooner if requisite) from the date of such notice and that to the reasonable satisfaction of the Landlords. In the case of default by the Tenants, the Landlords … shall be entitled to enter the Premises to execute all such works as aforesaid and the whole costs, charges and expenses properly and reasonably incurred by the Landlords in so doing shall, within fourteen days of written demand therefor, be due and payable by the Tenants to the Landlords.”
[8] Clause 12 (“REMOVAL”) provided:
“On the expiry or earlier termination of the Lease the Tenants shall remove from the Premises without any warning away or process of law to that effect leaving the Premises cleared and redd and in such state and condition as shall be in accordance with the obligations undertaken by the tenants herein and that to the Landlords’ reasonable satisfaction…”
The parties did not suggest that any other term of the Lease was relevant.
The Pleadings
The Pursuers’ Pleadings
[9] The pursuers only acquired their interest in the Premises in 2012. It is common ground that no Photographic Schedule was prepared as referred to in Clause 6 of the Lease. The defenders’ position is that the Premises were in a poor state when they assumed occupation and, separately, that the Premises deteriorated by a combination of neglect or cost-cutting on the part of the pursuers’ predecessors qua landlords and for which they were not responsible. In relation to the condition of the Premises, they aver that certain industrial processes were carried on by prior tenants, Cummins and Lindon and which led to damage by way of oil staining on the floors of the warehouse, or for which several oil pits were dug into the floor. The pursuers make some averments about this, as follows:
“The subjects let to the defenders had previously been a machine engineering shop in which the equipment and parts used in the rest of the factory had been repaired or made. It was in immaculate condition as a form of ‘clean room’. No engines were tested to destruction in the area subsequently let to the defenders. Such operations took place elsewhere within the factory and the equipment for such testing is still in place.”
They contrast this with what they say was the position during the period of the defenders’ occupation:
“Prior to the Licence the defenders had been in occupation on a more informal period [sic] for a period of time. It is understood that the defenders were in occupation of the unit from approximately 2003 onwards. By the time the lease (and indeed the licence) were signed the defenders had already caused damage by their use of the premises and were responsible for the consequences of that damage.”
[10] The absence of the Photographic Schedule or of direct knowledge of the Premises in 2009 poses obvious practical difficulties for the pursuers who, for the purpose of Clause 6, may (on one interpretation of Clause 6) require to establish the state of the Premises in 2009 as a benchmark for the standard to be applied at the end of the Lease. However, as will be seen, the pursuers’ primary argument on the interpretation of Clause 6 was to contend that this body of evidence was irrelevant. The pursuers only relied on this body of evidence as a fall-back to their main argument. In order to establish the position as at 2009, the pursuers sough to lead evidence based on certain photos taken of parts of the Premises in 2007 (No 7/32 of process) (“the 2007 photos”) and in 2014 and 2015. In relation to the 2007 photos, their position is that these do not show the kind of damage they identified in 2014 and 2015. From this, they seek to infer that the damage occurred since 2007. The pursuers do not particularly distinguish between the period during which the defenders occupied the Premises under the Lease (from 2009) or the period prior to that when the defenders occupied the Premises, or part of them, under either a gentlemen’s agreement or a licence, from about 2003 to 2009. The passage from the Summons is as follows:
“The defenders have produced a series of photographs allegedly taken in 2007 in respect of a prospective lease. Esto they were taken at the time alleged (which is not known and not admitted) it is noteworthy that the said photographs do not show any holes in the roof made from the removal of a heating system or otherwise; any damage to the concrete floors whether in the form of channels cut or damage caused by the dropping of skips; no damage to the ceiling tiles in the north east quarter of the unit; no soot or other detritus on the eastern wall of the subjects; no damage to stanchions; no damage to the external cladding (other than an indication that prior doors had been covered with the said cladding); no indication that there was any problem with the drains of the units and no indication that there was any failure to keep the roof in good repair.”
[11] The pursuers then referred to the Photographic Schedule, and invited certain inferences from it:
“If it were the case that the defenders were seeking to provide a schedule of condition at that time to limit their liability to carry our [sic] repairs in terms of such a lease and any of the same damage existed at that time no reasonably competent surveyor would have failed to record such defects. It is therefore a reasonable inference that the damage hereinafter specified was occasioned by the defenders after the date of said photographs. It would therefore have been inappropriate to exclude that damage from their liability under the lease or licence by having a schedule of condition that reflected any and all of said items.”
[12] There then follows a long passage about the damage said to have been done by the defenders, as follows:
“The subjects were in good condition prior to the defenders [sic] occupation and those parts of the larger subjects which have not been occupied by the defenders remain in good condition other than some damage caused by thieves seeking copper wiring. The defenders knocked at least 4 hole in the roof of the unit for ‘chimneys’ related to their autoclave and kerosene boiler system used to generate hot water within the unit. The location of said holes is consistent with the location of the autoclave and kerosene boiler system. When the roof of the property was examined by representatives of DTZ for the schedule of dilapidations at least one of those chimneys was belching out steam and clearly in use. On their departure from the unit these holes have been left. The defenders are called upon to specify when they cut the holes in the roof and whether this would have been known at the time that the lease was entered into. Esto they were, as is believed and averred to be the case, it would not have been appropriate to exclude liability for the damage caused by the said holes. The defenders cut a channel for water and other waste generated by their autoclave in the concrete floor of the unit from the location of the autoclave to a drain cover that was intended for surface water only. The location of the channel is consistent with the drainage of the autoclave and it was observed with fluids running from the autoclave to the drain on several occasions. This has been poorly patched on their departure but needs substantial repair. The defenders are called upon to specify when they cut this channel and whether it was in existence at the time that the lease was signed. Esto it was (which is not known and not admitted) it would not have been contemplated that any liability arising would have excluded by a Schedule of condition. The defenders have caused considerable damage to the concrete floor of the unit in the area in which they had a roll off skip used by dumpsters depositing and collecting waste from the unit. The location of said damage is again consistent with place that the skips were being dumped whilst the unit was being used by the defenders. A shoddy attempt at repairing the same has been made prior to the defenders’ departure but more substantial repairs are required. It is believed that this would have been continuing throughout the duration of the defenders occupancy but they are called upon to specify the extent to which they claim that such damage already existed by the time the lease was entered into. Other than these two areas of damage the concrete floor remains in good condition. If there ever was any other holes cut in said floor for machinery as alleged by the defenders the said holes have been properly repaired and are no longer evident. The ceiling tiles in the north east quarter of the building have largely been destroyed by fumes and the variation of heat arising from the defenders’ autoclave and the movements of large numbers of vehicles within the unit. This damage is believed to have continued and indeed the tiles continue to drop ‘peelings’ on the floor to this day. These ‘peelings’ are of asbestos and are a health hazard. It is clear on examination of the roof that the asbestos panels in this north east quarter have shrunk after extensive exposure to steam from the autoclave and that the concrete behind the panels has then been exposed and also damaged. The ceiling tiles in the remainder of the larger building and indeed in much of the unit where they have not been exposed to steam and diesel fumes were at the time the lease was entered into and remain in good condition. The defenders are called upon to specify the extent of the damage that they inflicted to those tiles prior to the execution of the lease. The eastern wall of the unit is caked in a soot like detritus. It is believed and averred that this has been deposited from the vehicles that would have entered and exited the unit in collecting waste throughout the defenders’ occupation of the unit. The remaining walls of the unit are not so affected. Esto the said detritus had been caused by the testing of diesel engines (as alleged by the defenders) they would have been so affected. The area affected is consistent with having been caused by the operations of the defenders. Esto the said wall was ever painted in accordance with the maintenance obligations of the defenders (which is not known and not admitted) it has built up since but it would not have been contemplated by the parties that the defenders’ liability for such damage would be excluded from the lease. Several of the stanchions and some of the roof trusses have been hit hard enough to distort them and bend them out of shape. Reference is made to the photographs produced. To cause such damage the stanchions would have had to have been hit by large vehicles or something the size of a skip. Prior to the defenders’ use of the premises no such vehicles would have been used within the subjects of let. It is not known when these collusions occurred but it would not have been contemplated by the parties that such damage caused by the defenders or for which they were responsible would be excluded from the lease. The external cladding of the building in the proximity of the main door used by the defenders for vehicular access has been damaged and distorted, probably as a result of collusions [sic]. It is not known when in the course of the defenders’ occupation of the unit this might have occurred but esto it was prior to the execution of the lease (which is not known and not admitted) the parties to the lease would not have contemplated that the defenders should be excluded from liability. As hereinbefore condescended upon no such damage was recorded in 2007 (if the date the photographs taken by the defenders is true) when discolouration was recorded where previous accesses had been covered up. Furthermore the roof of the building when examined by the DTZ for the schedule of and dilapidations was substantially overgrown with moss, bird droppings and material that seagulls had taken from the works of the defenders and deposited there. The state of the roof is consistent with a complete failure to maintain the roof (as required by the lease) throughout the defenders’ occupation. Although it cannot be said with certainty what the roof was like at the time that the defenders took occupation google photographs indicate that it was in good condition and the absence of any photographs showing detritus there in the schedule of condition photographs indicates that that was the case. The accumulations on the roof are such as to have caused substantial damage to the fabric of the roof which now needs extensive repairs. In short, the numerous and substantial defects in the building were either caused by the defenders during the course of the lease or by them during their prior occupation. In those circumstances it is not surprising that the parties did not execute or agree a schedule of condition”.
[13] From all of this, the pursuers set out what they say were the relevant facts and circumstances known to the parties:
“In such circumstances the commercially sensible construction of the lease is that there were no existing defects from which the defenders should be protected by the creation of a schedule of condition and a reasonable construction of the relevant clause of the lease would be that the defenders would be responsible for all the damage that they had caused at the conclusion of the lease. The facts and circumstances known to the parties at the times that the lease was entered into were (a) that the defenders had already been in occupation for 7 years and were responsible for the damage occasioned during that time; (b) that the processes used by the defenders produced deleterious substances which had been put down surface water drains; (c) that the lack of foul water sewerage (other than for the toilet block) did not provide an alternative to this; (d) that the floor of the unit had been and was likely to continue to be damaged by the use the defenders were making of the unit; (e) that the entrance to the unit had been and was likely to continue to be damaged by the traffic entering and egressing the unit; (f) that the traffic generated and was likely to continue to generate fumes which would cause detritus within the unit and at the unit was no longer wind and water tight as a result of the holes cut in the roof by the defenders. In such circumstances the construction of the lease contended for by the pursuers is the commercially sensible one and should be adopted.”
[14] I do not set out the pursuers’ responses to the defenders’ averments, which are mostly the conventional “not known and not admitted”, save to note the further averments based on one of the productions lodged (No 7/40 of process), which are as follows:
“According to the defenders’ productions a schedule of Landlord’s obligations was discussed and apparently agreed in August 2006. This included obligations to remove the internal partitions (which are not in the subjects of let), to make the property wind and water tight; to install a new drain in the yard (which is there); to fill in all foundations on the warehouse floor and make good the levels and floor surfaces to match (which, if there ever were the holes in the floor alleged by the defenders appears to have been done) and to put the lighting in good order. It is further explained and averred that the lease itself does not contemplate the use of the subjects as a plant for the processing of medical waste. In terms of clause 4 of the lease the defenders were to use the subjects for storage, distribution and ancillary office space. From the photographs in 2007 (if that is when they were taken) vehicles did not have access to the interior at that time or before then and a roller belt was used to take waste into the unit. Esto the defenders ever got the permission of the Landlords to carry out industrial processes within the subjects (which is not known and not admitted) they are called upon to specify when and how they obtained the consent contemplated by clause 4 of the lease.”
The Defenders’ Pleadings
[15] The defenders make averments about the character of the Building of which the Premises form part, as follows:
“Explained and averred that, as more fully narrated in answer 9, the subjects form part of a much larger building formerly occupied by the Cummins Engine Company (‘Cummins’).”
[16] The additional averments, which are now found in a re-numbered Answer 10, are as follows:
“Explained and averred that the leased subjects form one of five units created from the former Cummins Engine Company factory. The larger factory building extends to about 540,000 sq ft [t]he leased subjects extend to about 80,000 sq ft and are the smallest of the five sub‑divided units. The factory was occupied by the Cummins Engine Company (‘Cummins’) from 1956 onwards, and at that time took over the site of an existing textile mill. Between 1975 and 1983 it was substantially rebuilt and extended. Cummins manufactured diesel engines in the factory. Production ceased and the factory closed in 1996. It has been substantially empty ever since. So far as known to the defender it has never been fully occupied since Cummins vacated. It was ‘A’ Listed in 2004. It is considered to be one of the most significant large industrial buildings of the later 20th Century, and the major work in the United Kingdom of the architects Ahrends Burton & Koralek.”
[17] The defenders maintain that the Premises were in a material state of disrepair prior to their assumption of the obligations in the Lease. This is attributed to the use made by the prior tenants and detailed averments are made about this in Answer 2:
“The area occupied by defender was originally the engine testing area of the Cummins factory. The work carried out in that area by Cummins included testing large commercial diesel engines to destruction, at times by running them constantly 24 hours a day. In consequence of that work the floor of the area became heavily oil stained. The walls and the inside of the roof were heavily stained by the extensive exhaust emissions produced by such intensive use of diesel engines of that era (the 1970s and 1980s), particularly when such engines were running to destruction and emitting smoke. Machinery was bolted to the floor. There were engine pits with sumps into which waste oil was discharged and thereafter pumped out. From time to time over the period of Cummins’ use machinery was removed and new machinery was fixed. Numerous channels were cut into the floor inter alia to facilitate cleaning. The defender does not meantime know which of these were there from the point of Cummins’ first occupation and which, if any, were added afterwards. Cummins ceased to trade in about 1996. When they vacated the subjects they carried out no material remedial work. They removed certain plant and machinery, which removal caused further damage to the floor. The part of the subjects which had been the engine testing area was thereafter occupied by a company called Lindon Engineering International Limited (‘Lindon’) between about 1997 and 2002. Lindon was formerly a subsidiary of Cummins but passed into separate ownership at or around the time Cummins ceased to trade from the subjects. Lindon carried on business in precision engineering. It used the engine testing area for as a machine shoptesting diesel engines to destruction. It installed significant additional machinery and this too was bolted to the floor. Its use produced extensive emissions and oil spillage. In 2002 Lindon became insolvent and ceased to trade. All of its machinery was removed following a sale by public auction held at the premises. Further damage was occasioned at that point. No remedial works were done either by Lindon or by the then landlords. The present defender began to occupy in late 2003. At that point the entire building, amounting to some 540,000 sq ft, was vacant. The former engine testing area was in very poor condition. The concrete floor was heavily oil stained and there were numerous channels and holes in it caused by the activity of the previous occupiers. The walls and the inside of the roof were all heavily stained in consequence of the activity of the previous occupiers. The roof was not watertight and there was substantial water ingress. Between Lindon’s departure and the defender commencing occupation the subjects lay empty for a prolonged period in excess of a year. It is likely that they were subject to vandalism in that period.” (Text in bold or strikeout indicates adjustments.)
[18] A particular issue was raised in relation to features of the roof and the presence of a high-level heating system:
“The openings in the roof referred to by the pursuer had been made originally to accommodate a high level heating system which was installed at the time of construction or shortly thereafter, and which operated throughout the period of Cummins and Lindon’s occupation. Those heating units were removed by the then landlords which left large holes. The defender has never had any apparatus in the subjects which required an opening to be made in the roof. The defender positioned its own apparatus to take advantage of proximity to electricity connections, drainage connections, and, where ventilation was required, proximity to existing openings in the roof. Given the asbestos content of the roof covering, no rational occupier would have instructed the cutting of new opening where existing openings could be used. There were other leaks in the roof as well. Many of those were caused by persistent seagull infestation, and by seagulls dropping pebbles on rooflights. Latterly the then landlords dispensed with measures to control the seagull population in order to save costs. The roof contains asbestos. It requires complete replacement, but the cost thereof has at all times been prohibitively expensive.” (Text in bold indicates adjustments.)
[19] Brief reference is then made to other minor features of damage:
“The stanchions were damaged or distorted at the point when the defender first viewed the property. The defender does not know how or when the damage was caused but it was caused prior to the defender’s occupation. The door cladding was also damaged prior to the defender’s occupation. Having regard to the activity carried on in the engine testing area it is inevitable that it would be far more dilapidated than other areas of the building in which ‘clean’ activities such as engine assembly, or storage, receipt and despatch of goods and materials were carried on. The condition of such other areas is accordingly not a reliable guide to the condition of the engine testing area.”
[20] The defenders then turned (still in Answer 2) to the intentions and activities of the original landlords in relation to the whole Building:
“When the defender first took occupation it occupied only 20,000 sq ft rather than the 80,000 sq ft latterly occupied. At that time, and at all material times thereafter, the landlord (and each successive landlord thereafter) were actively pursuing alternative uses for the larger building. In the event that a tenant could have been found for the whole building, or in the event that a redevelopment of the site becomes viable the landlord wished to be able to clear the pursuer at short notice. Redevelopment in particular was being actively pursued. At various times proposals were discussed for residential or commercial development on the site, or for the site to be used for construction of a new womens’ prison to replace HMP Cornton Vale.”
[21] They then turn to the nature of their own business. They aver that their business could be conducted in a building that was not wind and water tight and the term of the licence to occupy which subsisted for part (but not all) of the period prior to the Lease:
“Given that the pursuer was taking only 20,000 of the 540,000 sq ft available the rental income was relatively speaking de minimis. The pursuer’s business, involving the transfer and reprocessing of clinical waste was one of the few businesses which did not require the subjects to be wind and watertight. The landlord could not have obtained a tenant wishing to operate any business involving perishable goods without first committing substantial expenditure. The rent of £1 per sq ft reflected both the extremely dilapidated condition of the subjects and the lack of other demand for them. The pursuer at first occupied on an informal licence from the then proprietor, C.N.C. Regis Limited, which was not reduced to writing. The terms of that licence were: (i) that the defender would pay £1 per sq ft by way of rent, and a further 50p per sq ft by way of service charge, the latter to cover maintenance of common parts and systems, as well as services provided by the landlord; (ii) that the landlord could on one month’s notice require the pursuer to vacate either entirely, or to a different part of the building; (iii) the pursuer could on one month’s notice take additional space at the same rate per sq ft. That licence imposed no repairing obligation upon the pursuer, reflecting: (i) the fact that the pursuer had no security of tenure and might be required to remove at any time; (ii) the existing dilapidated condition of the building; (iii) the absence of any material tenant demand for the building; (iv) the fact that redevelopment and demolition were at all times material possibilities; and (v) the very modest area of the larger building which the pursuer occupied, and the impracticability of repairing that part in isolation. In January 2005 the licence was reduced to writing, and a copy of the licence executed by the defender and the then landlord on 28th January and 1st February 2005 (‘the 2005 licence’) is produced and referred to for its terms which are held as incorporated herein brevitatis causa. The 2005 licence related to the original area of 20,000 sq ft, and recorded the rent of £20,000 per annum (ie the previously agreed rate of £1 per sq ft) and the service charge of £10,000 per annum (ie the previously agreed rate of 50p per sq ft). It provided for a duration of one year, but terminable by either party on one months’ notice. It contained a repairing obligation in substantially the same terms as clause 6 of the lease as quoted in answer 9. Notwithstanding the reference to a schedule of condition no such schedule was prepared. The subjects were at the point of commencement of the licence in extremely dilapidated condition. In order to bring them to good and tenantable repair the roof would have required replacement, the concrete floor slab would have required to be replaced, the damaged stanchions and door cladding would have to be replaced, and the internal cladding of the walls would have had to be replaced.”
