Central Car Auctions Ltd v. House Of Sher (UK) Ltd [2006] ScotCS CSOH

OUTER HOUSE, COURT OF SESSION

[2006] CSOH 137

CA101/03

OPINION OF LORD MACKAY OF DRUMADOON

in the cause

CENTRAL CAR AUCTIONS LIMITED

Pursuers;

against

HOUSE OF SHER (UK) LIMITED

Defenders:

________________

Pursuers: Ellis Q.C.; Anderson Strathern

Defenders: Moynihan, Q.C., Davies; BMK Wilson, Glasgow

5 September 2006

Introduction

[1] The pursuers are in business as car auctioneers. Their business is a family business. Between October 1996 and April 2002 they carried on business from premises at 15 and 33 Scotland Street, Glasgow ('the Subjects'), which they leased from the defenders, in terms of a Lease dated 23 December 1996 and 22 January 1997 ('the Lease'). The term of the Lease is from 1 October 1996 until 20 September 2014.

[2 ] The pursuers ceased carrying on business in the Subjects and vacated them in April 2002. Later that year the defenders allowed T-Mobile (UK) Limited ('T‑Mobile') to install and begin operating telecommunications equipment on the roof of 15 Scotland Street, which is a multi-storey building forming part of the Subjects. The defenders did so without discussing with the pursuers or seeking their consent to the installation of such equipment. On 16 May 2003, solicitors acting for the pursuers served a Notice on the defenders terminating the Lease.

The action

[3 ] This action was raised during 2003. In terms of the first conclusion of the summons, the pursuers seek declarator that the defenders are in material breach of the Lease and that they were entitled to rescind the Lease, and validly did so, by the Notice dated 16 May 2003. There are also certain financial conclusions in the summons, the details of which are not relevant to the issues that form the subject matter of this Opinion.

The first conclusion of the summons is in the following terms:

" For declarator (i) that in giving possession of a material part of the Subjects at 15 and 33 Scotland Street, Glasgow to a third party the defender was in material breach of a Lease of said subjects between the pursuer and the defender dated 23^rd December 1996 and 22^nd January 1997 and registered in the Books of Council and Session on 11^th April 1997: and (ii) that the pursuer was entitled to and did validly rescind said Lease by notice dated 16^th May 2003 and that said Lease was rescinded thereby on or about 16^th May 2003."

[4 ] In their written pleadings the pursuers aver that in or about February 2003 it came to their attention that the defenders had acted in material breach of their obligation under the Lease to maintain the pursuers in peaceable possession of the Subjects. In their pleadings the pursuers found on the actings of the defenders in giving T-Mobile rights of access and egress to the roof of 15 Scotland Street, the multi-storey carpark building forming part of the Subjects, and allowing T-Mobile to install and operate telecommunications equipment on that roof. It is averred that the telecommunications equipment, included a substantial telecommunications base station, conduits, antennae and cable runs on the roof of the building and that a door giving the pursuers access to the roof had been locked on the instructions of the defenders. It is averred that the defenders have received certain payments from T‑Mobile for having allowed that company access to the building and to install and operate their equipment. It is also averred that, in terms of an agreement between T‑Mobile and the defenders, the defenders are entitled to receive from T-Mobile an annual rental of £8,500. The pursuers aver they served the Notice of 16 May 2003 rescinding the Lease on account of material breach of contract on the part of the defenders.

[5 ] In their pleadings the defenders deny that they have acted in breach of contract. They aver that the documentation involving T-Mobile and themselves refers to 23 Scotland Street, which does not form part of the Subjects, and that any agreement they have with T-Mobile does not affect the rights of the pursuers under the Lease. In their averments the defenders deny that they and T-Mobile have entered into any lease over any part of the Subjects. They aver that any encroachment upon the Subjects was by T-Mobile and was consented to by Shields Motors Limited, who occupied 15 Scotland Street, whilst the equipment was being installed. The defenders also aver that the pursuers are entitled to remove any encroachment upon the Subjects. They deny being in breach of their obligations under the Lease and, in the alternative, aver that any breach of contract on their part was not material.

[6 ] The defenders have lodged a counterclaim. In terms of the first conclusion of the counterclaim, the defenders seek declarator that the Lease between the parties remains valid and binding on the parties. The counterclaim also includes a number of financial conclusions, the details of which are not relevant to the issues that form the subject matter of this Opinion.

[7 ] The first conclusion of the counterclaim is in the following terms:

" For declarator (i) that the Lease of the Subjects at 15 and 33 Scotland Street, Glasgow, between the pursuer and the defender dated 23^rd December 1996 and 22^nd January 1997 remains valid and binding on the parties; and (ii) that the Notice dated 16^th May 2003 by the pursuer purporting to rescind said Lease is of no effect."

[8 ] It will be noted that in these conclusions the parties are referred to as 'the pursuer' and 'the defender', as is the position throughout the written pleadings. However, in the written submissions, which both senior counsel prepared and spoke to before me, they referred to the parties as 'the pursuers' and 'the defenders'. I have thought it sensible to follow that approach in this Opinion.

The preliminary proof

[9 ] With the agreement of the parties, which was incorporated in para.1 of a Joint Minute lodged in process on 10 March 2004 (No. 25 of Process), the diet of proof before answer, which had been allowed by interlocutor dated 3 March 2004, was restricted to a preliminary proof in relation to the first conclusion of the summons and the first conclusion of the counterclaim.

[10 ] It was also a matter of agreement between the parties that the preliminary diet of proof should take place under reservation of proof of the defenders' averment in Answer 4 that on 16 May 2003 the pursuers were themselves in material breach of the lease between the parties (Record dated October 2004 at page 18 B-C).

[11 ] During the preliminary proof, both parties led evidence. The pursuers led as witnesses Jonathan Miller (their managing director), James Miller (Jonathan Miller's son), Hugh Kinnaird (a builder, who had carried out work for both the pursuers and the defenders), Martin Yardley and Stewart McLaren (both of Shields Motors Limited), Anne Blackstock (a partner in BMK Wilson, the defenders' solicitors), and Fiona Fairbairn and Alastair Crosthwaite (both of APT Marconi, agents for T‑Mobile). The defenders led the evidence of Khalid Ali (their managing director). Following the evidence, I was addressed on that evidence by senior counsel for both parties.

