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Scottish Court of Session Decisions |
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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> City Wall Properties v. Pearl Assurance Plc [2003] ScotCS 211 (25 July 2003) URL: http://www.bailii.org/scot/cases/ScotCS/2003/211.html Cite as: [2003] ScotCS 211 |
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OUTER HOUSE, COURT OF SESSION |
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CA221/02
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OPINION OF LORD CLARKE in the cause CITY WALL PROPERTIES (SCOTLAND) LIMITED Pursuers; against PEARL ASSURANCE PLC Defenders:
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Pursuers: MacColl; Henderson Boyd Jackson, W.S.
Defenders: Shaffer, Q.C.; Bishops
25 July 2003
Introduction
[1] This Commercial Action is concerned with a commercial lease of subjects known as East Green Vaults in Aberdeen, under which the pursuers are the landlords and the defenders are the tenants. The pursuers seek a declarator that the rent currently payable by the defenders to them, in terms of the lease, is £64,083.60 per annum. Both parties were in agreement that the dispute could be resolved without the necessity of proof. They sought a debate on the matter. [2] The leased premises are situated under Market Street, Aberdeen and are used to provide thirty five private car parking spaces. The lease, in question, in which the pursuers presently have the landlords' interest and the defenders the tenants' interest, is a lease between British Railways Board and Owlcastle Limited, dated 20 March and 19 April 1978 and recorded in the Division of the General Register of Sasines for the County of Aberdeen, and also registered in the Books of Council and Session on 5 May 1978. Clause Tenth of the lease provides:"The landlords shall insure the premises hereby let in the name of the Landlords and Landlords for and on behalf of the Tenants on a Re-instatement basis for a sum to be determined by the Landlords.... The Tenants shall along with their first payment of rent pay the appropriate initial premium and shall repay future annual premiums on demand."
With regard to the insurance of the premises, the pursuers aver, in Article 3 of Condescendence, as follows:
"By reason of its position under one of Aberdeen's main streets, any damage to the Premises could also result in damage to a considerable number of other properties. As at 1999, the pursuers had determined that the Premises should be insured for the sum of £1,432,434, together with loss of rent insurance in the sum of £26,250, terrorism insurance and property owners' liability insurance in the sum of £100,000,000."
These averments are admitted by the defenders. The pursuers then go on to aver, in Article 4 of Condescendence, that in about 1998, the parties began to discuss a possible variation of the lease which would, inter alia, allow the defenders themselves to obtain insurance cover for the premises at their own cost. It is said that, as the defenders are an assurance company, with a considerable property portfolio, this would result in considerable financial savings to the defenders when compared with the existing insurance obligation in Clause Tenth of the lease. Once again these averments are admitted by the defenders. An amendment of the lease's provisions in this respect was subsequently agreed, along with other variations to the lease. These variations were embodied in a Minute of Amendment and Variation of Lease between the parties, dated 30 July and 9 August, and registered in the General Register of Sasines for the County of Aberdeen on 28 September 1999. It is averred by the pursuers that, prior to the amendment, the insurance premiums for the premises were about £34,000 per annum. They proceed to state: "It is believed and averred that the defenders are able to insure the Premises for about £1,700 per annum." The defenders' reply to these averments is: "The insurance premium figures are admitted." It is averred by the pursuers, and admitted by the defenders that, in return for the variation regarding the insurance provisions, the pursuers wished to have the passing rent and the rent review provisions of the lease varied. In Article 4 of Condescendence, the pursuers set out the material amendments to the lease that were agreed between the parties and embodied in the Minute of Amendment and Variation of the Lease. As well as dealing with rent review and insurance, the remaining duration of the lease was reduced by the Minute of Amendment and Variation. It is averred that Clause 4 of the Minute of Amendment provides, inter alia, that for so long as the defenders remain tenants under the lease, they shall obtain cover for the insurances referred to in Clause Tenth of the lease at their own cost. Clause 2.2 of the Minute of Amendment varied the passing rent under the lease from 1 July 1999 to £26,250 per annum. Clause 2.3 of the Minute of Amendment provided that the rent was to be reviewed on every third anniversary of 1 July 1999, in accordance with the provisions of Clause 3. The remaining duration of the lease was reduced by twenty years. Clause 3 of the Minute of Amendment is headed "The Rent Review Provisions". The parties' present dispute is concerned with the meaning and effect of those provisions. The full terms of Clause 3 are as follows:
"The rent so payable shall be subject to review at the instance of the Landlords at the relevant review date by addition per space of the product of 96 multiplied by 'the car park factor' (as hereinafter defined) applying at the relevant review date.
For the purposes of the Lease 'the car park factor' shall mean the average of increased daily rates (i.e. the 9 hour rate from 0830 to 1730 hours charged to the public) at the Trinity Centre, Bon Accord Centre and the multi-storey College Street public car parks in Aberdeen PROVIDED ALWAYS that in no event shall the rent payable by the Tenants to the Landlords after the relevant review date be less than the rent payable by the Tenants to the Landlords immediately before such relevant review date.