[22] From all of this, the defenders aver what they say was the context for the execution of the Lease. Intermixed with this are averments about the issue of any liability arising under any prior licence:
“As at the date of execution of the licence neither party thereto had in contemplation that anything done or not done over the period of the defender’s occupation would make the condition of the premises materially worse. Given the precarious nature of the right to occupy which was being offered, no rational occupier in the position of the defender would have accepted an obligation to make good those pre‑existing defects. Any rational landlord in the position of then landlord, recognising that it would be impossible to secure a tenant on full repairing terms, and that securing such a tenant would preclude redevelopment of the subjects should the opportunity arise would have recognised the benefit of securing some income in the short term. The licence had no provision for either extension of its duration or for extension of the subjects occupied. The defender nevertheless continued in occupation after expiry and over time extended the area occupied to 80,000 sq ft, with corresponding increases to the rent and service charge paid. In 2008 the parties discussed a lease of ten years duration but in the event the landlords elected not to proceed with that proposal. In 2010 they agreed the lease which forms the subject matter of the present action. The then landlords made no suggestion or demand that the defender was under any subsisting obligation in respect of remedying dilapidations in terms of the 2005 licence. That reflected the reality that in 2010 the subjects were in no worse condition than they had been in 2005, and the fact that the landlord wished to maintain good relations with the defender. Esto the defender was under any obligation in terms of the 2005 license (which is denied) the then landlord waived it, and any such obligation has now in any event been extinguished by prescription. The lease provided for a terms of five years, but subject to an option on the part of either party to terminate after three years on giving six months’ notice. One more that reflected the then landlords desire to retain flexibility in the event that a redevelopment opportunity emerged. Notwithstanding the reference to a schedule of condition in clause 6 of the lease, none was produced. Both parties were however well aware that the subjects were badly dilapidated and were in substantially the same condition as they had been in as at the date of the 2005 licence. The defender’s operations caused no material damage to the subjects. Lorries delivered waste material to the premises for processing and collected processed material. Those lorries were modern and met modern emission standards. They drove into the building and parked to be loaded or unloaded. Their engines were not left running. They ran inside the building for only a few moments on each occasion. None of the machinery used by the defender emitted any substance which would cause discolouration to the walls or roof or damage to the ceiling tiles (and in any event at commencement of the defender’s occupation those areas were already discoloured beyond repair). In 2010 the commercial property market was extremely depressed. Tenant demand was low. There was no demand whatsoever from any alternative occupier for the subjects occupied by the defender. The then landlord was in financial difficulties and under substantial pressure from its bankers. It had no alternative tenant in prospect and no prospect of selling the subjects. The defender was under no subsisting obligation to make good the very significant wants of repair which then existed. Having regard to those factors, the extremely dilapidated condition of the subjects as well as the very short period for which the defender was to have security of tenure no rational tenant in the position of the defender and with the bargaining power held by the defender would have agreed to accept full repairing obligation. No rational landlord in the position of the then landlord would have sought to insist on one and the then landlord did not seek to do so. Properly construed, clause 6 of the lease requires the defender only to return the subjects in equivalent condition to that in which they were at commencement of the lease, under exception of any wants of repair which are extraordinary repairs at common law. The defender has done so.”
[23] There is one additional passage from the Answers which is relevant, namely a passage from what is now Answer 10:
“…Clause 6 of the lease …[p]roperly construed…obliges the defender only to maintain the subjects in the condition specified in the Photographic Schedule said to be appended to the lease. No such schedule is appended to the defender’s copy of the lease. Nor has the pursuer exhibited any such Schedule. The date of entry under the present lease was 1st January 2010. As at that date the subjects were badly dilapidated. They were not wind and water tight and had not been for some years previously. All of the wants of repair asserted by the pursuer were present at the commencement of the lease. The subjects are located in an area of the factory which was formerly the engine testing workshop when Cummins were in occupation. The floor is heavily oil stained. It has been like that since Cummins were in occupation and Cummins’ activity is the cause of the staining. The defender does not handle and has never handled engine oil. Separatim, and in any event, according to its true construction the clause does not render the defender liable for repairs which would be extraordinary repairs at common law. Many of the alleged wants of repair specified in the schedule would be extraordinary repairs at common law.” (Text in bold indicates adjustments.)
[24] The pursuers respond to this in their pleadings, as follows: In Condescendence 5 and Condescendence 9 of the Summons the pursuers aver:
“5. … The obligations of the defenders… are set out in clause 6 of the lease… The pursuers were not provided with a copy of the photographic schedule when they purchased the subjects of which the leased subjects formed part at auction. The defenders have stipulated that they do not have such a schedule and have completed a response to a specification of documents to that effect. Inquiries with the heritable creditors of the previous proprietors have proved fruitless. On this basis it is believed and averred that no such Photographic Schedule ever existed. The maintenance and repair obligations are only qualified to the extent shown by that Photographic Schedule and latency. The defects identified by the pursuers are not latent…
9. …With reference to the defenders’ averments in answer it is admitted that the subjects form one of five units created from the former Cummins Engine Company factory. The exact dimensions of the defenders’ unit and the larger structure are not known under explanation that these figures are approximately correct. It is admitted that the building is ‘A’ listed and has been since 2004. It is admitted that the building is thought to be of architectural significance…. It is admitted that the date of entry under the present lease was 1st January 2010. The state of the premises at that date is not known and not admitted. The history of the site prior to the Cummins factory is not known and not admitted. The date when the factory closed is not known and not admitted. The state of the floor at the date of commencement of the lease is not known and not admitted. Quoad ultra denied…”
[25] The listed status of the Building and the nature of the Premises as part-only of this much larger building were factors relied upon as rendering repair only of the Premises problematic. Historic Scotland’s reasons for listing the building are as follows:
“The building is considered to be one of the most significant examples of large industrial buildings in later 20th century Britain and is ABK’s principal work of the 1970s in the United Kingdom. The former Cummins plant is a notable example of the emphasis of design in industry during this period, revitalising the concept of the usual industrial shed. It is recognised as a model of Rationalist/Functionalist Modern architecture…The building was designed in the collaborative spirit of contemporary industrial building projects…but is wholly unique in form and specific to the production of diesel engines, embodying the earlier disparate forms of the existing buildings into a new unified whole…”
(http://portal.historic-scotland.gov.uk/designation/LB50013)
One feature of the roof acquired a degree of significance as the evidence developed. As spoken to by several witnesses, and as is clear from the photo of the Building (eg that lodged at p 273 of the joint bundle), neither the Premises nor the rest of the Building are of a flat roof construction. Instead, the roof of the Premises is comprised of a series of pitches. Viewed end on, the roofline would appear as a series of “w”s connected to one another. The roof is punctuated by window lights and outlets for heating vents. The pitched construction appears to have attracted nesting seagulls, who also regularly attacked the sealant around the windows.
How the Parties’ Arguments Affected their Reliance on Evidence
[26] The purpose of this preliminary proof was to establish the context in which the parties to the Lease contracted, to the extent that was necessary and relevant to the proper interpretation of the repairing obligation in the Lease. The parties have adjusted their pleadings considerably since the Debate before Lord Doherty. Those averments were directed to the condition of the Premises at the time the Lease was entered into, and other ancillary matters said to be factors informing the factual context in which the Lease was concluded and known to both contracting parties. I have set out those pleadings above, as much of the evidence led at the preliminary proof was directed to proof of these averments. However, before turning to the evidence, it may assist if I first summarise the parties’ main positions on the proper interpretation of the repairing obligation in clause 6. This is because the pursuers’ primary argument on interpretation was said to be dependent on only a limited body of evidence.
The Pursuers’ Approach
[27] The pursuers’ primary position was that the Photographic Schedule was conceived solely for the benefit of the defenders. In the absence of a Photographic Schedule, so the argument ran, the repair obligation ceased to be qualified by reference to that Schedule. Instead, the repair obligation became an unqualified one. In other words, it was contended that the repair obligation became “absolute” and the defenders were bound to restore the Premises to a standard that corresponded with this “absolute” standard. Mr Logan’s position was that he did not really need evidence for the purposes of his primary argument, albeit he took the opportunity since the debate to augment his pleadings and to lead the evidence of Mr MacLaren. Mr Logan frankly acknowledged that most of the extensive adjustments added since the debate before Lord Doherty concerning the state of the Premises had been made with a view to leading evidence to challenging the credibility of the defenders’ witnesses as regards the state of the Premises in 2009. This was not a straightforward exercise, as the pursuers were not one of the original parties to the Lease. They had only acquired the landlords’ interest in 2012. Accordingly, there was much of the defenders’ evidence that the pursuers were not in a position to challenge or to contradict from their own knowledge. They did lead some evidence from one of the directors of the former occupiers.
The Defenders’ Approach
[28] For his part, Mr Brown led evidence at the preliminary proof with a view to establishing the known context in which the Lease was agreed, including the state of the Premises and the then landlords’ long-term ambitions in relation to them. In broad terms, this evidence was to show, first, that the then landlords were unconcerned as to the state of the Premises, because of their ambition to demolish and redevelop the Premises, and secondly, that the Premises were in a dilapidated state at the point the Lease was signed. Mr Brown relied on this as part of the known context for his submission on the proper interpretation of Clause 6. He also relied on the terms on which the defenders had previously occupied the Premises before they had entered into the Lease. All of these features were said to make it exceedingly unlikely that the defenders would have accepted the kind of full repairing and insuring (“FRI”) clause the pursuers contended for. Clause 6 fell to be construed against this known context.
Preliminary Observations on the Parties’ Approaches
[29] Given the extensive pleadings about the Premises, it is helpful to bear in mind that the purpose of this preliminary proof is to establish the factual circumstances or context known to the parties to the Lease at the material time. This shared factual matrix included the state of the Premises at the time of the execution of the Lease. Prima facie evidence of their condition after that point in time is irrelevant.
[30] As will be seen, Mr Logan’s evidence strayed beyond this at times. His purpose in doing so, as I understood it, was in part to address the practical difficulty the pursuers faced as assignees of the original landlords. The pursuers have no direct knowledge of the circumstance known to the original contracting parties. Furthermore, there was no Photographic Schedule to evidence the state of the Premises at the material time. Leaving aside Mr Logan’s argument as to the legal consequence of that omission, for the purpose of the preliminary proof, Mr Logan sought to prove the state of the Premises c 2009 (or, more correctly, sought to contradict the defenders’ proof of this) in the following way: (i) by proving what was depicted in the 2007 photos; (ii) by proving what was observed about the state of the Premises in 2012 (when the pursuers acquired their interest) or in 2014/2015 (when dilapidations inspections were made), and (iii) by drawing a comparison between what was found as between (i) and (ii) with a view to inviting the court to draw certain inferences as to the state of the Premises in 2009 (when the Lease was entered into).
[31] Mr Logan accepted in submissions that it was not open to him to make a case based on any damage that might have been caused by the defenders during their period of occupation (ie from 2003 to 2009) prior to the commencement of the Lease.
[32] Notwithstanding this approach and notwithstanding the considerable detail parties entered into in the course of the evidence, it remains the case that for the purposes of the preliminary proof it is not necessary to establish the state of the Premises at the material time in any precise detail. The principal issues about the state of the Premises centred on the state of the roof (particularly, whether the defenders were responsible for any holes) and the floor. While there was also an issue about the stained or blackened state of some of the walls, and a small amount of evidence about minor external damage, these were minor issues. Given the limited purpose of this preliminary proof, it is not necessary to record in full detail the totality of the evidence led or to make findings in respect of all of the matters of fact parties sought to put in issue.
Evidence at preliminary Proof
Pursuers’ Proof
[33] The pursuers led four witnesses:
1) John Watson, who was the Managing Director of Lindon at the times that Lindon ceased to occupy the Premises;
2) Richard McCulloch, the pursuers’ own managing director;
3) Alan McIntyre, the property manager for the pursuers; and
4) Iain MacLaren, a chartered surveyor.
Neither Mr McCulloch nor Mr McIntyre had any knowledge of the Premises prior to the pursuers’ acquisition of the Premises (under the assignation of the Lease) in 2012. In his witness statement, Mr McIntrye identified what was depicted in a number of the 2007 photos and he expressed a view on the differences as regards the Premises in their current state. He also described what he saw of the defenders’ processes. Mr MacLaren had inspected the Premises, at the request of the pursuers, in 2014 and in 2015, and had prepared a schedule of dilapidations. In his witness statement, Mr MacLaren focused on the dilapidations and what he had seen of the defenders’ processes at that time. In his oral evidence, he was asked to undertake an exercise similar to that of Mr McIntrye’s, namely, of describing what he saw in some of the 2007 photos and to draw comparisons with what he found on his own inspections. Only Mr Watson had personal knowledge of the Premises prior to the pursuers’ acquisition thereof. He was the pursuers’ first witness.
Mr Watson’s evidence
[34] Mr Watson was familiar with the Premises and other parts of the Building for the period from 1987 to 2002, by virtue of having been employed by or having been a manager of the two companies in occupation during that period: namely, Cummins (until 1998) and Lindon International Engineering Ltd (“Lindon”) (from 1998 to 2002). Mr Watson began with Cummins as a manufacturing strategy manager. Ultimately, he was in charge of all direct operations and manufacturing support departments.
[35] Cummins were the manufacturer of engines. They were a very large employer and occupied the whole Building until their insolvency in about 1998. Mr Watson also explained that Cummins were very proud of their production areas. They gave tours of these areas to customers as their sort of “shop front”. In Mr Watson’s view, when Cummins ceased trading, the Premises were in good condition. Thereafter most of the Building was unoccupied, or at least under-occupied. Lindon took up occupation of the Premises after Cummins. As there as an issue as to whether some of the processes carried out by either Cummins or Lindon affected the state of the Premises, it is necessary to record the evidence about the activities these companies engaged in, insofar as they concerned the Premises.
[36] Mr Watson explained that while Cummins undertook engine testing, including testing some engines to destruction, this was in a different part of the Building, namely in Unit 1 and not in the Premises. This involved the use of test cells, which were self-contained and soundproof units. The cells had individual supplies of water, oil and diesel used for purpose of engine testing. These cells were ducted directly to the outside. Mr Watson said that there was no engine testing in the Premises during his time. This would require access to fuel, water and oil but these were not available in the Premises. There was another area where engines were tested to destruction but, again, on his evidence this was confined to Unit 1 of the Building.
[37] By contrast, the Premises were used in Cummins’ time as a machine shop, for sub‑assembly and for storage. Mr Watson explained that when Lindon took over the Premises, they carried out similar machine‑work. Indeed, when Lindon took over the Premises they brought in additional machines that Cummins had used in some of the other units. Mr Watson spoke to the removal of some machines from other units, including a very large manufacturing unit from Unit 4, and Lindon installing it in the Premises. This did not cause material damage to the floor. To fit some machinery, screw rods were drilled into the floor, the large machines would be lifted onto these and then bolted into place. In some instances anti-vibration pads were inserted as part of this process.
[38] Mr Watson described the machine-tool work carried in the Premises. The machine-shop work was very precise automated work carried out under computer numeric control (“CNC”) in totally sealed units. By reason of the high-speed drill or tool work on metal, a synthetic lubricant or coolant was used within these units. The coolant cooled the cutting operation and also received the metal chips or “swarf” generated by the cutting work. The coolant was inside the self‑contained machines. These were totally enclosed. He described a magnetic conveyor belt being used to take away the chips. The coolant was made of a synthetic lubricant, not oil, and was about 95% water. The coolant could deteriorate over time and begin to smell. It needed to be changed out. This was done with the use of bowsers, about two and one-half feet in diameter, and into which the coolant was pumped before the bowsers were taken outside the Premises. Mr Watson said that this coolant required to be changed only infrequently.
[39] In chief, Mr Watson was adamant that there was no spillage on the floor during normal operations of the processes carried out in the Premises. When the machined item was removed, some oil could drip through the grid the operative stood on, but this would be wiped up after the operative’s shift.
[40] A number of photos (from No 6/36 of process, at tab 12 of the joint bundle) were put to him. He was unable to identify any of these as relating to the Premises. Indeed, it appeared thereafter to be the common position of Counsel that none of the photos at No 6/36 related to the Premises. Mr Watson tentatively identified some of these as Unit 1, others as Unit 4. He was not asked to describe what he saw or to express any qualitative view about these. When asked whether the Premises were materially different in about 2002 from what was apparently seen in the photos, his evidence was that it was not.
[41] While initially Mr Watson said no oils were used in the Premises, he qualified this at a later point in his evidence in chief. Oil was used in some lines and might drip. He absolutely rejected the suggestion that oil lines were suspended or pumped from the ceiling.
In his opinion the floors were not heavily oil stained during Cummins’ or Lindon’s period of occupation. If there were spillages, for example by the coolant dripping off the tooled machine when it was taken out of the sealed CNC unit, then this would be cleaned up by the operative. Given that most of the machine work was automatic, taking about 30 minutes at a time, the operatives would have time to see to spillages. There was also time do to so at the end of their shifts.
[42] Similar activities were carried out by Lindon. Lindon was a management buyout following Cummins’ ceasing operations in the Building. Lindon’s business was on a much smaller scale, operating only from the Premises and the offices to the rear of the Premises. The focus of their work changed to some extent, involving more toool machining of products.
[43] Mr Watson rejected those parts of the defenders’ pleadings put to him, to the effect that engines were tested to destruction, or that the floor or walls of the Premises were heavily stained by reason of the activities carried on. The engines could not be tested without some form of extraction. There was no engine testing in the Premises. There was no staining to the roof or wall tiles. Mr Watson was also adamant that there were no pits dug into the floor of Unit 3. None were needed, he said, because there were no engines running. There had been a large pit in Unit 4, associated with a large machine plant. There were pits elsewhere, under the test cells, for example. There was also a large pit in Unit 4, of about 23 feet square. This might have been to found a large CNC but he was not sure. He could not recall pits of that dimension in the Premises. Similarly, in his day there were no channels cut into the floor of the Premises.
[44] Seven of the 2007 photos (No 6/36 of process) were put to him but he was unable to identify these and could not with any certainty say that any related to the Premises. He was asked if the condition of the Premises were materially different, which he said it was not. At a later point he had three further photos put to him, also from No 6/36 of process. He was not able to identify these positively as depicting the Premises. Two of these he was completely unable to recognise. In respect of the third, all he could say was that the walls of the Premises were not so mottled. In relation to photos taken in 2014, and comprising part of the building inspection report lodged at No 6/11 of process, what was depicted there was not as he remembered it. (He was not asked to relate the photos at No 6/11 to the Premises.)
[45] In relation to the auction carried out at the Premises after Lindon ceased trading, Mr Watson described this as orderly. He accepted he was not present for all of this. He thought it was unlikely that items would have been ripped from the floor or that any connecting hoses would be cut rather than properly disconnected. This was because the machines were valuable. In his view, they would be carefully dismantled. He conceded that when he left the auction there were still machines to be removed. He thought there might have been some swarf left on the floor but this would just be a question of cleaning. Some bolts might have been left in the floor. He would have expected these to be cut and then ground down level with the floor.
[46] In relation to the roof, so far as he could recall, this was intact. Holes had been cut for the individual exhausts for each of the 20 or so high level heating units. But these were intact. He could not recall other holes in the roof. He explained that there was a problem with seagulls nesting on the roof. The grubs they attracted ate through the rubber seal around the windows over the office part of the Premises.