Orders the parties seek

[12 ] At the outset of his submissions, senior counsel for the pursuers invited me to make the following orders:

(i) to pronounce decree in terms of the first conclusion of the summons.

(ii) to assoilzie the pursuers from the first conclusion of the counterclaim.

(iii) to sustain the first plea-in-law for the pursuers in the principal action.

(iv) to sustain the second plea-in-law for the pursuers in the principal

action.

(v) to sustain in part the sixth plea-in-law for the pursuers in the principal

action, but to reserve that plea for further procedure.

(vi) to sustain the third plea-in-law for the pursuers in the counterclaim.

(vii) to repel the second plea in law for the defenders in the principal action,

insofar as it relates to the first conclusion of the summons.

(viii) to repel the third plea-in-law for the defenders in the principal action.

(ix) to repel the fourth plea-in-law for the defenders in the principal action.

(x) to repel the first plea-in-law for the defenders in the counterclaim.

At the conclusion of the submissions on behalf of the defenders, both senior counsel were agreed that once my Opinion was issued the case should be put out By Order to discuss further procedure.

Facts which are not in dispute

[13 ] In the light of the evidence I heard, two joint minutes that have been lodged in process and the terms of the written submissions, which both senior counsel helpfully prepared, it is possible to identify a number of factual matters which are not in dispute:

(a) The buildings known as 33 Scotland Street and 15 Scotland Street comprise 'the Subjects' in the Lease. They are at the ends of a row of buildings in Scotland Street, all of which are owned by the defenders. The other buildings in that row have never been leased to the pursuers.

(b) The building known as 33 Scotland Street, Glasgow, lies at one end of the row of buildings. It is a single storey building comprising 33-39 Scotland Street. At the other end of the row is the building known 15 Scotland Street, Glasgow. It comprises 17 Scotland Street and is a four-storey building, into which motor vehicles can be driven from Scotland Street and parked on the upper three floors. The building known as 15 Scotland Street was originally used by a firm of undertakers in Glasgow and was designed to allow their vehicles to be driven into it and stored within it.

(c) The pursuers took a lease of the Subjects for a period of 19 years, with entry as at 1 October 1996 ('the Lease') (No. 6/22 of Process). In the Lease the four storey building incorporating 15 and 17 Scotland Street is referred to as '15 Scotland Street'. During the negotiations leading to the conclusion of the Lease, Jonathan Miller, the managing director of the pursuers, dealt with Khalid Ali, the managing director of the defenders. The defenders are one of a number of family owned companies in which Khalid Ali is involved.

(d) The defenders' obligations under the Lease include that of maintaining and defending the pursuers in peaceable possession of the Subjects during the currency of the Lease (see SCHEDULE: PART VII: 1 of the Lease - No 6/22 of Process).

(e) After taking entry, the pursuers carried on their car auction business from the Subjects. Vehicles were stored and prepared for sale in 15 Scotland Street. Vehicles were auctioned in 33 Scotland Street, which is a single storey building.

(f) The pursuers carried on business in the Subjects until April 2002, when they vacated the Subjects. The pursuers required to do so on account of planning difficulties that had led to their losing an appeal against an enforcement notice on 14 July 1999 (No. 6/24 of Process).

(g) After the pursuers vacated the Subjects, they continued paying rent to the defenders. They did so until after they served the Notice dated 16 May 2003 terminating the Lease (No. 16/19 of Process).

(h) Following the pursuers vacating the Subjects further discussions took place between Jonathan Miller and Khalid Ali and the parties' professional advisers, with a view to negotiating terms upon which the pursuers would surrender the Lease. No such agreement was reached. The discussions also related to a claim for dilapidations.

(i) From about May 2002 until May 2003, Shields Motors Limited occupied the multi-storey car park building known as 15 Scotland Street, in which they stored and cleaned motor vehicles. Shields Motors Limited did so whilst they awaited the construction of new business premises.

(j) Khalid Ali was aware that Shields Motors Limited intended to occupy 15 Scotland Street before they took entry to that building and he offered no objection to their doing so. The pursuers allowed Shields Motors Limited to occupy 15 Scotland Street on payment of rent of £2000 a month. The pursuers and Shields Motors Limited did not enter into any formal sub-lease, nor was the duration of Shields Motors Limited's occupancy of 15 Scotland Street ever the subject of agreement. There was an understanding between the pursuers and Shields Motors Limited that Shields Motor Limited would leave the building if the pursuers managed to sub-let it and in any event once their new business premises were ready for occupation.

(k) During 2001 discussions began between Khalid Ali and Alastair Crosthwaite, an employee of APT Marconi, which were acting as agents for T‑Mobile, a mobile telephone company. Those discussions related to the availability of possible sites for the erection and installation of mobile telephone equipment. The discussions led to the roof of the multi-storey carpark building at 15 Scotland Street being identified as a potential site. By early 2002 that building had been surveyed on behalf of T-Mobile. In March 2002 the building was 'nominated' by T-Mobile as being a site which they considered to be suitable.

(l) In July 2002 draft Head of Terms were issued to the defenders by T‑Mobile. They included the terms on which T-Mobile were prepared to enter into a lease with the defenders for a term of 20 years, to allow the installation and operation of telecommunications equipment on premises owned by the defenders in Scotland Street, Glasgow. The Heads of Terms bear to relate to premises at 23 Scotland Street, Glasgow.

(m) The draft Heads of Terms were the subject of discussion between APT on behalf of T-Mobile and Khalid Ali on behalf of the defenders. A copy of the Heads of Terms was signed on behalf of T-Mobile on 21 August 2002 and by Khalid Ali, on behalf of the defenders, on 27 August 2002 (No. 7/1 of Process).

(n) In terms of an 'Early Access Agreement' dated 15 August 2002, which T-Mobile sent to the defenders and Khalid Ali signed on behalf the defenders on 4 September 2002 (No. 7/2 of Process), the defenders agreed to allow T‑Mobile access to premises, which were described as 23 Scotland Street, for the purposes of installing and operating a telecommunications system on those premises. In terms of the Early Access Agreement, T-Mobile undertook to enter into a formal Agreement with the defenders, which would incorporate the Heads of Terms (No. 7/1 of Process) and be in a form to be settled between their respective solicitors.

