AWG GROUP LIMITED AGAINST HCP II PROPERTIES 101 GP LIMITED
OUTER HOUSE, COURT OF SESSION
[2017] CSOH 69
CA109/16
OPINION OF LORD DOHERTY
In the cause
AWG GROUP LIMITED
Pursuer
against
HCP II PROPERTIES 101 GP LIMITED
Defender
Pursuer: Currie QC; HBJ Gateley
Defender: Lindsay QC; DWF LLP
28 April 2017
Introduction
[1] Ocean Point 1 is a nine storey office block at 1 Ocean Drive, Leith, Edinburgh. The ground floor contains reception areas. The first to eighth floors are offices and each of those floors is let to the pursuer under a separate lease. Each of the leases was granted by the then landlord, Macrocom (743) Limited. Each lease was dated 25 and 27 February 2004. Each was for a term of 20 years. Clause 6 of each of the leases made provision for rent review at five‑yearly intervals. The date of entry under each of the leases was 27 February 2004. Macrocom (743) Limited’s interest in the leases was subsequently acquired by Irish Life Assurance plc (“Irish Life”). On 7 March 2016 the defender acquired the landlord’s interest in the leases from Irish Life.
[2] In this commercial action the pursuer seeks declarator that the defender is not entitled to seek a rent review as at 27 February 2014. It maintains that the landlord waived its right to seek such a review. The matter came before me for a debate on the commercial roll.
The Terms of the Leases
[3] In terms of Clause 2.1 of each of the leases the tenant was obliged to pay the landlord a stipulated yearly rent “subject to variation as hereinafter provided for”. Clause 6 enabled the yearly rent to be reviewed every five years throughout the period of the lease, the Date of Review being five years after the date of entry and the expiration of each succeeding period of five years. The new rent was to the greater of the previous rent or the Revised Rent. The Revised Rent was the greater of (i) the open market rental value of the Premises on the Relevant Date of Review on the assumptions set out in Clause 6, and (ii) the sum which represented 85% of the open market value of the Premises at the Relevant Date of Review on certain further specified assumptions. Clause 6.3 provided:
“6.3 Decision on rental value
If the Landlord and Tenant shall be unable to agree on the amount of either or both of the rental values aforesaid by the date of three months after the Relevant Date of Review then at the election of the Landlord or the Tenant the matter shall be decided by a Chartered Surveyor … to be agreed upon by the parties hereto or in the event of failure to agree then the same shall be decided by a Surveyor (… the ‘Expert Surveyor’) to be nominated at any time at the request of the Landlord or the Tenant by the Chairman or senior office holder for the time being of the Scottish Branch of the Royal Institution of Chartered Surveyors … Within one month of the date upon which the Expert Surveyor is agreed upon or appointed … the Landlord and Tenant shall be entitled to submit to the Expert Surveyor written valuations, statements and other evidence … The Expert Surveyor shall, if so requested by written notice from one party … received within six weeks of the date the Expert Surveyor is agreed upon or appointed hold a hearing …”
Clause 6.5 provided:
“6.5 Payment after date of review
If by the Relevant Date of Review the amount of the Revised Rent has not been agreed between the parties or determined as aforesaid then in respect of the period of time (hereinafter called the “Interval”) beginning with the Relevant Date of Review and ending on the Quarter Day immediately following the date upon which the amount of the Revised Rent is agreed or determined as aforesaid (hereinafter called the ‘Relevant Date’) the Tenant shall continue to pay the rent provided for in Clause 2.1 to the Landlord in manner hereinbefore provided at the yearly rate payable immediately before the Relevant Date of Review; Provided that on the Relevant Date there shall be due as a debt payable by the Tenant to the Landlord (without any requirement for any demand therefor by the Landlord) an amount equal to the difference between the Revised Rent and the rent actually paid during the Interval and apportioned on a daily basis in respect of the Interval together with interest at four per cent below the Prescribed Rate on each component part on the said difference from the notional due date for payment of such component part (being the date the same would have fallen due had the Revised Rent been determined on the Relevant Date of Review) until the actual payment of such difference.”
Clause 5.8 provided:
“5.8 Demand for rent
… [No] demand for or acceptance of rent by the Landlord or its agent (whether before or after a date of review of rent) at a rate other than that to which the Landlord may be entitled following a review of rent in terms of These Presents shall be deemed to be a waiver of the right of the Landlord to require a review of the rent hereunder nor shall it personally bar the Landlord from requiring a review of the rent nor shall it personally bar the Landlord from requiring such a review in terms hereof.”
Uncontentious and Contentious Matters
[4] In terms of a Joint Minute (No 18 of Process) the parties agreed that the leases and other documents comprising productions 6/1 - 6/27 were what they bore to be and could be referred to and founded upon by either party at the debate without the necessity of having to be spoken to in evidence. An Agreed Chronology (No 19 of process) was also placed before the court. There were core matters in each party’s pleadings which were either admitted by the other party or were not disputed. I shall summarise the uncontentious matters first.