As soon as the amount of rent payable after the relevant review date has been determined in accordance with the terms hereof (and if required by the Landlords so to do) the Landlords and the Tenants shall enter into a separate memorandum specifying the amount of reviewed rent. The Landlords and the Tenants shall each be responsible for their respective legal expenses and other outlays in connection with any such memorandum."
"As at 1 July 1999 the 9 hour rate for each of the comparator car parks was as follows:
(i) Trinity Centre, Aberdeen - £8.50;
(ii) Bon Accord Centre, Aberdeen - £10; and
(iii) Multi-storey College Street, Aberdeen - £5;"
These averments are admitted by the defenders.
The Dispute
[4] In terms of Clause 2.3 of the Minute of Amendment to the lease, the rent payable by the defenders, under the lease, fell to be reviewed on 1 July 2002. The pursuers aver that "at that date the 9 hour rates at each of the three comparator car parks had increased; the average of those increased rates ('the car park factor') was £11.26." The defenders admit that, as at 1 July 2002, the average rate for a 9 hour stay, at the comparator car parks, was £11.26. They, however, deny that the "car park factor" was £11.26. They aver that the £11.26 figure "was an increase over what had been the figure for the same car parks on the same basis at 1 July 1999." The pursuers aver in Article 6 that they have informed the defenders that the reviewed rent in terms of Clause 2.3 and Clause 3 of the Minute of Amendment is £64,083.60, being the product of the number of car park spaces, 96 and the car park factor added to the passing rent (35 x 96 x £11.26 + £26,250). The defenders do not challenge the arithmetic involved in the foregoing calculation. The dispute between the parties is what, in terms of Clause 3 of the Minute of Amendment, is the car park factor. As has been seen, the pursuers, for their part, take the car park factor to be the average of the rates charged at the comparator car parks on 1 July 2002 (the average having increased since 1 July 1999). The defenders' position, however, is that the car park factor is not £11.26 but £3.43, which is the average of the increases in the rates charged at the comparator car parks as between 1 July 1999 and 1 July 2002. The difference in approach produces a very material difference in the reviewed rent. As has been seen the pursuers' approach produces a reviewed rent of £64,083.60. The defenders' approach, however, produces a reviewed rent of £37,774.80. [5] The difference between the parties ultimately revolves round the meaning of the words "the 'car park factor' shall mean the average of increased daily rates (i.e. the 9 hour rate from 0830 to 1730 hours charged to the public) at the Trinity Centre, Bon Accord Centre and Multi-storey College Street public car parks in Aberdeen". [6] At the Procedural Hearing in this case, as I have previously noted, both parties sought a debate. Counsel for both sides were at one that the matter could, and should be, resolved without the need of proof. That was so, notwithstanding that the defenders, in their pleadings, make reference to various matters, extraneous to the wording of the lease and its amendment, including correspondence between the parties' representatives, leading up to the execution of the Minute of Amendment. I acceded to the parties' joint motion to allow a debate.Pursuers' Submissions
[7] When the matter came before me for debate, counsel for the pursuers invited me to sustain the pursuers' plea to the relevancy of the defences and to pronounce decree de plano. He reminded me, at the outset of his submissions, that the Minute of Amendment was a matter of admission as was the fact that it was the product of negotiation, its final form being the outcome of revision and agreement by the solicitors acting on behalf of the parties. Against that background, he said, the pursuers' case was a very straightforward one. They simply invited the court to construe the words in the rent review provision, in particular in relation to the "car park factor" according to their ordinary meaning. The words "increased daily rates" should be read as meaning what they say, namely, the daily rates which had increased since July 1, 1999. Counsel referred me to the meaning given to the word "increased" in the 2nd edition of the Oxford English Dictionary, i.e. "made or become greater, augmented, multiplied etc." When construing the provisions of Clause 3, therefore, one was looking at car park rates which had been made or become greater. If one did that, the approach advanced by the pursuers to the calculation of the reviewed rent was clearly correct. On the other hand, the defenders required the relevant provision to be re-written to the effect that the car park factor "shall mean the average of the increases in the daily rate..." which was a quite different thing from what the actual words said. The pursuers' position began and ended in the legal proposition that -"where parties to a formal document have used ordinary words, the parties must be taken to have used those words according to their ordinary meaning. If their meaning is clear and unambiguous effect must be given to them in their ordinary meaning because that is what the parties are taken to have agreed to."
That was a proposition which was to be found expressed by the Privy Council, in the field of construction of rent review clauses, in the case of Melanesian Mission Trust Board v Australian Mutual Provident Society (1997) 2 EGLR 128. The facts of that case are not relevant to the present dispute but, in giving the judgment of the Board, Lord Hope, at p.129 E-F said this:
"The approach which must be taken to the construction of a clause in a formal document of this kind is well settled. The intention of the parties is to be discovered from the words used in the document. Where ordinary words have been used they must be taken to have been used according to the ordinary meaning of these words. If their meaning is clear and unambiguous, effect must be given to them because that is what the parties are taken to have agreed to by their contract. Various rules may be invoked to assist interpretation in the event that there is an ambiguity. But it is not the function of the court, when construing a document, to search for an ambiguity. Nor should the rules which exist to resolve ambiguities be invoked in order to create an ambiguity which, according to the ordinary meaning of the words, is not there. So the starting point is to examine the words used in order to see whether they are clear and unambiguous. It is of course legitimate to look at the document as a whole and to examine the context in which these words have been used, as the context may affect the meaning of the words. But unless the context shows that the ordinary meaning cannot be given to them or that there is an ambiguity, the ordinary meaning of the words which have been used in the document must prevail."