[47] In cross-examination , Mr Watson explained that there were 20 or so high-level heating units. These were gas‑fired and individually vented out through the roof. In Lindon’s day, there were about 30 CNC machines in the Premises, each bolted to the floor. Some had anti‑vibration pads. The largest of these had a footprint of about 5 x 5 square metres. There were also prismatic machines, pallet racking along two walls and benches were all also bolted to the floor. Mr Watson rejected the suggestion that towards the end of Lindon’s time, when they became insolvent, that the company had taken its “eye off the ball” in terms of the cleaning regime. Mr Watson‘s position was that the cleaning regime, which was left to the operatives, was vigorously imposed.
[48] In relation to the coolant, his position was that this only required to be changed “very infrequently”. When this was done, it was into bowsers. Any oil change was done only once a year and there was very little spillage.
[49] Under reference to Stephen Brown’s witness statement, and the reference in paragraph 6 to spillages, Mr Watson did accept if there were leaks, then this happened infrequently and “absorbent socks” were used around the machines. He accepted that coolant could get onto the floor, by dripping off the components when they were removed from the CNC machines. His position remained that the work regime was less pressured than in Cummins day, and there was ample time to clean up at the end of each shift. In any event, he thought the concrete was sealed. He did not see any contaminants on the floor. He did not accept that the machines were poorly maintained. He could speak to all of this because, he said, he was down on the shop floor daily. In respect of the auction, from what he saw this was orderly. There was no coolant connection to the CNC machines. The machines would have been carefully removed, by removal of the bolts, lifting off the screws and removal onto a low‑loader. However, he accepted he could not contradict an eye witness to these matters.
Mr McCulloch’s Evidence
[50] Mr McCulloch was the managing director of the pursuers, who had acquired the Premises in 2012. Under reference to some undated external and aerial photos of the Building, Mr McCulloch was able to identify the Building and the Premises forming part of it. He spoke to the bad state in which he found the Premises at the time the pursuers acquired it. He described steam coming out of the autoclaves and that at that time there were holes cut into the roof.
[51] Under reference to several of the 2007 photos and which did relate to the Premises (namely those lodged as 7/32 and reproduced at page numbers 167 and 152 of the joint bundle), he said he was not sure if the autoclave depicted in one of these photos was in situ in 2012. The shutter depicted on the photo at page 152 of the joint bundle (and referred to by others as a “roller door”) was black in 2012, in contrast to how it appeared in this photo.
He explained that he was aware of the state of the Premises when he went into them as a subcontractor on the 1980s and 1990s. They were well maintained at that time.
[52] Under reference to several passages from Mr Pettigrew’s statement, who was the managing director of the defenders, Mr McCulloch said there was no evidence of damp in 2012. He rejected the contention that the roof was leaking throughout the Building, although he accepted that the odd tile had fallen out but it was “not major”. He explained that since 2012 the pursuers had been able to let some of the other units.
[53] In cross examination, Mr McCulloch accepted that none of the photos in tab 12 of the joint bundle (being No 6/36 of process) related to the Premises. He was challenged on certain assertions in his witness statement, including his statement that it was the defenders who had cut holes in the roof. However, he accepted that he had “no idea” who had done this. He just assumed the defenders caused this because of their autoclaves. He insisted that he did not make up this evidence but that the defenders would not have just put the autoclaves under existing holes. He resisted the suggestion that on oath he had asserted something he didn’t know or that he had failed to distinguish in his witness statement matters that were and were not within his own knowledge. Mr McCulloch cavilled, suggesting that the holes looked made to measure for the autoclave chimneys. He insisted he was “100% right” that the holes were cut for the autoclaves. He eventually conceded that he had never seen anyone cut holes in the roof.
[54] Similarly, in respect of his assertion that the defenders had caused significant damage to the floor, under cross examination Mr McCulloch accepted that had had no knowledge of who had damaged the floor or why. He nonetheless maintained that to him the channels cut in the floor looked like they had been cut for that purpose. In another passage in his witness statement, responding to the defenders’ position that the Premises were in a bad way when they took them over, he stated that he understood that Cummins kept the Premises in excellent condition. Under questioning, however, he was asked what his position or state of knowledge was in 2009, at the start of the Lease. He admitted he had “no idea” as to whether or not the Premises were in pristine condition at that time.
[55] He was questioned about the draft list of landlords works (lodged at No 7/40 of process). This bore to be contained in a file note dated 10 August 2006 of the landlords’ property agent, Mr Steven Griffiths, and relating to proposed landlords works for the Premises. One the items of proposed works was for the Premises “to be made wind and water tight”. Mr McCulloch’s first response was to suggest that he didn’t’ really know about this and that this could be a standard clause. When pressed, he professed to have no idea what the position was in 2006. When it was put to him that the fact that this was mentioned might lead one to infer that the Premises were not wind and water tight his answer was that this was just what was on the paper. He was asked about the extensive discussions prior to his company’s involvement. He knew nothing of this. He said he had investigated it but had not spoken to Mr Griffiths, who was the landlords’ agents in 2006. He could not explain why Mr Griffiths had not been called to give evidence at the proof.
Alan McIntrye’s Evidence
[56] Mr McIntrye’s evidence was similar in scope to that of Mr McCulloch. He had worked for the pursuers for about 7 or 8 years as a property manager. He said he had observed the defenders’ operations in the Premises many times. He described the autoclaves and the boiler and the three chimneys associated with these items. He said that not all of the steam went up the chimneys but was produced into the Premises causing condensation. He attributed the dampness in the Premises to the autoclaves. He described the boiler as burning kerosene.
[57] So far as I understood Mr Logan’s purpose in leading this witness, it was in part to put to him photos of the Premises during Cummins’ days (commented on in paragraph 8 of his witness statement) and the 2007 photos (commented on in para 9 of his witness statement), and to invite his views on a comparison of what was depicted. In relation to the photos relating to Cummins’ occupation, in his witness statement he confirmed that the Building was extremely clean internally and externally. In relation to the 117 photos comprising the 2007 photos (and produced as No 7/32 of process), he offered no comment on 43 of these. For the remainder, his comment was along the lines of his not being quite sure what was depicted (eg it “looks like an office area” or “looks like an internal office wall” for photos 4 and 5) or where this was (eg “looks like a storage room. I am not quite sure where it is.”, for photos 6 and 7, or “internal photos. I cannot [sic] identify where it is”, for photos 99, 100 to 103), or of being able to do no more than provide a generic description (eg “toilet area” for photos 51, 52, 58 to 60). I note that the vast majority of these photos do not bear to depict the internal features of the Premises. At best, about 24 of these are internal photos that could be of the Premises. Of some seven of these, Mr McIntyre could say no more than they bear to depict an internal office or warehouse. Of a further 10 he is “not sure” what is depicted. Of the remainder, five are simply described as “internal photos”, and the rest have an equally generic description (“an internal wall, “a roller shutter door internally”) attributed to them. Notwithstanding this, in his statement Mr McIntyre drew the conclusion that the difference in condition was “huge” and that there had been “significant damage occasioned” to the Premises by the defenders.
[58] In examination in chief he was able to identify an autoclave in photo 98 (of No 7/32 of process, being page 167 of the joint bundle), though he conceded it was hard to see much from this photo. He was next asked to review two photos taken in 2015 as part of the DTZ Inspection Report (being photos 43 and 44 of No 6/11 of process, and forming page 380 of the joint bundle). He confirmed that what was there depicted – being a shot of the internal office within the Premises and a shot of part of the roof taken from inside - was similar to what he had found in 2012. He referred to some tiles having fallen down. He could not recall tiles having fallen down in other parts of the Building. The black and white photo at page 379 of the joint bundle was put to him (being photo 41 of No 6/11 of process). He described it as “quite black” and “probably just worse” in 2015 as compared with 2012.
[59] The photos produced at No 6/36 of process were put to him. He accepted that none of these relate to the Premises. He was not asked to explain where these were. He did not know the provenance of these photos. He was asked if there was any change in the condition depicted in these photos and conditions in 2012. He said there was not much change. The Premises were the exception in having holes in the roof.
[60] In examination in chief, a leading question was put to him that the 2007 photos related to the Premises, to which he assented. None of these photos showed damage to the floor. He described the damage to the floor he saw in 2012, namely of channels cut into the floor and also the effects of skips being dragged across the floor. There was nothing like that damage elsewhere in the Building. He was asked if there was anything in the 2007 photos taken to indicate there was a problem with tiles, to which he said no.
[61] In cross-examination, Mr Brown began by exploring discrepancies between the witness’ oral evidence and what was said in his witness statement. In oral evidence, he had initially been content to identify one of the photos (page 162 of the joint bundle) as relating to a specific part of the Premises whereas in his witness statement he had said he was “not sure” of the location. When pressed to identify that part of the Premises to which the photo related Mr McIntyre conceded that he did not know where this was. His witness statement was correct and that he was “telling the truth now”. He was pressed as to how often he went to the Premises and for how long. He went once a week or once a fortnight for about 10 to 15 minutes and this included his taking a meter reading. He conceded he had no technical experience in the defenders’ processes. He had never discussed the defenders’ processes with the defenders’ personnel, but he knew how such things worked because he knew that a kettle produced steam.
[62] It was put to him that water ingress from leaks in the roof could cause the tiles to fall, not condensation. The witness remained adamant that the cause of the tiles falling was condensation generated by the defenders’ processes. In relation to the high-level heating units, these had never worked since his time with the pursuers. He accepted that a lack of heat in a building could also cause condensation. He remained adamant that the biggest source of moisture in the Premises was from steam and he referred again to his understanding that a kettle boiled in a kitchen will produce steam. He accepted that the roof was “not ok” in 2012 and that, over a period of years, that could be a source of water into the Premises. He ultimately accepted that there were multiple holes in the roof and that there were a substantial number of high-level heating units, each of which had required a hole through the roof for the purpose of venting. He maintained that these were all water tight. The assertion in paragraph 5.6 of his witness statement, that it was the defenders’ who had cut holes in the roof for their autoclaves, was put to him. He did not believe that the position of the autoclaves would coincide with the holes, though he accepted it would be more sensible to use existing holes than to cut new ones in the roof.
Iain MacLaren’s Evidene
[63] The pursuers’ final witness was a chartered building surveyor with 12 years’ experience. He was a member of the RICS. He had undertaken numerous dilapidations instructions for both landlords and tenants. On the instructions of the pursuers he had undertaken such an inspection in 2014. Follow up inspections had been undertaken in December 2014 and in April 2015. His conclusions, in short, were that the property was not in a clean and tidy condition, but that there were “obvious signs of disrepair and damage throughout” and that this was exacerbated by the nature of the defenders’ operations witnessed at the time of inspection.
[64] In examination in chief he was asked to adopt his report at tab 30 of the joint bundle (No 6/54 of process). The photos lodged as No 6/36 of process were put to him. He explained that he used a contact within Knight Frank to secure these. He understood that they were taken by property Agents Knight Frank in 2009. (It was not suggested that these related to the Premises.) He was then asked to comment on a dilapidations schedule prepared by DTZ (No 6/2 of process at tab 16 of the joint bundle). This report brought out a total figure of some £2.2 million of works required. This included replacement of the roof at a suggested cost exceeding £500,000. In his view, the roof had not been maintained for a period of years. In relation to the damage to the hard-standing identified at paragraph 3.7, of his witness statement, he assumed that this from lorry traffic which caused some damage. There wasn’t similar staining elsewhere in the Building. Under reference to paragraph 5.21, he attributed floor damage there identified to the defenders’ use, including bolting machinery to the floor. He identified areas of redundant fixings, too.
[65] He was also taken to some of the photos appended to the DTZ report of 2015 (No 6/22 of process). These showed discolouration on the walls and which had not been found elsewhere in the Building. He was unable to say whether a hole in the roof depicted in the photo at paragraph 2.7 was the same as that depicted in photo numbered 44 (on the peni-penultimate page of that report). From memory, he believed there was more than one hole. He was taken back to the DTZ report (No 6/2 of process) and, under reference to observations about the floor, stated that he found the floor more slippery than in other units within the Building. He assumed that this was caused by contaminants to the floor. He agreed that there were a large number of high-level heating units located in the roof space.
[66] When Mr MacLaren’s evidence resumed on the next day, he was taken back to the DTZ report of 2015 (No 6/11 of process). He again spoke to the soiling shown on photos numbered 2.3, 2.6 and 2.7 of some internal walls. He could not identify precisely where these were. He was finally taken to his own report, produced at tab 30 of the joint bundle (No 6/54 of process), dated 16 September 2016. Section 5 of that report contained his findings upon inspection. In his report he referred to a “smog” in the Premises. Section 6 contained his observations on the 2007 photos (produced as No 7 / 32 of process) and what he inferred from those in terms of the condition of the Premises in 2009. In his report he stated that no holes in the roof were evident from the 2007 photos nor was there the significant staining on site. He inferred that the interior of the roof was in fair condition in 2007 and the increase in daylight visible in 2014 was suggestive that the roof had deteriorated. He also formed the view that the high-level heating system was still in place in 2007 and that this was inconsistent with the defenders’ pleadings. He also referred to some minor damage to external cladding at the gable elevation of the Premises which he found on inspection but which was not shown in the 2007 photos.
[67] In relation to a comparison between what was depicted in 2007 and what he found on inspection in 2014 or 2015, Mr MacLaren described a deterioration between what was shown in the photos in 2007, to extent that he was able to identify these, and upon his subsequent inspections. Mr Logan put photos numbered 82 to 84 (from No 7/32 of process, corresponding to pages 151 to 154 of the joint bundle) to him, showing some walls internal to the Premises. Mr MacLaren suggested that there was more soiling in 2014 and there appeared to be a lack of maintenance. Under reference to photo no 85 of No 7/32 of process (page 160 of the joint bundle), depicting the external walls of the office internal to the Premises, Mr MacLaren was unable to offer any meaningful comment due to the granularity of the photograph. Under reference to photo no 92 of 7/32 of process (corresponding to page 161 of the joint bundle), he was able to identify two of the high-level heating units that were intact and each of which had chimney exhausts through the roof. What was shown appeared to be cleaner than what he had found on inspection in 2014. In relation to a number of the other photos put to him from the 2007 photos (namely photos 94 to 98, corresponding to pages 163 to 166 of the joint bundle) he was unable to express any firm view because of the poor quality of the photos. Some of the 2007 photos (namely numbered photos 97 to 99) depicted parts of the underside of the roof within the Premises. These were also very dark. At best, Mr MacLaren could only say that they did not appear to show other damage or that the Premises were not wind and watertight. This appeared to be on the basis that he could not see other areas of light, apart from skylights.
[68] Finally, Mr Logan turned to the topic of the missing Photographic Schedule. In Mr MacLaren’s experience this was always prepared by the tenant. This was because it was used to limit the tenants’ liability in any repairing obligation under a lease.
[69] Mr Brown began his cross examination by taking Mr MacLaren to his observation that he had found “soot” in the Premises. Mr MacLaren explained that he assumed that there were sooty deposits by reason of the defenders’ activities and the lorries accessing the Premises. However, he did not go so far as to suggest that the staining pattern he had previously identified on the walls was “specifically” caused by lorry exhaust. He was pressed as to whether he had tested the substance. He hadn’t. He was questioned about the reference in his statement to “incineration works” being undertaken in the Premises. He initially stated that he had seen an incinerator, which is how he referred to the autoclave. He eventually conceded that he had been told that this was an “incineration plant”. He had simply been told this by the client. He had not had this information from any professional or specialist. He had just assumed the staining on the wall was sooty deposits caused by this. He did not actually know what the staining was. It was enough, for the purposes of a schedule of dilapidations, to note the fact of that staining. He accepted that on his inspection he had never seen smoke belching out from the autoclaves, however, he had seen steam. The operation of the autoclaves was outwith his experience.
[70] Turning to the condition of the roof, Mr MacLaren accepted that there were multiple causes for its poor condition. He accepted that cracks in the flashing and defective rainwater conduits, as had been identified in the dilapidations reports, could contribute to water penetration into the Premises, including water running down the walls. He accepted that the non-operation of the high-level heating system, which was designed to keep the Premises at an ambient temperature, could also lead to damp in the form of condensation. He accepted that the black discolouration he had spoken to in some of the photographs could be caused by leaving the Premises unheated.
[71] In relation to the roof for the Building, he accepted that this had been constructed in different phases over several decades. The roof over the Premises was a series of pitches or ridges and was made of asbestos. This was bound to deteriorate over time.
[72] Mr Brown then turned to Mr MacLaren’s evidence about the function of a schedule of conditions. He accepted he was not an expert in the negotiation of commercial leases. Nor was he an expert in the function of a schedule of conditions. He accepted that it will always be a question of the actual terms of the lease. It was put to Mr MacLaren that accordingly, that it was not true as a generality that a schedule of conditions operated for the “protection” of the tenant. While he initially cavilled, that tenants prepared these, he accepted that that could depend on who will instruct and pay for it. He accepted that he could not give expert evidence about a general practice or infer some overriding rule from that. He accepted every case would be different. Mr MacLaren maintained that in his experience it was generally tenants who wanted a schedule of conditions, but he accepted that it was only a “datum” to show the condition of the subjects of let at a specific point in time. All of this remained the subject of negotiation.
[73] In relation to the file note of Steven Griffiths dated 10 August 2006 relating to list of proposed landlords’ works, Mr MacLaren accepted that from the reference there to making the Premises “wind and watertight” it could be inferred that they were not wind and watertight that that stage. He also accepted that if it was not wind and watertight for 10 years this could have consequences for the inside of the Premises.
[74] In relation to damage to the roof caused by birds, Mr MacLaren explained that this could arise if they nested on the roof and their nests washed into the gutters or blocked the downpipes. He was not aware that seagulls dropped stones onto the roof. He accepted that he had no information or basis to make any inference as to the roof in 2009. Under reference to the photos of the underside of the roof of the Premises put to him in examination inf chief, he accepted that the poor quality and granularity of these made it difficult to draw clear conclusions either way as to the condition of the roof. He also accepted that these same difficulties would make it difficult to make any conclusion about any water staining as shown in the photos. He also accepted that it was inevitable that if the high-level heating system was disabled, there would be condensation and which could extend to the staining in the photos. Mr MacLaren also accepted that the list of landlords’ works dating from August 2008 was indicative of defects in the Premises at that time.
The defenders’ Proof
[75] The defenders’ evidence fell into two broad chapters: first to establish what they say was the very dilapidated state of the Premises at the material time and, secondly, to look at the prior terms on which they had occupied the Premises and the prior landlords’ ambitions in respect of the Building. The defenders led seven witnesses in the following order: Gary Pettigrew, Alison Pettigrew, Stephen Brown, David Brown, Ann Greenhorn, Claire Leckie and Keith Crozier.
Garry Pettigrew’s Evidence
[76] At the outset of Mr Pettigrew’s evidence Mr Logan took objection to significant parts of Mr Pettigrew’s witness statement. Mr Brown pointed out that Mr Logan had failed to raise this, as he should have, at the pre-proof by order. It was agreed that this evidence would be accepted under the usual reservations, and Mr Logan’s objection addressed in submissions.
[77] Mr Pettigrew is one of the directors of the defenders, which he established in 1997 as a specialist in healthcare recycling and waste disposal. Prior to establishing the defenders, he had acquired experience in waste transport and management while employed by various companies between 1988 and 1997. His employers included Suttons Transport (as a Class 1 driver), Wimpey Waste and (when they were taken over) by UK Waste (during which time he moved into management) and, finally, Southern Water (as the contracts manager for their medical waste division). During this period, he was fast-tracked into a management position and gained various qualifications in waste and chemical handling. He acquired a certificate of professional competence (CPC) and was familiar with the regulatory requirements in this industry.
