Wolanski Co Trustees v. First Quench Retailing [2004] ScotSC 13 (13 February 2004)

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The Sheriff, having resumed consideration of the cause, allows a proof before answer, reserving meantime parties' preliminary pleas; finds no expenses due to or by either party in respect of the diet of debate.

In this commercial action, the pursuers seek to have the court find and declare that (1) the defenders have incurred an irritancy of the lease of subjects at 85 Renfield Street in Glasgow (hereinafter referred to as "the subjects") and (2) that the lease is accordingly null and void. The pursuers also crave removal of the defenders from the subjects.

Much of the factual background is not in dispute. The pursuers and the defenders, respectively, are vest in the landlords' and tenants' parts of the lease of the subjects. By notice dated 17 September 2002 the pursuers' agents called upon the defenders to make payment of an insurance premium and common charges failing which the lease would be subject to termination. The parties are at odds as to precisely what was due in terms of the notice. However, on 1 October 2002, the defenders' surveyors wrote to the pursuers' agents proposing that the total sum referred to in the notice be placed in a deposit account pending resolution of the parties' differences. That proposal was rejected. The pursuers' agents wrote to the defenders' surveyors by letter dated 3 October 2002. That letter allowed the defenders an opportunity "to purge the irritancy" prior to a second notice terminating the lease being issued on behalf of the pursuers. Inter alia, the letter stated:-

"Accordingly, the period referred to in the irritancy notice dated 17 September will be extended until close of business on Monday 7 October. If the outstanding monies are not paid by that date I am instructed to serve a second notice formally irritating the lease."

The total sum involved was not paid by 7 October 2002. However, by electronic transfer on 8 October 2002, the defenders paid £2,653.08 into the pursuers' bank account. As far as the defenders were concerned, that sum represented payment of the insurance premium under the lease. The pursuers also issued a notice dated 8 October 2002 purporting to bring the lease to an end.

Thereafter, the pursuers accepted payments of a quarter's rent on 25 October 2002 in the sum of £11,235.94, in respect of the period 11 November 2002 to 1 February 2003, and on 31 January 2003 in the same sum for the period 2 February 2003 to 14 May 2003. It is also admitted that the pursuers had been paid rent for the periods 15 May 2003 to 31 July 2003 and 1 August 2003 to 10 November 2003.

In terms of their third plea-in-law, the defenders maintain that the pursuers are not entitled to terminate the lease "due to the fundamental invalidity of the notices of 17 September 2002 and 8 October 2002". The defenders' fourth plea-in-law states that:-

"Esto the notices of 17 September 2002 and 8 October 2002 are valid (which is denied), the pursuers having waived their right to insist on irritancy, the defenders should be assoilzied."

The waiver upon which the defenders found is said to relate to the acceptance of rental payments after the notices were issued. (Article 7 and Answer 7 refer). In relation to the question of invalidity, the defenders contend that because the irritancy notices made reference to sums not properly due, the notices were thereby rendered invalid in their entirety.

The pursuers adhere to their first plea-in-law to the extent of maintaining that, apart from Answer 7, the defenders' averments should be excluded from probation.

Accordingly, in the course of the debate which took place before me, Mr Connell, for the defenders, sought dismissal of the action, whilst Mr Sanderson, for the pursuers, accepted that the averments in Article 7 and Answer 7 embraced a relevant issue (viz. waiver) but argued that it could only be determined after an enquiry into the facts and circumstances.

Finally, it should be noted that, towards the end of the debate, Mr Connell conceded that, on the hypothesis that the defenders' averments were not excluded from probation, in respect of the "validity point", a proof before answer would be required.

Therefore, in light of that concession, I have confined myself to consideration of the respective arguments quoad (a) the existence of waiver or otherwise and (b) the relevancy or otherwise of the defenders' averments (under exception of those contained within Answer 7).

After a brief analysis of the pleadings and certain productions, including the lease itself, Mr Connell set forth what might conveniently be described as the defenders' "waiver argument". He submitted that the issue between the parties turned on whether a landlord had the ability to accept rent from a tenant while, at the same time, seeking to maintain that the lease between them was at an end, in reliance upon irritancy.

Mr Connell suggested that waiver was a legal nomenclature applied to a variety of circumstances and that its operation depended upon the individual characteristics of each case. However, he submitted that the central proposition advanced on behalf of the defenders was that acceptance of rent is an act which is wholly inconsistent with the right to rely upon an irritancy clause. That fundamental inconsistency could not be elided by arguing that something had been said or done to create a different outcome.