Counsel for the pursuers added to, and reformulated, the principles contained in that passage in the following way. He submitted that the legal position covering such questions could be stated in the following five propositions:
1. The intention of the parties was to be discovered from the wording of the formal document itself.
2. The documents superseded the previous negotiations between the parties and their representatives in establishing the intention of the parties.
3. Where ordinary words are used in their ordinary way, they should be given their ordinary meaning.
4. When the meaning of the a word is clear and unambiguous, effect should be given to that meaning.
5. It was not the role of the court to search for an ambiguity when the ordinary meaning of the words is clear.
Counsel referred me, in support of his submissions, to McBryde on Contract (2nd ed.) at para.8.25 and to the case of East Anglian Electronics Ltd v O.I.S. plc 1996 S.L.T. 808. That case involved a question of construction of an informal back letter to a formal agreement for the sale of a business, regarding the assignation to the pursuers of a sub-lease. The pursuers sought specific implement of the back letter. The First Division held that certain of the provisions, in respect of which the pursuers sought specific implement, were not enforceable being dependent for certainty on further negotiations yet to be entered into. In giving the opinion of the court, however, Lord President Hope at p.811 F-H in dealing with an argument which had been put forward by counsel for the pursuers as to the enforceability and certainty of the provisions in question, said this:
"But the undertaking has to be construed in order to discover the extent to which the defenders intended to be bound by it. While some latitude may be given where this is needed to make a commercial bargain enforceable, it is essential first to identify the bargain which was entered into. The function of the court is to give effect to the bargain made by the parties, not to substitute a different bargain from that which they made for themselves. So it is in the case of an undertaking such as that which the pursuers seek to enforce in this case. The extent of the undertaking is to be found in the words used by the party who gave it, since it is from these words only that the intention of the party who gave the undertaking can be discovered. The question in this case is not what the defenders might be expected to have undertaken in the light of the surrounding circumstances, but what meaning is to be attributed to the undertaking which they in fact gave in terms of this clause."
Counsel for the pursuers proceeded to refer me to an earlier decision of the First Division in the case of Bruce v Barratt Developments plc 1991 S.C. 348. In that case the former deputy chairman of a company raised an action of payment for commission which he averred was due to him in terms of an agreement setting out the conditions of his employment with the company. The employer company challenged his method of calculating the commission in question. They claimed that the maximum amount payable in respect of a twelve month period under the contract should be reduced proportionately for the year of termination to reflect the lesser period of employment. There was no express provision, in the contract, to this effect. The employer's argument was based on two clauses in the contract of employment, the first of which varied the maximum commission in the event that a financial year was longer or shorter than twelve months, and the second of which provided that the annual profits on which the commission was based would be reduced proportionately in the event of termination of the contract prior to the completion of a financial year. The Lord Ordinary upheld the employer's contentions on the basis that the pursuer's interpretation resulted in the maximum commission requiring to be adjusted proportionately where the pursuer was employed for a financial year amounting to less than twelve months, but not where he was employed for less than a whole year during a financial year amounting to twelve months and that that would be "incongruous". The pursuer reclaimed and the First Division reversed the decision of the Lord Ordinary. In his opinion, Lord President Hope, at pps.351-352, said:
"I think that the answer to this dispute is to be found by adhering strictly to the words used in the agreement. It seems to me that if this is done the pursuer cannot be said to have erred in calculating the amount of commission to which he is entitled. The primary question is not whether the calculation for which he contends is fair and reasonable but rather whether it is in accordance with what the parties have agreed. Due weight and meaning must be given to each of the words used in the agreement, but one must be careful to give effect only to those words and not introduce some other step into the calculations which may seem sensible and reasonable but which is not authorised by the contract.
I accept that, if the result which was produced by applying the provisions of the contract according to their terms was so wholly unreasonable as to be absurd, one would have to look again at the contract in order to see whether, taking the matter as a whole, the parties could really be held to have intended that result. As Lord Reid pointed out in Wickman Machine Tool Sales Ltd v L Schuler A.G. (1974) AC 235 at p.251, the fact that a particular construction leads to a very unreasonable result, must be a relevant consideration. But in my opinion, that is not the situation which arises in this case."
His Lordship went on to construe the particular provision and prefaced that exercise with the words "adhering precisely, as I think one must in this case, to the words used in the agreement". Having set out what he considered to be the correct construction of the provisions, adopting that approach, with particular reference to one of the clauses in the agreement, his Lordship commented "the Lord Ordinary's interpretation of it seems to me to read more into the phrase than it contained.....". Counsel for the pursuers relied on those two last mentioned cases as clearly establishing that one only departed from the ordinary meaning of ordinary words, in a formal agreement, when the result which was produced by that ordinary meaning was an absurd result or so wholly unreasonable as to lead the court to the conclusion that it could not have been intended by the parties. Moreover, it was not the job of the court to construe ordinary words, other than according to their ordinary meaning, to produce what the court might consider would have been a more reasonable result. Nor should the court embark on an exercise of re-drafting the parties' agreement to produce what it conceived a more reasonable result than the ordinary meaning produced. Counsel referred me, in that connection, to the speech of Lord Morris of Borth-y-Gest in the case of Modern Engineering v Gilbert-Ash (1974) A.C. 689 at p.703 G-H. It was abundantly clear that what the defenders were asking the court to do was to engage in re-drafting the parties' agreement by reading in the words "increases in" and by reading out "increased".
