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APPEAL BY WEST DUNBARTONSHIRE COUNCIL AGAINST WILLIAM THOMPSON AND SON (DUMBARTON) LIMITED


EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

[2015] CSIH 93

XA31/15

 

Lord Menzies

Lady Smith

Lady Clark of Calton

OPINION OF THE COURT

delivered by LORD MENZIES

in Appeal

by

WEST DUNBARTONSHIRE COUNCIL

Pursuers and Appellants;

against

WILLIAM THOMPSON AND SON (DUMBARTON) LIMITED

Defenders and Respondents:

Pursuers and Appellants:  Davie;  Anderson Strathern LLP

Defenders and Respondents:  McBrearty QC;  Turcan Connell

 

16 December 2015

The issue

[1]        Only one issue was raised in this appeal, namely:-

Was a notice which was issued by the pursuers and appellants (the landlords) and delivered to the address of the defenders and respondents (the tenants), but which was addressed to “Wm Thompson & Sons Ltd” and not to “William Thompson and Son (Dumbarton) Limited”, a notice for the purpose of the Lease between the parties sufficient to trigger the rent review provisions of the Lease?

 

The factual background

[2]        The appellants’ statutory predecessors entered into a lease with the respondents dated 26 June and 11 July 1973 (“the Lease”).  The subjects of the Lease comprised a plot of land at Birch Road, Broadmeadow Industrial Estate, Dumbarton.  The heading of the Lease was in the following terms:

“LEASE

Between

The Provost, Magistrates and Councillors of the Royal Burgh of Dumbarton (who, and their successors, as proprietors of the subjects and others hereby let, are hereinafter referred to as ”the Landlords”)

of the one part.

 

and

 

William Thompson and Son (Dumbarton) Limited, incorporated under the Companies Acts and having their registered office at Birch Road, Dumbarton (who, and their successors in the tenancy of the subjects hereby let, are hereinafter referred to as “the Tenants”)

of the other part.”

 

 

[3]        By Clause SECOND of the Lease the Tenants bound themselves to pay to the Landlords rent for the subjects leased at the rate of £210 per annum.  Clause SECOND went on to provide as follows:

“Declaring (i) that it shall be in the power of the Landlords on giving to the Tenants not less than six months’ notice in writing prior to the Eleventh day of November, One thousand nine hundred and ninety one and the Eleventh day of November, Two thousand and eleven to demand increases in the rent payable for the subjects hereby let for the periods from these terms until the expiry or sooner termination of this Lease.”

 

[4]        Clause FIRST provided that the date of entry under the Lease was the eleventh day of November 1971 and that it would expire on the eleventh day of November 2031. 

[5]        Clause ELEVENTH of the Lease provided as follows:

“Any written notice or intimation given by the Landlords to the Tenants regarding or relating in any way to the subjects leased and whether or not the same shall be in pursuance of a specific provision in the Lease for the giving of the same, shall be validly given under the hand of an officer of the Landlords and a certificate by the giver of such notice or intimation that the same shall have been either delivered or posted, duly addressed to the Tenants, shall be sufficient evidence as to the receipt thereof by the Tenants.”

 

 

[6]        The landlords did not exercise their power to review the rent as at 11 November 1991.  By letter dated 17 March 2011 addressed to “Wm Thompson & Sons Ltd” at 1 Birch Road, Broadmeadow Industrial Estate, Dumbarton, G82 2RF, the appellants wrote as follows:

“Dear Sir/Madam

NOTICE OF RENT REVIEW

SUBJECTS:  1 BIRCH ROAD, DUMBARTON

 

TAKE NOTE that in terms of the lease between the Council and you the rent payable in respect of the subjects above is to be reviewed as at 11th November 2011.

 

Accordingly, one of the Council’s Surveyors will contact you in due course to negotiate the terms of the rent review”.

 

 

It was a matter of agreement between the parties that this letter was sent by first class recorded delivery post and was received by Mr Andrew Thompson, a director of the respondents. 