(o) The Early Access Agreement also provided that if such an Agreement was not completed for whatever reason within 6 months of 15 August 2002, T‑Mobile could at any time thereafter remove any telecommunications system that had been installed on the defenders' premises.

(p) After they were signed, the Heads of Terms were the subject of further discussions between Khalid Ali and APT Marconi, which culminated in amendments being agreed to the provisions in the document which deal with when and on what periods of notice T-Mobile and the defenders would be entitled to terminate the formal Agreement between them, which in accordance with the provisions of the Heads of Terms they had undertaken to complete by 20 January 2003.

(q) The defenders, APT Marconi and T-Mobile all intended that both the Heads of Terms and the Early Access Agreement should relate to the multi‑storey carpark building at 15 Scotland Street. However, both documents described the premises to which they related as '23 Scotland Street, Glasgow'. Quite how that error arose and when each of the various individuals involved in the discussions between, and providing professional advice to, the defenders, APT Marconi and T-Mobile about the installation of telecommunications equipment on the multi-story carpark building became aware that the documents should have referred to 15 Scotland Street was not fully clarified during the evidence.

(r) Prior to signing the Heads of Terms and the Early Access Agreement, Khalid Ali did not write to the pursuers advising them of his intention to do so. Nor did he speak to Jonathan Miller about his intentions in that regard. After the Early Access Agreement was signed, Khalid Ali did not advise the pursuers or Jonathan Miller that telecommunications equipment was going to be installed on the roof of the multi-storey carpark building at 15 Scotland Street.

(s) Prior to the installation of telecommunications equipment on the roof of the multi-storey carpark building at 15 Scotland Street, Khalid Ali contacted Martin Yardley, an employee of Shields Motors Limited who worked at 15 Scotland Street. Khalid Ali did so in order to make arrangements for T-Mobile to have access to the roof of the building to allow equipment be installed. Martin Yardley spoke to his superiors about the matter. It was arranged between Khalid Ali and Martin Yardley, that Mr Yardley would be given the key for a padlock that was to be placed on the door on the upper floor of the building, which allows access to the roof of the building. It was also arranged that Martin Yardley would keep a record of all those who had taken access to the roof. Khalid Ali offered Martin Yardley payment for doing so.

(t) The pursuers had no involvement in allowing T-Mobile's contractors' access to 15 Scotland Street to install the equipment. They had no dealings with T-Mobile prior to that equipment being installed and operated, or indeed prior to service of the Notice dated 16 May 2003.

(u) The defenders did not seek the pursuers' consent to the installation of the telecommunications equipment, nor did they seek the pursuers' permission, before they allowed T-Mobile's contractors access to the roof through the multi-storey building itself. Nor did the defenders advise the pursuers that the telecommunications equipment was going to be installed.

(v) During the last quarter of 2002 T-Mobile installed all the equipment they wished to erect on the roof of 15 Scotland Street. It is probable the installation of the equipment was completed by the middle of November 2002. The equipment was lifted on to the roof of the building by a crane, which had parked in the street outside. Those involved in the installation of the equipment, who required access to the roof of the building, did so through the building itself.

(w) Whilst the telecommunications equipment was being installed, Hugh Kinnaird, a builder who has carried out work for both Jonathan Miller and Khalid Ali, noticed a crane lifting some of equipment onto the roof of the multi-storey carpark building. He advised Jonathan Miller what he had seen and was asked by Mr Miller to take some photographs. That was probably in early November 2002.

(x) Hugh Kinnaird took photographs from the street a few days later (No. 6/1 of Process). Within a fortnight, he gave copies of those photographs to Jonathan Miller. At a later date, when the installation of the equipment had been completed, Hugh Kinnaird took further photographs of the equipment (No. 6/18 of Process). Those photographs were taken by Mr Kinnaird on the roof of 15 Scotland Street.

(y) The dimensions of the equipment and the roof upon which it is installed are shown on a plan (No. 6/45 of Process). The equipment consists of (i) antennae in the north-east corner of the roof; (ii) cabling running halfway along the east side of the roof to a base station, which is approximately half the size of a shipping container and is mounted on a platform; and (iii) further cabling running from that platform to (iv) other antennae, which are located in the south-west corner of the roof. Hugh Kinnaird gave copies of the photographs to Jonathan Miller, shortly after he took them.

(z) Jonathan Miller mentioned to his son, Jason Miller, what he had been told. Jason Miller then went to Scotland Street. He saw that the installation of the equipment was still in progress. He was unable to gain access to the roof, because the door was padlocked and he did not have a key. He informed his father what he had seen.

(aa) BMK Wilson, Solicitors, act for the defenders. In September 2002, they were instructed to act for the defenders in connection with the conclusion of the formal Agreement referred to in the Heads of Terms and the Early Access Agreement. Tods Murray, Solicitors, acted for T-Mobile on that matter.

(bb) Initially both firms of lawyers understood that the telecommunications equipment was being installed on premises which were known as 23 Scotland Street. By letter dated10 February 2003 Tods Murray informed BMK Wilson that T-Mobile had learnt that the equipment had been installed on the roof of premises that the defenders had leased to a tenant. In that letter Tods Murray requested copies of all leases affecting the defenders' property. Receipt of that letter caused Anne Blackstock, the partner of BMK Wilson who dealt with Khalid Ali, to make enquiries. In due course it became clear to the solicitors, initially to Anne Blackstock and then to Tods Murray, that the roof on which the equipment had been installed was the roof of the multi-storey car park building at 15 Scotland Street.

(cc) On 11 April 2003, BMW Wilson sent Tods Murray a copy of the Lease between the pursuers and the defenders (No. 6/22 of Process). Sometime thereafter, and by 2 May 2003 at the latest, Tods Murray became aware that the Lease prevented the defenders from being a party to a formal Agreement on the lines that had been envisaged by the Heads of Terms and the Early Access Agreement. By letter dated 2 May 2003, Tods Murray advised BMK Wilson of their view to that effect.

(dd) In light of what he had learnt from Hugh Kinnaird and his son, Jonathan Miller contacted Levy & McRae, the pursuers' lawyers. Neither Jonathan Miller nor Levy & McRae took any steps to contact the defenders, or any of the defenders' professional advisers, to enquire as to the circumstances in which the telecommunications equipment had been installed on the roof of 15 Scotland Street. Jonathan Miller was advised by Levy & McRae to leave things as they were and to keep paying the rent for the Subjects, whilst Levy & McRae investigated matters.