[5] The rents under each of the leases were reviewed with effect from the 2009 review date. On 5 November 2013, 6 January 2014, 9 April 2014 and 6 October 2014 Irish Life issued to the pursuer invoices for rent at the rate which had been applicable since the 2009 review (“the existing rate”). Those invoices stated “without prejudice to review on 26/02/14”. On 7 January 2015, 10 April 2015, 7 July 2015, 2 November 2015 and 18 January 2016 Irish Life issued to the pursuer invoices for rent at the existing rate, but those invoices did not make any reference to the 2014 Date of Review. The change in the wording in January 2015 coincided with a change in the formatting of invoices. In mid‑2015 Irish Life marketed Ocean Point 1 for sale. A sales brochure (6/19 of process) was produced by its agents (Jones Lang La Salle (“JLL”)). The Investment Summary on page 3 narrated that there were “excellent prospects for a rental uplift at the next rent review on 7th February 2019.” It also stated that annual rental income from the property was £1,343,041; that offers in excess of £15,330,000 were invited; and that a purchase at that level would provide an initial yield of 8.25% net of purchaser’s costs of 6.24%. On page 10 the brochure indicated that the rent in each of the pursuer’s leases was “subject to review at five yearly intervals, on an upward only basis, with the next review due on 27th February 2019.” It went on to list “the current passing rent” for each of the floors, and that the total of those rents was £1,343,041. After giving a very brief description of the terms of the rent review it continued:
“This is an attractive review provision that will provide an incoming purchaser with excellent prospects for reversion at the 2019 reviews off a relatively low base rent.”
The final page of the brochure (p 13) contained the following disclaimer:
“Disclaimer
JLL for themselves and for the vendors or lessors of this property whose agents they are, give notice that:- a. the particulars are set out as a general outline only for guidance and do not constitute, nor constitute part of, an offer or contract; b. all descriptions, dimensions, references to condition and necessary permissions for use and occupation, and other details are believed to be correct, but any intending purchasers, tenants or third parties should not rely on them as statements or representations of fact but satisfy themselves that they are correct by inspection or otherwise; c. no person in the employment of JLL has any authority to make or give any representation or warranty whatever in relation to the property; … e. this correspondence is expressly subject to completion of formal legal missives in accordance with Scots Law.”
On 8 and 14 January 2016 the pursuer and Irish Life entered into a Service Charge Agreement (6/37 of process) which resolved a dispute relating to chillers. On 29 April 2016 the defender gave the pursuer written notice that it required the rent for the eighth floor to be reviewed as at 27 February 2014. On 1 May 2016 the defender issued to the pursuer invoices for rent at the existing rate. Like the other invoices issued since January 2015, the invoices of 1 May 2016 did not contain the caveat which the earlier invoices had contained. On 23 June 2016 the defender applied to the chairman of the Scottish Branch of the RICS to appoint an Expert Surveyor in terms of Clause 6.3 in respect of review of the rent for the eighth floor. On 5 August 2016 the defender gave the pursuer written notice that it required the rents for the first to seventh floors to be reviewed as at 27 February 2014. On 11 August 2016 an Expert Surveyor was appointed to decide the reviewed rent for the eighth floor. The pursuer paid Irish Life the rent stated in each invoice which Irish Life had rendered and Irish Life accepted those payments. Similarly, the pursuer paid the defender the rent stated in the invoices of 1 May 2016 and the defender accepted those payments.
[6] The following averments in Condescendence 8 were contentious:
“The reasonable inference to be drawn from the removal of the without prejudice caveat from invoices for payment of rent from 7 January 2015 and from the reference in the sales brochure to the next rent review being 27 February 2019 is that the landlord had waived the right to seek a review of the rent at the 2014 Date of Review… [T]he pursuer in reliance on the invoices from 7 January 2015, paid the un-reviewed rent. In a case of rent review, those payments constitute sufficient reliance for the purposes of waiver. In any event, the pursuer conducted its affairs in certain important respects on the basis that the defender would not instigate the 2014 rent review. The pursuer proceeded on that basis because of (a) the defender’s failure to take any steps to instigate the 2014 rent review (before they (sic) purported to do so on 28 April 2016) which contrasted with the approach taken to the review in 2009 which was instigated by the then landlord by notice dated 16 December 2008; (b) the terms of the rent invoices from 7 January 2015; (c) the clear representation in the sales brochure that the next rent review would be in 2019; and (d) its view that, on a review, no uplift in rent would be justified, under reference to prevailing comparable market rents, which explained the defender’s conduct…”
The pursuer goes on to aver three respects in which it proceeded in the belief that the defender was not pursuing the 2014 rent review. It avers that had it not entertained that belief in the summer of 2015 it would not have been prepared to pay Irish Life as much as it did to settle a service charge dispute; that the financial forecasts presented to and approved by its main board in February and March of 2015 and 2016 included no uplift of rent up to (and beyond) the next review date, and that those forecasts were relied on for the formulation of its budget; and that it proceeded on that belief in September 2015 when it was approached by an investment agent seeking to broker a potential deal for renunciation of the leases and sale of the subjects to the pursuer. These averments were also contentious, but (for reasons which will become apparent) it is unnecessary to discuss them or narrate the defender’s response to them.
[7] Another disputed issue is focussed in the defences. The defender avers that the removal of the caveat which had appeared in earlier invoices was the result of an oversight at the time of the change in formatting, and was not due to a decision not to proceed with the 2014 rent review. It avers that it would have been readily apparent to any tenant that the change to the invoices may have been the result of an oversight rather than a decision not to proceed with the 2014 rent review. It also avers that it did not state that there would be no 2014 rent review; that it was not directed to the pursuer as tenant; and that a reasonable tenant would have recognised that the sales brochure was simply promotional material intended for the use of potential purchasers and was not a document upon which any reliance should be placed. On an objective assessment it could not be inferred from the invoices and the brochure that Irish Life had abandoned its right to a 2014 rent review. The defender also avers that the pursuer did not seek clarification from Irish Life of its rent review intentions after the change to the invoices or the production of the brochure, and that had it done so it would have been advised that Irish Life had not waived its right to proceed with the 2014 rent review.