[7]        By letter dated 11 November 2011 addressed to Wm Thompson & Sons Limited the appellants wrote stating that they intended to revise the rent to £13,800 per annum effective from 11 November 2011.  By letter dated 8 October 2012 the respondents’ solicitors wrote in response to the letters of 17 March 2011 and 11 November 2011, stating inter alia that they did not consider that the letter dated 17 March 2011 was a valid notice, nor did they consider that a rent review had been validly instigated in terms of the Lease. 

[8]        In February 2014 the appellants raised an action in Dumbarton Sheriff Court seeking declarator that they had invoked the power to demand an increase in rental as at 11 November 2011 in terms of Clause SECOND of the Lease.  The respondents contended inter alia that no valid rent review was commenced.  (There were other defences raised, including mora, taciturnity and acquiescence, and waiver, but these were not matters argued before us and we need discuss them no further here).  After sundry procedure, a proof was heard in October 2014.  There was only one witness, namely Mr John Dewar, a chartered surveyor employed by the pursuers and appellants as an estates surveyor.  He gave evidence of the pursuers’ system for sending out rent review notices.  The letter dated 17 March 2011 was prepared by the pursuers’ administrative assistant.  She would look at the properties in the Common Good portfolio and would then look at the billing address for the defenders’ rental payments.  The details were taken from a list made up many years ago.  This list “gives the bones” of what is provided in each list.  Mr Dewar explained that, when the letter dated 17 March 2011 was drafted and sent to the defenders, he did not consult the terms of the Lease at all.

[9]        By judgment dated 22 January 2015 the sheriff sustained the defenders’ third plea-in-law, which stated that “there being no valid rent review notice, decree of absolvitor should be pronounced”.  He granted decree of absolvitor in favour of the defenders.  He made findings in fact and in law in his judgment, as follows:

“1.       The said letter dated 17 March 2011 was not addressed to the Tenants in accordance with the agreed requirements of the Lease.

 

2.         The said letter dated 17 March 2011 did not constitute a valid notice in terms of said Clause SECOND of the Lease”.

 

 

[10]      The pursuers and appellants have now appealed to this court seeking recall of the sheriff’s interlocutor of 22 January 2015, and that decree in the principal action should be granted in favour of the pursuers.

 

Submissions for the parties

[11]      Both parties helpfully submitted written notes of argument, which we have taken into account together with the oral submissions made to us. 

[12]      Counsel for the appellants told us that parties were agreed on the facts and the law.  Their dispute related entirely to the formal validity of the letter dated 17 March 2011.  This notice was merely a trigger mechanism to commence rent review proceedings, and negotiations or arbitration would follow thereon.  Whilst she conceded that there were errors in the name of the respondents in this letter, there was still scope to construe and interpret these errors.  It was too binary an approach to apply a strict construction to the formal requirements of the lease, and only then to apply the reasonable recipient test – there was scope for construction of what a notice should mean, even where considering formal validity.

[13]      The sheriff started from the wrong point, and based his decision on the foundation that it would have been possible for the landlords to identify the correct name of the tenants.  The same could be said in each and every case – the careful sender of a notice will usually be able to ascertain the correct identity of the person to whom the notice should be sent.  There are several errors in the naming of the tenants in this notice, but that is not an end of the matter – there is a class of case (into which this appeal falls) where there is room to consider whether the notice fulfils the requirements of the Lease, even if there is an error in it. 

[14]      In support of this proposition counsel for the appellants relied on the observations of Lord Reed in the Outer House in Ben Cleuch Estates Limited v Scottish Enterprise [2006] CSOH 35 at paragraph [133], where he stated:

“The present case, however, is not concerned with the construction of the contents of a notice, but with the question whether the notice was served on the landlord:  more specifically, with the question whether the notice was addressed to the landlord.  I can accept that the latter question may in some circumstances involve what might be described as an issue of construction:  if, for example, there had been a mistake in the spelling of ‘Ben Cleuch Estates Limited’, a court might conclude that the notice was nevertheless addressed to the landlord within the meaning of Clause SEVENTEENTH, provided it was clear that Ben Cleuch was the intended addressee:  falsa demonstratio non nocet”.