(ee) Subsequently Levy & McRae advised Jonathan Miller that the pursuers were entitled to terminate the Lease. On 16 May 2003, shortly after the pursuers had been so advised, Levy McRae wrote to the defenders in the following terms:

" CENTRAL CAR AUCTIONS LIMITED

15 AND 33 SCOTLAND STREET, GLASGOW

We act on behalf of Central Car Auctions Limited of 44 Easterhouse Road, Swinton, Glasgow. We refer to the Lease between you, House of Sher (UK) Limited dated 23^rd December 1996 and 22^nd January 1997 which relates to the whole subjects at 15 and 33 Scotland Street, Glasgow, including the roof, with a minor exclusion from an Advertising Hoarding. We are advised that you have allowed possession of part of the subjects leased to our clients to be removed from our clients and given to T-Mobile. We understand that T-Mobile have erected a substantial structure on the roof of the building with substantial supporting conduits for cables which also occupy part of the subjects let to our clients under the Lease. We have made enquiry and believe that a Lease has been granted in favour of T-Mobile for a period of twenty years. As such our clients maintain you are in material breach of contract in allowing possession of part of the subjects let to be taken by T-Mobile. This action is entirely inconsistent with the continuing existence of a contract of lease between you and our clients of the subjects let in terms of the Lease. In these circumstances our clients treat your breach as material and as a repudiation of the Lease and hereby intimate that in light of your repudiatory conduct our clients treat themselves as no longer bound by the obligations under the Lease. The keys of the property are being delivered to your clients' (sic) Property Agents NAI Gooch Webster separately." (No. 6/19 of Process)

(ff) The pursuers subsequently delivered the keys of the subjects to NAI Gooch Webster, the property agents who were acting for the defenders.

(gg) Shields Motors Limited vacated 15 Scotland Street in early May, some days prior to 16 May 2003.

(hh) By letter dated 19 May 2003 (No. 6/20 of Process), addressed to Levy & McRae, BMK Wilson gave notice that the defenders did not accept they had acted in material breach of the terms of the Lease, that the defenders regarded the Lease as remaining in full force and effect and that the defenders would continue to hold the pursuers bound by the terms of the Lease.

(ii) The pursuers paid the defenders the rent due on 1 February 2003 and 1 May 2003. They did so without protest. The pursuers have not paid the defenders any rent since 16 May 2003.

(jj) T-Mobile's telecommunications equipment remains on the roof of the multi-storey carpark building at 15/17 Scotland Street, Glasgow. It remains operational.

(kk) No formal Agreement between the defenders and T-Mobile of the nature referred to in the Heads of Terms and the Early Access Agreement has ever been finalised and executed.

(ll) The defenders received a disturbance payment of £3000 from T‑Mobile for allowing that company access to the roof of 15 Scotland Street for the installation of their equipment and further payments totalling £1120, calculated on the basis £80 in respect of each occasion when T-Mobile's contractors or employees took access to the roof between 21 November 2002 and 28 February 2003 (Nos. 6/11 - 6/16 of Process). The equipment had been installed by mid November 2002. The reasons for the subsequent visits between 21 November 2002 and 28 February 2003 were not explained in the evidence, but it is reasonable to infer that they related to the commissioning and maintenance of the equipment.

(mm) T-Mobile have never paid the defenders any rent in respect of the presence of their equipment on the roof of 15 Scotland Street, Glasgow.

(nn) After the notice of termination had been served on 16 May 2003, by letter dated 2 June 2003, addressed to Levy & McRae, T-Mobile's solicitors invited the pursuers to agree in principle to granting T-Mobile a sub-lease of the roof of the building on which the telecommunications equipment had been installed (No. 6/21). That invitation was declined.

Submissions for pursuers on other factual issues

[14 ] Senior counsel for the pursuers began his submissions by addressing me on certain factual issues about which there was a measure of dispute. In particular, I was invited to hold that from the date when Khalid Ali was first approached by APT Marconi, the defenders, and in particular Khalid Ali, had been well aware that T‑Mobile wished to install their equipment on the roof of the multi-storey building at 15 Scotland Street, rather than the roof of 23 Scotland Street.

[15 ] The Head of Terms and the Early Access Agreement, and indeed the drawings relating to the installation of the telecommunications equipment, which were submitted to the planning department of Glasgow City Council, all refer to the premises on which the equipment was to be installed as being 23 Scotland Street. However, Khalid Ali was personally aware which buildings the defenders had leased to the pursuers. He knew those buildings did not include the building which is known as 23 Scotland Street. 23 Scotland Street is owned by the defenders. It has never been leased to the pursuers. It does not front onto Scotland Street. It lies behind the single floored building on Scotland Street that runs between the two buildings that form the subjects.

[16 ] Khalid Ali knew that Shields Motors Limited had occupied the multi-storey building at 15 Scotland Street after the pursuers had vacated it. It is clear from certain of the drawings submitted to Glasgow City Council (Nos. 7/7, 7/8 and 7/11 of Process), that is the multi-storey carpark building upon which it was being proposed to install the equipment. Copies of those drawings were made available to the defenders and indeed they are referred to in the Early Access Agreement (No. 7/2 of Process). When the time came for T-Mobile's contractors to gain access to the building, which was probably in October 2002, Khalid Ali went to the multi-storey carpark building, at 15 Scotland Street, and spoke to Martin Yardley of Shields Motors Limited. In these circumstances, I am quite satisfied that throughout Khalid Ali was well aware that it was the building known as 15 Scotland Street in which T‑Mobile and their advisers had an interest and on the roof of which that it was proposed to install telecommunications equipment.

[17 ] I was also invited to take the view that the installation of the equipment on the roof of 15 Scotland Street, and the operation and maintenance of that equipment, had constituted and would continue to constitute a very considerable physical intrusion into the Subjects leased by the pursuers. I shall deal with those questions later in the Opinion, when I address the issue as to whether the defenders have acted in material breach of contract.