[8] In anticipation of the submissions that might be made by counsel for the defenders, having regard to what was said in the defences, and in the defenders' note of argument, counsel for the pursuers made certain supplementary submissions. The defenders could gain no support, as they apparently sought to do, for their approach to the construction of the rent review provisions, by asserting that, on the pursuers' approach to the construction of the relevant clause, the word "increased" would become otiose. The word "increased" had, in its context, a meaning. It provided for the mechanism to be used to determine the reviewed rent. Once again, the use, by the parties, of the words "in no event shall the rent payable by the tenants to the landlords after the relevant review date be less than the rent payable by the tenants to the landlords immediately before such relevant review date" did not advance the defenders' position. Those were what counsel described as "boiler-plate wording" which could be found in the majority, if not all, such rent review provisions. They might be unnecessary surplusage, in the context, but their presence, or absence, did not avail either of the parties in the positions they respectively advanced with regard to the construction of the remaining words of the rent review provision. [9] The defenders were apparently making great play of what they alleged was the great "hike" in the rent payable, which the pursuers' approach to the construction of the relevant provisions brought about but they, nevertheless, themselves averred that the amendment to the lease recorded the parties' concluded agreement - see Answer 6. It was, given that express admission, illegitimate to seek to go behind the wording of the agreement to show that it produced a commercially unrealistic result. The defenders were not seeking rectification of the agreement on the basis that it did not properly reflect the parties' intentions on the matter. In that respect I was referred to the case of Bissett v Marwin Securities Ltd (1987) 1 E.G.L.R. 115. In that case Vinelott J., in construing a rent review provision, in a commercial lease, accepted the proposition that a commercial document, executed by commercial parties, ought to be construed, so far as possible, to give effect to commercial good sense. His Lordship, at p.116 J-K, concluded that the lease in question construed as "a commercial document and with a view to giving effect to the commercial purpose to be discerned from the terms of the lease as a whole", did not produce the result contended for by the lessor, in that case, as to what the common intention of the parties was. His Lordship went on to say, again at p.116 J-K, "If the existence of such a common intention can be inferred from other material, the lessor's remedy is an action for rectification." Counsel for the pursuers pointed out that, in the present case, the rent review provisions are not linked (as they were, in part at least, in the last mentioned case) to market value as such. The parties had, in the present case, decided to provide for rent review by way of application of a precise formula, which was not declared expressly, or impliedly, to be designed to achieve "market value". The defenders' position, to some extent at least, relied on seeking to show that the formula, if applied in the way the pursuers said it should be applied, would result in a reviewed rent far exceeding current market value. But the parties had, as already had been pointed out, not sought to tie the rent review provision to market value, in any way. In this connection counsel referred me to the decision of the Court of Appeal in Equity & Law Life Assurance Society PLC v Bodfield Ltd (1987) 1 E.G.L.R. 124. This case was decided a year after the decision in the case of British Gas Corporation v Universities Superannuation Scheme Ltd (1986) 1 W.L.R. 398, a decision, as shall be seen, upon which the defenders relied heavily in the present case. In the case of Equity & Law Life Assurance Society PLC, Dillon L.J., in giving the judgment of the court, said this, at p.125 B-C:"There is no doubt that the general object of a rent review clause, which provides that the rent cannot be reduced on a review, is to provide the landlord with some measure of relief where, by increases in property values or falls in the real value of money in an inflationary period, a fixed rent has become out of date and unduly favourable to a tenant. The exact measure of relief depends on the true construction of the particular rent review clause."
His Lordship then went on to deprecate the practice of referring to differently worded rent review clauses, in other leases, as an aid to construing the document with which the court is concerned in any particular case. His Lordship then continued, at p.125 D-F, to set out what he described as "rough guidelines" stated by the Vice-Chancellor in the British Gas Corporation case as to the approach to be adopted in relation to the construction of rent review provisions. The next passage in the judgment of Dillon L.J., was to the following effect:
"These were, of course, no mechanistic rules of construction, to be applied rigidly in every case. They were only guidelines, and, however valuable guidelines are, the function of the court in each particular case is to construe the particular rent review clause which is in issue in that case.
Where lawyers have prepared a particularly complicated rent review it is likely to be difficult if not impossible for the parties to discover the right basis of valuation without recourse to lawyers. Indeed, one of the most fruitful sources of difficulty in the construction of such clauses, is that parties leave it to their lawyers to devise appropriate wording to, in the Vice-Chancellor's words, 'give effect to the underlying commercial purpose of a rent review clause', and the lawyers, in devising complicated review provisions, fail to appreciate the less immediately apparent commercial implications of what they have drafted. Guidelines such as the Vice-Chancellor's cannot entitle the court to construe and apply not the clause which the parties have entered into but the different clause which they might have, or probably would have, entered into if their lawyers had thought rather more deeply about how the intricate scheme they were setting up would work in practice."