Counsel’s Submissions
[8] Since both parties had pleas to the relevancy which they insisted on, counsel for the defender addressed the court first. However, in summarising counsel’s submissions I find it more convenient to set out counsel for the pursuer’s submissions first.
Counsel for the Pursuer’s Submissions
[9] Mr Currie’s primary submission was that the pursuer’s averments set out a relevant case of waiver by the landlord of its right to insist upon the 2014 rent review. He accepted that, standing the terms of Clause 5.8, it had not been necessary for the landlord to include the reservation in the invoices in order to preserve its right to a 2014 rent review. He stressed that he was not maintaining that the sales brochure had contained statements or representations of fact by the landlord to the tenant. However, he submitted that it was inconsistent with an intention by Irish Life to insist on a 2014 rent review. The disclaimer in the brochure did not prevent the pursuer from placing reliance on that inconsistency. The change in the wording of the invoices had been significant. The cumulative effect of that change and the terms of the sales brochure gave rise to an inference of abandonment of the right. While neither factor alone would have sufficed for that inference, taking them together and looking at them objectively the clear inference was that from about mid‑2015 (when the brochure was issued) the landlord had abandoned its right to insist on a review at the 2014 review date (Armia Ltd v Daejan Developments Ltd 1979 SC (HL) 56, per Lord Fraser at p 69, Lord Keith at p 72; Presslie v Cochrane McGregor Group Ltd 1996 SC 289, per the Opinion of the Court at p 292B-C). While in light of Clause 5.8 the pursuer could not, and did not, rely on the acceptance of rent to infer abandonment by the landlord of the right to a 2014 rent review, it could and did found on the payment of rent at the existing rate after mid‑2015 to show reliance by the pursuer on the landlord’s abandonment of its right to a 2014 review. The making of those payments after mid‑2015 at the existing rent rate had followed the occurrence of the facts and circumstances from which abandonment could be inferred. Those payments constituted sufficient reliance for the purposes of waiver where the right waived was a right to a rent review (Banks v Mecca Bookmakers (Scotland) Ltd 1982 SC 7; Falkirk District Council v Falkirk Taverns Ltd 1993 SLT 1097; Waydale Ltd v MRM Engineering 1996 SLT (Sh Ct) 6; McAllister, Scottish Law of Leases (4th ed), paras 12-37 to 12‑39; Rennie et al, Leases, paras 12-06 and 27-05; McBryde, Law of Contract in Scotland (3rd ed), paras 25-15 to 25-20; Reid & Blackie, Personal Bar, para 10-25). It followed that the defender’s attack on the relevancy of the pursuer’s averments was not well founded.
[10] The admitted facts gave rise to an inference of abandonment by the landlord of the right to a 2014 review. The defences did not disclose a relevant defence: they should be repelled and decree de plano pronounced. Mr Currie also submitted that it was clear that the defender’s averments of Irish Life’s subjective intentions at the time of the change to the invoices were irrelevant, as was any internal explanation for the change which would not have been apparent to a tenant in the position of pursuer at the material time. The averments (i) that the pursuer did not seek clarification from Irish Life, and (ii) as to what Irish Life would have said had such clarification been sought, were irrelevant. The pursuer was not under any duty to seek clarification, and no such clarification had in fact been provided. Irish Life’s subjective intentions, and what it would have advised on a hypothesis which did not in fact occur, were nothing to the point. Whether abandonment fell to be inferred from Irish Life’s conduct was a matter for objective determination.
[11] In the event that the court accepted that the landlord had abandoned the right to a 2014 review but did not accept that the payment of rent by the pursuer after mid‑2015 constituted sufficient reliance, the way forward would be (i) to sustain the pursuer’s plea to the relevancy of the defences to the extent of refusing to admit to probation the averments which challenged the occurrence of abandonment, and (ii) to have a proof before answer restricted to ascertaining whether there had been the necessary reliance by the pursuer (focussing on the averments in Condescendence 8 and Answer 8).
Counsel for the Defender’s Submissions
[12] Mr Lindsay’s primary submission was that the pursuer’s averments of waiver were irrelevant and that the action should be dismissed. The starting point was that it was common ground that on a proper construction of the leases, applying the principles explained in Visionhire Ltd v Britelfund Trustees Ltd 1991 SLT 883, time was not of the essence in relation to instigating the rent review provisions. In addition, the leases expressly provided (i) that no demand for or acceptance of rent by the landlord at a rate other than that to which it may be entitled following a review of the rent shall be deemed to be waiver of the right of the landlord to require a review (Clause 5.8); and (ii) that if by a Relevant Date of Review the amount of the Revised Rent had not been agreed or determined, then beginning with the Relevant Date of Review the tenant was to pay the existing rent until after the amount of the Revised Rent was agreed or determined (Clause 6.5). That was part of the relevant context in which the pursuer’s averments of waiver required to be considered. Waiver was the abandonment of a right (Armia Ltd v Daejan Developments Ltd, supra, per Lord Fraser at p 69, Lord Keith at p 72). As Lord Bingham had observed in Miller v Dickson 2002 SC (PC) 30 at paragraph 43 (where the argument had been about waiver of the right to object to a judge):
“In most litigious situations the expression ‘waiver’ is used to describe a voluntary, informed and unequivocal election by a party not to claim a right or raise an objection which it is open to that party to claim or raise.”