Submissions for defenders on other factual issues

[18 ] Still dealing with purely factual issues, senior counsel for the defenders invited me to hold that the pursuers, and in particular Jonathan Miller, had become aware that the equipment was being installed on the roof from about the beginning of November 2002. I am satisfied that was so. Jonathan Miller first heard about the installation of the equipment from Hugh Kinnaird, after he had noticed the crane in the street outside the multi-storey carpark building. After Hugh Kinnaird was asked to take some photographs, he had been able to do so whilst the works were underway. On the basis of the evidence I have heard, I am satisfied that the first set of photographs taken by Hugh Kinnaird (No. 6/1 of Process) must have been taken before mid November 2002. In these circumstances, I am satisfied that, whilst Jonathan Miller may not have known precisely what was taking place, he must have become aware of the installation of the telecommunications equipment before the installation of that equipment had been completed.

[19 ] I was also invited to hold that when the pursuers consulted Levy & McRae termination of the Lease was the only option that was discussed. It was submitted that it was clear from the evidence that the Lease, which carried an annual rent of £106,000, was one that the pursuers wished to put behind them and that their solicitors had been aware that the pursuers were keen to get out of the Lease. Those submissions were made against the background that, following upon the pursuers vacating the Subjects, the parties' professional advisers had been engaged in negotiations with a view to agreeing the surrender of the Lease and the settlement of a dilapidations claim on behalf of the defenders. Those negotiations commenced before the arrival on the scene of APT Marconi and T-Mobile and had proved to be unsuccessful. In these circumstances, there is no reason why I should not accept the evidence which Jonathan Miller himself gave to the effect that when he had informed Levy & McRae about the installation of the telecommunications equipment, the pursuers had wished to get out of the lease and were prepared to await advice from Levy & McRae as to whether it was open to them to terminate the Lease on account of the defenders' conduct. Whether that was the only option that was considered between the pursuers and their solicitors was not fully explored during the evidence. However, standing the evidence Jonathan Miller gave, I do not consider it to be particularly significant if it was.

The issues that arise for the Court

[20 ] Having regard to the submissions I heard, the issues I require to address as follows:

i. Did the defenders act in breach of contract?

ii. If so, what actings on the part of the defenders constituted breach of contract?

iii. Was any breach of contract on the part of the defenders material?

iv. If any breach of contract on the part of the defenders was material, did it entitle the pursuers to terminate the Lease without first giving the defenders notice of their intention to do so unless the breach was rectified?

I deal with this issues separately.

Did the defenders act in breach of contract?

[21 ] In their written pleadings the defenders dispute that they acted in breach of contract. However in his closing submissions, senior counsel made clear that it was conceded that the defenders had acted in breach of contract. Accordingly, this question falls to be answered in the affirmative. It is clear that the defenders acted in breach of the obligation on them in terms of SCHEDULE: PART VII: 1. of the Lease (No. 6/22 of Process)

If so, what actings on the part of the defenders constituted breach of contract?

[22] Having conceded that the defenders had acted in breach of contract, their senior counsel submitted that the breach occurred when the defenders, without the consent of the pursuers, gave T-Mobile access to 15 Scotland Street and allowed them to install and operate telecommunication equipment on the roof of those premises. He argued that was a breach of a different nature to that founded upon by the pursuers in their written pleadings, in which, in Condescendence 3, the pursuers aver that the defenders had entered into an agreement with T-Mobile to allow access to and construction of a telecommunications station and to grant a 20 year lease to part of the Subjects. He submitted that the pursuers had failed to prove a breach in such terms. He argued that by the time the pursuers came to terminate the Lease on 16 May 2003 they had been aware of the presence of the equipment on the roof for at least months for at least six months and could hardly found on that presence of that equipment as amounting to a material breach of contract. Moreover by 16 May 2003, the pursuers could have discovered that the negotiations between T-Mobile and the defenders had stalled and it had become apparent that the defenders could not grant T‑Mobile a 20 year lease in respect of the roof of 15 Scotland Street without the consent of the pursuers themselves. In such circumstances, I was invited to find in favour of the defenders because the pursuers had failed to prove the basis upon which they had purported to terminate the Lease.

[23 ] In my opinion, this line of argument on behalf of the defenders is without merit. Leaving to one side the fact that this action is a commercial cause, in my opinion the argument does not proceed on a fair reading of the pursuers pleadings.

[24 ] It is conceded that the defenders have acted in breach of contract. In my opinion, the actings of the defenders giving rise to that breach include all the defenders did by entering into the Heads of Terms and Early Access Agreement, allowing T-Mobile and their contractors access to 15 Scotland Street, making arrangements for that access, allowing T-Mobile to install telecommunications equipment on the roof of 15 Scotland Street, allowing them to operate that equipment and conducting, through their solicitors, negotiations designed to finalise the formal Agreement that had been contemplated by the provisions of the Heads of Terms and the Early Access Agreement. All those actings either caused a measure of actual interference with the pursuers' peaceable possession of the Subjects during the currency of the Lease or were calculated to lead to such interference continuing.

Was any breach of contract on the part of the defenders material?

(a) Submissions on behalf of the pursuer

[25 ] Senior counsel for the pursuers submitted that in considering the materiality of the breach, the facts and manner of the breach were important. So also was the importance of the obligation on the defenders in terms of the Lease that the defenders had breached. Reference was made to Gloag on Contract, 2^nd Edition, page 602; McBryde on Contract, 2^nd Edition, paragraphs 20-88, 20-89, 20-93 and 20-94; Blyth v Scottish Liberal Club 1982 SC 140; and Macari v Celtic Football Club 1999 SLT(N) 138 and 1999 SC 628;

[26] Senior counsel submitted that the obligation breached, namely the obligation on the defenders to maintain the pursuers in quiet possession of the Subjects, was central to the Lease and went to the root of the contract between them. It was submitted that it was clear from the evidence led that there had been a deliberate intention on the part of the defenders, dating back to early 2002, to grant T-Mobile a right of access to 15 Scotland Street, to enable them to install telecommunications equipment on the roof of that building, and the right to operate such equipment from the roof of the building for up to 20 years. Indeed, the Heads of Terms and Early Access Agreement signed by Khalid Ali on behalf of the defenders illustrated a willingness on the part of the defenders to allow similar rights to any future sub-tenants of T‑Mobile.