That passage, counsel for the pursuers' contended, could, and should, be applied to the circumstances of the present case. What the defenders were truly seeking the court to do was not to apply the clause which the parties had agreed to, but a different clause, which they might have entered into if their lawyers had thought rather more deeply about how the provision might operate in practice. Reference was then made to the judgment of Slade L.J., in the case of Guys'N'Dolls Ltd v Sade Brothers Catering Ltd (1984) 1 E.G.L.R. 103, in which his Lordship referred to an "Alice in Wonderland" approach to construction, which had been advanced in relation to a particular rent review clause. Counsel for the pursuers contended that only if the ordinary meaning of words in the rent review clause produce an "Alice in Wonderland" result, or a wholly illogical result, should the court depart from the ordinary meaning of the words used by the parties themselves to express their intention and to look at "commercial realities". In the present case, there was nothing illogical in the result which the pursuers' approach to construction produced. The defenders could only complain, at most, that in its operation, at least on the first rent review, had proved for them a "bad deal", but that did not entitle the court to construe the clause in a way which would avoid the bad deal for the defenders. Even an element of illogicality might not drive the court to depart from the plain meaning of the words used. In Norwich Union Life Assurance Society v British Telecommunications plc (1995) E.G.C.S. 148, the wording of the review clause might, on its ordinary reading, have been seen to contain within it an element of illogicality. It, nevertheless, was considered by the court not to produce anything like the self-cancelling absurdity, described as "Alice in Wonderland" reasoning in the Guys'N'Dolls case. It was held that the element of illogicality produced did not entitle the court to re-write the parties' agreement rather than interpret it.
[10] The next line of defence, apparently relied upon by the defenders, was by reference to prior communings passing between the parties' representatives. But the defenders themselves admitted that the rent review provisions contained in the Minute of Amendment were "professionally and carefully drawn up, and revised after lengthy negotiation between the instructing parties. It recorded their concluded agreement" - see Answer 6(b). That being the defenders' position, as averred by them, which was entirely consistent with the pursuers' position on the matter, the general rule applied and there could be no recourse to looking at the prior negotiations to explain the meaning of plain words which had been chosen deliberately by the parties to express their intentions. Recent authoritative statements on the rules of construction of commercial agreements had not removed that general rule. So in Investors Compensation Scheme Ltd v West Bromwich Building Society (1998) 1 WLR 896, Lord Hoffmann, in giving the leading speech, of the majority, at p.913 A-B, set out, as one of the principles of construction of commercial agreements, that -"The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life...".
My attention was also drawn to Lord President Rodger's opinion in the case of Bank of Scotland v Dunedin Property Investment Company Ltd 1998 SC 657 at p.665F, where his Lordship said: "...the rule which excludes evidence of prior communings as an aid to interpretation of a concluded contract is well established and salutary." Counsel for the pursuers submitted that the averments of the defenders, in Answer 6, sub-paragraph (d) amounted to a clear attempt to construe the agreement against prior negotiations which, having regard to those dicta, remained illegitimate in law.
[11] For all the foregoing reasons the pursuers' position was that the court should simply construe the relevant provisions, according to the plain meaning of the words used and, if that was done, the defences were irrelevant and the court should pronounce decree de plano in favour of the pursuers.Defenders' Submissions
[12] In reply for the defenders, senior counsel pointed out that the Minute of Amendment, 21/33 of process, dealt, as has been seen, not only with the question of rent review and insurance, but other matters. The lease had been reduced in duration by twenty years and the rent review was to take place every three years instead of five years, as had originally provided for. There was also a new provision regarding alienation of the lease. The Minute of Amendment was clearly the outcome of long discussions and consideration. Nevertheless, he said that the draftsmanship did not indicate that a purist was at work. In that respect, senior counsel drew my attention to certain infelicities of expression in the Minute of Amendment. Nevertheless, as far as the words which the court had to construe, in the present case, were concerned, senior counsel said that, in their context, their meaning was clear. In his submission, it was reasonably clear that the clause had to be read, as he put it, "as if it was concerned with the increase in the 9 hourly rates at the specified car parks from the initial rates at those car parks". Senior counsel accepted that, in construing a deed of this kind, the court had to look at the plain meaning of the words used, but he went on to say that this must not be done in isolation from the context in which the words themselves appeared. It was not a matter of slavishly following the dictionary meaning of the words used, if by doing so one got what he described as "a contorted meaning". He sought to demonstrate by arithmetical examples that the approach to construction of the wording of the clause urged on the court by the pursuers, could have the effect of virtually doubling the rent at the review date if the rates at the specified car parks during the review period had increased only by 1p per hour. It was necessary to give the words a meaning not divorced from reality. A rent which doubled in three years, following the pursuers' approach, indicated that something had gone wrong. Such a huge increase was unreasonable. While senior counsel accepted that the Minute of Amendment gave the defenders a substantial benefit by allowing them to provide their own insurance of the subjects, that did not involve the pursuers, as landlords, giving up a benefit which could explain or justify the high increase in rent which the pursuers' approach to the construction of the rent review provisions produced. The pursuers did not plead or argue that other matters contained in the Minute of Amendment provided an explanation or justification for such a high increase in the rent at review. Senior counsel referred to RPI figures for the period between July 1999 to July 2002 to demonstrate that inflation over that three year period was in the region of 6.54%. That further demonstrated how far the result of the pursuers' approach was from reality. [13] I was referred to what Lord President Rodger had to say in Bank of Scotland v Dunedin Property Investment Company Ltd at p.661F and, more particularly, to what Lord Hoffmann had said in Investors Compensation Scheme at p.913, in the following, in setting out his fourth and fifth principles of legal interpretation, viz,"(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong word or syntax: see Mannai Investments Co Ltd v Eagles Star Life Assurance Co Ltd (1997) AC 749.