It was clear that whether a right had been waived was a matter which required to be assessed objectively by the court: Armia Ltd v Daejan Developments Ltd, supra, per Lord Keith at page 72; Scottish Lion Insurance Co Ltd v Goodrich Corporation 2011 SC 534, per the Opinion of the Court at paragraph 47. It was also clear that cases such as Banks v Mecca Bookmakers (Scotland) Ltd, supra, and Waydale Ltd v MRM Engineering, supra, were readily distinguishable because of the terms of Clauses 5.8 and 6.5 of each of the leases. Here the pursuer averred that waiver was to be inferred from a combination of two factors: the change in wording of the invoices and the terms of the sales brochure. Looked at individually neither factor was capable of giving rise to an inference of abandonment. Looking at the invoices objectively, there were a number of possible reasons why the caveat in earlier invoices was not repeated in later invoices. Oversight was one. The change had coincided with a change in formatting. A conscious decision not to repeat the wording was another possibility. However such a conscious decision could have been because the landlord concluded that its inclusion was unnecessary given the terms of the leases. The sales brochure had to be seen for what it was. It had been prepared by the landlord’s agents for the purpose of advertising the sale of the landlord’s interest. It was simply promotional material. The disclaimer was entirely consistent with that. The brochure was not a document containing statements of fact which were intended to be founded upon by anyone, let alone the pursuer. In any case the brochure was silent on the topic of the 2014 rent review. Taking the invoices and the brochure together it was not correct to infer from them that the landlord had abandoned its right to seek a 2014 rent review. Mr Lindsay also submitted that if, contrary to his primary submission, the absence of the caveat from later invoices gave rise to any inference about the 2014 rent review, the only reasonable inference would be that the right of review was not being exercised immediately - that its exercise was being delayed or postponed. Permanent abandonment rather than mere postponement was an essential element of waiver (James Howden & Co Ltd v Taylor Woodrow Property Co Ltd 1998 SC 853, per Lord Kirkwood at p 866). Mr Lindsay submitted that the defender’s averments as to oversight being the actual explanation for the change were not irrelevant, though it was accepted that what was decisive was how matters appeared on an objective examination of the facts. Similarly, the admitted facts that the pursuer had not sought clarification from Irish Life after the change or when the brochure became available were part of the relevant facts and circumstances.
[13] In any case, even if, contrary to the defender’s submission, it was proper to draw an inference of abandonment of the right to a 2014 rent review from the undisputed facts, decree de plano ought not to be pronounced. The pursuer required to establish that it had conducted its affairs in reliance on such abandonment (Armia Ltd v Daejan Developments Ltd, supra, per Lord Keith at p 69; Lousada & Co Ltd v J. E. Lesser (Properties) Ltd 1990 SC 178, per Lord Justice Clerk Ross at p 189; James Howden & Co Ltd v Taylor Woodrow Property Co Ltd, supra, per Lord Kirkwood at p 868C; Moodiesburn House Hotel Ltd v Norwich Union Insurance Ltd 2002 SLT 1069, per Lord Macfadyen at paras 43-44). The mere payment of rent at the existing rate did not demonstrate such reliance, and the pursuer’s averments that it did were irrelevant. The pursuer had simply continued to pay the rent which was payable unless and until the review took effect. It had been obliged to make those payments. On the other hand, if the court agreed with the pursuer that an inference of abandonment ought to be drawn from the undisputed facts, Mr Lindsay accepted that the pursuer’s other averments of reliance in Condescendence 8 would be suitable for inquiry.
Decision and Reasons
[14] The essence of waiver is the abandonment of a right (Armia Ltd v Daejan Developments Ltd, supra, per Lord Fraser of Tullybelton at p 69, Lord Keith of Kinkel at p 72; James Howden & Co Ltd v Taylor Woodrow Property Co Ltd, supra, per Lord Kirkwood at p 865 E-F; Scottish Lion Insurance Co Ltd v Goodrich Corporation, supra, per the Opinion of the Court at para 45). (It is also possible to waive a claim or a privilege (see e g Reid & Blackie, supra, para 3-09)). Waiver may be express or inferred from facts and circumstances. Whether waiver is implied is to be determined objectively upon a consideration of all the relevant evidence (Armia, per Lord Keith at p 72; Scottish Lion, per the Opinion of the Court at para 47). That requires an objective analysis of the conduct of the person asserting the right which is said to have been waived (Scottish Lion, per the Opinion of the Court at para 47). Where the issue is whether abandonment of a right should be inferred, the test to be applied was described in Presslie v Cochrane McGregor Group Ltd, supra, by Lord Morison (delivering the Opinion of the Court) at page 292B-C. After observing that it was abundantly clear that the pursuers had acted in reliance on their belief that the defenders had abandoned the right to insist on arbitration he continued:
“The only question which accordingly appears to us to arise in this case is whether the facts and circumstances founded on by the pursuers give rise to the inference that the first defenders had abandoned their right by the time that they sought to enforce it. Parties were agreed, in our opinion correctly, that the test to be applied in determining this question was appropriately expressed in the similar case of Inverclyde (Mearns) Housing Society Ltd v Lawrence Construction Co Ltd [1989 SLT 815] in which the Lord Ordinary (Lord McCluskey) stated at p 821 that: ‘The court must consider whether the actings (including failure to act) of a party must be construed as being inconsistent with an intention to insist upon his contractual right to go to arbitration.’”