It was maintained that the fact that any payment was effected by the electronic transfer of funds was of no significance. Nevertheless, Mr Connell recognised that decisions in other cases had frequently turned upon whether payment had been made in a way in which the landlord was unaware of the payment being made or whether there had been a delay prior to an attempt on the part of the landlord to return the payment.

Mr Connell asserted that the acts of demanding and retaining rent would normally prevent reliance upon an irritancy clause. In the present case, there was no doubt that rent had been demanded. Equally, there was no question of anyone trying to send the money back. The pursuers had even gone as far as to issue receipts for the payments.

Objectively, the conduct of the pursuers was such that they must be taken to have waived the irritancy.

In support of his argument, Mr Connell referred to the case of H M V Fields Properties Ltd v Bracken Self-Selection Fabrics Ltd 1999 SLT 31 and cited passages in the opinions of the Lord President and Lord Coulsfield.

"But if, as happened in this case, the tenant remains in occupation of the subject and tenders payment of the rent when it falls due, and if the rent is then accepted in his turn by the landlord, matters are being conducted on a basis which is inconsistent with the contract having come to an end. Where the facts are as simple as that, it seems to me that there is little more to be said. The landlord's actings in accepting the rent from the tenant who remains in possession, if looked at objectively, provide a clear indication that he is willing that the contract should remain in force."

Lord Coulsfield adopted a similar approach under reference to the case of Central Estates (Belgravia) Ltd v Woolgar (No 2) [1972] 1 WLR 1048, wherefrom Mr Connell highlighted the following passage in the opinion of Buckley L.J.:

"In my judgment, the effect in law of an act relied on as constituting a waiver of a right to forfeit a lease must be considered objectively, without regard to the motive or intention of the landlord or the understanding or belief of the tenant. It has long been accepted as law that a landlord cannot prevent accepting a payment of rent from operating as a waiver merely by stating at the time of payment that he accepts it without prejudice to his right to forfeit: see Matthews v Smallwood [1910] 1 Ch 777, per Parker J at p 786 and Oak Property Co Ltd v Chapman [1947] K.B. 886, 898. It must in my judgment be equally true that the landlord may by some act such as receiving rent after notice of a breach of covenant unequivocally and effectively waive his right of action in respect of that breach notwithstanding that the tenant does not there and then appreciate the legal consequences of the act."

Mr Connell recognised that the case of Armia v Daejan 1979 SC (HL) 56 was authority for the proposition that, for waiver to be effective, the other party involved must show that they had conducted their affairs on the basis that the right, whatever it may be, had been waived. However, he sought to distinguish the present case and maintained that reliance upon the acts constituting the waiver was not a requisit feature. He submitted that rental payments tendered and retained could only be consistent with the waiver of the landlords' right to terminate the lease. It was, suggested Mr Connell, a "black and white" situation. It required to be looked at in an objective manner; what the parties may or may not have thought or intended at the material time was neither here nor there. The circumstances averred and admitted indicated that the pursuers could no longer rely upon the irritancy notice.

In response to the defenders' waiver argument, Mr Sanderson submitted that the matter in dispute turned upon an issue of fact, not law, and that, accordingly, there should be an enquiry in the form of a proof before answer, in respect of the averments in Article 7 and Answer 7.

It was accepted, on behalf of the pursuers, that the case of H M V Fields was the "starting point" in the context of the argument before the court. Mr Sanderson referred to passages in the Lord President's opinion at 34 D - E and K - L. In his submission, what required to be identified were waiver to be established was an indication that the landlords were content that the contract should remain in force notwithstanding the irritancy. It was maintained on behalf of the pursuers that no single fact was determinative of that issue. In the present case, no "irresistible inference" was to be found (at least at the debate stage) pointing to waiver on the part of the pursuers.

Mr Sanderson indicated that the defenders had remained in occupation after the irritancy notice and had, accordingly, incurred a liability to pay to the pursuers a reasonable sum in respect of their occupation of the subjects. Naturally, the irritancy clause in the lease (Clause 11, page 35) provided for the service of a notice designed to bring the lease to an end. However, the right to serve such a notice existed (expressly) "without prejudice to any other right of action or remedy available to the landlord..." etc.

That "without prejudice" reservation to the pursuers, could cover ancillary sums payable even if the lease were irritated.