 

 

From this it was clear, counsel submitted, that false description does not void the document, if the intention is clear.  In that case, the intention was to give the notice to an entirely separate and distinct party, not to the landlord specified in that lease.  Clause FOURTH (B) of the Lease in Ben Cleuch Estates Limited provided for written notice to be given “to the Landlords”;  Clause SECOND of the Lease in the present appeal provided for notice to be given “to the Tenants”.  Lord Reed was considering a situation in which there was some error in the designation of the party to whom notice had to be given, and, notwithstanding such error, the notice might still be valid.  Counsel submitted that there must always be some room for construction in such a situation – the omission of a comma, or a minor spelling mistake in a name, would not be sufficient to invalidate a notice.  If there is simply a mistake in the name of the recipient, that, it was submitted, cannot be an end of the matter.  The court has to look at the mistake and consider whether it is fatal – see the approach of the Inner House in Ben Cleuch Estates Limited v Scottish Enterprise 2008 SC 252, particularly at paragraphs [59], [60] and [64].  The court must look to the intention of the sender, and ascertain what was the objective intention.  In Prudential Assurance Co Ltd v Smiths Foods  1995 SLT 369 Lord Morton of Shuna made the following observation:

“In my opinion the contention that the notice was invalid merely because the tenant’s agent used the wrong name for the tenant is unsound.  The landlords cannot have been under any misapprehension by any formal misdescription of the name of the defenders.  For an error to invalidate such a notice there must be something in the error which might mislead the other party”.

 

 

[15]      Counsel for the appellants referred us to Batt Cables Plc v Spencer Business Parks Limited 2010 SLT 860, and accepted each of the four propositions stated by Lord Hodge at paragraphs [24]-[27] of his opinion.  However, counsel drew our attention to paragraph 34 and to Lord Hodge’s reference to the approach of the Court of Appeal in England in Lay v Ackerman [2004] HLR 40, 684, and to the three-stage test applied by Neuberger LJ in paragraph 40 of that case.  It might be that Neuberger LJ was advocating the approach urged on us by counsel, namely that even when considering formal validity there is room for construction of what the notice means and how a reasonable recipient would have understood it in the circumstances of the particular case.  However, counsel accepted that Lord Hodge considered himself bound to take a different approach because of the decision of the Inner House in Ben Cleuch Estates, and that the Lord Ordinary in RM Prow (Motors) Limited Directors Pension Fund Trustees v Argyll & Bute Council [2012] CSOH 77 took the same approach as Lord Hodge.  Although the point was not argued in Prow in the Inner House ([2013] CSIH 23), the Second Division made no adverse comments on the Lord Ordinary’s reasoning in that case.

[16]      Counsel for the appellants submitted that the court required to carry out an exercise of construction even at the stage of considering formal validity of a notice.  She submitted that the test applied by Lord Morton of Shuna in Prudential Assurance was correct – for an error to invalidate such a notice there must be something in the error which might mislead the other party.  In the context of the parties’ relationship in the present case there was no scope for the recipients of the letter to be misled.

[17]      Senior counsel for the respondents submitted that the distinction between the formal requirements for a valid notice, and the substance of the notice, remained clear.  The principle was set out in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, and it had been applied consistently in Scotland since then – Ben Cleuch Estates Limited v Scottish EnterpriseBatt Cables Plc v Spencer Business Parks Ltd and RM Prow (Motors) Ltd Directors Pension Fund Trustees v Argyll & Bute Council.  The English case of Lay v Ackerman gave no support for the appellants’ submissions – it was a conventional application of the Mannai approach.  It was concerned with a mistake in the information provided in the substance of the notice – it was a case concerned with content, not validity.  There was nothing in the statute empowering the counter-notice which required the landlord to be identified (see particularly paragraphs 40, 65 and 83).  Prudential Assurance Co Ltd v Smiths Foods was concerned with completely different circumstances and should be distinguished from the present case.  In that case the lease provided that a counter-notice might be served by the lessees.  It was served by the lessees, who were the same entity, albeit the counter-notice ran in the name which they used at the time of the lease, and which they had changed by the date of the counter-notice.  Lord Morton applied a test akin to the reasonable recipient test to an issue of formal validity;  however, his decision pre-dated by some years the decision of the House of Lords in Mannai Investment, and also pre-dated Ben Cleuch Estates Ltd.  The decisions in Lay v Ackerman and Prudential Assurance were therefore not relevant to the present appeal.