(5) The 'rule' that words should be given their 'natural and ordinary meaning' reflects the common-sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had."
Senior counsel submitted that by applying these dicta to the circumstances of the present case, the defenders' approach to the construction of the rent review clause was to be preferred. If it were to be applied, it would bring out an increased rent of approximately £37,000, which was in line with the commercial realities of the situation and did not flout common-sense.
[14] As previously noted, some considerable reliance was placed by counsel for the defenders on the decision in British Gas Corporation. He submitted that the fact that the case was concerned with a rent review provision which did not depend on the application of a formula, as in the present case, but which was aimed at arriving at the market value of the subjects at the relevant review date, did not devalue, for the purposes of the present case, what the Vice-Chancellor had to say at p.402 A-B. As his Lordship put matters there,".... in the absence of .... clear words or surrounding circumstances, in my judgment the lease should be construed so as to give effect to the basic purpose of the rent review clause and not so as to confer on the landlord a windfall benefit which he could never obtain on the market if he were actually letting the premises at the review date, viz., a letting on terms which contain provisions for rent review at a rent appropriate to a letting which did not contain such a provision."
"The rationale of the rule shows, however, that it has no application when the evidence of the parties' discussions is being considered, not in order to provide a gloss on the terms of the contract, but rather to establish the parties' knowledge of the circumstances with reference to which they used the words in the contract."
That dictum, senior counsel for the defenders contended, permitted him to invite the court to look at certain items of correspondence, and other material, which had passed between the parties' representatives, prior to the execution of the Minute of Amendment. As no objection was taken to this proposed course by counsel for the pursuers, and as it was done under reference to the dictum just quoted, I allowed senior counsel to refer to this material.
[19] I was referred, in the first place, to 21/4 of process, which, I was told, was a letter dated 16 May 1997 from the pursuers' surveyors to the defenders' surveyors, which contains a proposal to "restructure" the lease. The proposal is in the following terms:"1. Term - new 36 year FRI lease
2. Initial rent - £26,250 per annum (35 spaces at £750 per annum per space).
3. Rent Reviews - on a 3 yearly cycle, and to be calculated on an indexation basis taken from the average daily rate at The Bon Accord Shopping Centre (Lock Street/Harriet Street car parks) and The Trinity Centre (both currently £10 per day). This would be subject to an upward only provision.
4. Insurance - The relevant lease provisions to be redrafted on a mutually acceptable basis. One aspect which your clients might wish to consider is their providing indemnity against any claims which may become due under public liability which would then reduce the scope of the insured matters and in turn therefore the annual premium payable."
I would observe that that proposal, insofar as it refers to rent review, does not appear to me to lend any support to the defenders in arguing for the construction they seek to place on the relevant wording. I was then invited by senior counsel for the defenders to look at 21/5 of process, which bears to be a letter from the defenders' surveyors, dated 9 February 1998, to the pursuers' surveyors, in reply to 21/4 of process. In relation to rent review the letter states as follows:
"The current lease provides for 5 yearly rent reviews, and current market practice suggests that at least a 2% discount on base rents is normal to reflect a 3 yearly cycle. With regard to your proposal for the rent review to be calculated on an indexation basis, this is a suggestion our clients are currently considering. However it should be noted that the current monthly season ticket charge for Aberdeen City Centre car parks is £80 per space, i.e. £960 per annum which is well above the passing rental for car spaces at East Green Vaults. We could perhaps instead consider a straightforward RPI formula to simplify matters."
My attention was then drawn to 21/23 of process, which bears to be a letter dated 14 May 1999 from the defenders' surveyors to the pursuers' surveyors. It commences:
"Further to my letter of 26 January 1999, I have now received instructions from my client, and confirm our proposals for Heads of Terms in respect of amendments to the existing lease of the above premises."
Later on this letter the following appears -
"Rent Review Clause: The rent shall be reviewed on a 3 yearly pattern, on an upwards only basis. The reviewed rent shall be determined in accordance with the increase on a percentage basis calculated with reference to the increase in the average daily rates for car parking between the rent review dates, at the following car parks -
Trinity Centre, Loch Street, Harriet Street, Shiprow and Unionrow.
The daily rate shall be the relevant date for the period between 8.30am and 5.30pm, or the equivalent for a 9 hour period."