The defenders' pleadings were silent on the question of any "demand" for rent being made. The court might only have sight of the isolated invoice in the defenders' inventory. On the face of it, rent had been demanded but the issue of a receipt was on a "without prejudice" basis. That, as with every facet of the case, was not conclusive. It was, contended Mr Sanderson, merely one factor which required to be considered along with all the other factors, although he was quite prepared to concede that mere pronouncements by the landlords were not necessarily germane to the issue.

In paragraph (c) of the pursuers' note of argument, especially at page 4, various matters were highlighted in support of the argument that an enquiry into the facts was required before the waiver issue could be determined. Mr Sanderson submitted that the "weight" of these matters could only be determined once evidence had been led. An example of such an approach was the case of MacDonald's Trustees 1997 SCLR 986 in which a tenant of shop premises was sequestrated and, as was their right in such circumstances, the landlords served a notice of termination of the lease. That was followed by a summary cause action for recovery of the subjects. The business in the shop premises was, in fact, carried on by a company of which the tenant was an employee. Negotiations took place between the landlords and the company with a view to the lease being assigned, but nothing materialised. The company continued to operate from the premises and, for a certain period, rent was paid and accepted.

At first instance, after proof, the sheriff held that, in the circumstances, the pursuers (the landlords) had waived the right to terminate the lease. The pursuers appealed to the Sheriff Principal. Inter alia, they argued that their acceptance of rent did not, in the circumstances, amount to an unequivocal act constituting waiver of the irritancy notice. That argument found favour with the Sheriff Principal. At page 990 B, he expressed the view that the sheriff seemed "...to have proceeded simply on the basis that because payments of rent were paid and accepted, the pursuers must thereby be taken to have waived any rights against the defender."

"In that situation I consider that it is open to me to consider counsel's submissions afresh and, when I do so, I have to say that in my opinion he is on strong ground when he says that the whole circumstances in the present case do not support the conclusion that the acceptance of payments of rent by the pursuers unequivocally pointed to, and demonstrated, that they were thereby departing from, and waiving, their contractual right of termination as against the defender."

Mr Sanderson submitted that only "a total abandonment" of the right to rely on the irritancy would serve to qualify as waiver. Mere postponement of the right to resile was not enough. Without an enquiry into the facts, it would be impossible to determine that the pursuers' right to rely on the irritancy had been permanently abandoned.

Moreover, counsel maintained that some form of reliance upon the waiver had to be shown. He argued that all the authorities made it clear that reliance by one party was a prerequisite to the waiver becoming effective. By way of example, Mr Sanderson referred to Lord Kirkwood's remarks in the case of James Howden & Co Ltd v Taylor Woodrow Property Co Ltd 1999 SLT 841 at 850 L - 851 A.

Counsel went on to emphasize that payment of rent per se could not be said to amount to reliance in respect of waiver. He contended that the defenders' actings were equally consistent with the belief that the irritancy had yet to be incurred and that the pursuers had merely delayed their right to resile. A proof was required to determine just what was in the mind of the defenders when they acted in the way that they did by making payments etc.

Additionally, in Article 7, the pursuers aver that at no time prior to the defences being lodged had the defenders suggested that the pursuers had waived their rights under the irritancy notices or that they had been conducting their affairs on that basis.

In support of the pursuers' own preliminary plea, Mr Sanderson adhered to the line of argument set out on page 2 of the pursuers' Note of Argument in paragraph B thereof. There is no need to repeat in full what appears in the Note. However, the pursuers' contention that the bulk of the defenders' averments ought to be excluded from probation revolves around the proposition that whatever sums truly fell due for payment under the lease, the notices of 17 September and 8 October 2002 were nevertheless valid for the purposes of irritating the lease. (See C I N Properties Ltd v Dollar Land (Cumbernauld) Ltd 1992 S C (H L) 104)

Mr Sanderson founded on the defenders' admission at the beginning of Answer 6 that, by 7 October 2002, they had still not paid any monies to the pursuers in respect of the sums specified in the notice of 17 September 2002. On that basis, he submitted that in response to the claim that at least some of the monies remained unpaid as at the due date, no relevant defence had been stated. Accordingly, it was argued that an irritancy had occurred as at 7 October even if a payment had been made subsequently.