[18]      The observations of Lord Reed in Ben Cleuch Estates in the Outer House, and Lord Hodge in Batt Cables, were both obiter, and amounted to no more than a limited observation.  Both pointed to the same example, ie “an obvious mis-spelling of the name of the specified recipient” or “a mistake in the spelling of ‘Ben Cleuch Estates Ltd’”.  Senior counsel submitted that any such error must be so trivial that the court can conclude that the formal requirements for validity are met. 

[19]      In the present case, it was unnecessary for the court to consider such a situation.  There were numerous errors in the name of the respondents as shown in the letter dated 17 March 2011.  An ampersand in place of “and” might possibly be sufficiently trivial that it could be overlooked; but it and the other errors, namely the shortening of “William” to “Wm”, the use of the plural “Sons” instead of “Son”, the abbreviation of “Limited” to “Ltd”, and the complete omission of “(Dumbarton)” were, taken together, clearly a catalogue of errors which invalidated the notice.

[20]      There were good reasons for the distinction between the treatment of an error going to the formal validity of a notice, and an error in the content of the notice.  The requirements for a valid notice were a matter of contractual agreement between the parties.  Moreover, the distinction brings certainty to the process;  if one party were to be given power to unilaterally alter the formal requirements set out in the contract, there would be no certainty as to whether the triggering event had occurred.  Senior counsel relied on several passages in Mannai (particularly Lord Hoffmann at 773G and 776A-C, and Lord Clyde at 780/781);  Batt Cables, particularly at paragraphs [24]-[27] and Scrabster Harbour Trust v Mowlem Plc 2006 SC 469, particularly at paragraph [47]. 

 

Decision

[21]      We can find no error in the sheriff’s approach to the issue of the formal validity of the notice in question.

[22]      Parties are agreed as to the law.  This is clearly and authoritatively stated in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd, and in Ben Cleuch Estates Ltd v Scottish Enterprise.  There is a clear distinction between errors which go to the fundamental validity of a notice by failing to meet the requirements of the empowering document (whether that be a statutory provision, as in Lay v Ackerman, or a lease or other contract), and errors in the content of the notice.  It is only if a notice meets the strict requirements for formal validity that the court will go on to construe the meaning of the notice by use of the device of the reasonable person in the position of the contractually specified recipient.

[23]      Both parties agreed with the four propositions set out by Lord Hodge in Batt Cables Plc v Spencer Business Parks Ltd at paragraphs [24]-[27].  We consider that these correctly state the law in this field and we adopt them.  The following dicta, although well known, serve to emphasise the approach to be taken by a court when considering whether a notice complies with the formal requirements for validity. 

[24]      Lord Goff of Chieveley observed in Mannai Investment Co Ltd (at 755/6):

“The principle is therefore clear.  The agreement between the parties provides what notice has to be given to be effective to achieve the relevant result.  The question in each case is:  does the notice which was given, properly construed, comply with the agreed specification?  If it does, it is effective for its purpose.  If it does not, it is not so effective;  and the mere fact that the person serving the notice plainly intended, and was trying, to give an effective notice under the clause, and that the recipient of the notice realised that he was doing so, makes no difference.  This is because the notice, properly construed, did not comply with the agreement between the parties.  The key does not fit the lock, so the door will not open”.

 

 

[25]      Lord Hoffmann observed in the same case (at 776B):

“If the clause had said that the notice had to be on blue paper, it would have been no good serving a notice on pink paper, however clear it might have been that the tenant wanted to terminate the lease”.