[27 ] It was argued that the defenders' actings had been sustained and had continued over a period in excess of one year. The defenders' dealings with T-Mobile had taken place whilst the pursuers were not in physical occupation of the Subjects. The pursuers had never been informed by the defenders what they intended to allow T‑Mobile to do or about what T-Mobile had installed. It was submitted that whilst the telecommunications equipment that had been installed only covered a small part of the total area of the roof, the rent of £8,500 that it had been agreed T-Mobile should pay to the defenders illustrated that the disturbance of the pursuers' right to peaceful possession of the Subjects that had occurred and which it was intended should continue to occur had considerable financial value.

[28 ] It was acknowledged by senior counsel for the pursuers that the presence of telecommunications equipment on the roof of 15 Scotland Street would not interfere to any material extent with carrying on a car auction business within the building or carrying on any business involving the storing, repairing and cleaning of motor vehicles. However, the evidence had demonstrated that T-Mobile had already exercised access through the building and on to the roof. They and any sub-tenants would continue to do so. The pursuers had been excluded from the roof of the building. Such disturbance had taken place. It was material and was intended to continue, notwithstanding the fact that the Lease (No. 6/22 of Process) placed an obligation on the pursuers to maintain the Subjects, including the roof.

[29 ] Senior counsel for the pursuers argued that the defenders' actings clearly indicated that the defenders did not intend to be bound by an obligation that went to the root of the contract between the parties. In these circumstances, the breach of contract on the part of the defenders had been material.

(b) Submissions for the defenders

[30 ] Senior counsel for the defenders invited me to hold that the defenders' breach of contract should not be held to have been material. Reference was made to Rankine on Leases, pages 213, 216 and 217; Paton and Cameron on Landlord & Tenant, pages 127,128 and 146; Stair Encyclopaedia, Vol.10, para. 251 and Vol.13, paras 251, 277 and 282; and Scotmore Developments Limited v Anderton 1996 SC 368. It was submitted that the test of materiality was one which applied to the nature of the breach, rather than to the actual or anticipated consequences for the party founding on the breach, although such consequences may be relevant in illustrating that a breach was material.

[31 ] It was also submitted that the evidence demonstrated that the encroachment on the Subjects had been limited and would remain limited, relative to the size of the Subjects which include two buildings, 15 Scotland Street and 33 Scotland Street. There was no evidence that the presence of telecommunications equipment on the roof of 15 Scotland Street or the access which T-Mobile and their contractors had taken to the roof of that building had caused any inconvenience to Shields Motors Limited. I was reminded that when Jonathan Miller had been asked what effect the installation of the equipment would have had on the pursuers' business activities, had the pursuers still remained in physical occupation of the Subjects after the telecommunications equipment had been installed, he had indicated that it was difficult to say.

[32 ] Senior counsel for the defenders submitted there was no need for those carrying on business in 15 Scotland Street to gain access to the roof of that building, except for the purpose of keeping the roof in a good state of repair. There was no evidence to suggest that the installation of the telecommunications equipment had damaged the roof. On the contrary, the installation of the equipment had been designed so as to spread the load and avoid damaging the building. Whilst the door leading to the roof had been locked, the key to the lock had been left with Shields Motors Limited. That indicated that there had been no intention of the defenders to prevent any occupier of 15 Scotland Street, Glasgow from gaining access to the roof. In these circumstances, it could be inferred that the presence of the telecommunications equipment on the roof of 15 Scotland Street would not have any bearing on the prospects of that building being re-let.

[33 ] Senior counsel for the defenders submitted that it was clear from the evidence that the pursuers had first learnt about the installation of the telecommunications equipment whilst that installation was taking place. Whilst it had been suggested on behalf of the pursuers that Khalid Ali had gone out of his way not to inform the pursuers about the installation of the equipment, because he knew that they would have objected, the evidence the Court had heard had been to contrary effect. The installation and presence of the equipment on the roof of 15 Scotland Street had not been kept secret, nor could they have been. Whilst it was not being argued that Shields Motors Limited had been in a position to authorise any encroachment on to the Subjects that had taken place, they had been informed in advance that the telecommunications equipment was going to be installed. Neither the pursuers nor Shields Motors Limited had informed the defenders that they objected to the equipment being installed. Khalid Ali had had no reason to expect that Jonathan Miller would have objected to the installation of that equipment, if he had been asked to do so. After the equipment had been installed, the pursuers had made two rental payments to the defenders without protest. Prior to serving the notice of termination of the lease (No. 6/19 of Process), the pursuers had not given the defenders any indication or intimation to the defenders that they objected to the presence of the equipment and wished it to be removed.

[34 ] Senior counsel for the defenders argued that in these circumstances, the service of the Notice terminating the Lease should be considered to be no more than an attempt by the pursuers to capitalise on what had been a mistake on the part of the defenders. The only logical explanation of that mistake was what had Khalid Ali had explained during the course of his evidence. As a layman, he had erroneously believed that the pursuers did not have exclusive rights to the roof of 15 Scotland Street. He had believed that the defenders retained rights in the roof which had entitled them to enter into a lease with T-Mobile.

[35 ] Senior counsel for the defenders dealt next with what had happened when it had become apparent to Khalid Ali and to the defenders' solicitors, BMK Wilson, that the defenders might not have any rights to proceed in the manner they had done. The evidence I heard disclosed that, on Khalid Ali's instructions, BMK Wilson had delayed, and indeed at one stage had refused, to make a full copy of the Lease available to Tods Murray. The delay had been between 10 February 2003 and 24 April 2003, on which date Tods Murray had ordered an extract copy of the Lease from the Keeper of the Registrars. The position adopted by BMK Wilson had also involved their contending, in a letter to Tods Murray dated 12 March 2003 (No. 6/36 of Process); in a Fax Message to APT Marconi dated 2 April (No. 6.37); and during a telephone call with Tods Murray on 7 April 2003 (No. 6/38 of Process) that the pursuers did not have exclusive rights over the roof of 15/17 Scotland Street on which the telecommunications equipment had been installed and that the Lease entitled the defenders to proceed with the agreement with T-Mobile, which their respective solicitors were in the process of revising. Senior counsel for the defenders submitted that the position that had been adopted in correspondence between BMK Wilson and Tods Murray, T-Mobile's solicitors, had amounted to no more than a stalling tactic, which related to the negotiations between the parties and their professional advisers about other issues. I was invited to take the view that tactic had been devised purely to allow the defenders to buy time, whilst they worked out with their professional advisers a strategy as to how best to handle those ongoing negotiations between the parties in view of the fact that it had now become apparent to Khalid Ali that the terms of the Lease prevented the defenders from signing the Agreement referred to in the Early Access Agreement (No. 7/2 of Process).