Paragraph A of the pursuers' Note of Argument challenged the lack of specification in Answers 3 and 6. Counsel for the pursuers maintained this line of argument in the course of the debate. His criticism focussed upon the defenders' failure to clarify their position in respect of the landlords' determination under clause 1.1 of the lease. The mere reference to the terms of the letter of 18 February 1987 was uninformative. Furthermore, the defenders' use of the formulation "believed" regarding the appropriate amount payable quoad the insurance premium due under the lease, was inadequate. The basis for that belief had to be averred to render the defenders' answer relevant. As far as this aspect of the case was concerned, there was no fair notice of the line of defence.

On behalf of the defenders, Mr Connell stressed the chronology of events. He submitted that irritancy was merely an option which required to be exercised and properly intimated.

It was argued that the 7 October "deadline" was, in fact, of no relevance. What mattered was the pursuers' election to exercise their right to irritancy on 8 October. That required intimation by notice and, in terms of clause 12 of the lease, the notice could not have effect until 48 hours after posting. On the same date as the pursuers' second notice, the defenders had made a payment of certain sums by way of electronic transfer. Accordingly, insofar as the pursuers sought to rely upon non-payment as at 7 October 2002, they were wrong to do so. It was the notice of 8 October which was important and, in any event, in terms of timing, the defenders' payment had "beaten" the notice issued which was subject to the 48 hour period specified in clause 12.

That sort of situation had not been dealt with in the case of C I N Properties. Furthermore, beyond first instance, the appellants had restricted their arguments to the relevancy of their averments as to the oppressive exercise of the irritancy. Consequently, Mr Connell submitted that the C I N Properties case was not authority for the argument advanced by the pursuers.

With regard to the specification points taken by Mr Sanderson, and, in particular, in relation to the letter of 18 February 1987, it was argued on behalf of the defenders that any alteration to the "Appropriate Proportion" had to be intimated to be of any effect. Prima facie, clause 12 of the lease provided for any such notice being served upon the tenants. In the case of the letter of 18 February, that had clearly not been done; it had gone to their agents instead. That being so, the pursuers' pleadings were bereft of any relevant averment regarding effective intimation.

That analysis led Mr Connell to the conclusion that the letter of 18 February was "no longer in the litigation" and that the criticism of the defenders' pleadings in this respect was ill-founded. However, he accepted that should the matter go to proof, the defenders would be prevented from leading positive evidence regarding the reasonableness of the four-ninths figure. Nevertheless, it was for the pursuers to aver and prove that the figure had been properly changed from one-third.

In relation to the question of waiver, Mr Connell argued that any "post-irritancy" payment could not be regarded as neutral and stressed that any professional fees were linked to the period after the purported irritancy. The pursuers made no attempt to aver that sums had been retained whereas it was accepted, in terms, that rent had been accepted. Additionally, the fact that the parties may have engaged in any form of dialogue was, submitted Mr Connell, entirely irrelevant.

Responding to Mr Sanderson's submission regarding the absence of demonstrable reliance upon the waiver contended for, Mr Connell suggested that the most telling point in favour of the defenders arose from the court's silence on this point in the H M V Fields case. The decision in Armia had been before the court and yet neither the Lord President (whose opinion met with the concurrence of Lord Grieve) nor Lord Coulsfield commented upon the issue of reliance. All that made sense, argued Mr Connell, since the real point at issue in Armia had been whether it was essential for the party insisting upon waiver to establish prejudice.

Finally, despite what had been said in the course of Mr Sanderson's submission, Mr Connell emphasized that there were no averments on behalf of the pursuers to the effect that rental payments had been treated as payments for continued occupancy. Had that been so, then he may have found it more difficult to resist the pursuers motion for a proof before answer on the issue of waiver.

(1) The authorities indicate that waiver is always a matter of fact and of circumstances. (See, for instance, Lord Coulsfield in H M V Fields at 37 I-J; Lord Justice-Clerk Ross in Lousada & Co Ltd v J E Lesser (Properties) Ltd 1990 SC 178 at 191; and Lord Keith in Armia at 72). However, it should also be recognised that "...acceptance of rent is, in all normal circumstances, an act so unequivocal that it must be taken to amount to a waiver of irritancy." (See Lord Coulsfield in H M V Fields at 37 J-K).

(2) In the present case, the defenders contend that the pursuers' actings in accepting rental payments after the irritancy notices were, indeed, so unequivocal that, when taken along with the absence of relevant averment designed to rebut the existence of waiver, the court should be in a position to deal with the matter without any need for an enquiry into the facts.