[78] He had knowledge of the Building, including the Premises, while it was occupied by Cummins and latterly by Lindon. Cummins were a major international company and employed 3,000 people in the Building. During Cummins’ occupation, he described the whole factory (of which the Premises formed a part) as pristine in terms of maintenance. Lindon, which began c 1997 after Cummins’ ceased to operate from the Building, was a much smaller operation, operating from only a small part of the Building and employing only about 100 people. While working for Sutton Transport between 1988 and 1990, he regularly collected engines for delivery to factories in England. While working for UK Waste he visited the Premises often to remove waste. This included the removal of oils from the machine shop located in Unit 3 (the Premises) on a monthly basis. He described the oil pits as being directly under the production floor. The pits were pumped out to road tankers. He said that the Premises were used to test engines to destruction. (The pursuers dispute this particular contention.) In Lindon’s days, they placed heavy machinery in the Premises.
[79] There was a dispute between the parties as to the state in which the Premises were left after the auction in the wake of Lindon’ insolvency in 2002 of items and machinery. Mr Pettigrew attended the auction. He said it looked as if Lindon had just walked out without any sort of organised close-down. Everything was left, including heavy machinery in situ, bolted to the floor. He described the auction as chaotic. Machinery which was bolted to the floor or built into the roof space was simply ripped out. As a consequence, there were holes in the floor as well as large bolts protruding from the floor. When he viewed the Premises a little later with a view to renting it, he described it as being in bad shape. He described large cables hanging from buzz-bars (which supplied electricity to machinery) and oil catchment pipes dangling from the roof. Floor pits were still full of oil and the floor was a slip hazard. He was advised by Steven Griffiths, a member of the landlords’ local agents, that the roof was made of asbestos and would be too costly to repair. A figure of £400,000 was mentioned. Mr Pettigrew explained that the only way such a repair could be undertaken would be under a 25-year lease. However, this was not an option as the then owners had different ambitions for the site on which the Building was located. Mr Pettigrew explained that the then owners were actively pursuing the wholesale development of the Building at the time that the defenders took occupation. They were trying to get rid of the listed building consent. One proposal was to convert the Building to a new women’s prison. This made sense as the location was good, being near Shott’s prison, and the infrastructure by way of roads, and power supply were all in place. Otherwise, the owners intended to secure a residential development of the whole Building. Accordingly, the owners were not going expend the money necessary to put the Building into a lettable condition. Mr Pettigrew also explained that, by reason of the business of the defenders, as a waste transfer site, they did not require wind and watertight premises. The defenders were prepared to undertake the limited works necessary to put the Premises into a working condition for the purposes of their business.
[80] Mr Pettigrew explained that initially the defenders took only 20,000 square feet (of a total of 80,000) of the Premises at the rate of £1 per square foot and with a service charge of 50p per square foot, together with the offices adjacent to the Premises. He described the rate of £1 as “phenomenal” in comparison to the higher rate he had been paying for a site over the road (the rental rate for which was at least four times higher). The part of the Premises initially occupied was at the south end of the Premise where the entrance and loading area was located. At the same time, the defenders acquired the use of a set of the offices, which were beyond the perimeter of the Premises themselves and located upstairs on the first floor in part of an adjacent unit. The Building itself comprised about a million square feet.
[81] The defenders’ initial occupation, which began in about 2003, was on an informal unwritten basis. That occupation ran from year to year, subject to the condition that the defenders could be removed on one month’s notice. There was no repairing obligation of any kind. Mr Pettigrew explained that this was not reached as a result of negotiation. Rather, the owners did not even ask for a repairing obligation. These arrangements suited the owners, as they did not need to spend money in order to secure some occupancy, and they could obtain vacant possession quickly.
[82] On the strength of the arrangements entered, into the defenders applied for a SEPA licence, which is always specific to particular premises. Their medium to long-term intention was to acquire their own premises and build a purpose-built facility. While the Premises were, in effect, on a month-to-month basis, Mr Pettigrew explained that the defenders were comfortable with this. He knew that it would take some time for any planning permission to go through and, accordingly, the defenders would de facto have a much longer notice period than the one-month agreed upon.
[83] The first written agreement entered into between the defenders and the then owners was in 2005. This was produced as no 6/1 of process (“the 2005 Licence”). Mr Pettigrew’s understanding was that the landlords were looking to get in other short-term tenants and so had a template for a written licence. From his point of view, it had taken two years just to secure the 2005 Licence.
[84] The 2005 Licence was on terms similar to the informal arrangement in place up to that point, as regards the amount of rent, the duration of the occupation (year to year) and the ability of the landlords to remove them with one month’s notice. In addition, there was a limited repairing obligation, namely to leave the Premises in no worse condition than at the inception of the 2005 Licence. Mr Pettigrew explained that in no circumstance would he have accepted a substantial repairing obligation. The Premises were in a very dilapidated condition when the defenders first took entry in 2003. The largest potential expense concerned the roof. It would not have been feasible for the defenders to move out of the Premises to enable roof repairs to be undertaken, because the SEPA licence was specific to the Premises. In any event, the cost of repair, if borne by the landlords, would be wholly disproportionate to any additional income generated by securing new tenants.
[85] In relation to the 2005 Licence the landlords’ agents introduced the idea of a schedule of conditions being prepared to evidence the state of the Premises in January 2005, but no such schedule was ever prepared. Mr Pettigrew did not regard this as an oversight on the part of the landlords’ agents. In his view, the agents were not bothered about the preparation of a schedule, given the owners’ longer-term ambition for a redevelopment of the whole Building.
[86] From about 2007 the defenders and the landlords pursued the possibility of a longer-term arrangement. By then it was clear to the landlords that there was not going to be a comprehensive redevelopment of the site in early course. From the defenders’ perspective, they wanted to have more security of tenure, given the increasing scale of their business. In broad terms, the defenders were looking for a 10-year lease, a repairing obligation subject to certain works being undertaken, a schedule of conditions to limit the defenders’ liability in respect of repairs, and no obligation whatsoever in relation to the roof. Under reference to 7/26 of process (which had the heading “Agreed Heads of Terms – Subject to Contract”), Mr Pettigrew explained that “heads of terms” were produced at this time. While these were headed up “agreed” that was not the case; they were produced by the landlords’ side for discussion purposes. These contained provisions for rental at the amount of £77,000 per annum with full repairing covenants but no liability for the roof at the end of the term. The landlords’ works were, Mr Pettigrew said, a matter of continuing negotiations. These petered out.
[87] Under reference to the file note of Steven Griffiths dated 10 August 2006 (produced under the cover letter at No 7/40 and separately at page 191 of the joint bundle), which was a list of “proposed landlords’ works” for the Premises, Mr Pettigrew explained that these were works being discussed with the then landlords. The works included making the Premises “wind and watertight”, filling all foundations on the floor, and the removal of all service drops and hanging cables relating to pneumatic and other redundant services. This same list was circulated under cover of an email in June 2007 (No 7/34 of process). Mr Pettigrew explained that a draft lease, No 7/31 of process, had been circulated during this period. (This had typed redactions and manuscript notations.) It was in this context that he took the 2007 photos (produced as No 7/32 of process.) His purpose in taking the 2007 photos was to record the layout of the Premises and the state of its décor. He had never intended this to be a comprehensive record of the Premises, nor was it intended to document the condition of the roof at that time.
[88] At around this time Mr Pettigrew produced his own schedule of conditions (No 7/33 of process). He explained that this was, in reality, his shopping list of items he wanted fixed before any lease was entered into. This included provision that all areas of the Premises were to be photographed. Some of the stipulations were that the “large hole” in the concrete floor was to be filled and the warehouse (ie the Premises) were to be “wind and watertight”. However, discussions with the then landlords drifted.
[89] The email from Lesley Dilman of Tods Murray dated 15 June 2007 (No 7/34 of process) was the landlords’ response to his list of proposed works. So far as the evidence went, the “attached” landlords works was the same as that detailed in the file note of 10 August 2006. The discussions with the landlords in 2007 also petered out without any lease being signed at that time.
[90] By 2009, the defenders were looking at another possible site. However, their objective remained to get more security of tenure. Meantime, the landlords were unable to get tenants into other parts of the Building. Discussions about a lease resumed. In late 2009 and early 2010, the Lease founded upon by the pursuers was finally entered into.
[91] Mr Pettigrew regarded the Lease as more consistent with the informal licence arrangements, rather than the possible lease under discussion from 2007 onwards. The principal difference from the earlier licences was that the proposed duration was now one of five years, subject to a break option after three years. At the time the Lease was entered into, there was no discussion of any repairing obligation, either in terms of any existing obligation under the licence or a repair obligation arising by reason of the transfer to the Lease. In his view, the Premises were in a better state than in 2005, by reason of the defenders having filled in holes in the floor. On no view, he said, would the defenders have accepted any obligation requiring them to improve the condition of any part of the Premises. The landlords’ agents never suggested that that was necessary. Again, it was the landlords’ agent Steven Griffiths who suggested a schedule of conditions be prepared. This was not done and there was no discussion about this. In Mr Pettigrew’s view this was because the landlords’ agents knew that the Premises were in a poor condition but that this did not affect the value of the landlords’ investment.
[92] Mr Pettigrew also gave evidence that during the early years of the defenders’ occupation, the Premises and Building were managed on as low a budget as possible. At that time, the defenders were the only long-term tenants. Unit 5 was used by a company for storage of drinks during a high-demand period at Christmas. There was ongoing deterioration, in part due to the activities of nesting seagulls. Thousands of birds nested on the roof of the Building. This caused damage to the roof and guttering, as did their habit of dropping pebbles onto the roof, onto skylights and into roof flues. The roof continued to leak. By this time the internal roof to Unit 1 had fallen to the floor. Over time services, in order to reduce costs, the landlords stopped servicing such as gardening, security, cleaning and gas servicing. From about 2008 the high-level heaters did not operate.
[93] During the currency of the 2005 Licence, the defenders increased their occupation to the whole 80,000 square feet of the Premises. (No formal documentation was put in place.) The rent and service charge were commensurately increased. When the defenders extended their occupation into the reminder of the Premises they tried to clean the floor of the 60,000 square feet taken over. However, they found that the oil was ingrained in the concrete floor. The defenders repaired holes in the floor and they cut the bolts that protruded from the floor and which had at one time secured machinery.
[94] At this point Mr Logan objected to substantial parts of Mr Pettigrew’s evidence in his witness statement, concerning the change of landlord and the impact of that in terms of the maintenance of the Building (including the Premises). While this should have been raised at the pre-proof by order, I received this evidence under the usual reservations.
[95] In relation to the state of the Premises, Mr Pettigrew explained that the roof had leaked from the very outset of the defenders’ occupation in 2003. Stock and vehicles had to be stored away from these areas, in part to avoid the risk of damage caused by falling tiles, which were heavy. There were holes in the roof. The defenders tried to utilise these for their autoclaves, including bending a chimney to do so. While the defenders did replace some of the broken glass in the roof lights, they could not touch the roof itself. This was made of asbestos and therefore required a specialist to undertake such work. The roof continued to deteriorate during their period of occupation.
[96] In relation to the floors of the Premises, these were badly damaged by the removal of the machinery after the auction. Mr Pettigrew explained that the floors were unusable when the defenders first occupied the Premises. The defenders had repaired holes and removed protruding bolts. They had to drill these out. By the time the defenders took over the remainder of the Premises, there had been stagnant oil standing in the unused part of the Premises for three years. Mr Pettigrew explained that at the time that the defenders took over the remaining 60,000 square feet of the Premises, they purchased 200 litres of a high-grade liquid degreaser and a motorised brush to try to remove oil staining from the floors. This had some success but, he explained, when conditions were wet oil would rise to the surface, rendering it a slip hazard. The defenders cleaned and disinfected the floor as part of their weekly cleaning programme but this never succeeded in removing the oil or staining from the floor. He spoke to one incident, in 2009, when a prospective employee attended on site for an interview. She promptly slipped on the floor of the Premises and broke her wrist. Thereafter, all office staff required to wear personal protective equipment in the form of non-slip shoes when coming into the Premises.
[97] Finally, in relation to the walls, he described these as black with grime due to gutters overflowing and water from the roof entering the Premises and running down the walls. This was exacerbated from about 2008 and 2009 when the landlords turned off the frost protection heating. This was to save money on heating and on servicing the heating system. Even prior to then, the heating only kicked in when temperatures fell below 5 C. (I note that there was some confusion in Mr Pettigrew’s evidence because he also suggested that the heating was switched off at a later point, in 2010/2011 and that in 2008 it had been switched off in other units.) In any event, the consequence, he said, was that when it rained and the guttering overflowed the walls were like a running river.
[98] Mr Watson’s evidence to the effect that the Premises were in good condition was put to Mr Pettigrew. He did not accept this evidence was correct. Mr Pettigrew had seen the Premises at the time of the auction by Lindon’s liquidators. Large vehicles were removing items after the sale. Low loaders were used and cables were just cut and left to dangle. This was without any order. The defenders moved in months or about a year after that. The rent was only £1 per foot for a reason. The Premises were not habitable for a normal lettable unit without considerable funds being spent on them.
[99] He also rejected Mr Watson’s suggestion that the Premises were not contaminated. In Mr Pettigrew’s view, the Premises were covered in oil. He hired electric brushing machines, detergent and scrubbers to try to clean the floor. On a dry day it was ok but when conditions were wet he described it as becoming like a skating rink. Oil oozed out of the concrete in wet conditions. The defenders had also tried using soaking agents to lift the oil but he described this as a thankless task.
[100] Mr Pettigrew was also asked to explain the processing undertaken by the defenders’ and the use of the autoclaves. He explained that an autoclave was a large vessel used to sterilise medical waste at high temperatures with steam. Carts were filled with the waste to be sterilised and pushed inside the autoclave. It was a one-hour cycle. The steam was vented through high flues, like a boiler, to the outside. They were not vented into the inside of the Premises. Some steam might be released inside the Premises, but this was only during the last cycle, when the material was removed. In his view this was not likely to cause damage.
[101] In relation to the external venting for the autoclaves and boiler, Mr Pettigrew explained that the defenders knew the roof was asbestos and any cutting into it would require specialists. Instead, they removed some of the heating units and used the holes thereby exposed for the autoclaves and boiler. They did not cut new holes into the roof of the Premises. Indeed, in respect of one of the vents for the autoclave, they had to bend the chimney in order to utilise the existing hole. They had also installed new drains into the existing system.
[102] In relation to the suggestion that the vehicles inside the Premises caused damage, Mr Pettigrew explained that vehicles did come part of the way into the Premises but they would be turned off. There was air monitoring and most vehicles dated from 2005 or 2006 and were of a more ecological design. There was no incineration within the Premises. The defenders did not handle any material that was capable of contaminating the floor in the course of their business.
[103] In cross examination, Mr Pettigrew was first asked who took the 2007 photos (No 7/32 of process). He was not entirely sure if David Brown had taken some of these, or whether he had taken them all.
[104] Under repeated questions that there were no pits in the Premises, Mr Pettigrew maintained that there were pits in the Premises. He had emptied these in the course of his employment with UK Waste. He also maintained his position that, while the Premises were clean in Cummins’ day, they were oil-stained during Lindon’s occupation. In relation to Mr Watson’s evidence that there was no oil supply to the machines, Mr Pettigrew explained that coolant was nonetheless used, and which was comprised of a mix of water and oil. The coolant also had to be emptied from the machines from time to time and put into bowsers. Mr Watson was in a senior position and unlikely to be as familiar with the machine work carried out in the Premises. In relation to the averments in the defenders’ pleadings that engines were “tested to destruction”, Mr Pettigrew spoke to having had a tour of the whole site, including units other than the Premises and seeing large structures bolted to the floor. While Mr Watson said there were no engines “tested to destruction”, Mr Pettigrew remained adamant that he had seen engine testing in the Premises. These were bolted to the floor.
[105] A passage in the defences was put to him, to the effect that the walls were also stained by exhaust emissions from the 1970s and 1980s. Mr Pettigrew could not speak to the 1970s or 1980s. The Premises were pristine in Cummins’ day but he maintained his position that there was a marked deterioration during Lindon’s occupation. By 2003 it was, he said, nothing like it was in Cummins’ days. Lindon had not maintained the Premises to the same standard because they could not afford it.
[106] Under reference to the plan attached to the SEPA licence (No 7/28 of process), Mr Pettigrew explained where the autoclaves were situated in the Premises and where the former pits had been located. So far as he could recall, the defenders had filled in the pits in about 2006. He was cross examined extensively on the absence of any pits being marked, or referred to, in the list of proposed landlords’ works c 2006 (No 7/40 of process) or the plan (at page 193 of the joint bundle) that may have been attached to that list. Mr Pettigrew’s response to this was that the landlords’ works were under discussion, not agreed. While there was no reference to the pits in the list of landlords’ proposed works dating from 2006 and circulated anew in 2007, there were other items also not referred to on that list. In any event, on closer examination, the plan put to him (at page 193 of the joint bundle) did contain at least one reference to a “foundational pit”. The text below the other square marking corresponding to it was too illegible to read. In any event, Mr Pettigrew pointed out that the landlords’ proposed works did refer to “fill in foundations on warehouse floor as marked on attached plan. Make good levels and floor surfaces to matching.”
[107] Mr Logan then sought to cross examine Mr Pettigrew under reference to the “use” clause in the 2005 licence (“not …to be used otherwise than for storage and distribution…in accordance with the business of waste management”) and how actual use by the defenders might have been at variance with this. This line was objected to on the basis that it appeared to relate to what the defenders had done between 2003 and 2005 and that there were no pleadings. Mr Logan’s reply was that he was exploring the processing carried out by the defenders to ascertain when that damage started. I allowed the evidence under the usual reservations. Mr Pettigrew conceded that the Premises had not been used for storage. However, the defenders had had a SEPA licence from 2004 to 2015. They also had a Waste Management licence (“WML”), the regulations governing which had changed in about 2007. The planning authorities and SEPA were both satisfied with the processing the defenders carried on.
[108] Mr Pettigrew explained that the first autoclave went into the Premises in about 2004. The SEPA licence was obtained at that time. This narrated the permitted tonnage of waste that could be processed. A second autoclave was put in in about 2007. Under reference to the repair clause in the 2005 Licence, Mr Pettigrew accepted that this was broadly similar to that in the Lease. In relation to the reference in the 2005 Licence to the preparation of a photographic schedule, Mr Pettigrew explained that no such schedule was prepared relative to the 2005 Licence. From day one, he said, the landlords were not bothered. This was because they were always looking to redevelop the whole site. They were unconcerned about the condition of the Premises. It was not in a lettable condition. Latterly, the heat was turned off and they became increasingly dilapidated. In any event, the defenders had understood from the landlords’ agent that they were not to be held responsible for the roof or the state of the floor. Mr Pettigrew maintained his position that the defenders had not accepted responsibility for the roof under the 2005 Licence. They would not do so where the landlords wanted to redevelop the whole Building, the 2005 Licence for the Premises was only for one year but the defenders could be got out on shorter notice. Throughout 2006, 2007 and 2008 it was the defenders who pushed for a longer-term lease, which the then landlords continued to resist. No photographic schedule was required at that time because it was, Mr Pettigrew understood, a matter of agreement that the defenders were not responsible for the roof.