[15] Since counsel were not at one on the issue of reliance it is appropriate that I set out my understanding of the law. In Armia Ltd v Daejan Developments Ltd at page 69 Lord Fraser concluded (the emphasis is added):
“In the present case the reason why the plea of waiver fails is not that the respondents suffered no prejudice (although in my opinion that is true) but that the appellants never abandoned their right to refuse the title offered, and the respondents never conducted their affairs on the basis that they had.”
While the view has been expressed (Reid & Blackie, supra, para 3-26) that what Lord Fraser said about reliance was obiter given his conclusion that there was insufficient evidence of abandonment, that is not a view which I share. It would, of course, have been sufficient for Lord Fraser to have decided the issue of waiver on either of the two grounds he gave, perhaps then going on to express a view obiter on the other. However, that is not what he did. Rather, he was careful to say that the plea of waiver failed for both the reasons which he identified. Both grounds formed the basis of his decision. His speech was the leading speech, and Lords Diplock, Edmund‑Davies and Russell of Killowen agreed with it. It follows that, at the very least, the majority of their Lordships decided the waiver point on the basis that the person claiming waiver had to show that he had conducted his affairs on the basis that the right asserted against him had been abandoned.
[16] I say at the very least because I recognise that it is debatable whether Lord Keith adopted the same approach. He noted (at the foot of p 71) counsel for the respondents’ submission that
“… it is sufficient for the party relying on a plea of waiver to establish that he has acted in some way in reliance on a belief induced by the words and conduct of the other party, and that he need not show that he has acted to his prejudice.”
However, Lord Keith’s speech undoubtedly focussed mainly upon the appellants’ conduct - the evidence which the respondents said justified the inference of abandonment - and he concluded that the inference was not justified. I say mainly because at page 73 he remarked:
“The respondents’ attitude throughout was that the title burdened by the restrictions was all they were obliged to tender.”
It is arguable that that sentence indicates that Lord Keith did indeed consider the respondents’ conduct, and that it may reasonably be inferred that he concluded that they had not conducted their affairs on the basis that the appellants had abandoned the right to resile. It seems likely that if he was taking a different view from Lord Fraser on the issue of reliance, or wished to reserve his opinion on the point, he would have made that clear.
[17] In any case, even if the issue of reliance is only dealt with in the speech of Lord Fraser, that speech represents the majority view. One of the rationes derivable from it is that in a case of implied waiver the person claiming waiver of a right must show that he conducted his affairs on the basis that the right had been abandoned. In my opinion that ratio is also supported by the treatment of Armia in subsequent decisions. In Lousada & Co Ltd v J. E. Lesser (Properties) Ltd, supra, Lord Justice Clerk Ross observed at page 189:
“Counsel for the defenders submitted … 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 those 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.”
Lord Murray (p 193) agreed with the Lord Justice Clerk, and it is clear that Lord Dunpark held the same view on this point (p 193). In Presslie v Cochrane McGregor Group Ltd, supra, the court made reference to Lousada and noted (at p 291F):
“It was stated by the Lord Justice-Clerk (Ross) at p 189 in relation to the plea of waiver that it was: ‘necessary to consider whether it can properly be inferred … 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’.”
In James Howden & Co Ltd v Taylor Woodrow Property Co Ltd, supra, Lord Kirkwood noted (at p 868C):
“There is certainly authority in Armia and Lousada, which is binding on us, for the proposition that Howden must show that they conducted their affairs on the basis of Taylor Woodrow’s waiver of their right to resile …”
Lord Allanbridge (p 874) agreed with Lord Kirkwood. In the Outer House decision of Moodiesburn House Hotel Ltd v Norwich Union Insurance Ltd, supra, Lord Macfadyen carefully reviewed the authorities at paragraphs 43-44. He concluded at paragraph 44:
“…I am of the opinion that it is not open to me, in the Outer House, to take the view that Lord Fraser’s dictum about reliance was not part of the ratio of Armia. That aspect of the decision was endorsed in the Inner House in Lousada v Lesser (Properties). Moreover, in James Howden v Taylor Woodrow, notwithstanding the doubt which he expressed as to why waiver had to be accepted before becoming effective, Lord Kirkwood … expressed the view that Armia and Lousada were binding authority for the need for the party pleading waiver to show that he had conducted his affairs on the basis that there had been abandonment of the right. I am therefore of opinion that I am bound to proceed on the basis that for a relevant case of waiver there must be averments that the pursuers conducted their affairs on the basis that the right to found on the breach of the FCEC had been abandoned by the first defenders.”
I respectfully agree with Lord Macfadyen’s analysis. Even if, contrary to my opinion, I am not bound to proceed on that basis, the guidance in Armia and the subsequent Inner House cases would nevertheless be of very high persuasive authority. As an Outer House judge it would be wrong for me to decline to follow that guidance.
[18] I turn to consider the present case. Since Mr Currie founded strongly upon Banks v Mecca Bookmakers (Scotland) Ltd and Waydale Ltd v MRM Engineering, it is appropriate I say something about those cases. In Banks the two issues which appear to have been focussed in the arguments of counsel were (i) had there been implied abandonment by the landlord of the right to a rent review at the first review date under each of the leases; and (ii) whether the tenant had to aver prejudice had been suffered as a result of reliance on the abandonment. The Lord Ordinary decided that on the facts abandonment should be inferred (pp 13-14). He also held that prejudice need not be averred (p 13). As to the first issue, it is plain that the terms of the leases were very different from the leases in the present case. They did not contain any provisions equivalent to Clause 5.8 or Clause 6.5. As to the second issue, there is no indication in either the arguments or the decision that the Lord Ordinary was asked to apply his mind to the question whether there were relevant averments of the tenant having altered its position or conducted its affairs in reliance upon the abandonment. In Waydale the sheriff principal decided that the proper inference to be drawn from the agreed facts was that there had been abandonment by the landlord of the right to a May 1990 rent review. Once again, the lease did not contain any provisions equivalent to Clause 5.8 or Clause 6.5. In relation to reliance, counsel for the landlord conceded (pp 7B, 7G)
“that it is not necessary …for the [tenants] to show that they have acted to their prejudice in reliance upon the inference that the review was not to be enforced - it is sufficient that they have conducted their affairs in a way consistent with that inference”.