The next item in correspondence between the parties' surveyors, to which I was referred, was 21/26 of process, which bears to be a letter from the pursuers' (new) surveyors dated 16 June 1999 addressed to the defenders' surveyors. It commences as follows:
"Further to our ongoing discussions regarding the above and our recent exchanges of correspondence, I am pleased to write to confirm the outline Heads of Terms which we've now agreed for a re-structuring of the existing Head Lease interest:"
On the matter of rent review the letter went on to state as follows:
"5. The Rent Review clause
To be reviewed on a 3 yearly pattern, upwards only. A formula to be agreed based upon a multiplier deriving from the average increase in the daily i.e. 9 hour rate (8.30am to 5.30pm) at the Trinity Centre and Bon Accord Centre public car parks."
Senior counsel for the defenders focused on that last cited passage, in 21/26 of process, as a vital piece of the "background" against which the relevant words in the Minute of Amendment fell to be construed.
[20] Shortly after the date of that last mentioned letter, matters would appear to have been handed over to the parties' respective solicitors to deal with. What was described by senior counsel for the defenders as a "travelling deed" and which is No.21/31 of process, apparently passed between those solicitors. It contains a number of deletions and amendments on its face. It bears to have been revised at least three times. On page 2 there appears a clause which is headed "The rent review provision". For all intents and purposes the typed wording, is in similar terms as appear in the executed Minute of Amendment. That wording, however, apparently may have, at some stage, been deleted and a significantly different formula for calculating the reviewed rent produced (which appears as a paper apart to the travelling deed). That paper apart has, however, a line written through it. Senior counsel for the defenders put these matters, in context by referring me to 21/28 of process, which bears to be a letter from the defenders' solicitors to the pursuers' solicitors dated 25 June 1999. In that letter it is stated, inter alia, as follows:"Further to our recent telephone conversation, I have now been able to take clients' instructions regarding the draft Minute of Amendment. I enclose the draft with my revisals marked.
I know we discussed the calculation of the rent at review, but my clients have advised that they feel the formula put forward by Chesterton is more straightforward and would prefer to see it incorporated in the document. I carried out a couple of example calculations myself and I do not really think there is much difference between the two methods, but perhaps you would take clients' instructions."
No.21/29 of process bears to be the reply from the pursuers' solicitor to that letter. It is dated 29 June 1999. It states, inter alia, as follows:
"Thank you for your letter dated 25 June 1999 returning the draft Minute of Amendment and Variation of Lease revised. I now return the draft further revised and would comment as follows:
... 2. In Clause 3 I have reinstated my clients' wording for the rent review subject to a minor amendment. My clients have used this formula elsewhere for other car parking spaces and prefer to retain it. I am advised that in any event no formula had in fact been put forward by Chesterton - (see letter from Guy Strachan to Richard Evans dated 16/6/99)."
In what would appear to be a reply to that letter (21/30 of process) the pursuers' solicitors wrote inter alia in the following terms:
"2. Although advised of how your formula for review of rent had been reached, Richard and my clients remain of the view that Chesterton's formula is more straightforward and as the net result is more or less the same wishes to see the formula in my paper apart used in the Minute of Agreement. They have no objection to provision that the figure achieved be rounded up to the nearest £50. The letter of 16 June (of which I now have a copy) merely stated that a formula for the rent review would be agreed."
The next letter in the bundle of documents produced is 21/31 of process. It bears to be a letter from the defenders' solicitors dated 14 July 1999 to the pursuers' solicitors, in which it is stated as follows:
"I understand that our clients' respective agents have now spoken following Guy Strachan's return from holiday. Dealing with the terms of your letter of 29 June, I can confirm that my clients are prepared to accept your clients' wording for the rent review subject to the removal of any reference to joint and several liability and the costs of arbitration being met in accordance with the Arbiter's award, which failing equally between the parties." (my emphasis)
Senior counsel for the defenders appeared to recognise that there was no further negotiation or correspondence between the parties' representatives regarding the rent review arrangements, before those arrangements were embodied in the terms which appear in 21/33 of process.