[109] Mr Pettigrew was also cross-examined under several documents that never resulted in any agreement. One of these was a letter from the landlords’ agent. Mr Steven Griffith dated 3 November 2003 (No 7/24 of process). This included a proposed user clause for the “existing business of clinical waste transfer” and a maintenance obligation that the Premises were “to be taken in their existing condition and will be returned in no worse condition”. Another document was a draft lease (No 7/31 of process) which had been mooted between 2007 and 2008, but which never came to fruition. The draft lease had been proposed by the landlords’ agents, Pinsent Masons, and had a proposed duration of 10 years. It was in this context that Mr Pettigrew took the 2007 photos. This was not to create a schedule but was simply for the defenders’ use. Under reference to a “Schedule of Conditions” bearing to be dated May 2007 (No 7/33 of process), Mr Pettigrew was asked about the several references therein to items being photographed. Mr Pettigrew explained that the 2007 photos had not been produced with that document. He was adamant that these were not to form the basis of a schedule or conditions. They were never shown to the landlords at that time. They were for the defenders’ own use. The defenders did not, and would not, accept responsibility for the roof because the Premises had not been wind and watertight from the outset, which the landlords accepted, they had not been repaired in 2007.
[110] Under reference to the document headed “Agreed heads of Terms” (in No 7/36 of process, at page 200 of the joint bundle) which bore to date from August 2008, Mr Pettigrew’s evidence was that these were not agreed between the parties at the time; they were under discussion to try to get a lease. These, too, fell by the wayside. While there was nothing there to exclude the floors, Mr Pettigrew explained that the defenders would not have been obliged to do more than match their condition at the time any lease was entered into. In any event, the landlords would not do the work identified.
[111] Mr Pettigrew was then cross examined under reference to the Lease. Mr Logan sought to elicit evidence that the Premises at the time the Lease was entered into would have been “totally different” from what was shown in the 2007 photos. Mr Pettigrew reiterated his position that the landlords had stopped maintenance, security and heating. As damp penetrated, tiles fell from the ceiling. The landlords had never repaired the roof. This would have been difficult as it was composed of asbestos. The defenders did patch windows and replaced broken panes.
[112] The photos at 6/36 of process were put to him, photos which appeared to relate to other parts of the Building. It was suggested that condition there depicted was similar to the Premises at the time the Lease was entered into. Mr Pettigrew totally rejected this suggestion.
Allison Pettigrew’s Evidence
[113] Mrs Pettigrew is the wife of Mr Pettigrew and the defenders’ finance director. She was not involved in any negotiations concerning the Premises and her recall was less specific than Mr Pettigrew’s. Her recollection of the time she inspected the Premises in 2003, before the defenders took up occupation, was that the Premises were run down. Floor tiles and carpet in the office area had to be replaced due to water ingress. There were issues with the warehouse (as she referred to the Premises) from the outset. The floor was a slip hazard. However, she did not work in that area. She also spoke to the frost protection heaters being shut off and to the ongoing problem posed by nesting birds. While for a period of time the landlords’ agents had employed birds of prey with some success, when this was stopped the problem of nesting birds (and the damage they caused) resumed.
[114] In cross-examination, she confirmed that the defenders moved into the Premises in about 2003. The offices leaked. Some remedial work had been done but she was not sure what this was. There was a problem with seagulls on the roof. She did not accept that the rest of the Premises were in a good condition.
Stephen Brown’s Evidence
[115] Mr Stephen Brown, had no association with, and had never been employed by, either the defenders or the pursuers. He had been employed by Cummins as a CNC machine operator from 1989 to 1996, working in Unit 4. This was adjacent to the Premises. He also worked for Lindon in the same capacity from 1998 to 2000 in Unit 3, being the Premises subsequently let to the defenders. While he did not work in the Premises when he was employed by Cummins, he spoke to the immaculate state of Unit 3 (as the Premises were known). The Premises were used by Cummins for storage, but from around 1994 or 1995 Cummins installed machinery to produce items for an assembly line. He explained that during this time Cummins employed someone to operate a floor washer all day and that workers also had to undertake maintenance at the end of every shift. Cummins took pride in the appearance and cleanliness of their factory and regularly showed it to visitors. It was a different story, however, when he returned in 1998 to work for Lindon. By then the Premises were used as a manufacturing machine shop for both manual and CNC machines producing parts for diesel engines. The Premises were in poor condition when he started with Lindon and he described being “shocked” by the change in condition when compared to Cummins days.
[116] In relation to the day-to-day processes being carried on by Lindon in the Premises, he explained that the machines used a lot of coolant. The type of machining was done on turntable jigs. Coolant was used during the machining process to reduce friction and heat between the tooling machine and the component being made. There was a magnetic conveyor belt to take the coolant and swarf (ie metal filings) away, into a skip. These skips were emptied about four times in any 12-hour shift. When the component was finished with its cycle it emerged through automatic doors covered in coolant. He explained that this had to be blown off using a high pressure air-line, with the consequence that coolant went everywhere over the floor. There was no way to control this and there was always some degree of spillage. The workers tried to use absorbent bunds or socks in a ring around the machines to try to contain the coolant. Time constraints and pressure to produce meant that workers did not always have time to undertake maintenance at the end of their shift, as had been the practice during Cummins’ days, and the coolant would be left. This was reported to management as a constant problem but not resolved. He described Lindon’s management attitude as a “make do and just getting running” mentality. In his view, the machines used by Lindon were simply old Cummins machines.
[117] Generally, these machines all had problems of one sort or another, whether it was coolant flooding or hydraulic oil seeping onto the floor area. While there was a maintenance team employed by Lindon, he said that they could not cope with the scale of the problem. He was also of the view that there would have been a lot of problems when the machines were fitted and then removed because it would be impossible to get all of the fluids and coolant out without proper equipment. During his time at Lindon, there was no improvement. There was no money for this. By the time he left Lindon, in 2000, the Premises were in a poorly maintained condition.
[118] In cross-examination, he explained that about half of the whole floor area of the Premises had machines on them. He worked in one area on several machines. When asked about pits, he thought there were some under machines for which coolant was used. Used coolant was sucked up and decanted into 45 gallon drums. There was some spillage.
[119] Mr Watson’s evidence that there were no pits in the Premises was put to him. Stephen Brown said he couldn’t be 100% sure that there were pits there. He could definitely remember a pit in Unit 4, so he assumed that this was the case with the Premises, where there were also machines. Coolant would be pumped out to change it. There were metal plinths or grids next to the machines but this was just to enable the operative to step up to load and unload. Coolant did drip off items when they were removed from the machines. (In re-examination, he explained that one could reach under these plinths with a broom but that it was not possible to reach under the machines themselves.)
[120] Stephen Brown was also asked whether or not the Premises had been used by Cummins as an area to test machines to destruction, as averred by the defenders. On his evidence, the Premises were never used for this purpose. In cross, he also confirmed that while there had been a high standard of cleanliness during Cummins’ day, this was not the case during Lindon’s occupation. The cleaning regime that Cummins had undertaken, including during summer holiday shutdowns, was not maintained by Lindon. In Lindon’s day this form of extra work was no longer offered to employees. There were high level pipes, for water, but any oil line was internal to the machines. The coolant wasn’t oil but it felt oily. He confirmed that the floor was comprised of concrete slabs. It was impossible to stop the coolant soaking into the floor. He also explained that concrete was porous and that it seeped in over the years.
David Brown’s Evidence
[121] David Brown had twenty years’ experience in the waste industry. He worked for the defenders as the plant manager of the Premises from 2003 until 31 December 2015. He was based at the Premises for the whole of the time he was employed by the defenders, and was involved in both the commissioning and decommissioning of the Premises. Prior to that he had worked for UK Waste. He frequently attended the Building to clean out various parts of the site after oil and coolant spillages. He described being in attendance for days at a time working to clear areas and to remove waste oils. This included removal of waste oils from large catchment pits in the Premises. This was done with hoses.
[122] He had also attended the Premises at the time of the auction by the liquidators of Lindon. The removal of the machinery resulted in leaving the floor badly contaminated with oil and cooling fluids. He said that hoses were being cut off machines with oil spilling everywhere. He also said that ventilation systems attached to the ceiling or directly to the underside of the roof were removed, leaving, in some cases, holes in the roof. He described the strip out process as being done with no order to it and no repair to cleaning being done.
[123] He described in some detail the state of the Premises when the defenders first took up occupation, in 2003. Initially, only about one-quarter of the Premises was occupied. From the beginning, he noted oil residue and stains across the whole floor. In his view, the whole floor had been badly contaminated with oil and other oil-based liquids. This was more apparent when the floor was wet, for example after rain, which came in from the leaks and holes in the roof. He said that in such conditions oil would bleed back to the surface and cause slippery conditions. The same occurred when conditions were damp and cold.
[124] At the time the defenders took over the remainder of the Premises, this included that part of the floor which had two large pits. These contained a large amount of oil and other liquids. These had to be drained and he described their contents was noisome. I n addition, through bolts which had been used to secure heavy machines to the floor had to be removed. When they were removed visible amounts of oil seeped out. Oil was also released from large metal plates, once these were removed from the floor.
[125] When the defenders first occupied them, the Premises were in a poor state of repair. He said that the walls were stained black and when the weather was bad one could see rain running down the walls. It came in from holes left when the ventilation or heating units were removed. As ceiling tiles got wet, these also fell. In addition, where the roof met in the middle, the eaves at these points were blocked. The downpipes had not been cleared for a considerable period of time. They overflowed and water came into the Premises from these points. Seagulls also posed an ongoing problem, as they dropped pebbles which smashed roof lights. The walls along the walkway toward the office areas had evident moss and black damp patches. Water ran down these walls. Windows within the Premises steamed up. Carpets had to be put down in the main office and the walkways so that the office-based staff could walk safely.
[126] The downpipes also overflowed or backed up, with the consequence that the floor area of the Premises flooded. He said that on more than one occasion water entered the electrical system, leading to the occasional power outages. The skylights in the office area and along the former canteen area leaked continually and buckets were placed all around to catch these leaks.
[127] In relation to the high-level heating system, it was his recollection that while these fired up on cold weather, these ceased to operate from about 2005. They were identified at that point as beyond economic repair, and they were not in fact repaired.
[128] In respect of his time with the defenders, he could not recall any major spillages of hazardous substances, diesel or anything else anywhere in the Premises. Any such spillages would have had to have been reported to SEPA. Minor spillages were attended to and these were recorded in the diary. In any event, there was not enough oil used in the autoclaves or shredders to cause a major spillage.
[129] In relation to the defenders’ own activities carried on in the Premises, he explained that an autoclave was a pressurised vessel by which waste was sterilised under high pressure. Any leak from this would have been a major incident requiring the evacuation of the Premises and the attendance of emergency services. This never happened. The autoclaves had failsafe vales and were maintained regularly by staff on double shifts. The shredders were also self-contained. While they did have a hydraulic reservoir, these would slow down and cease to work if there were a leak. There was not a single piece of machinery operated by the defenders in the Premises that would continually leak oil.
[130] The first autoclave was installed in about 2004, about one-year after the defenders had moved into part of the Premises. There was a boiler positioned next to it. Both of these were situated in a position beneath two existing holes in the roof. The chimneys for the boiler and the autoclave went straight up through these holes. As the defenders’ business grew they acquired a second autoclave. The first autoclave was repositioned toward the back wall to create more space for vehicles. The second autoclave was situated next to it and the boiler installed between them. Again, so far as possible these were all positioned underneath existing holes in the roof. However, one of the autoclaves had to have a bend in the chimney servicing it so as to be able to use the existing hole in the roof. In no circumstances would the defenders send someone on the roof to cut holes in it. In the first place, it was very slippery when wet. More importantly, the roof was made of asbestos and so could not simply be cut into safely. It would have been extremely unsafe to allow contractors access to that area.
[131] In cross-examination, David Brown confirmed that the reference to “Unit 2” (in para 2) of his witness statement, dealing with spillages and the removal of waste oils from the Premises, should be a reference to Unit 3 (ie the Premises). He was able to remember this because in the days when ee worked for UK Waste to empty waste oil from the Premises, there was no direct vehicular access to the Premises. It was necessary to back a lorry down alongside one of the other units. He had worked for UK Waste for 5 years by the time he left them, in 1998.
[131] The plan attached to the defenders’ SEPA licence (No 7/28 of process), was put to him. He identified the autoclaves and the location of where the pits had been. The evidence of other witnesses was put to him that there were no pits in the Premises. David Brown did not accept this. There were pits in the Premises. He described having to pull a hose through the Premises and under machines to reach the pits in order to empty them. So far as he could recall, these had been filled in in about 2008. They had to be filled in in order to accommodate the autoclaves. He explained that a slimy liquid was found in them at that time. The topic of the pits was pursued further with him, under reference to the plan (at page 193 of the joint bundle) that was associated with the list of the landlords’ proposed works in 2006 and 2007 (No 7/40 of process). It was put to him that this document related to the period before the pits had been filled in but that there was no indication of the pits on this plan. After a slightly clearer plan was lodged, David Brown identified on it where the two puts he had referred to were located. Despite extensive questioning, David Brown stood his ground: there were two pits in the Premises; he had in the past emptied waste oil substances from them; before they were filled in by the defenders they were filled with a “dank foul-smelling liquid”; and one could still see where they had been by the patch marks on the floor. It may have been the case that the machines were located over the pits. David Brown estimated that when he worked for UK Waste it could take between one and two hours to empty these pits, depending on the viscosity of the liquid in them.
[132] He had not attended the auction by Lindon’s liquidators, but he had attended at the later stripping out of items by their purchasers. He was cross examined about his statement, at para 3 of his witness statement, that those attending were “just cutting hoses off the machines and letting oil spill everywhere”. He reiterated that he had seen that hoses had been cut at the base of machines. Mr Watson’s evidence was put to him, that it would be unlikely that hoses would be cut because the machines were valuable, but David Brown maintained his position that he had seen contractors do this. He was not challenged on his statement that, as a consequence of the strip out of what he described as the ventilation system, “there were actually holes left in the roof”. In cross, he confirmed that cherry pickers were in use during the post-auction strip out.
[133] The 2007 photos were put to him. It was possible that he could have taken some of these, he could not remember. Photos numbers 97 and 98 (corresponding to pages 166 and 167 of the joint bundle) were put to him. These were dark but both depicted an autoclave. He was challenged that these did not show any pits. He explained that they wouldn’t appear in these photos. He confirmed that some channels had been cut to reach the drains. In relation to the statement that the walls were stained black, he accepted that this was not the case for all of the walls. There was black mould on some walls, especially where it met the ground.
[134] It was put to him that the heating had been switched off from about 2011 and that the damp would increase, which he accepted. He was asked to explain how the walls could be black in about 2003, as referred to in his witness statement. He couldn’t be sure. When the heating was off it was much worse. The roof has always leaked and it was always damp. He, too, confirmed, that seagulls were a problem.
[135] In relation to the positioning of the autoclaves under existing holes, David Brown confirmed that this was what the defenders had been done. The roof was asbestos. To cut into it would require specialist equipment. He was not really challenged on his evidence that, by the time the defenders were in occupation, there were some existing holes already in the roof. It had not been a significant operation to remove the venting in order to use an existing hole in the roof. A series of questions were put that when the first autoclave was moved to a different position in the Premises that a hole was left in the roof, which the witness accepted. His position was that when the autoclaves were moved to their new location then, again, existing holes in the roof were utilised for the necessary exhaust or venting. This was so even though, as he explained, they had to bend one of the chimneys to enable a pre-existing hole to be used. He accepted that the defenders had not sealed around the chimney. This would have required a hasp and flashing but that this was not safe to do due to the roof and the slipperiness of it. Rain could drip down the chimney. He rejected the suggestion that the defenders had cut the holes in the roof for their autoclaves.
Ann Greenhorn and Claire Leckie’s Evidence
[136] Ann Greenhorn and Claire Leckie, were office-based. In the main, their evidence was in relation to the poor state of the offices. Ms Greenhorn worked for the defenders from 2003. She rejected the suggestion that the Premises were “immaculate” in 2003. She did not accept this. On her first day, she was put off by the conditions. It was dark and dingy and rundown. She described the office as “a bit like Fawlty Towers”. Rain came in from the roof. Seagulls dropped pebbles onto the roof and made holes in the skylight. They had to put buckets down to catch leaks or they had to move their desks. Insects, caused by the seagulls and their leavings, also dropped onto the desks from the holes in the roof or skylights. On those occasions that she had to go into the warehouse part of the Premises, which was about once a week, the floor was wet and dirty. She recalled a new employee falling and breaking her arm. The Premises were not wind and watertight in 2003. In relation to the Premises, she said that there were no noticeable leaks from the diesel tank that supplied the vehicles.
[137] In cross examination she confirmed that the skylights in the roof leaked and that there was a problem with birds. Water was always coming into the Premises. They were always moving furniture because of water ingress. Some photos from No 6/36 of process were put to her but she could only identify the front desk for the Building. It was not suggested that this related to the Premises.
[138] Claire Leckie’s evidence was consistent with that of Ann Greenhorn and covered the same chapters. She had been employed by the defenders from about 2002, though she was now employed elsewhere. She also described the ingress of rain, debris and insects from the holes in the roof or skylights into the offices areas. Her job required her to go more regularly into the warehouse part of the Premises than Ms Greenhorn. She described the floor as “always wet” and with “puddles everywhere”.
[139] In cross-examination, it was put to her that she was exposed to the elements throughout her employment, which she accepted. There was a problem with water ingress from 2003. It did get worse over time. She was not aware of when the high-level heating was shut off in the premises.
Keith Crozier
[139] Keith Crozier, who was the defenders’ last witness, was employed by the defenders from 2008, initially as a logistics manager, and eventually becoming Group General Manager. He worked regularly in the office and in the warehouse area (ie in the Premises themselves). His description of the office coincides with the descriptions of the office-based employees, Ms Greenhorn and Ms Leckie. He understood that the Premises were situated in the unit that had formerly been used Cummins to test engines to destruction. In relation to the floor in the warehouse part of the Premises, he described these as saturated with years of embedded oils and grease which permeated the concrete and rendered it slippery on wet days. There was a visible multi-coloured sheen from oil in the puddles on the floor. Non-slip footwear was essential. He, too, could recall an employee falling and breaking her arm. He explained that the defenders were constantly cleaning the floor with detergents to render it less slippery but, after rain, the floor would release embedded oils back to the surface.
[140] He described the walls as stained black with soot and dust, and which he attributed to engine testing. The walls also retained moisture due to the lack of ventilation and heat. There was no heat during his time with the defenders. The lighting was also always poor because 40% of the light fittings were not operational.
[141] In relation to the autoclaves, he described the installation of the second one in around 2009. In order to accommodate this, the existing autoclave was moved and rotated to allow more loading space for vehicles. The second autoclave was situated near the first autoclave. The boiler serving the two autoclaves was situated next to them. As repositioned, the two autoclaves and associated boiler were all situated under existing holes in the roof so as to utilise these for their exhaust or chimneys flues. One of these chimneys had to have a bend in order to use the existing hole.
[142] He also explained that there were two fuel tanks. One was a 10,000-litre diesel tank and the other was a 5,000-litre gas oil tank to feed the boiler. Both of these were “double-skinned”, meaning that they never leaked. If there was any oil leakage from a vehicle parked in the Premises overnight, this was bound to be “miniscule”. He was not aware of any such problem.
[143] In cross examination, he was asked about the source of his statement that engines were tested to destruction in the Premises. He explained that he had asked and had been told this by those who worked there. His reference in his witness statement to floor tiles lifting was confined to the office area. His reference to the roof tiles being in a bad state of repair was to the warehouse part (ie the Premises themselves). Mr Crozier assented to the propositions that “things were better” in 2008 than in 2014; that there has been water ingress over the years; and that the walls also got worse over the years. He agreed that this was so after the heat had been turned off. However, when he started the walls were already in a bad way because there was little heating. So far as he could recall the heating had not been switched off in 2011. There was still frost protection at 5 degrees. From about 2011 the cleaning and heating stopped.