In my opinion, while the first part of that concession was correctly made, the second part does not represent an accurate statement of the law. If the sheriff principal is to be read as holding that that part of the concession is supported by the authorities (p 8E-F), I respectfully disagree. It is not enough that the person asserting waiver has acted in a way which may be described as “consistent” with the inference that the review was not to be enforced. The requirement of reliance involves more than mere consistency. Actings of a neutral character - equally compatible with the abandonment or the continuing subsistence of a right - would be “consistent” with abandonment yet the necessary reliance would be likely to be absent. Something more distinctly referable to the abandonment is normally needed (cf La Pantofola D’Ora SpA v Blane Leisure Ltd 2000 SLT 105 per Lord Hamilton at p 110J). For there to be waiver the party asserting it has to show that he has conducted his affairs in reliance upon his understanding that the right had been abandoned.
[19] It follows that in my opinion both Banks and Waydale are readily distinguishable from the present case because the terms of the leases here are materially different from the leases in those cases. Further, in my view neither Banks nor Waydale properly applied the requirement for reliance as explained in Armia and the later cases. Moreover in my opinion neither case is authority for the proposition that the requirement for reliance is inapplicable, or different, where waiver of a right to a rent review is alleged.
[20] That takes me to the facts relied on by the pursuer to infer abandonment of the right to a 2014 rent review viz the combined effect of the change of wording in the invoices rendered from January 2015 and the terms of the sales brochure issued in about mid‑2015.
[21] In my opinion it is clear that the defender’s conduct after it acquired the lease does not provide a basis for inferring abandonment by it of the right to a 2014 review. In respect of the eighth floor, it gave notice on 29 April 2016 that it was insisting on the review. Perhaps surprisingly, it did not give similar notices in respect of the other floors until 5 August 2016. On 1 May 2016 it issued invoices for rent at the existing rate. The invoices made no reference to the 2014 review. In my opinion it was unnecessary for them to do so given the terms of the leases. Moreover, since the invoices of 1 May 2016 were the first invoices issued by the defender there is no question of their terms having been different from other invoices issued by it.
[22] The real issue is whether by the time of the assignation by Irish Life to the defender on 7 March 2016 Irish Life had already waived its right to insist on the 2014 review. If it had, then the right to a 2014 review was extinguished before the assignation and was not transmitted to the defender. The defender acquired no greater rights than Irish Life possessed at the time of the assignation (Reid & Blackie, supra, para 5-02).
[23] As already noted, the pursuer’s position was that individually neither the change to the invoices nor the terms of the brochure were sufficient to give rise to an inference of abandonment; but that the cumulative effect of both justified that inference. I agree with the first proposition, but I disagree with the second.
[24] Invoices issued by Irish Life before January 2015 included the without prejudice wording, whereas the invoices from January 2015 did not. The change coincided with a change in formatting of invoices. There had been no need for Irish Life to include the caveat in the earlier invoices in order to preserve its right to insist on a review at the 2014 review date. Clause 5.8 expressly provided, inter alia, that no demand for or acceptance of rent by the landlord at a rate other than that to which the landlord might be entitled following a review of rent was to be deemed to be a waiver of its right to require a review. A reasonable tenant assessing Irish Life’s conduct would have been aware of that and taken it into account. It would also have been aware that an inference of abandonment does not arise merely because a right is not exercised as soon as it arises (Reid & Blackie, supra, para 3‑37). Generally speaking, a right is not waived merely because a party delays or postpones exercising it (McBryde, supra, para 25-19). A reasonable tenant would also have been aware that the rent review clauses in the leases did not contain stipulations as to time which made time of the essence. In my opinion there were at least three possible different reasons for the caveat ceasing to appear in invoices. First, that it was an oversight which had occurred at the time of the change in formatting. Second, that it was deliberate but (i) did not signify abandonment of the right to a review; (ii) occurred because Irish Life concluded that the inclusion of the caveat was unnecessary in light of the terms of the leases. Third, that Irish Life was abandoning its right to insist on a rent review at the 2014 review date. Looking objectively at Irish Life’s conduct through the eyes of a reasonable tenant in the position of the pursuer, I am not persuaded that it is reasonable or correct to infer from the change in the invoices that Irish Life abandoned its right to a 2014 review. In United Scientific Holdings Ltd v Burnley Borough Council [1987] AC 904 Lord Fraser observed at page 958:
“Rent review clauses … main purpose is to protect the revenues of landlords from the effects of inflation. From the landlord’s point of view a rent review clause is an important, almost indispensable, term of the contract if he is to agree to a lease for a long period, during which inflation may well continue. The clause is also in a less direct way of benefit to the tenant, because, without it, he would not normally be able to get the security of tenure which is afforded by a long lease, except perhaps by paying a rent which in the early years of the lease would be far above the current market level.”
