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EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
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Lord Johnston
Lord Philip
Lord Carloway
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[2007] CSIH 14
CA150/04
OPINION OF THE COURT
delivered by LORD JOHNSTON
in
RECLAIMING MOTION
in the cause
WARREN JAMES (JEWELLERS)
LIMITED
Pursuers and Respondents;
against
OVERGATE GP LIMITED
Defenders and Reclaimers:
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Act: McColl; Archibald Campbell & Harley, W.S.
(Pursuer and Respondent)
Alt: McKenzie, Solicitor
Advocate; Pinsent
Masons (Defender and Reclaimer)
15 February 2007
[1] This is a
dispute between landlord and tenant in relation to a retail unit in the
Overgate Development in Dundee relating to the construction of a clause in the relevant
lease.
[2] That clause,
which is concerned with the obligations incumbent upon the landlord, is in the
following terms:
"4.3 Exclusivity
- For so long as the said Warren James (Jewellers) Limited
is the Tenant under this Lease, not
in respect of any first letting (which means the first time the Landlord let
the Lettable Unit in question and not in respect of any subsequent lettings) of
any Lettable Unit to lease any such Lettable Unit (other than the Premises and
two other Lettable Units only) with its Permitted Use having specified as its principal
trade or business the retail sale of jewellery."
[3] The
pursuers, who are the tenant seek a declarator in the following terms:
"For declarator that the defenders
are in breach of terms 4.3 of a lease between the pursuers and the defenders
dated 25 November and 18 December 2000 and registered in the Books of Council
and Session on 17 January 2001 in respect that they leased to third party in
about January 2002 a first letting of a Lettable Unit (as defined in the said
clause 4.3) not being a letting permitted by said clause 4.3 within its
permitted use (as so defined) having specified as in its principal trade or
business the retail sale of jewellery and are thereby in breach of contract".
[4] The pursuers
also have a conclusion for damages which was not in issue before the Lord
Ordinary.
[5] The Lord
Ordinary dismissed the defences in respect of the declarator conclusion which
he granted de plano and continued the case for a proof
on quantum. It is against that decision
that the reclaimers now appeal.
[6] The facts
were not in dispute both in relation to the creation of the lease and its dates
and also the fact that there were in existence at the time of the entering of
the lease two other jewellery units within the development and it is also
agreed that the defenders have subsequently issued a lease to permit a third
jewellery unit in addition to that of the pursuers and the two existing
ones. It is that action which is said to
be in breach of the lease and in particular clause 4.3.
[7] The decision
of the Lord Ordinary on the relevant issue is in the following terms:
"[9] The
proper approach to the construction of any contractual term is to start with
the words used by the parties. If those
are ordinary words, they should be given their ordinary meaning, and if that
meaning is sufficiently clear it must be given effect. That meaning must obviously be determined in
the context of the contract as a whole.
Sometimes, of course, the words used are ambiguous, either in themselves
or when considered in the contractual context.
In that event a number of rules of contractual interpretation may help
in resolving the ambiguity. These
include the use of extrinsic evidence regarding the circumstances in which the
contract came to be concluded and its commercial objectives. Nevertheless, the court should not seek out
ambiguities; nor should it use the rules that exist to resolve ambiguities in
such a way as to create an ambiguity: Melanesian Mission Trust Board v Australian Mutual Provident Society, supra,
at [1997] 2 EGLR 129, per Lord Hope of Craighead. Those principles apply in my
opinion to leases in exactly the same way as other categories of contract. I must now consider their application to
clause 4.3.
[10] Clause
4.3 is written in extremely poor English.
Nevertheless I am of opinion that when it is broken down into its
constituent parts its meaning is reasonably clear. In effect it contains a condition, a
definition, an obligation and a proviso.
The condition is that the pursuers should remain the Tenant under the
Lease. The definition relates to the
expression "first letting". This is
defined as meaning "the first time the Landlord let (sic) the Lettable Unit in
question and not in respect of (sic) any subsequent lettings". In spite of the faulty syntax, it is fairly
clear that the intended meaning is the first occasion when any Lettable Unit in
the Centre is let, as against any letting following the first. The obligation on the Landlord (including
successors and assignees) is as follows: the Landlord is not to grant a first
letting of any Lettable Unit where the Permitted Use in the lease of that Unit
specifies the tenant's principal trade or business as the retail sale of
jewellery. The proviso is that the
obligation does not apply to the pursuers' premises "and two other Lettable
Units only"; the
Landlord's obligation is restricted to that extent.
[11] When
clause 4.3 is analyzed in this way, it is clear in my opinion that the proviso
is designed to state comprehensively the restriction on the Landlord's
obligation. That appears to me to be the
obvious meaning of the wording used, "other than the Premises and two other
Lettable Units only". That wording is
not qualified, and appears comprehensive in its import. Moreover, the wording used in the clause, and
indeed in clause 4.1, which introduces the Landlord's obligations, is not in
terms restricted to the future; in the absence of such a qualification it is
difficult to see why it should apply only to future lettings rather than all
lettings. The argument for the defenders
proceeded in large part on the proposition that the wording of clause 4.3
looked forward, towards the future, in that it contained an obligation not to
grant leases. Moreover, it formed part
of the Landlord's obligations, and those too looked forward. In my opinion that is not a natural reading
of the actual wording used in clause 4.3.