[144] A number of the 2007 photos were put to him. Some he could not recognise. He agreed that a wall depicted in photo number 93 (at page 162 of the joint bundle), and whose location he could not identify at all, was “blue”. It was put to him that photo no 94 also showed “a lot” of blue wall. He agreed. He did not agree that the walls were very different in 2009, at least, not every wall. Some walls were in better condition than others. He could not really comment on the state of things in 2007 as he had only started in October 2008. He was asked if what was found then was similar to what appeared to be depicted in this photo. He did not regard it as that different. He confirmed that a second autoclave had been installed in the Premises.
[145] In relation to the reference in his written statement to fuel tanks, he explained that these were double skinned or fully bonded. They did not leak. They were completely sealed. He also explained that there was a spill tray filled with granules. In about 2008 there were about 14 vehicles to be fuelled. The level of traffic was further explored with the witness. He explained that there was a forklift truck. Most delivery lorries delivered their loads to a hopper feeding a shredder. He accepted that traffic had increased between 2008 and 2014.
[146] He was also asked about the fitting and positioning of the second autoclave. He explained that the first autoclave was moved, and the second placed near it, to provide more room for vehicles coming into part of the Premises. He confirmed that the repositioned autoclaves used existing holes in the roof.
Submissions
[147] The purpose of this preliminary proof is to establish the context in which the parties to the Lease contracted. It is helpful first to set out the parties’ legal submissions to understand the use, if any, they made of the evidence led from the eleven witnesses who gave evidence at this preliminary proof.
Pursuers’ Submissions in Support of their Primary Interpretation
[148] Mr Logan advanced two interpretations of Clause 6 of Lease. His primary position was that the opening lines of Clause 6 imposed what he described as a full repairing and insuring (“FRI”) obligation on the tenants and which was qualified only by reference to the Photographic Schedule. (He explained that none of the other three potential qualifications, in relation to latent defects, defects caused by the Landlords or by matters covered by insurance, was said to be relevant in this case.)
[149] The Photographic Schedule was, he said, conceived solely for the benefit of the tenant. He pointed to the evidence of Mr MacLaren that such schedules were in his experience always prepared by the tenants. Mr Logan submitted that in this case the tenants had chosen not to prepare a Photographic Schedule. He argued that this had the consequence that the words in Clause 6 referring to it were to be read as pro non scripto. The effect was that the FRI was unqualified. The defenders were no longer obliged to restore the Premises to whatever state they had been in 2007, had this been ascertainable from the Photographic Schedule, but the defenders were now under an obligation to restore the Premises to an absolute standard, said to be objectively judged. His alternative position was that if the Premises had been damaged in any way during the currency of the Lease then the pursuers should still succeed because, logically, the Premises would not be in a like condition to their condition at the start of the Lease.
[150] Mr Logan submitted that, on his primary approach, Clause 6 should now be read, with some deletions, as follows:
“The Tenants accept the Premises as being in such condition as shown on the Photographic Schedule and in all respects fit for the Tenants’ purposes and shall at their sole expense and, to the reasonable satisfaction of the Landlords, repair and maintain and renew (and, if necessary for the purposes of maintenance and repair, to replace and rebuild) and decorate and keep the Premises and all permitted additions and new buildings, if any, in like condition as is evidenced on the said Photographic Schedule and in a clean and tidy condition, clear of all rubbish, for the Duration, …”
[151] In response to a question from the court about the retention of the words “in like condition” in this truncated form of Clause 6 or whether, on the pursuers’ approach, those words also fell to be read as pro non scripto, Mr Logan maintained that those words should remain. They still qualified the phrase “fit for the Tenants’ purposes”, except insofar as qualified by a non-existent Photographic Schedule.
[152] Mr Logan contended that the effect was that the obligation imposed in this truncated form of Clause 6 was “absolute”. It imposed an absolute objective standard for the purposes of the FRI Mr Logan contended for. Mr Logan sought to support this by reference to Clause 4, the user Clause. The permitted use was “for storage and distribution and ancillary office space in accordance with their business of waste management services”. So far as I understood this part of his argument, Mr Logan said that “fit for the Tenants’ purposes” referred to the actual use of the Premises. However, he said the test for fitness was an objective not a subjective one. If it were an objective test, it was not good enough, he said, for the tenants to say that the state of the Premises worked for them because they were in a dirty business.
[153] In response to a question as to whether the Photographic Schedule had an evidential function, namely, to establish the standard against which to measure compliance with the FRI obligation, Mr Logan demurred from this. He contended that in the absence of the Photographic Schedule, the FRI obligation was unqualified. It imposed an absolute standard and, indeed, evidence was not permissible. That last contention was made under reference to the case of McCall’s Entertainments (Ayr) Ltd v South Ayrshire Council (No 2) 1998 SLT 1421. This was a decision by Lord Hamilton in the Outer House and which also concerned the scope of a repairing obligation in a lease.
[154] Mr Logan argued that the form of words “repair, maintain and renew (and if necessary for the purposes of maintenance and repair, to replace and rebuild) and decorate” was a form of words recognised by the courts as having a particular significance in determining the extent of the tenants’ obligations. The clause in McCall required that the tenants accept the subjects let “in their present condition as evidenced by the Schedules of condition subscribed hereto” and the tenants bound themselves to leave the subjects at the expiry of the lease “in a condition no less good than their present condition”. In that case, the subjects of let were in substantial disrepair at the time of the Lease and, as here, no schedule of conditions as referred to in the lease in McCall had been prepared
[155] Mr Logan sought to distinguish McCall. The repairing clause in McCall had contained the words “present condition” and Lord Hamilton heard a Proof as to whether there was a breach of that repairing obligation. By contrast, in the instant case, there were no words in Clause 6 of the Lease equivalent to the words “present condition”, which featured in the lease in McCall. In this case, in terms of the Lease, the only way to prove the condition of the Premises had been the Photographic Schedule. As none had ever been produced, it was simply not competent to try to prove the state of the Premises. Mr Logan did accept that the position would be different, if the Photographic Schedule had been lost. (In that circumstance, he said, it would be an exercise akin to proving the tenor of the lost Photographic Schedule.)
[156] In terms of the onus of proving a breach of Clause 6, Mr Logan suggested that this was “tricky”. On his primary interpretation, however, he said that this was more of a problem for the defenders because they couldn’t show that certain defects existed. The tenor of the evidence was that the Premises were tolerable in 2007, and that there had not been much change between then and 2009, when the Lease was signed.
Pursuers’ Submissions as to the Relevance of the Evidence about the State of the Premises
[157] Turning to the evidence, Mr Logan explained that the pursuers had led evidence for the purpose of countering the defenders’ case that by the time the Lease was entered into the Premises were seriously dilapidated. He relied on Mr Watson’s evidence about the industrial processes carried on in the Premises by Cummins and Lindon and about the immaculate condition of the Premises while Cummins were tenants, and the broadly similar condition while Lindon were in occupation. On Mr Watson’s evidence, the Premises had not been used for engine testing, as the defenders had averred, and hence there had been no exhaust staining on the walls; there were no oil pits cut into the floor and no oil staining of the concrete floor.
[158] He said that Mr Watson’s evidence was supported by that of Stephen Brown, to the extent that he had given evidence that there was no engine testing in the Premises; that there was no staining of the roof or walls during Cummins’ occupation; that there were no overhead pipes for oil and only hydraulic oil used in the Premises; that hydraulic fluid stored with the machines was pumped into a barrel and taken away; and that there were no oil pits in the north‑west quadrant of the Premises. While Stephen Brown was unsure whether there was a pit elsewhere in the Premises, though he thought it was possible that there might have been one under one of the machines, he accepted that Stephen Brown spoke to a decline in cleanliness standards during Lindon’ occupation.
[159] In relation to the pits, Mr Pettigrew’s evidence about the pits, or their location, had not been put to Mr Wilson. In any event, the pits had not been for oil but had been used to collect dripping coolant. His position was that this was irrelevant at the end of the day because the pits had been filled in by 2009. This evidence only went to credibility.
[160] Mr Logan criticised the defenders’ evidence, particularly that of the defenders’ managing director, Mr Pettigrew. He submitted that Mr Pettigrew was lying when he said he had seen engines tested to destruction. As Mr Logan put it, this was all a “complete fabrication”. Further, as the defenders’ managing director he had to be held responsible for the defenders’ averments. But the defenders had singularly failed to prove their averments about the Premises having previously been used for engine testing, or the walls and inside roof having become heavily stained due to intensive use of diesel engines in the 1970s and 1980s, or that the floor was heavily oil-stained or riven with channels cut into it. His evidence was self‑serving and should not be accepted unless supported by other evidence.
[161] At a later point he also criticised Mr Pettigrew’s evidence, and that of the defenders’ witnesses generally, and the inconsistencies in the evidence about the high-level heating system. In their pleadings, the defenders had asserted that the landlords had removed these leaving large holes. However, other evidence the defenders relied on was to the effect that the landlords ceased to provide heating, from about 2011 onwards, as part of a cost‑cutting exercise. On the defenders’ evidence, they had themselves removed a few of these high- level units in order to use the existing holes for the chimneys required for the autoclaves and associated boiler.
[162] Mr Logan noted that the defenders did not seek to establish that there was deterioration between 2003 and 2009. Their position had been to blame all deterioration on the predecessors, Cummins and Lindon. In this, they have failed.
[163] Mr Logan then turned to the 2007 photos. There were no pictures of holes in the floor or roof or of ceiling tiles falling down or being discoloured. From these, he said the roof appeared to be in good order. He accepted that the evidence of what could be seen about some features of the Premises was limited. From what there was of the walls, these appeared well maintained. It was, he acknowledged, hard to determine from the photos whether the floor was a consistent colour or stained. It was significant, he said, that there were no photos of the “big ticket” items such as the roof. Mr MacLaren’s evidence about this was measured; he accepted at times the granularity of the photos made it difficult to comment. His evidence should be accepted.
[164] The next chapter of evidence Mr Logan referred to was the documentary evidence produced by the defenders. He suggested it was surprising that the no drafts or correspondence relative to the Lease had been produced. In respect of the list of landlords proposed works dated 2006, these showed trivial works to be undertaken. A comparison of this with the pursuers’ own schedule of dilapidations in 2014 demonstrated how different the state of the Premises were by then. Equally, the agreed heads of terms of 2008, though not formally incorporated into any agreement, were, he said, informative of the situation as at August 2008. This was to be a 10-year Lease, with a FRI obligation subject to a schedule of conditions. The provision that the “tenants will have no repairing covenants with regard to the roof at the end of the term” was not, he said, the same as having no repairing obligation in respect of the roof during the currency of the Lease. The proposed lists of tenants’ works were relatively trivial. What followed this was the Lease, signed the next year. The Lease was, he said, an exact copy of the 2005 Licence in all relevant respects.
[164] Mr Logan also relied on the evidence that Mr Pettigrew had endeavoured to negotiate a schedule of conditions in 2007 and had taken the 2007 photos for that purpose. Mr Pettigrew was not naïve about its purpose. Mr Logan criticised this passage of Pettigrew’s evidence, in that he downplayed the significance of photos or preparation of a schedule of conditions, and his explanation in his witness statement was disingenuous. He had signed the 2009 Lease without exclusion of liability for the roof.
[165] From all of this Mr Logan invited the court to find that the circumstances in 2009 were broadly the same as in 2007 (as shown in the 2007 photos); that the 2007 photos showed the Premises to be in a fair state of repair; there was no evidence of existing holes in the roof and that, accordingly, it could be inferred that Mr Pettigrew took a commercial decision that it was not necessary to protect his position by instructing a Photographic Schedule
[166] The last chapter of evidence Mr Logan referred to was Mr MacLaren’s evidence that in his experience it was the tenants who instructed and paid for the preparation of schedules of condition. It was on the basis of that evidence, that he argued that the Photographic Schedule was conceived for the benefit of the tenants.
[167] Mr Logan renewed his objections to some parts of Mr Pettigrew’s witness statement as irrelevant.
The Defenders’ Submissions on Clause 6
[168] In relation to Clause 6, Mr Brown argued that this had to be construed against the common law on leases. For example, in the absence of express provision, at common law unfurnished subjects (which was likely to include most commercial subjects), could be alienated by the tenant without a landlord’s consent. Likewise, at common law, a landlord had an obligation to provide subjects in good and tenantable order and the landlord had an obligation to repair consistent with that obligation. If the landlord failed at the outset to provide tenantable subjects, he would immediately be in breach of that obligation and would be subject to the further obligation to repair.
[169] Against that background, it was clear, he argued, that the first sentence of Clause 6 served a distinct purpose, which was to overcome the common law position. Modern commercial leases typically required tenants “to accept” subjects of let as tenantable and fit for the tenants’ purpose. It was notable that, here, there was an omission of the tenants’ acceptance of the conditions as “tenantable”. They simply accepted them as “fit” for their purpose. This protected the landlord against the kind of claim that might arise under the common law. It did not impose any obligation on the tenants. The lease in McCall was an illustration of this.
[170] The part of Clause 6 from the word “shall” to “keep” imposed an obligation on the tenants. (This corresponds to part (ii) of this Clause, as I have set it out, in paragraph [203], below.) In this area of the law, Mr Brown argued, “keep” included restoring or putting subjects into a like situation. But the critical question here was: to what standard? The words “in like condition” were words of comparison and could have no other meaning.
[171] In most commercial leases the standard was an objective one, as in good and “tenantable repair”. Here, however, there was no objective standard provided for. Instead, there was an actual standard, which was the state of the Premises at the commencement of the Lease. The words “in like condition” can, he argued, only refer back to the Photographic Schedule. Indeed, for the avoidance of doubt, the reference to the Photographic Schedule is repeated. If there were a Photographic Schedule, then there would be a known baseline for comparison. The Photographic Schedule served an evidential function. That was the starting point for Clause 6.
[172] Furthermore, the consequence of the absence of a Photographic Schedule did not have the effect of changing the meaning of Clause 6, which was the logical result of Mr Logan’s argument. That argument was wrong. The absence of the Photographic Schedule did not result in a radical change to the meaning of Clause 6. Rather, the absence of the Photographic Schedule posed evidential challenges. Clause 6 did not create or impose an absolute obligation to make the Premises better than they were. To test this, Mr Brown posed the question, if the Photographic Schedule were lost, would that change the meaning of Clause 6? Mr Brown submitted that the answer was “no”. It would create an evidential problem; not one of interpretation.
The Defenders’ submissions on the evidence
[173] Mr Brown also made submissions on the evidence. In part, the argument he advanced on the interpretation of Clause 6 was made in the context of the evidence elicited at proof. In broad terms, evidence had been led to show, first, that the then landlords were unconcerned as to the state of the Premises, because of their ambition to demolish and redevelop the Premises, and secondly, that the Premises were in a dilapidated state at the point the Lease was signed. Mr Brown relied on this as part of the known context for his submission on the proper interpretation of Clause 6. In particular, the defenders had offered to prove, and had proved, that as at the point of execution of the Lease both parties to it were aware of the following:
- That the Premises were badly dilapidated at the point when the Lease was negotiated;
- That the Premises, which were one sub-divided part of a much larger whole, being the Building, could not sensibly be repaired without repair of the whole Building;
- That there was very little tenant demand, and that the rest of the Building had never been fully occupied since Cummins ceased trading;
- That redevelopment had at all material times been the landlords’ preferred option for the whole Building, including the Premises;
- That a major priority for the landlords at all material times was to preserve the scope to obtain vacant possession within a relatively short period of time in order to facilitate redevelopment, and in particular that previous negotiations about a proposed ten-year lease had foundered because the landlords did not wish to commit for that length of time; and
- That by the point of execution of the Lease the defenders had already been in occupation for a number of years on the basis of a series of previous licences.
[174] In light of those considerations Mr Brown argued that no rational person in the position of the defenders at the point of execution of the Lease would have agreed to take on what was known to be a massive repairing liability when it had no security of tenure, and where there was no other commercial imperative for them to do so. The defenders also founded on the history of prior communings between the present defenders and the then landlords. In relation to these, Mr Brown founded specifically upon the following evidence:
- For most of the period of occupation the defenders could not even get a lease but only a licence to occupy, and in consequence had no security of tenure at all. The 2005 Licence was terminable on a month’s notice.
- Initially the 2005 Licence was for 20,000 sq ft, out of a total area of 540,000 sq ft.
- The rent was £1 per sq ft, and the overwhelming majority of the Building could not be let even at that nominal rent.
- There were major wants of repair at all material times, and specifically, the Premises had never been wind and watertight; at the material time the floor was heavily contaminated by engine oil.
- It was impossible to repair, in particular, the roof so far as related to that part of the building occupied by the defender in isolation from a comprehensive repair of the whole Building;
- The Building had been purpose-built for a single occupier (Cummins), and since Cummins vacated there has never been any prospect of a single occupier taking a lease of all of it.
- At all material times there had been active discussions about redevelopment, and in particular for many years during the period in question the site was being promoted as suitable for the new women’s prison which was then under consideration to replace HMP Cornton Vale. The site was thought to be particularly suitable on account of the very substantial infrastructure already in place, and also the advantages to be gained by reason of its very close proximity to HMP Shotts. The existing infrastructure, and in particular the roads specifically serving the site, and the large-scale electricity supply infrastructure made it eminently suitable for a variety of uses if consent could be obtained for redevelopment.
[175] From all of this, Mr Brown summarised the position as follows:- (i) no-one wanted to lease the Premises, apart from the defender; (ii) very few tenants could have taken it and made any use of it, given that it was not wind and watertight; (iii) the landlords at all times anticipated demolishing and redeveloping the whole Building, and so had no commercial imperative to seek to obtain a full repairing covenant; (iv) no security of tenure was conferred and so there was no justification for any tenant to commit to remedying existing wants of repair; and (v) those wants of repair could not in any event be remedied in isolation from the rest of the Building.
[176] Accordingly, when seen in that context, the words used by the parties yielded a clear meaning. In the first place, the meaning of an obligation to accept the Premises in their present condition and in all respects fit for the Tenants’ purposes was, in isolation, clear. It was no more than an obligation to accept them whether or not they were as at commencement of the Lease in good and substantial repair. In other words, the landlord was under no obligation to present the Premises in any particular state of repair. The words displace the landlords’ common law obligation to present the Premises in good and tenantable condition, and imposed an obligation on the tenants to accept them regardless of condition, but they do no more than that. In particular, they do not in and of themselves impose any liability upon the tenant to put the subjects into good and tenantable condition: see McCall’s Entertainments (Ayr) Ltd v South Ayrshire Council (No. 2) 1998 SLT 1421.
[177] Secondly, Mr Brown argued, the repairing obligation was to keep the Premises “in like condition as is evidenced on the said Photographic Schedule”. That can only be read as a standard which is referable to an actual state of repair at a specified date, as distinct from a notional objective standard such as good and tenantable repair. On the assumption that the Photographic Schedule was to be prepared contemporaneously with the Lease, then the import of the obligation was only to maintain the Premises as they stood at entry. Those words cannot be read as imposing an obligation to improve the Premises. If, as the pursuers contended, the standard to be met was an objective one of good and tenantable condition, then there would be no need for a Photographic Schedule.
