BAILII is celebrating 24 years of free online access to the law! Would you consider making a contribution?
No donation is too small. If every visitor before 31 December gives just £1, it will have a significant impact on BAILII's ability to continue providing free access to the law.
Thank you very much for your support!
 |
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback] | |
Scottish Court of Session Decisions |
||
|
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Scottish Property Investment Ltd v Scottish Provident Ltd [2004] ScotCS 17 (23 January 2004) URL: http://www.bailii.org/scot/cases/ScotCS/2004/17.html Cite as: [2004] ScotCS 17 |
||
[New search] [Help]
|
OUTER HOUSE, COURT OF SESSION |
|
|
CA77/03
|
OPINION OF LORD MACKAY OF DRUMADOON in the cause SCOTTISH PROPERTY INVESTMENT LIMITED Pursuer; against SCOTTISH PROVIDENT LIMITED Defender:
________________ |
Pursuer: Woolman, Q.C.; Burness, W.S.
Defender: Ross; Shepherd & Wedderburn
23 January 2004
[1] This action relates to subjects at 8 St Andrew's Square and 21 South St David Street, Edinburgh ("the Subjects"). The pursuer is the tenant of the Subjects by virtue of a lease in its favour. That lease was granted by the General Reversionary and Investment Company Limited and is dated 26 March and 1 April 1970. The landlord's interest in the lease is now owned by the defender.[2] Clause SECOND of the lease is in the following terms:
"The subjects hereby let are let for the purpose only of banking and office premises in connection with the tenants' business of Bankers and Financiers and all matters necessary therefor or such purposes as the Landlords in their absolute discretion may from time to time approve and for no other purpose whatever unless with the consent in writing of the Landlords and the tenants shall not use or permit to be used the said subjects for any offensive, noisy, obnoxious trade, business, manufacture or occupation nor as a betting shop, hotel, club, billiards saloon, dance hall, funfair, amusement arcade, leisure centre nor for any purpose which may be or become a nuisance or annoyance or cause disturbance to the owners or occupiers of any adjoining or neighbouring properties nor to use or permit to be used the said subjects for any sale by action, exhibition, public meeting, or entertainment."
"Not to assign transfer sub-let or part with or share the possession of the subjects or any part thereof without the previous consent in writing of the Landlords and in any event not to assign less than the lease of the whole of the leased premises PROVIDED that such consent shall not be unreasonably withheld in the case of a respectable and responsible sub-tenant or assignee AND to give notice in writing of any assignation transfer or sub-lease or devolution of the Tenants interest in the present lease and to produce the instrument of such assignation transfer or sub-lease or any grant of Confirmation Probate or Letters of Administration in any way relating to the subjects within one month after the execution or grant thereof to the Landlords and to pay a fee of three guineas for the registration thereof AND IT IS HEREBY AGREED that every permitted sub-lease of the leased premises or any part thereof shall contain obligations on the sub-tenants in the same form as those contained in this sub-clause with the substitution throughout of the words 'the superior landlords' for the words 'the landlords' and such additional and further obligations as the landlords may then require."
[5] By letter dated 25 March 2003, solicitors, acting for the pursuer, sought the defender's consent to a sub-lease of the third and fourth floors of the Subjects (hereinafter referred to as 'the third and fourth floors') to the Scottish Human Services Trust. That letter was in the following terms:
"Dear Sir
MACDONALD ORR LIMITED
8 ST ANDREWS SQUARE, EDINBURGH
SCOTTISH PROVIDENT LIMITED
We act for Standard Property Investment Limited who are the tenants under the lease undernoted. Scottish Provident Limited are the Landlords.
Our clients have agreed terms with Scottish Human Services Trust to sub-let the third and fourth floors at 8 St Andrews Square, Edinburgh. We enclose the accounts for the period to 31 March 2002 incorporating the figures for the period to 31 March 2001. As you will appreciate the accounts to 31 March 2003 are not available.