(3) To my mind, one difficulty with that proposition is that the various authorities cited for the benefit of the court do seem to suggest that, in this area of the law at least, the courts will be slow to dispense with the need for proof, unless the salient facts are agreed or patently irrefutable in the absence of other qualifying or explanatory circumstances.

(4) In H M V Fields, Lord President Hope was quite clear on the matter. "In my opinion, the question whether or not a subsequent acceptance of rent amounts to an unequivocal act amounting to waiver of the notice of irritancy is a question of fact which must be answered in the light of the surrounding circumstances." (35 D-E).

Earlier in the same opinion, Lord Hope noted the significance of a tenant remaining in occupation of the subjects and the acceptance of rental payments by a landlord (34K-L). However, even where "the argument that waiver has occurred is all the more powerful and correspondingly hard to resist", (as in the Central Estates case) Lord Hope nevertheless adhered to the view that the existence of waiver was "essentially a question of fact and one of the weight to be attached to the evidence."

(4) It is, perhaps, worth noting that the arguments in H M V Fields came before the First Division after a proof before answer in front of an arbiter; that in the MacDonald's Trustees case (cited by Mr Sanderson) there was a proof at first instance (although that was inevitable given that it was a summary cause); and that before the issues were aired in Armia in the House of Lords, Lord Stott presided over a proof before answer in the Outer House (of course, there were a number of issues for consideration by the court).

(5) For an enquiry to be allowed, there must be relevant and specific averment to found the leading of evidence. In that regard, the pursuers' averments in Article 7 are, in my opinion, largely of doubtful relevance. For instance, the fact that the parties may have "entered into correspondence with a view to resolving the issues between" them, is of little or no moment in the context of waiver and I understood Mr Sanderson to accept that proposition in the course of his submissions. Similarly, I do not consider that attempts by the pursuers to "qualify" the acceptance of monies from the defenders by suggesting that such conduct "was not to be taken as waiver" can avail the pursuers. (See Lord Coulsfield in H M V Fields at 36 K-L.)

(6) Nevertheless, whilst the pursuers' position as to why it is that they have not waived their right to irritate the lease might be described as elusive, I consider that they are on stronger ground when it comes to the issue of reliance. There is clear authority for the proposition that one party must show that they conducted their affairs on the basis of the other party's waiver of the right in question. That much was recognised by the court in the James Howden case (see Lord Kirkwood at 851 A-B).

(7) In my view, the mere fact that the question of reliance was not the subject of discussion in H M V Fields is not determinative of the matter as far as the present case is concerned. Lord Coulsfield was the Lord Ordinary in Lousada and his decision was upheld by the Inner House. Lord Ross made the following observations in Lousada:

"Moreover it was recognised in the speeches in Armia Ltd v Daejan Developments Ltd that it must be shown that the pursuers had altered their position in reliance upon the alleged waiver on the part of the respondents. Counsel accepted that it was not necessary to show that the pursuers had acted to their prejudice but he contended that it was necessary to demonstrate that the pursuers had acted in some way in reliance on a belief induced by the alleged conduct of the defenders.

In my opinion senior counsel for the defenders was well-founded in making these submissions, and it is necessary to consider whether it can properly be inferred from these averments that the defenders were abandoning their right, and whether the pursuers had acted in reliance upon a belief induced by the conduct of the defenders."

(8) In Lousada, it was held that the pursuers' averments were insufficient to instruct a case of waiver. Lord Ross was of the opinion that there was "no suggestion at any point that the pursuers altered their position through relying on a belief that the defenders had abandoned their right to resile...". Those words bear a strong similarity to the language used in the opinion of the Lord Ordinary, Lord Coulsfield at page 182, viz. "There is nothing to indicate that the pursuers in any way changed their position in reliance upon anything done by the defenders during this period."

(9) The case of Lousada was decided before the appeal in H M V Fields was heard. Accordingly, I find it inconceivable that the absence of discussion in H M V Fields on the issue of reliance should give rise to the inference that it is not one of the essential features of waiver. In any event, the decision of the Inner House in the James Howden case is very clear on the point.

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You are here: BAILII >> Databases >> Scottish Sheriff Court Decisions >> Wolanski Co Trustees v. First Quench Retailing [2004] ScotSC 13 (13 February 2004) URL: http://www.bailii.org/scot/cases/ScotSC/2004/13.html Cite as: [2004] ScotSC 13

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