[178] Thirdly, the fact that the parties did not subsequently produce a Photographic Schedule was nothing to the point. The same thing happened in McCall’s Entertainments. As in that case, it was an evidential issue rather than one of construction. The contrast with @SIPP (Pension Trustees) Limited v Insight TRave; Services Limited 2016 SLT 131, where there was no mention of a schedule, is obvious. In @SIPP the point was that if parties had truly intended to tie the obligation to the condition of the subjects at entry then the obvious step for them to have taken was to refer to and append a schedule. There is a fundamental distinction between stipulating for there to be a schedule and them omitting to implement that (as happened in McCall’s Entertainments and the present case) and making no mention at all of a schedule (as happened in @SIPP).
[179] Fourthly, the exclusion of latent and inherent defects suggested that the parties did not intend to contract out of the common law distinction between ordinary and extraordinary repairs: see McCall’s Entertainments. That being so it would be most surprising if they nevertheless intended to agree that the repairing standard should be one which included extraordinary repairs at common law.
[180] Accordingly, he submitted that the proper construction of the FRI in Clause 6 was that the defenders were obliged only to maintain the Premises in the condition they were in at commencement of the Lease. There was no warrant in the language used, far less in the surrounding context, to conclude that because the parties provided for a Photographic Schedule of condition to be prepared but had omitted to complete it then the meaning of the words they chose elsewhere thereby changed. Such a construction would make no commercial sense. Even if the words could bear the pursuers’ construction it was plain that the defenders’ construction was the more commercially sensible and should in that event be preferred.
[181] He also argued that the evidence as to the condition of the Premises at any point after execution of the Lease was irrelevant to the exercise of construction. The only relevant point in time was the point at which the Lease was negotiated, that is in late 2009. It was not necessary for the court to reach any conclusion as to the precise condition of the Premises at that date as compared to their condition in 2014 or 2015. That exercise was beyond the scope of the preliminary proof. The defenders had proved that the Premises were in substantial disrepair in 2009. Properly understood, nothing offered by the pursuers contradicted that.
Discussion
Findings on the Evidence Regarding the State of the Premises at the Material Time
[182] As I indicated earlier, in their evidence parties have ranged more widely than was strictly necessary for the purposes of this preliminary proof. The pursuers faced certain practical difficulties in their attempt to prove the state of the Premises at the time the Lease was entered into, in late 2009 and early 2010, or proof as to what was known to the parties to the Lease at that time. The pursuers were not one of original parties to the Lease. None of the witnesses led by the pursuer had any direct personal knowledge of the state of the Premises at the material time. In the case of the Mr MacIntyre and Mr McCulloch, respectively the pursuers’ property manager and one of its directors, they could only speak to matters as they found them from about 2012 onwards, after the pursuers had acquired the Premises. Further, Mr MacLaren only first visited the Premises several years after that, in connection with the preparation of a schedule of dilapidations or his report. Only Mr Watson had personal knowledge of the Premises, but this did not extend beyond about 2002 when Lindon went into liquidation. There was occasional reference to a Mr Steven Griffiths, who was the prior landlords’ property agent at the material time. Prima facie by reason of that role, he might have been well placed to speak to the state of the Premises at the material time based on his direct personal observations, but he was never called as a witness in these proceedings.
[183] What, then, is to be made of the parties’ evidence about the state of the Premises at the material time? The purpose in considering this evidence is to establish this, so far as necessary to do so, as part the factual matrix known to the contracting parties at the material time. It will suffice for present purposes to consider the evidence in relation to the state of the floor and the roof of the Premises, which Mr Logan referred to as the “big ticket” items, and how their condition might inform the parties’ attitude to a repairing obligation in respect of the Premises.
[184] Starting with the pursuers’ evidence about the floor, Mr McCulloch had asserted in his witness statement and in his evidence in chief that the defenders had damaged the floor of the Premises. However, in cross examination, he accepted that he had no knowledge of how the floor of the Premises had come to be damaged or by whom.
[185] Turning to Mr Watson’s evidence, I accept his evidence in relation to the state of the Premises during Cummins’ day, and the pride they took in them, for the reasons he stated. I also accept his evidence as to the kinds of processes undertaken in the Premises by both Cummins and Lindon, and which did not extend to the testing of engines to destruction. I also accept his evidence that the hoses leading down from the ceiling to service the various items of machinery used by Cummins and Lindon did not include an oil supply. However, I do not accept his evidence on other points, eg to the effect that there were no pits in the Premises, that there were no other substantial source of oil or oil-based substances that could have stained the floor or as to the condition of the Premises in the latter days of Lindon’s occupation. On these matters, I prefer the evidence of David Brown and Stephen Brown, whom I found credible and reliable in the essentials of their evidence.
[186] I did not find Mr Watson to be an entirely reliable witness. At times, Mr Watson was a little dogmatic in his evidence. Initially, he cavilled at the suggestion that there was any oil-based substance used in the machine-tool processing he described. He ultimately did accept that the machine work he had described did include the use of an oil-based coolant; that it did entail spillages onto the floor of the Premises and to the extent that workers had to use absorbent socks to try to address the problem. He also accepted that machines had been bolted onto the floor in the Premises. At times, too, Mr Watson was unwilling to entertain the possibility that matters might be otherwise than as he remembered them. He was inclined to be defensive about any deterioration of conditions during Lindon’s time, perhaps because he perceived this to be a reflection on their management, of which he was a member. In any event, his evidence was of limited utility, as he could not speak to circumstances after Lindon’s insolvency, in 2002. The Lease was entered into some 7 years later.
[187] In respect of the issue of whether there were floor pits or oil spillages in the Premises, I accept the evidence of David Brown and Stephen Brown. Stephen Brown was, in a sense, a wholly independent witness as he had no prior association with either party. He could speak to the state of the Premises, and the processes carried on there during the time of Cummins and Lindon. I found him measured, and entirely reliable and credible in his evidence. His evidence on points was also consistent with and supported by that of other witnesses, such as David Brown and, to the extent there was an overlap in subject-matter, the evidence of Ann Greenhorn, Claire Leckie and Garry Pettigrew. I accept the totality of Stephen Brown’s evidence in relation to the processes carried on from time to time in the Premises by Cummins and Lindon; and the decline in standards he spoke to during the latter part of Lindon’s occupation, which he described as “shocking”. In contrast to the management role of Mr Watson, Stephen Brown had day-to-day hands-on experience of the processes carried on and the use of coolant as an integral part of those processes. I also accept his evidence about the oily character and use of the coolant, the need to blow it off the items being tooled with an air hose (Mr Watson also spoke to air hoses being provided to the machines), and the spread of this coolant all over the floor. I also prefer his evidence to that of Mr Watson, as regards the struggle workers engaged in to try and minimise the spillage of coolant, and the time and financial constraints that precluded this being adequately addressed. Stephen Brown was on the factory floor, engaged in these activities on a daily basis, and would have been much more familiar with the ongoing problems operatives faced in respect of coolant spillages. Mr Watson was reluctant to acknowledge that there might have been any deterioration in cleanliness standards, even leading up to the point of Lindon’s insolvency. I do not regard that as a credible. All of what Stephen Brown described was explicable in the context of a company running into financial difficulties, as was the case with Lindon. Indeed, none of this evidence was challenged.
[188] I next turn to consider what may be inferred from the effects of regular spillages as part of the industrial processes carried on. At best for the pursuers, there is the evidence of Mr Watson that he believed that the floor might have been sealed. Even if that were the case at some point, that does not allow for the breach of the integrity of any sealant by reason of drilling and bolting of the machines into the floor, the increase in the number of machines in Lindon’s day and the general wear and tear over time. David Brown described visible amounts of oil seeping up from the bolt holes when these were removed. Stephen Brown described the concrete floor as “porous”, made up of slabs with expansion joints and as absorbing the oily-substances seeping in over the years. Apart from Mr Watson, all of the witnesses who had first-hand experience, spoke to the inevitable spillage caused by the processes conducted in the Premises or to the decline in standards in Lindon’s day. On the balance of probabilities I find that the processes engaged in by Cummins and Lindon, and the lack of an adequate cleaning regime, at least during Lindon’s occupation, resulted in seepage of some of the coolant into the concrete, with the result that not only was the floor of the Premises stained but was contaminated or impregnated with an oily substance by the time the defenders took occupation of the Premises in 2003. This spillage had a long-lasting impact, such that on wet days some oil or oily substance exuded back to the surface and caused the slippery conditions spoken to by Ann Greenhorn, Claire Leckie, Garry Pettigrew and Keith Crozier. Mr Crozier referred to the multi-coloured sheen of oily puddles on wet days.
[189] Perhaps with a view to providing an alternative explanation for the oil staining found on the floor of the Premises, there was a contention advanced on behalf of the pursuers, in cross-examination, that oil staining might have been caused by the defenders’ diesel lorries using the Premises. Those witnesses to whom this suggestion was put rejected this. Mr Crozier explained, for example, that the diesel tank for refuelling lorries was double-skinned. He also explained that lorries would not leave their engines running and any leakage that there might be from a lorry parked over night was likely to be minimal. He also explained that, in any event, any major spill would have had to have been reported to SEPA. There was none. I accept the defenders’ evidence. In any event, this evidence was not challenged. The lorries only accessed a relatively small part of the Premises, near the entrance and loading bay. On the evidence, the staining and slippery conditions described by several witnesses was not restricted to this area but was wide-spread throughout the Premises. For the purposes of this preliminary proof, the pursuers have not proved their contention that the defenders’ own activities caused or materially contributed to the staining of the floor of the Premises.
[190] In relation to other damage to the floor, eg by way of drilled in mountings for the fixed machinery, all the witnesses who were asked about this accepted that this was done to accommodate machines installed by Cummins and the additional ones installed by Lindon. The dispute, such as there was, was whether damage was caused by the removal of this equipment, particularly during the auction by Lindon’s liquidators. It was Mr Watson’s surmise that the machines would be removed with care, as they were expensive items. He accepted he was not present for the whole of the auction and stripping out, which appears to have been conducted over several days. Mr Pettigrew had attended the auction. David Brown was an eye-witness to the stripping out of items after the auction. Their evidence was consistent with one another. I accept their evidence that the auction (and the subsequent stripping out by purchasers) was a much more disordered affair than Mr Watson seemed prepared to acknowledge. I also accept the evidence of Stephen Brown, who explained that there would have been problems with spillage in the course of fitting and removal of the machines because of the impossibility of getting the fluids out without the proper equipment.
[191] While there was a dispute as to whether there were any oil lines suspended from the ceiling, there was no real dispute that these machines could only be operated with substantial volumes of coolant. Even assuming there were no high-level hoses supplying oil, it is likely, in my view, that there were spillages of the oil-based coolant in the course of removal of these machines, the number of which had been increased during Lindon’s occupation, in addition to the spillage caused in their normal operation. That spillage, coupled with the cutting of the water hoses suspended from the ceiling and servicing these machines, was likely to exacerbate the existing problem with oil and the staining of the floor.
[192] Mr Pettigrew also referred to the state of the floor of the Premises, particularly when the defenders took over the remainder of the Premises (ie the additional 60,000 feet). He referred inter alia to the presence of bolts protruding from the floor and which required to be drilled out and patched. I accept Mr Pettigrew’s evidence on this point. The presence of bolts in the floor was consistent with the evidence of the other witnesses. All of the witnesses who were asked about this (Mr Pettigrew, Mr Watson, David Brown and Mr Crozier), confirmed the machines being secured by bolts drilled into the floor. Mr Maclaren provided no relevant evidence on the state of the floor in the Premises at the material time.
[193] There was extensive evidence as to whether or not there were floor pits, for a time, in the Premises and as to their precise location. It should be noted that it appeared to be the parties’ common position that these were filled in by 2009. Nonetheless, this evidence was gone through, as I understand it, simply to found a challenge to the credibility of some of the defenders’ witnesses. Mr Watson was fairly certain there were no pits in the Premises, although he accepted that used oil required to be removed (albeit only infrequently). He did not explain where the used oil was stored or what it was for. By contrast, David Brown spoke to his regular attendance at the Premises to remove waste oil from catchment pits when the Premises were occupied by Cummins and by Lindon. (He was not challenged on this point.) His evidence supports the evidence of Mr Pettigrew, who described undertaking similar duties while working for a waste removal firm, and the presence of these pits. This part of Mr Pettigrew’s evidence was not challenged. Nor was his evidence that when he took over the remainder of the Premises, as the defenders’ business expanded, he emptied the pits in this part of the Premises and filled them in. His description of the awful smell of the oily substance found in them is also consistent with the description of one of the other witnesses who regularly removed this substance during the Cummins/Lindon days.
[194] To the extent that there was documentary evidence, this was supportive of the defenders’ position. David Brown’s description of the location of the two pits in the Premises corresponded broadly with the two shapes on the plan appended to No 7/34 of process (a larger copy of which was lodged in the course of David Brown’s evidence and inserted as page 193A into the joint bundle), and one of which had the decipherable notation of “foundational pit”. This plan had accompanied the list of landlords’ proposed works circulated in 2006 and recirculated in 2007, and which included the work to “fill in foundations on warehouse floor as marked on the attached plan”. Further, the schedule of conditions that emerged in about May 2007 (No 7/33 of process), narrated as one of the items, “[l]arge hole in concrete to be filled in and made good to same standard as other concrete areas within floor area”. On a balance of probabilities, I find that there was at least one floor pit in the Premises, if not more, during the days of Cummins’ and Lindon’s occupation. While I have already commented on the reliability of Mr Watson, this finding simply increases the doubts about his reliability.
[195] The other “big ticket” item (as Mr Logan referred to it) was the roof. In the course of the proof it transpired that the pursuers had no eye-witness or other evidence to prove that the defenders had themselves cut holes in the roof of the Premises, notwithstanding the assertions Mr McCulloch and Mr McIntyre had made in their witness statements. However, both of these individuals accepted in cross-examination that they had no basis for their assertions that the defenders had done this. This was not a question of these witnesses being found to have been mistaken or having misremembered this adminicle of evidence. Both had been prepared to assume that this had been done, simply by reason of the location of the defenders’ autoclaves, and to assert this to as a definite fact in unqualified terms. These witnesses were wholly untroubled to be caught out with an unfounded assertion. Indeed, neither of these witnesses appeared to understand the importance of having some basis in fact for such an assertion. This alone calls into account their credibility. Their other evidence had little relevance to the limited scope of this preliminary proof. I would not be prepared to accept the evidence of either of these witnesses, unless supported by other credible and reliable witnesses or by documentary materials spoken to by such witnesses.
[196] Mr Watson’s evidence was of little value to the pursuers on this issue. He, of course, had last been in the Premises some 7 years or so before the material time. There were no holes left in the roof in his time. He did confirm that there were about 20 high-level heating units each of which had an associated vent or chimney exhaust cut into the roof.
[197] Mr MacLaren’s evidence was also unsatisfactory. I have already narrated above (at paragraph [67]), his inability to give any cogent or reliable evidence as to what might be discerned from the 2007 photos. In relation to most of the 2007 photos he was asked about, there was little attempt, or ability, on his part to link these to any identifiable part of the Premises. The intention, as I understood it, was thereafter to invite him to draw some inference between what he could describe on the 2007 photos and what he found on his own inspections, in relation to the state of the Premises as at the material time. One of the difficulties for Mr MacLaren, even before he reached the stage of drawing any inference, is that the quality of the 2007 photos was very poor. They were unclear, dark in reproduction and suffered from excessive granularity. He accepted all of this. Mr Pettigrew had also explained that the 2007 photos were not intended to be a comprehensive record of the Premises. That is in any event demonstrable from the 2007 photos themselves. There are very few interior shots of the Premises, as opposed to the office areas, and no photos appeared to be directed specifically to the floor or to the roof of the Premises. This presented a further difficulty for the pursuers: any inference that might be drawn would be based on an incomplete record of the Premises as depicted in the 2007 photos (even assuming the state of the Premises could be adequately discerned from them). The pursuers were unable to exclude the possibility that problems with the roof did exist in 2007 but were not depicted in the 2007 photos. In submissions, Mr Logan offered no solutions to overcome this difficulty. In any event, on the material available to him, Mr MacLaren’s ultimate positon was that he could not really state any clear view one way or the other as regards existence of holes in the roof c 2007.
[198] What is clear on the evidence is that there were approximately 20 high-level heating units installed in the underside of the roof of the Premises, and that for each a hole had been cut into the roof for the purposes of a vent or exhaust chimney. Indeed, Mr Watson had also referred to there being holes cut for the test cells he described. (There was no suggestion that any of these test cell units remained in the Premises after the defenders took up occupation.) Further, there was some evidence, which the pursuers’ witnesses could not contradict, that at least a few of these high-level heating units had been had removed at the time of the strip out following the auction by Lindon’s liquidators in about 2002.
[199] There was no positive evidence that the defenders had themselves cut new holes in the roof for the purposes of installing the autoclaves or associated boiler, as Mr McIntyre and Mr McCulloch had each asserted. I accept the evidence of Mr Crozier that the defenders would not send contractors up for this purpose because the slippery state of the roof posed a hazard and that, by reason of it being made of asbestos, it would have required specialists to cut into the roof. This evidence was also consistent with that of Mr Pettigrew, whose evidence I also accept on this point. David Brown, Mr Crozier and Mr Pettigrew each spoke to using existing holes in the roof to vent the defenders’ autoclaves and boiler and having to create a bend in one of the chimneys to enable this to be done. There was no challenge to this evidence and I accept it. While their evidence was relatively limited in scope, both Claire Leckie and Ann Greenhorn spoke to the wet conditions throughout the Premises and office areas throughout their time in the Premises. Both of these witnesses were with the defenders from the point they first took occupation of the Premises in 2003. Again, there was no challenge to this evidence. There is considerable force, too, in Mr Pettigrew’s comment that the rent was £1 a square foot for a reason.
[200] Furthermore, to the extent that there was documentary evidence, it supported the defenders’ position that the Premises were in a poor state for at least several years before the Lease was entered into. The list of the landlords’ proposed works dating from 2006, and which was recirculated in 2007, referred to the Premises “to be made wind and watertight”. That invites an inference, which even Mr MacLaren accepted, that they were not wind and watertight at that time. While the subsequent heads of terms dating from 2008 (No 7/26 of process) did not contain a like condition, its terms are not inconsistent with the previous list of the landlords’ proposed works. The heads of terms expressly exclude any repairing covenants on the part of the tenants at the end of the term and any repairing obligation during the currency of the proposed lease was “subject to a schedule of conditions”.
Findings on the Attitude of the Pursuers’ Predecessors as Landlords
[201] In relation to the attitude of the pursuers’ predecessors as landlords, I accept the unchallenged evidence that these landlords had for long harboured other development ambitions for the Building or the site on which the Building was located; that for this reason they were not focused on the maintenance of the Premises and were relatively unconcerned as to the processes carried on by the defenders; that the vast majority of the Building was largely untenanted either because the landlords’ ambitions were inconsistent with securing long-term tenants or because, latterly, they were unable to do so; that financial constraints led to a decline in maintenance by them over the years; and that all of this may have contributed to the deterioration of the Premises. These factors would also have been relevant to their attitude toward any repairing obligation or what they might have reasonably been expected to secure from a tenant to whom they were prepared to give only limited security of tenure.