We are also enclosing the form of draft sub-lease to be entered into in accordance with the heads of terms.
We understand that consent has already been requested based on less information than that contained in this letter.
However, we are of the view that the information contained in and submitted with, this letter is adequate for you to come to a decision.
We would highlight that Clause THIRD (Twenty two) of the Lease provides that your consent is not to be unreasonably withheld to such a sub-letting and we would point out that the other terms of the proposed sub-lease are all consistent with the terms of the head lease.
We can confirm that our clients will meet your reasonable legal and other expenses properly incurred whether or not the matter proceeds.
We have to advise you that our clients will suffer substantial loss if this transaction does not proceed and we therefore call upon you to consent to the proposed sub-letting within a period of 14 days from the date of this letter, failing which our clients will hold you in breach of contract. In the event that you do refuse consent, we would require detailed reasons with reference to the lease, for that refusal.
This letter will be founded on if necessary."
A copy of the form of draft sub-lease was enclosed with that letter.
[6] Clause 2 of the draft sub-lease provides that the pursuer should sub-let the third and fourth floors to the Scottish Human Services Trust ("the proposed sub-tenants") "subject to the same provisos, conditions and disclaimers in favour of the (pursuer) and where applicable the (defender), as are created in the Lease in favour of the (defender)". In terms of Clause 4 of the draft sub-lease, the proposed sub-tenants would be required to undertake:
".......
"Dear Sirs,
SCOTTISH PROVIDENT LIMITED
STANDARD PROPERTY INVESTMENT LIMITED
8 ST ANDREWS SQUARE, EDINBURGH
We act for Scottish Provident Limited. We confirm having received a copy of your letter of 25 March 2003 to our clients being formal application on behalf of your clients, Standard Property Investment Limited, for consent from our clients as landlords to sub-let part of the premises leased to your clients in terms of the Lease. Our clients have asked us to respond to your letter on their behalf.
We are aware of the terms of the alienation clause in the Lease which are as summarised by you in your letter. However, it is quite clear that the proposed use to which the part of the building to be sub-let to the sub-tenants would be put would amount to a departure from the use permitted by reference to Clause SECOND of the Lease in relation to which our clients have complete discretion. It is on this basis that our clients have instructed us to reject your clients' application amounting to a change of use of the premises.
It is, perhaps, also worth noting at this stage, that the requirement for landlord's consent to change of use of the premises to facilitate partial sub-letting was acknowledged by your clients in the context of the previous sub-lease granted by your clients to Environmental Resources Management Limited which was only granted under reservation of resolution of this and other matters to be resolved between our respective clients. Your clients also envisaged in the letter which they sent to Peter Coupe of Abbey National Investment Management on 15 November 2002 that they would require to obtain the consent of the landlord to the change of use of the premises to facilitate partial sub-letting.
Your clients' threat of legal proceedings is noted and it goes without saying that any such action will be strenuously defended."
"For declarator that (a) the defender, as the landlord under a lease granted by the General Reversionary & Investment Company Limited in favour of the pursuer and executed on 26th March and 1st April, 1970, unreasonably withheld consent to the pursuer's sub-letting part of the leased subjects to the Scottish Human Services Trust, in terms of the defender's agents' letter to the pursuer's agents of 31st March, 2003, and was thereby in material breach of sub-clause (22) of clause THIRD of the lease, and (b) the pursuer having by its agents' letter to the defender's agents of 13th May, 2003 exercised its right to rescind the lease on the ground of the defender's material breach, the lease is at an end."
[10] As a further preliminary observation, counsel for the defender suggested that it would not be appropriate for any of the correspondence between the parties to be referred to during the debate. That observation was, however, difficult to reconcile with the provisions of Rule of Court 47.3, particularly in relation to the letters of 25 March 2003 and 31 March 2003, which I have quoted. Both of those letters are referred to in the pleadings of both parties. They are also included in the schedule of documents appended to the summons, in terms of Rule of Court 47.3(3).