That reasoning was adopted and followed in Visionshire Ltd v Britel Fund Trustees Ltd, supra, per Lord President Hope at pp 888J-889D. In the whole circumstances, looking at Irish Life’s conduct objectively, the scenario that the first or second possibility was the reason for the change appears to me to be a more probable and reasonable inference than an inference of abandonment of the right to review.
[25] That brings me to the sales brochure. The contents founded upon were on pages 3, 10 and 13. They made no reference to the 2014 review, but they referred to “the next rent review on 7th February 2019” (p 3) and “the next review due on 27th February 2019” (p 10). The rental figures stated on pages 3 and 10 were based on the existing rent. It is also plain that the initial yield of 8.25% (pp 3 and 13) was derived using the existing rent.
[26] In my opinion, in assessing what was said in the brochure it is important to have regard to its nature, and to the audience to which it was directed. The brochure was prepared by the selling agents, JLL. It was a document providing preliminary information to persons who might be interested in purchasing the subjects. It was not a communication addressed by Irish Life qua landlord to its tenant. The reasonable reader of the brochure would have understood from the nature of the document, and from the terms of the disclaimer, that the contents of the brochure provided only a general outline which was merely for guidance; and that the contents were not being represented as matters which could be relied upon without the need for verification. A reasonable person in the position of the pursuer would not have treated the brochure as warranting the conclusion that Irish Life had abandoned its right to a 2014 rent review.
[27] Individually, neither the change in wording in the invoices nor the contents of the brochure warrant drawing an inference of abandonment. Mr Currie argued that looking at both factors together the inference should be drawn. I am unpersuaded. With each factor the case for drawing the suggested inference is unconvincing. The case for drawing the inference because of the combined effect of both factors appears to me to be little better. This is not a case where the cumulative effect is greater than the sum of the parts. Abandonment of a right ought not to be readily or easily inferred (Reid & Blackie, supra, para 3‑10; McBryde, supra, para 25-19). Even looking at the factors cumulatively, the case for drawing the inference of abandonment is very far indeed from being compelling. In my opinion it cannot be said that the conduct of Irish Life must be construed as having been inconsistent with an intention to insist upon its contractual right to a 2014 rent review. The inference that Irish Life abandoned that right cannot properly be drawn from the conduct upon which the pursuer relies.
[28] It follows that the pursuer’s averments of waiver are irrelevant and the action should be dismissed. Accordingly it is unnecessary to dwell on Mr Currie’s attack on the relevancy of the defences. For the most part, the defender’s averments relate to matters already discussed. However, had it mattered, I would have agreed with Mr Currie that the defender’s averments as to Irish Life’s subjective intention, and what Irish Life would have told the pursuer had clarification of its intention been sought, are of doubtful relevancy (cf Presslie v Cochran McGregor Group Ltd, supra, per the Opinion of the Court at p 292E-F; Reid & Blackie, supra, para 3-11). On the other hand, while the defender’s own “internal” explanation for the change may be neither here nor there, oversight is undoubtedly an obvious possible explanation which the reasonable tenant in the circumstances would consider. I would not have been persuaded that the (admitted) averments of fact that the pursuer did not seek clarification from Irish Life are clearly irrelevant. Whether or not there was any duty on the pursuer to make such inquiries (the defender does not aver that there was) the absence of any such inquiries is part of the background circumstances of which the pursuer was aware (and of which a reasonable tenant in the position of the pursuer would have been aware). What, if any, weight might ultimately be attached to that circumstance would have been a separate question.
[29] If, contrary to my view, the admitted/undisputed facts did give rise to an inference of abandonment, I would not have granted the pursuer decree de plano. I am not persuaded that the mere payment of rent at the existing rate after the brochure’s publication would have constituted the pursuer conducting its affairs in reliance on the abandonment (see paras 18-19 supra). There was no change in the rental payment position following the suggested abandonment. Payment of rent was simply being made in compliance with the pursuer’s obligations under the leases (which included its obligations under Clauses 2.1 and 6.5) (Reid & Blackie, supra, paras 3-31, 4-15). On the other hand, since on this hypothesis it was common ground that the pursuer’s other averments of alteration of position in Condescendence 8 would be suitable for inquiry, I would have allowed a proof before answer on that issue.
[30] I have already highlighted what in my view are errors in Banks and Waydale in relation to the issue of reliance. I also think it right to record additional concerns which I have about some of the reasoning in Banks. (Since Banks was relied upon and followed in Waydale, if any of these reservations are well founded, the reasoning in Waydale would also be further undermined.) However, I have not relied on any of these additional concerns in reaching my decision.
[31] First, at pp 12-13 of Banks the Lord Ordinary observed:
“… the question of whether or not a person has abandoned a right cannot be affected one way or another by prejudice suffered by the person who alleges that the right has been abandoned. Accordingly in cases such as this, where the issue is concerned with the alleged abandonment of a right, prejudice need not be averred, and indeed would be irrelevant if it were.”
In my opinion that passage is not an entirely correct statement of the law. In a case where implied waiver is alleged, the party claiming waiver must show not only that the relevant right has been abandoned but also that he has conducted his affairs on the basis that the right has been abandoned. Thus, while it was correct to say that “the question of whether or not a person has abandoned a right cannot be affected one way or another by prejudice suffered by the person who alleges that the right has been abandoned”, for the plea of waiver to succeed the party advancing it also has to show the necessary reliance. The Lord Ordinary’s observation that prejudice need not be averred was correct: but it does not follow that averments of prejudice would be irrelevant. Such averments might well indicate that the party claiming waiver had conducted his affairs on the basis that the right had been abandoned.