Findings on the Evidence about the Documentary Materials Preceding the Lease
[202] In the light of these findings, I do not need to dwell on the terms of the 2005 Licence nor on the terms of any draft leases or draft lists or schedules of works proposed by one or other of the defenders or their landlords in the years preceding the Lease. In any event, I found this chapter of evidence of limited utility, either because (as in the 2005 Licence) the FRI term was in terms similar to that to be construed in this case, or because the evidence about the other documentation (eg the agreed heads of terms, the list of landlords’ proposed works, a schedule of conditions and associated correspondence) was inconclusive. No witness was led from the former landlords or their agents to provide their evidence as to the attitude of the landlords to any particular document produced. Further, it was not clear whether the documentation provided a complete record of such of these intermittent discussions as there were, and none of these led to a settled and legally-binding agreement. On the evidence, these documents provide no more than negotiating positions adopted from time to time. Mr Logan contrasted one of these lists of proposed works with the pursuers’ schedule of dilapidations and invited an inference that any defect omitted from the list meant that it was not extant at that time. On the limited information there was about this documentation, I would not be prepared to accept that these were comparable exercises (one appearing to be a parties’ negotiating stance and the other being an exhaustive list of dilapidations prepared to support a landlords’ dilapidations’ claim), or that any well-founded conclusion could be made. Mr Logan also criticises the defenders for failing to provide any drafts of the Lease in question, but these prior communings would have been inadmissible as an aid to construction of the Lease.
[203] For present purposes, it suffices to note that in none of these documents was it demonstrated that the defenders were prepared to accept the kind of FRI obligation that the pursuers now contend for. In none of these was there provision for application to the Premises of the kind of objective standard as would be applied by the common law. So, for example, in the so-called agreed heads of terms dating from about 2008, it is notable that there was reference to an express exclusion of any repairing covenant at the end of any lease in respect of the roof and that any FRI obligation was to be subject to a schedule of conditions. Similarly, in the correspondence dating from 2003 (No 7/24 of process), the Premises were to be taken “in their existing condition” with an obligation that they would be “returned in no worse condition”: see paragraph [109], above. This is suggestive, I put it no higher, that the standard to be applied for the purposes of repair obligations was by reference to the state of the Premises as they were, rather than to any notional objective standard, and that the state of the Premises may explain why that standard was considered.
Conclusion in relation to the Premises
[204] Having regard to the foregoing, for the purpose of this preliminary proof, I find on the balance of probabilities that the Premises were in a sufficiently dilapidated state, which was known to both the defenders and the landlords at the material time, and such that the defenders would be unlikely to accept liability for an onerous repairing obligation (ie approaching the character of extraordinary repairs), whether during the currency of any Lease or at its end, in relation inter alia to the roof or the floor of the Premises unless there were substantial counter-veiling factors making acceptance of such a liability a commercially sensible obligation to undertake.
Comments on credibility challenges and objections
[205] In submissions, Mr Logan challenges Mr Pettigrew’s credibility and reliability in fairly trenchant terms. By reason of the manner of his cross examination, Mr Brown also challenged the credibility and reliability of Mr McCulloch and Mr McIntrye. I have already recorded my views in relation to the credibility and reliability of Mr McCulloch and Mr McIntyre, as well as that of Mr Watson. The principal basis of the challenge to Mr Pettigrew appears to have been the averment and statement that machines were “tested to destruction” in the Premises. Considering the whole evidence, this understanding appears to have originated from Mr Crozier, who said he had been provided with this information by personnel who had previously worked at the Premises. This contention appeared to relate to an issue about the walls, which was one of the lesser issues about the state of the Premises. This statement was not a major feature of Mr Pettigrew’s evidence, which was focused on the state of the floor and the roof. At worst, this might have affected his credibility on this point. In my view, however, Mr Logan goes too far to contend that this is a “fabrication” and that this undermined the totality of Mr Pettigrew’s evidence. It may well be that this is simply an instance of a witness describing what he saw based on assumptions as to the processes being undertaken but without an intimate knowledge of these. Mr MacLaren’s misunderstanding that the defenders were operating an incineration plant or Mr Crozier’s belief that oil lines were suspended from the ceiling are but two other examples of this from the evidence. I do not accept that this feature of Mr Pettigrew’s evidence undermined the reliability or credibility of the remainder of his evidence. His evidence was in large measure supported by or consistent with that of a number of other witnesses, as I have narrated above in my findings on the evidence. The same could not be said of Mr McCulloch or of Mr MacIntyre or, to a lesser extent, Mr Watson.
[206] Turning to deal briefly with the objections, it will be apparent that I have reached the foregoing findings on the evidence without reference to those few chapters to which objection was taken. In the main, these objections related to what was said to be defaults by the pursuers qua landlords in respect of maintenance (as set out in the latter parts of Mr Pettigrew’s witness statement) or whether activities carried on by the defenders were not wholly in accordance with the user provisions of the Lease (as Mr Logan sought to explore with Mr Pettigrew in cross examination). In relation to these chapters of evidence, they appeared to be of little, if any, relevance to the subject matter of the preliminary proof. Little of this appeared to focus on the relevant timeframe. For aught yet seen, however, this kind of evidence may be relevant to issues of causation, depending on what were the ongoing liabilities for maintenance during the currency of the Lease. Proof of these matters is beyond the scope of this preliminary proof. The decision I make in relation to the facts for the purpose of this preliminary proof are without prejudice to evidence that may be led at any proof, and directed to establishing the cause or causes of the state for the Premises. In relation to the objection to questions about the defenders’ compliance with the user clause, to the extent that it is necessary to express any view, I do not accept that this was relevant or that such evidence as had been led was sufficient to establish that the defenders’ processes contributed in any material way to the state of the Premises at the material time. In any event, for the purposes of this preliminary proof, this evidence was of little consequence, given the findings I have made about the state of the Premises before the defenders assumed occupation of them in 2002. It also sits uncomfortably with Mr Logan’s acceptance that it was not open to the pursuers to try to hold the defenders liable for any deterioration during any occupation by them prior to the commencement of the Lease. Even had this evidence been relevant, there was no clear basis to distinguish the effect of the defenders’ conduct (whether in relation to their processes, assuming they were proved to be sufficiently detrimental, or any default in an ongoing repair obligation, assuming there was such a default) between 2003 and 2009, on the one hand, and from 2009/2010 during the currency of the Lease.
Discussion of the Pursuers’ Primary Argument on Interpretation of Clause 6
[207] There was no dispute between the parties as to the correct approach the court should generally take in the interpretation of contracts. Reference was made to the Supreme Court cases of Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 (especially to paragraphs 14 to 30) and Arnold Britton [2015] AC 1619 (especially paragraphs 9, 14 to 23 and 76) as well as to the more recent summary of the general principles by the Inner House in Kennedy v Dickie & Moore Holdings Plc [2016] CSIH 37 (at paragraphs 14, 18 and 24). Neither party suggested that there was any ambiguity in the words to be construed or that the court required to choose between competing commercial constructions. The purpose of this preliminary proof has been to ascertain the relevant context in which the Lease was entered into, including the circumstances at the time of contracting, insofar as these were known to the contracting parties, or ought to have been known to reasonable persons in the position of those parties, at the material time. The fact that the pursuers in the present action were not one of the original contracting parties may pose certain evidential challenges, but neither Mr Logan nor Mr Brown suggested that that feature had any impact on the general approach to interpretation identified in the foregoing cases.
[208] I start, as I should, with the words used in Clause 6. The clause falls into two halves: the first half imposes obligations on the tenants and the second half (from “declaring always that…” to the end) defines the circumstances in which these obligations do not apply. Subject to one argument by Mr Brown, the second half is not relevant to the facts of this case. The first half of the Clause contains two distinct obligations. After stripping out the words that relate to circumstances that do not arise (there were no “permitted additions” or “new buildings”) and after inserting roman numbering (for ease of reference), the obligations imposed in the first half of Clause 6 are as follows:
“The Tenants
- accept the Premises as being in such condition as shown on the attached Photographic Schedule and in all respects fit for the Tenants’ purposes and
- shall at their sole expense and, to the reasonable satisfaction of the Landlords, repair and maintain and renew (and, if necessary for the purposes of maintenance and repair, to replace and rebuild) and decorate and keep the Premises […]in like condition as is evidenced on the said Photographic Schedule and in a clean and tidy condition, clear of all rubbish, for the Duration, […]”
(emphasis added).
It should immediately be noted that there are two references to the Photographic Schedule in Clause 6. In part (i) the tenants are obliged “to accept” the Premises as being “in such condition as shown on the Photographic Schedule”. Similarly, in part (ii) the tenants are obliged inter alia “to keep” the Premises ….”in like condition as evidenced on the said Photographic Schedule” (emphasis added).
[209] On a straightforward reading of this Clause, and giving the words used their ordinary meaning, the state of the Premises which the tenants accepted at the outset and in which state they were obliged to keep them for the duration of the Lease was the actual state of the Premises at the outset, as shown in the Photographic Schedule. The actual state of the Premises at that time was the measure of the parties’ obligations. The Photographic Schedule served to evidence the state of the Premises as accepted by the tenants (for the purposes of (i)) and to which they were to be kept (for the purposes of (ii)). That evidential function is apparent from the words used: to accept the Premises “… as shown on the Photographic Schedule” and to keep them ”in like condition as evidenced on the Photographic Schedule”.
[210] Mr Logan’s position, as I understood it, was not necessarily to disagree with the foregoing. Rather, he founded strongly on the absence of any Photographic Schedule, which he attributed to a considered decision by the defenders not to undertake its preparation- although Mr Pettigrew did not accept that contention. On Mr Logan’s approach, the reference to the Photographic Schedule operated as a specific exclusion of liability on the part of the defenders, to the extent of the condition of the Premises as shown by that Schedule. Accordingly, so his argument ran, by reason of the omission on the part of the defenders to have a Photographic Schedule prepared, the words in the Clause referring to it were to be read pro non scripto. I have set out his proposed truncated form of Clause 6, at paragraph [150], above.
[211] The proposal to read the words pro non scripto is, to say the least, a novel suggestion. No authority was cited to vouch this proposition. In essence, Mr Logan’s argument appeared to be one akin to the effect of waiver, although he did not advance his argument quite this way. On his approach, the Photographic Schedule was conceived solely for the benefit of the tenants. If, as he put it, the defenders made a determined decision not to prepare it, then they took a calculated “risk” to lose the protection he said it conferred.
[212] Implicit in Mr Logan’s argument is the contention that, in the absence of the Photographic Schedule, a different and higher standard falls to be applied. It is for this reason that he appeared to argue that the reference to the Photographic Schedule was a “benefit”, because it protected against this higher standard. As noted above, the pursuers’ primary argument was predicated on only a limited body of evidence from Mr MacLaren. This was directed to showing that tenants were invariably responsible for preparing schedules of condition. To the extent that Mr Logan relied on the evidence of Mr MacLaren to support this contention, I do not find that this evidence established the underlying premise. Mr MacLaren’s ultimate position was much more equivocal than Mr Logan was prepared to allow as regards the question of the “benefit” a schedule was said to confer or the practice Mr MacLaren was asked to describe. Mr MacLaren accepted that the legal consequences of the Clause were outwith his expertise. As I have already indicated, Mr MacLaren’s evidence, such as it was, was unpersuasive. Even if it were established that, as a matter of practice, tenants invariably prepared schedules of conditions, in my view that does not necessarily lead to the conclusion that such schedules operate a “benefit” solely for the tenant, such as Mr Logan contends. That is essentially a legal question of interpretation of the whole provisions of the lease under consideration, and which may be informed, but is not determined, by commercial practice.
[213] In any event, I do not accept that the reference to the Photographic Schedule in Clause 6 of the Lease operated solely to confer a benefit on the tenants. In my view, the reference to the Photographic Schedule in Clause 6 serves to secure a degree of certainty as to the actual standard to be achieved in relation to the Premises. It precludes arguments as to what, precisely, a notional or objective standard would dictate, and which may be problematic in relation to an aging industrial building of unique architectural merit and of which the Premises form only a small part. From the landlords’ perspective, during the currency of the Lease the tenants are obliged to keep the Premises in the state they were in at the outset (as recorded in the Photographic Schedule). From the tenants’ perspective, they are not obliged to keep the Premises to any higher standard than that depicted in the Photographic Schedule. Analysed in this way, the stipulation of the acceptable standard of the Premises by reference to their state, as evidenced in the Photographic Schedule, confers benefits or protections on both parties. Both parties benefit from the measure of certainty achieved in agreeing the standard to be applied (being the actual state of the Premises at a certain point in time) and the reduction in the scope of arguments as to what, precisely, that is (eg because it is evidenced by the Photographic Schedule).
[214] I return to Mr Logan’s contention that the failure to have a Photographic Schedule means that the words referring to it are to be read pro non scipto. It was in this context that Mr Logan referred to the case of McCall’s Entertainments (Ayr) Ltd v South Ayrshire Council (No 2) 1988 SLT 1421. The subjects of let in McCall concerned a listed building in Ayr known as the Pavilion. It had been let under a 35-year lease which included an obligation on the part of the tenants to accept the subjects “in their present condition as evidenced by the Schedules of Condition subscribed as relative” to the lease and to leave them at expiry or early termination “in no less good and substantial condition than their present condition…. to the satisfaction of the landlords”. The context in which arguments as to the meaning of this clause arose was a little more involved than the instant case. By August 1992 the subjects of let in McCall were in a severe state of dilapidation. This was due in part to the age and the manner of construction of the subjects. At about this time the local authority suspended the premises’ licence. Thereafter, the dilapidated state made renewal of a public entertainment licence problematic. In around 1997 the tenants exercised an option under the lease to purchase the subjects. On receipt of this, the landlords served a counter notice alleging that the tenants had failed in their repair obligations during the currency of the lease and the sought to terminate the lease for that reason. The landlords also argued that, by reason of the tenants’ breach and on the application of the mutuality principle, the landlords were not obliged to accept the tenants’ exercise of the option to purchase. As in this case, no schedule of conditions as referred to in the lease was ever prepared.
[215] Lord Hamilton heard a proof directed, in part, to the proper interpretation of the repair obligation and the question of whether the tenants had breached the repair obligation. Mr Logan argued that proof in that case was permissible because of the presence of the words in “in their present condition” in the lease. This, he said, permitted proof by reference to extraneous circumstances. He sought to distinguish McCall because, he argued, there were no similar words in the Lease habile to permit a proof in this case. Proof of the condition of the Premises by reference to extraneous circumstances was therefore impermissible. The standard that applied became the absolute standard he contended for, once the references to the Photographic Schedule were read out.
[216] For his part, Mr Brown argued that the fact that no Photographic Schedule was prepared was of no moment. He referred to the observations of Lord Hamilton in McCall (at page 1427A to B), that the absence of the Photographic Schedule in this case immaterial to the question construction. The logic of Mr Logan’s argument meant that the meaning of Clause 6 changed, which could not be right. Mr Logan’s principal argument was misconceived.
[217] I agree with Mr Brown`. I do not accept that McCall falls to be distinguished, as suggested by Mr Logan. The reference in Clause 6 to the “condition” of the Premises “as shown” or as “evidenced on” the Photographic Schedule seems to me to operate in the same way as the phrase “present condition” in McCall: both stipulate that the standard of the repair obligation is referable to the actual state of the subjects of let, whatever that standard may be and however it may be proved, rather than a notional or objective standard. I accept the force of Lord Hamilton’s observation that the absence of the schedule is of no moment in respect of the question of interpretation. In my view, the ordinary and natural meaning of the words used in Clause 6 is that the parties have agreed the standard against which to measure whether the obligations assumed have been discharged. The formulation agreed in Clause 6 also displaced the objective or notional standard that the common law would otherwise have applied both at the outset of the Lease and at its ish. Part (i) of Clause 6 protected the landlords against any claim by the tenants at the outset, based on an objective standard, that the Premises were not tenantable. Rather, to the landlords’ benefit, the tenants had bound themselves “to accept” the Premises as shown in the Photographic Schedule. Furthermore, in my view, part (ii) of the Clause protected the tenants from being obliged to repair or maintain or keep the Premises to some higher, objective standard; they were obliged only to repair or maintain or keep the Premises to their condition as at the outset of the Lease, and as evidenced by the same Photographic Schedule.
[218] Mr Brown referred to one other aspect of Clause 6, namely to the exclusion, in part (a) of the second half of that Clause, of latent and inherent defects. Mr Brown argued that this suggested that the parties did not intend to contract out of the common law distinction between ordinary and extraordinary repairs. At common law, a tenant is not liable for extraordinary repairs. Mr Brown referred to Lord Hamilton’s discussion of this in McCall, at page 1427I to 1428A. At the end of this passage, Lord Hamilton expressed the view that, had it been the intention of the parties in McCall that the tenants would undertake extraordinary repairs (which included inherent problems arising from the design of the Pavilion), he would have expected clear words to that effect. By a parity of reasoning, Mr Brown suggests that, it would be surprising if parties to the Lease intended to agree that the standard of repair included extraordinary repairs at common law, where they had otherwise excluded liability for latent and inherent defects in paragraph (a) of Clause 6. I accept this submission.
[219] I also accept Mr Brown’s submission that if the standard to be met was an objective one (of good and tenantable condition), then the reference to the Photographic Schedule would be otiose. He is also correct, in my view, that the absence of the Photographic Schedule cannot change the meaning of the words used; nor does it result in reading the references to it as pro non scripto. There is no warrant in the authorities for that approach. I also accept Mr Brown’s analysis of @SIPP, which he contrasted with McCall, and in which there was no mention of a schedule in the provision under consideration. In any event, there is no discernible logic to the distinction that Mr Logan sought to draw, that the effect would be different in circumstances where the Photographic Schedule had simply been lost. In my view, the effect of the omission to prepare a Photographic Schedule does not require the words of reference to it in Clause 6 to be read pro non scripto, or to lead to the substitution of an objective common law standard for the one agreed by the parties. In my view, the omission of the preparation of a Photographic Schedule of the Premises at the material time has, at most, evidential consequences, depending on the particular obligation to be enforced and on whom the onus lies. That matter is for any subsequent proof on liability that may follow.
[220] Returning to the authorities parties cited, it is conventionally accepted that the starting point in construing a contractual provision are the words used, but that part of the exercise of interpretation may include construing that provision in the context of the remainder of the agreement or deed of which its form part, as well as in the context of the factual matrix known or reasonably imputed to the contracting parties. In this case, apart from passing reference to the duration of the Lease and the rent, neither party referred to any other clause of the Lease. In my view, none of the other terms in the Lease supports in the pursuers’ approach. The relatively short duration of the period of let militates strongly against their interpretation. While the rent was a low one, that is consistent with state of the Premises and the fact that the landlords struggled to secure tenants. In relation to the wider factual matrix, I have taken heed of the guidance provided by Lord Neuberger in Arnold v Britton (at paragraphs 14 to 23, and especially at paragraphs 17ff) not to invoke the surrounding circumstances or commercial common sense to undervalue the importance of the language of the provision to be construed. I have reached the view I have regarding the proper interpretation of Clause 6 principally as a matter of construction of the words used and applying their ordinary and natural meaning. In terms of Clause 6, properly construed, the standard of the Premises, as accepted and to which they were to be repaired or kept for the duration of the Lease, is assessed by reference to their actual state at the material time, as evidenced by the Photographic Schedule. Nothing in the factual matrix leads me to displace that interpretation. Rather, the evidence in relation to the state of the Premises, the landlords’ ambitions for the site and the limited documentary materials reinforces the construction of Clause 6 I have set out above.
[221] In relation to Mr Logan’s fall-back position, that the defenders are liable for any deterioration caused during their occupation of the Premises under the Lease, that it seems to is a matter for any proof on liability, applying the proper interpretation of Clause 6.
[222] I shall put the matter out by order for discussion of further procedure as well as the form any order should take. I reserve meantime all question of expenses.