[11] In its defences the defender does not admit that the proposed sub-tenants, the Scottish Human Services Trust, are "respectable, responsible and financially sound". However, counsel for the defender did not dispute that the proposed sub-tenants are of good standing. Counsel for the defender indicated that for the purposes of the debate he was prepared to proceed on the basis that they are.
[12] Nor was there any dispute on the part of counsel for the defender that the sole reason given by the solicitors acting for the defender, as to why consent to the proposed sub-lease had been refused by the defender, had been one based on the terms of the user clause in the lease, Clause SECOND. In seeking to explain why the application had been refused for that reason, counsel for the defender submitted that it was clear that the proposed sub-tenants could not comply with the whole provisions of Clause SECOND of the lease.
[13] During his submissions, counsel for the defender readily acknowledged that the provisions of Clause SECOND and Clause THIRD (22) are difficult to reconcile. He was less willing to acknowledge that an application to the landlords under the provisions of Clause THIRD (22) might give rise to an obligation on the landlords to consider the whole provisions of both clauses.
[14] However, counsel for the defender did submit, without qualification, that the basic question I had to consider was whether the defender's decision to refuse consent had been unreasonable. He argued that on the basis of its averments the pursuer could not prove that the defender had acted unreasonably. It was suggested that the pursuer did not offer to prove the existence of any mitigating factors, which the defender had failed to take into account, in reaching its decision. In the whole circumstances, I should take the view that the pursuer's pleadings were irrelevant and should dismiss the action.
[15] In developing his submissions counsel for the defender referred to International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] 1 Ch 513, Legal & General Assurance Society Ltd v Tesco Stores Ltd, Unreported, 18 May 2001, Lord Hamilton, and Ashworth Frazer Ltd v Gloucester City Council [2001] 1 WLR 2180. Little reference was made to the first two of those authorities. It was Ashworth Frazer on which counsel concentrated.
[16] The plaintiff in Ashworth Frazer was the tenant of premises, which comprised part of an area that had been demised to the plaintiff by the defendant council, under a development lease with a term of 114 years from 1968. The plaintiff, having developed the premises, sought to assign the lease for a use that was different from the use which the plaintiff had itself made of the premises. In terms of the lease, any such assignation required the council's prior written consent, such consent not to be "unreasonably withheld". Questions arose as to whether the intended use by the assignee was prohibited by the user covenant in the lease and, if so, whether it was unreasonable for the council to have refused consent solely on the ground that the intended use would be in breach of the user covenant in the lease.
[17] The second of those issues is, of course, similar to the issue that arises in the present case. On that particular issue, the House held that a court neither could nor should determine by strict rules the grounds on which a landlord might reasonably or unreasonably withhold consent. It also held that although a landlord was not entitled to refuse consent on grounds, which were wholly extraneous to the relationship of landlord and tenant, the question whether the landlord's consent was reasonable or unreasonable depended, in each case, on its particular facts and fell to be determined by the tribunal of fact giving the concept of reasonableness a broad and common sense meaning. The decision of the Court of Appeal to contrary effect in Killick v Second Covent Garden Property Co Ltd [1973] 1 WLR 658 was overruled.
[18] When referring to Ashforth Frazer, counsel for the defender relied in particular on certain passages in the speeches of Lord Bingham of Cornhill and Lord Rodger of Earlsferry.
[19] Counsel referred to paras. 3 - 6 in the speech of Lord Bingham:
"3 When a difference is to be resolved between landlord and tenant following the imposition of a condition (an event which need not be separately considered) or a withholding of consent, effect must be given to three overriding principles. The first, as expressed by Balcombe LJ in International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch.513, 520 is that
'a landlord is not entitled to refuse his consent to an assignment on grounds which have nothing whatever to do with the relationship of landlord and tenant in regard to the subject matter of the lease...'