[36 ] Senior counsel for the defenders submitted that no inference adverse to the defenders should be drawn from the fact that the Heads of Terms (No.7/1 of Process) and the Early Access Agreement (No. 7/2 of Process) had referred to 23 Scotland Street. That too had been an innocent mistake, on the part of Khalid Ali and APT Marconi, which had been carried forward into the correspondence between BMK Wilson and Tods Murray. Apart from any other considerations, had T-Mobile and the defenders executed an Agreement relating to 23 Scotland Street, such a contract would not have given T-Mobile any rights in respect of the roof of 15 Scotland Street, on which their equipment had been involved. I was also invited to take the view that Khalid Ali would not have risked a rent in excess of £100,000 per annum simply to secure an extra £8,500 per annum.

(c) Discussion

[37 ] I have reached the view that the breach of contract on the part of the defenders was not material. In my opinion, the breach of contract that has occurred in this case does not go to the root of the contract between the parties. In my opinion it has not resulted in, not is liable to result in, any material interference in the ability of the pursuers (or of any sub-tenants) to carry on in the Subjects, and in particular in the building known as15 Scotland Street, a car auction business or any other business involving the storing of and working on motor cars and vehicles. Nor do the actings of the defenders that gave rise to the breach indicate any intention on the part of the defenders that the Lease should not remain in existence or that they were not prepared to fulfil their obligations under the Lease.

[38 ] As to the authorities to which I was referred make clear, the issue of whether a breach of contract is material must be addressed objectively. It is a question of fact, which involves considering a number of factors including the terms of the contract, the surrounding circumstances of the contract, the nature of the subject matter of the contract, the nature of the actings of the party giving rise to the breach, the consequences of the breach for the innocent party and the possibility of remedying or rectifying the breach of contract.

[39 ] In my opinion, it is appropriate to start by considering the nature of the building known as 15 Scotland Street and the nature of the business that the pursuers carried on in that building after the Lease was concluded. The building was designed to allow motor cars and vehicles to be driven in and parked within it and to allow such vehicles to be worked on, whilst they were within the building. Such use was ancillary to the carrying out of the pursuers' car auction business. Shields Motors Limited's business was of a similar although not identical nature. The design of the building did not envisage any use being made of the roof by those occupying the building and there is no suggestion that the pursuers (or any possible sub-tenants) would ever had any occasion to do so during the term of the Lease.

[41 ] There is no doubt that the contractual obligation which the defenders acted in breach of is one that could be breached in a manner that was material. If, for example, the defenders had allowed equipment to be installed in the upper floor of the building or had otherwise restricted the area in which the pursuers could park and work on vehicles, it would be difficult for the defenders to argue that such a breach of contract was not one that went to the root of the contract. At the other extreme, one could imagine a situation in which the defenders had allowed an advertising hoarding to be erected on the wall or roof of the building in a manner that did not require any third party to have access to the interior of the building. In that event, although the defenders would have acted in breach of the same obligation on them under the Lease, it would be difficult for the pursuers to contend that the breach was material.

[42 ] Furthermore the breach that has taken place could be rectified. The equipment was installed within a period of six weeks, with most of it being lifted onto the roof by a crane. It is reasonable to infer that the equipment could easily removed, in all probability within the same or a shorter period of time. The evidence I heard from Alastair Crosthwaite and Fiona Fairbairn was to the effect that T-Mobile would not wish to locate their equipment on property where the tenants objected to its presence. Moreover, T-Mobile have not signed a formal Agreement with the defenders, nor have they yet paid any rent to the defenders. They have no lease in place. Perfectly understandably, T-Mobile are awaiting the outcome of this action. On the basis of the evidence I heard, I do not consider it likely that they could or would object to the removal of the equipment. If T-Mobile have suffered any financial loss as a result of what has happened, they could look to the defenders for recovery of that loss. Whilst the fact that a breach is remediable does not in itself mean that the breach is not material, it is a factor that can be taken into account when the issue of the materiality of the breach is being addressed.

[43 ] For all these reasons, I have reached the conclusion that the actings of the defenders did not constitute a material breach of contract on their part. In such circumstances, as there is no suggestion that the defenders were called upon to remedy their breach and have refused or failed to do so, I am not prepared to hold that the defenders acted in material breach of contract.

[44 ] I should make clear that in reaching that conclusion there are other chapters of the evidence to which I have given very careful consideration. Certain of those chapters involve the evidence of Khalid Ali. I regret to say that I did not consider him to be an impressive witness. On occasion he interrupted the questioner. More frequently he failed to answer the question he was asked. At times his answers were contradictory to those he had given at earlier stages in his evidence. And in certain instances, I found his evidence to be untruthful and unreliable.

[45 ] On the basis of the evidence I heard, I am quite satisfied that immediately Khalid Ali was approached by Alastair Crosthwaite of APT Marconi he decided to try and reach an agreement with T-Mobile that would be of financial benefit to the defenders, as opposed to the pursuers.

[46 ] I do not accept that Khalid Ali took any steps to contact the pursuers, or Jonathan Miller, to advise them about what was proposed and to seek their consent. I am not prepared to accept his evidence that he telephoned Jonathan Miller's secretary about the matter and left messages asking that Jonathan Miller call back, without indicating what he wished to discuss. Jonathan Miller said he had not been told anything about these calls and I heard no other evidence to the effect that they were made.

[47 ] On the contrary the fact that Khalid Ali took no action, and in particular did not write to the pursuers, despite his claim that he had never received any response to the calls he said that he had made to Jonathan Miller, all suggest that the calls were never made. Indeed his evidence that the calls were made is difficult to reconcile with the evidence he gave that he did not think it necessary to seek the consent of the pursuers and never thought about doing so. What is also clear is that Khalid Ali never instructed the defenders' professional advisers, who were in contact with the pursuers' advisers, in connection with the discussions about the surrender of the Lease and the claim for dilapidations, to advise the pursuers that the defenders were minded to enter into a formal Agreement with T-Mobile and to seek the pursuers' consent to their doing so.