[21] Before closing his submissions, it was brought to the defenders' counsel's attention that the defenders had no general plea to the relevancy of the pursuers' pleadings, though he was, standing his approach on the matters, seeking dismissal of the action as being irrelevant. He, accordingly, sought leave to amend his pleadings by adding a general plea in law to the relevancy of the pursuers' pleadings, which motion was not opposed by counsel for the pursuers and which I granted. Senior counsel thereafter sought dismissal of the action in terms of the plea which had been added.Discussion
[22] The starting point, it seems to me, for a consideration of the parties' respective positions in this case, is that the defenders do not suggest that there is anything which has gone wrong in the drafting of the Minute of Amendment and Variation of the lease. The wording, they contend, accordingly, reflects the intention of the parties. That is, of course, entirely in accordance with the general rule that it is from what parties say that contractual intention is to be derived. The defenders do not seek rectification of the deed. Their position is that the relevant provisions of the rent review clause, "properly construed", give the result they contend for. That, they apparently accept, involves reading the words in a sense other than the ordinary dictionary meaning. This they say is legitimate and appropriate, having regard to the "context" in which the wording appears and having regard to the knowledge of the parties at the time the agreement was concluded. They, through their counsel, however, adamantly sought to eschew any question of proof in this case. They simply referred to the pieces of correspondence, as set out above, as demonstrating that "context" and "knowledge". But it was, however, quite clear to me that the force of the submissions put forward by counsel for the defenders, drew more from the result which the pursuers' construction of the words is capable of producing with regard to the rent to be paid after review. It was, as I understood his submissions, never contended by senior counsel for the defenders that the construction which the pursuers contended for was not entirely in accordance with the ordinary dictionary meaning of the wording, chosen after a lengthy negotiation, on behalf of the parties, to reflect their agreement. [23] As far as the law, which is to be applied in such a case, is concerned I would make the following points.None of these rules, or principles, in my opinion, has been materially departed from as a consequence of, for example, what was said by Lord Hoffmann in his speech in Investors Compensation Scheme v West Bromwich Building Society. What may be new, or at least what may have been given more focus or emphasis recently, is an admission of reference to certain relevant background material or context, where a difficulty appears to arise in the construction of a contractual provision, and where that material, or context, might be seen to assist in resolving the difficulty. It is thought wrong see contracts as being made in some sort of vacuum, as it were when one is considering their construction. Nevertheless, some, if not all of the rules, or principles, which I have just endeavoured to set out are, in my judgment, to be seen to underlie, or be reflected in, the approach, adopted in the judgment of the Board of the Privy Council given by Lord Hope in the case of the Melanesian Mission Trust Board, a decision to which Lord Hoffmann was a party, and which was given approximately eighteen months before the decision of the House of Lords in the Investors Compensation Scheme Limited case. As has been seen the Melanesian Mission Trust Board case was concerned with the construction of provisions in a commercial lease, embodied in a formal document. In the passage which I have cited above from the judgment of Lord Hope, at p.129, the Privy Council emphasised -
(a) that where ordinary words have been used they must normally be taken to have been used according to the ordinary meaning of those words.
(b) it is not the function of the court to search for an ambiguity where no ambiguity exists.
(c) unless the context shows that the ordinary meaning cannot be given to them or that there is an ambiguity, the ordinary meaning of the words which have been used in the document must prevail.
"that the court is not entitled to construe and apply, not the clause which the parties have entered into, but the different clause which they might have, or probably would have, entered into if their lawyers had thought rather more deeply about how the intricate scheme they were setting up would work in practice."
"I do not think that the concept of natural and ordinary meaning is very helpful when, on any view, the words have not been used in a natural and ordinary way. In a case like this, the court is inevitably engaged in choosing between competing unnatural meanings."
That is not the position in the present case. In the present case I am unable to read the words involved as having been used in any other than an ordinary and natural way (and it was not contended otherwise) and accordingly, it seems to me that there is no room for giving them anything other than their normal and ordinary meaning. I repeat, also, that it was not suggested on behalf of the defenders that the words themselves were ambiguous. It was simply contended that, having regard to "the context" and the result they produced, if they were construed according to their ordinary meaning, they should be read in a way other than their dictionary meaning. But, at the risk of labouring the point, that, in effect, requires an exercise of re-writing, rather than an exercise of construing an ambiguous word or provision in a particular way. As regards context, the communings to which the defenders asked me to look and which I have endeavoured to set out above, do not, in my opinion, assist the defenders. They simply show that the clause in question came about as a process of negotiation and that the pursuers' solicitors insisted upon the wording that found its way into the final version of the Minute of Amendment and that the defenders' solicitors, on behalf of the defenders, acceded to that. It seems to me that I have to accept, therefore, that the defenders' solicitors were agreeing that these words represented their clients' instructions and intentions on the matter. The communings certainly do not, in my judgment, begin to show that the parties' true and final agreement was something other than what the words say.
[27] It seems to me particularly important that when the court is being asked to construe a provision which provides for the method of calculating the consideration to be paid in a commercial transaction, whether it be a price or, as in the present case, the rent payable, and which may vary according to circumstances, the court must always be very slow to accede to any suggestion that the words employed, if they can be read in an ordinary way, should be read in some other way so that the consideration arrived at may be more favourable to one party rather than another. That must, in my judgment, be particularly true, where, as in the present case a number of factors may have had a bearing on how the consideration fell to be calculated, e.g. the alteration in relation to the insurance arrangements and the reduction in the duration of the lease. In making this point I recall what Lord Mustill said in Charter Reinsurance Co Ltd v Fagan [1997] AC 313 at p.388 C-D;"Particularly in the field of commerce, where the parties need to know what they must do and what they can insist in not doing, it is essential for them to be confident that they can rely on the court to enforce their contract according to its terms."
"These were of course no mechanistic rules of construction to be applied rigidly in every case. They were only guidelines, and, however valuable guidelines are, the function of the court in each particular case is to construe the particular rent review clause which is in issue in that case."
Decision
[29] For all the foregoing reasons, and having regard to the position adopted by the defenders in this case, that the relevant words accurately reflected the intention of the parties on the matter, it appears to me that the pursuers' construction of the relevant wording is correct in law. I will, accordingly, repel the defences and grant the pursuers decree de plano in terms of the first conclusion.