 

 

[26]      In Scrabster Harbour Trust v Mowlem Plc the First Division observed (at paragraph [47]):

“…where a contract gives one party the right unilaterally to bring the contractual relationship to an end, or to alter it in some other way, then that party must, if he chooses to exercise that right, comply with the agreed conditions for its exercise.  If strict compliance with a particular condition is called for, then strict compliance will be enforced”.

 

 

[27]      In Ben Cleuch Estates Ltd v Scottish Enterprise the Extra Division observed (at paragraph [60]) that the matter turned on the proper application of the relevant clause of the Lease:

“In our opinion, that dispute can be resolved very shortly:  a notice addressed to a party other than the landlord and sent to the registered office of that other party cannot be regarded as a notice given to the landlord”.

 

 

[28]      In the present case, the Lease provided that “the Tenants” were William Thompson and Son (Dumbarton) Limited.  The power of the landlords to demand increases in the rent payable for the subjects of let on two specific dates is provided by Clause SECOND, and requires the Landlords to give to “the Tenants” not less than 6 months’ notice in writing.  Read short, Clause ELEVENTH (quoted above) requires any written notice or intimation given by the Landlords to the Tenants to be “duly addressed to the Tenants”.  The letter dated 17 March 2011 was not addressed to the Tenants, but to Wm Thomson & Sons Ltd.

[29]      There are several errors. Senior counsel for the respondents conceded that the most serious of these was the complete omission of “(Dumbarton)” from the designation, but this, together with the use of the plural “Sons” instead of “Son”, and the three abbreviations noted, are in our view sufficient to put this case well beyond the example of an obvious mis-spelling of a name, such as was contemplated by Lord Hodge in Batt Cables and Lord Reed in the Outer House in Ben Cleuch Estates.  Both of those observations were obiter;  standing our view that the errors in this case go well beyond an obvious mis-spelling, we do not consider that it is appropriate to comment further on them.

[30]      We agree with the submissions on behalf of the respondents that the cases of Lay v Ackerman and Prudential Assurance Co Ltd v Smiths Foods are of no assistance to the appellants.  Lay v Ackerman was a case which was not concerned with whether a counter-notice met the formal requirements for validity, but was concerned with the content of the notice.  The empowering document in that case was in fact a statutory provision, namely section 45(2) of the Leasehold Reform, Housing and Urban Development Act 1993.  There was no requirement in that statutory provision that the landlord should be identified at all.  The decision was entirely consistent with the principles of Mannai InvestmentsPrudential Assurance Co Ltd v Smiths Foods was decided several years before Mannai Investments, and 14 years before the decision of the Inner House in Ben Cleuch Estates.  Moreover, in that case Lord Morton of Shuna was concerned with a counter-notice which ran in the correct name of the tenants as they were designed in the Lease but, by the time of the counter-notice, their name had been changed.  In light of this, and in light of the developments in the law since Prudential Assurance, we derive no assistance from this case.

[31]      We do not consider that the letter dated 17 March 2011 constituted a valid notice to the tenants for the purposes of Clause SECOND of the Lease.  The notice was not given to the Tenants as the Tenants were defined in the Lease, and, to use the language of Clause ELEVENTH, the notice was not “duly addressed to the Tenants”.  The fact that the letter was received by the respondents and opened by one of their directors is nothing to the point – see Lord Hodge’s fourth proposition, in paragraph [27] of Batt Cables, which was accepted by counsel for the appellants.  Nor do we consider that the intention of the appellants, however viewed, is relevant.  For the reasons which we have given, we do not agree with counsel for the appellants’ submission (adopting Lord Morton of Shuna’s formulation in Prudential Assurance) that for an error to invalidate such a notice there must be something in the error which might mislead the other party.  This notice is not valid because it does not comply with the contractually agreed requirements of the Lease.

[32]      We therefore answer the issue posed at the outset of this opinion in the negative.  This appeal must be refused, and we shall adhere to the sheriff’s interlocutor dated 22 January 2015.