Neither in clause 4.1 nor in clause 4.3 can it be said that a future
tense is used. No doubt the obligation
itself, like nearly all contractual obligations, is directed to the future
conduct of the party who is bound, but the primary
verb (found in clause 4.1) is in the present tense, and the provision taken as
a whole does not appear to have any definite time reference. Perhaps most importantly, the wording of the
proviso contains no time reference, and is accordingly equally capable of
applying to past lettings and future lettings.
I accordingly conclude that the pursuers' construction of clause 4.3 is
correct, and that the prohibition in the clause extends to any first letting of
a Lettable Unit for, broadly speaking, the retail sale of jewellery other than
the Lease to the pursuers and two other lets, whenever granted. On that basis I am of opinion that the
pursuers are entitled to declarator that the defenders are in breach of the
terms of clause 4.3 of the Lease.
[12] The
foregoing analysis proceeds entirely on the wording of clauses 4.1 and 4.3 of
the Lease. When those provisions are
considered in the context of a lease of a retail unit within a shopping centre,
however, I am of opinion that further support can be found for the same
result. The essential purpose that
underlies clause 4.3 is the number of jewellers' shops that are to be permitted
in the Centre during the period when the pursuers are the Tenant. The time when the lease of any such shop is
granted is not obviously important to that issue. It is accordingly hardly surprising that
clause 4.3 as a whole, and the proviso in particular, do not contain any time
reference."
[8] The parties
were not in dispute as to the essential principles to be applied in construing
a clause of this type in a lease, most clearly enunciated in the House of Lords
in Melanesian Mission Trust Board v Australian Mutual Provident Society 1997 2 EGLR 128. They were that words in
a commercial contract shall be given their ordinary meaning and an ambiguity
should not be sought. If such should arise
naturally, it can be dealt with by parole evidence, but such is not necessary
if there is a clear construction available on the words disclosing the common
intention of the parties. Reference was
also made to Coyle v City of Glasgow Council 1997 S.C. 370.
[9] Against that
background the issue between the parties before us concentrated entirely on the
question of construction.
[10] Mr. McKenzie
submitted that the Lord Ordinary had erred in his construction of the clause,
although he did not differ from the basic categorisation that the Lord Ordinary
has given to the various parts of it.
What in essence he said was that by reference to the opening part of the
clause (the condition) the clause was looking to the future and, properly
understood, was legislating for a total of five retail units, that is to say
the three existing at the time of the lease, including that of the pursuers,
plus two more and that given that approach the defenders were not in breach of
the lease by entering into a contract with a further third jeweller, making the
total in fact four. We trust we do not
do disservice to the argument but as we understand it that was its essence when
reduced to essentials. By way of a
supplementary position Mr. McKenzie said there should be a Proof before Answer
because the construction of the clause was ambiguous, to enable parole evidence
to be led as to the intention of the parties as between a total of three or a
total of five units being contemplated.
[11] Mr. McColl's
position was essentially in total support of that adopted by the Lord Ordinary,
but in particular he emphasised that if Mr. McKenzie's contention for a total
of five units was correct, the word "other" contained in part of the brackets
on the fourth line of the clause should be construed as meaning "additional". This he submitted strained the wording which
had a perfectly clear meaning to the effect that, given the existence of three
leases, including that of the pursuers at the time that their lease was entered
into, that was to be the limit and the landlord was accordingly prohibited from
entering into any further leases in respect of other units for jewellery
purposes on a first letting basis unless there were less than three units in
existence for jewellery purposes at the time of such a transaction. This was not the case in the present case
and, accordingly, the landlord was in breach of the lease.
[12] We have no
hesitation in supporting the position adopted by the Lord Ordinary in this case
as endorsed by Mr. McColl. We consider
that dividing the clause up in precisely the same way as did the Lord Ordinary
the condition applies to the period in question, namely the duration of the
current lease, and the prohibition is against any further letts for the retail
sale of jewellery involving first letts unless there is less than three units for
that purpose in existence at the time.
We accept that the Lord Ordinary's approach, albeit he criticises quite
correctly the language and syntax of the clause, reflects what the parties
intended. This was an anti competition
clause in favour of the tenants principally who would hardly be likely to wish
to agree to an additional two units beyond their let being achieved. We accept that the word "other" permits that
and it should not be construed as meaning additional. Therefore in the competition between the
parties as between three units and five we are entirely satisfied that the
appropriate figure should be three at any one time.
[13] In these
circumstances the landlords are in breach of the lease. The Lord Ordinary came to the correct
conclusion, and we will therefore refuse this reclaiming motion and adhere to
his interlocutor.