[48 ] Moreover the correspondence between BMK Wilson and Tods Murray that is lodged in process indicates that once problems had begun to emerge in the finalisation of the formal Agreement envisaged in the Heads of Terms (No.7/1 of Process) and the Early Access Agreement (No.7/2 of Process) Khalid Ali must have given Anne Blackstock instructions to advance arguments that she was not comfortable with and to refrain from making available to Tods Murray a copy of the Lease, on the grounds that it was confidential, despite the fact that the Lease was registered in the Books of Council and Session.

[49 ] It is unnecessary for me to refer in any further details of the terms of that correspondence, beyond those I have mentioned earlier. Suffice it to say that Anne Blackstock was left with no alternative but to concede during her evidence that certain of the letters she had sent to Tods Murray, after consultation with Khalid Ali, had been intended to create time for the defenders and their management agents to come up with a strategy. That strategy was required to deal with the impact on the discussions relating to the pursuers surrendering the Lease and the defenders' claim for dilapidations of the problems that had emerged in finalising the formal Agreement between the defenders and T-Mobile. In his evidence Khalid Ali denied being aware of the problems in finalising the formal Agreement between the defenders and T‑Mobile and instructing Anne Blackstock to delay matter and to refuse to provide a copy of the Lease to Tods Murray. On those issues also I disbelieved his evidence and accepted the evidence of Anne Blackstock.

[50 ] Furthermore, I do not accept Khalid Ali's evidence that he had never had any reason to believe that Jonathan Miller would have objected to the equipment being installed on the roof of 15 Scotland Street. Following the pursuers having decided to vacate the Subjects, the pursuers were being required to pay rent in excess of £100,000 per annum to the defenders and there were disputes between the parties about surrender of the Lease and the claim for dilapidations. In such circumstances, it is difficult to see why Jonathan Miller would have agreed to the defenders being the sole beneficiary of any additional income arising out of 15 Scotland Street. On the contrary, Khalid Ali's failure to advise the pursuers what was going on and the instructions he gave the defenders' solicitors all suggest that Khalid Ali was well aware that if the pursuers were approached for their consent, such consent would not be forthcoming and any financial benefit to the defenders from reaching and formalising an agreement with T-Mobile would be lost.

[51 ] In these circumstances, I am quite satisfied that throughout Khalid Ali was determined to press ahead with agreeing and finalising a deal with T-Mobile, which would be to the financial benefit of the defenders, and to do so without seeking the consent of the pursuers.

[52 ] Despite having reached such views as to the intentions and actings of Khalid Ali, I am quite satisfied that he had no intention to bring the Lease to an end. On the contrary it was in the defenders' interests to keep the Lease alive. Indeed I satisfied that Khalid Ali would ultimately have been prepared to walk away from what he had agreed and was seeking to finalise with T-Mobile, in light of legal advice that the terms of the Lease required him to do so. In these circumstances, I have, with a measure of reluctance, reached the conclusion that the manner in which Khalid Ali acted between the time when he was first approached by Alastair Crosthwaite and 16 May 2003 is not relevant to the issue of whether the breach of contract on the part of the defenders falls to be considered as being material.

[53 ] I turn to deal briefly with another chapter of evidence. As I have indicated I am satisfied that Jonathan Miller was aware that the telecommunications equipment was being installed on the roof of 15 Scotland Street, before that installation had been completed. In my opinion, the fact that Jonathan Miller took no steps to stop that installation or to have the equipment removed was not relevant to the issue as to whether as at 16 May 2003 the defenders had acted in material breach of contract, entitling the pursuers to terminate the contract. In my opinion, subject to the issue of acquiescence, which is a line of defence not insisted upon in the present action, a party to a contract who becomes aware that another party to the contract is in the course of acting in breach of contract is perfectly entitled to refrain from intervening before the breach of contract has taken place. Once that has occurred, it is open to the innocent party to decide whether or not to found on the breach of contract and if they decide to do so then to elect which remedy they wish to pursue.

If any breach of contract on the part of the defenders was material, did it entitle the pursuers to terminate the Lease without first giving the defenders notice of their intention to do so unless the breach was rectified?

[54 ] Although this issue is for all practical purposes superseded by my decision in respect of the previous issue, it is appropriate that I should briefly summarise the arguments that were advanced.

[55 ] Senior counsel for the pursuers argued that if I reached the conclusion that the defenders' breach of contract had been material, then the pursuers had been entitled to terminate the lease without their requiring to give the defenders notice of their intention to do so unless the breach was rectified. In terms of the law of Scotland a material breach of contract entitled the innocent party to elect to rescind the contract. There was no need for the innocent party to give the party in material breach of contract notice of their intention to rescind the contract and the opportunity to remedy the breach. Reference was made to a number of authorities McBryde on Contract, 2^nd Edition, paragraphs 20-122 to 20-127; Barclay v Anderston Foundry (1856) 18D 1190; Webster v Lyall (1860) 22D 156; Davie v Stark (1876) 3R 1114; McKimmie's Trustee v Armour (1899) 2F 156; Lindley Catering v Hibernian Football Club 1975 SLT(N) 56; Charisma Properties v Grayling 1996 SC 556; and Strathclyde Regional Council v Border Engineering 1998 SLT 175.

[56 ] Senior counsel for the defenders argued that the admitted breach of contract on the part of the defenders was not of sufficient materiality as to justify rescission without notice. He submitted that breach had first occurred in October 2002, when the installation of the telecommunications equipment had commenced, and that it continued since. This branch of his submissions founded on passages in McBryde on Contract, 2^nd Edition, paragraphs 20-122 to 20-127; Webster v Lyall (1860) 22D 156; Davie v Stark (1876) 3R 1114; McKimmie's Trustee v Armour (1899) 2F 156; Blyth v Scottish Liberal Club 1982 SC 140; and Charisma Properties v Grayling 1996 SC 556, per Lord Sutherland at page 560.

Conclusion

[57] In these circumstances, I shall as requested have the action put our By Order for a discussion as to further procedure.

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	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Central Car Auctions Ltd v. House Of Sher (UK) Ltd [2006] ScotCS CSOH_137 (05 September 2006) URL: http://www.bailii.org/scot/cases/ScotCS/2006/CSOH_137.html Cite as: [2006] ScotCS CSOH_137, [2006] CSOH 137

Scottish Court of Session Decisions