[32] Second, at page 13 the Lord Ordinary noted that the rent review clause:
“provides that the rent fixed shall in no circumstances be reduced below the rent stated in Clause Second. It would accordingly appear from these provisions that the defenders, as tenants, would have no interest in initiating a review of the rent at the scheduled times, because, failing agreement or decision by an arbiter that the rent should remain the same … any variation of it could only result in the rent being increased. In these circumstances, despite the mandatory provisions for review, the initiative to initiate the machinery for review would appear to rest with the pursuer as the landlord.”
The leases in Banks were all for terms of twenty years with five-yearly reviews. The tenant’s contention was that with each lease the landlord had waived its right to insist on the first rent review. The Lord Ordinary was correct to observe that the leases contained mandatory provision for review. Either party could initiate a review and there were circumstances in which it could be in either party’s interests to do so. In each lease the rent stated in Clause Second was the initial rent. While it was true that the rent could not decrease at the first review, it was possible that it might do so at later reviews (if the rent fixed at the previous review was greater than the initial rent). Accordingly it was not correct to say that the tenants “would have no interest in initiating a review at the scheduled times … because any variation could only result in it being increased”. Even if there had not been the potential for the rent to decrease at the second and succeeding reviews, I doubt if it would have been correct to conclude that the tenants had no interest in initiating a review. It might well be in the tenants’ interest to do so if they were concerned about continuing uncertainty (see e g Brodies LLP “Waive your rent goodbye”, The In-House Lawyer, Vol. 131 (June 2005), pp 74‑75; Amherst v James Walker Goldsmith & Silversmith Ltd [1983] 1 Ch 305, per Ackner LJ at p 318H-319A). It is also worth bearing in mind that either party could have made time of the essence (for the other party initiating a review) by issuing an ultimatum at or after the review date (Visionshire Ltd v Britel Fund Trustees Ltd, supra, per Lord President Hope at p 890A-B; Amherst v James Walker Goldsmith & Silversmith Ltd, supra, per Oliver LJ at pp 316B and 317D-H, Lawton LJ at p 319F).
[33] Third, at page 13 the Lord Ordinary continued:
“In any event, there can be no doubt that the pursuer had a right to initiate proceedings for review at the term of Whitsunday 1976 in respect of the earlier leases, and at Whitsunday 1977 in respect of the later leases. The time for the pursuer to exercise that right, if he wanted to do so, was just prior to Whitsunday, and prior to the tendering of the proportion of the annual rent at that time, or on the tendering of that proportion of the rent at that time.”
The first proposition in that passage is correct. In my opinion the second proposition is not. No reasoned justification for it was provided, and in my view, there was none. The rent review clause in each of the leases did not make time of the essence. On a proper construction of the leases there was simply no basis upon which the second proposition can be supported.
[34] Fourth, it is not clear that the Lord Ordinary kept in view and properly applied the requisite objective test when considering whether an inference of abandonment arose from the landlord’s conduct. The landlord had averred that the failure to seek a review earlier was attributable to oversight. The Lord Ordinary reasoned (p 14):
“It is not averred who was responsible for the said oversight, nor is it explained what was the nature of it. In these circumstances I am of the opinion that the pursuer’s admitted acceptance of the rents tendered … is unexplained. What inference should I draw from these admitted and unexplained facts? In my opinion there is only one inference that can reasonably be drawn from them, and that is that the pursuer abandoned his right to institute a review of the rents on acceptance of the tendered rents at Whitsunday 1976 and Whitsunday 1977, or at latest on acceptance of the same rents tendered the following quarter. The continued acceptance of the stated rent, in one case for nearly two years, and in the other for nearly one, in my view can only be regarded as indicative of an abandonment by the pursuer of his right to initiate, and thereafter insist on, a rent review at Whitsunday 1976 and Whitsunday 1977.”
It is hard to see why the Lord Ordinary thought the absence of detail in the landlord’s explanation of oversight was so important. On a proper application of the objective test what was relevant was how the landlord’s conduct would have appeared to a reasonable person in the position of the tenant. At the material time the reasonable tenant would have had no knowledge of the internal workings of the landlord’s business or of his subjective intentions or beliefs. Even without such knowledge, the possibility that the review may have been overlooked through oversight would surely have been a possibility which the reasonable tenant would have required to at least consider (especially if matters were being looked at as at the review date or the first quarter‑day thereafter as the Lord Ordinary seems to have done (albeit he appears to have viewed the continuing acceptance of the existing rent thereafter as reinforcing his conclusions)). However, the Lord Ordinary appears not to have considered the possibility that the review might have been overlooked by the landlord.
[35] Finally, I record that I examined the process in Banks to confirm the terms of the leases. It emerged from that examination that a reclaiming motion was marked against the Lord Ordinary’s decision, but it appears that the parties reached some accommodation or settlement and the reclaiming motion did not proceed. The pursuer’s unopposed motion to dispose of the reclaiming motion was dealt with by the First Division on the Single Bills on 5 May 1982, when the following interlocutor was pronounced:
“The Lords having heard counsel for the pursuer on his unopposed motion, refuses the pursuer’s motion for review of the Lord Ordinary’s interlocutor of 27 October 1981: varies the said interlocutor of consent by recalling the finding of expenses contained in said interlocutor and by substituting a finding of no expenses due to or by either party: finds no expenses due to or by either party in respect of the proceedings in the Inner House. Remit the case back to the Lord Ordinary.”
Disposal
[36] I shall sustain the defender’s first plea-in-law and dismiss the action. I shall reserve meantime all questions of expenses.