The same principle was earlier expressed by Sargant LJ in Houlder Bros & Co Ltd v Gibbs [1925] Ch. 575, 587:
'in a case of this kind the reason must be something affecting the subject matter of the contract which forms the relationship between the landlord and the tenant, and... it must not be something wholly extraneous and completely dissociated from the subject matter of the contract.'
While difficult borderline questions are bound to arise, the principle to be applied is clear.
4 Secondly, in any case where the requirements of the first principle are met, the question whether the landlord's conduct was reasonable or unreasonable will be one of fact to be decided by the tribunal of fact. There are many reported cases. In some the landlord's withholding of consent has been held to be reasonable (as, for example, in Pimms Ltd v Tallow Chandlers Company [1964] 2 QB 547 and Bickel v Duke of Westminster [1977] QB [1896] 2 QB 241, Houlder Bros [1925] Ch. 575 and International Drilling [1986] Ch 513). These cases are of illustrative value. But in each the decision rested on the facts of the particular case and care must be taken not to elevate a decision made on the facts of a particular case into a principle of law. The correct approach was very clearly laid down by Lord Denning MR in Bickel v Duke of Westminster [1977] QB 517, 524.
5 Thirdly, the landlord's obligation is to show that his conduct was reasonable, not that it was right or justifiable. As Danckwerts LJ held in Pimms Ltd v Tallow Chandlers Company [1964] 2 QB 547, 564: 'it is not necessary for the landlords to prove that the conclusions which led them to refuse consent were justified, if they were conclusions which might be reached by a reasonable man in the circumstances...' Subject always to the first principle outlined above, I would respectfully endorse the observations of Viscount Dunedin in Viscount Tredegar v Harwood [1929] AC 72, 78 that one 'should read reasonableness in the general sense'. There are few expressions more routinely used by British lawyers than 'reasonable', and the expression should be given a broad, common sense meaning in this context as in others.
6 The Court of Appeal held itself to be precluded by Killick v Second Covent Garden Property Co Ltd [1973] 1 WLR 658 from holding on the facts of this case that the belief of the landlord, however reasonable, that the proposed assignee intended to use the demised premises for a purpose which would give rise to a breach of the user covenant was of itself a ground for withholding consent to assignment: see (1999) 80 P & CR 11, 23 per Chadwick LJ. Lord Rodger has fully analysed that decision. I would myself criticise it on three grounds. First, it purported to treat as a question of law what was in truth a question of fact. Secondly, in holding that the landlord's withholding of consent was unreasonable because the outcome which he wished to avoid was not a necessary consequence of the assignment (which was, it seems clear, based on the landlord's contention: see [1973] 1 WLR 658, 660, 661) the court accepted much too high a test. A reasonable landlord may seek to avoid not only an undesirable outcome which must occur but also one which he reasonably fears may well occur, not least where that involves the prospect of unwelcome litigation. Thirdly, the decision as expressed gave quite inadequate weight to the user covenant in a lease. The lease is, after all, the contract between landlord and tenant, a contract with special characteristics and subject to special rules but a contract all the same. It records what the parties respectively agree to do and not to do. Unless a term is discharged or consensually varied or revoked, a party is ordinarily bound by what he has agreed, even if (with the benefit of hindsight) he regrets his bargain. The contract is, as civil lawyers put it, the law between the parties, and it would rarely be right to hold that a landlord was unreasonable in withholding consent to an assignment which in his reasonable judgment would or might well lead to a breach of covenant. Killick should no longer be treated as authoritative."
[21] Turning to the speech of Lord Rodger of Earlsferry, counsel for the defender referred in particular to paras. 68 - 75:
"68 Approaching the matter in this way, I am satisfied that it cannot be said, as a matter of law, that the belief of a landlord, however reasonable, that the proposed assignee intends to use the demised premises for a purpose which would give rise to a breach of a user covenant cannot, of itself, be a reasonable ground for withholding consent to the assignment.
69 I accept that, as Mr Lewison stressed, in proceedings such as the present the court is not concerned with whether or not the terms of the contract are reasonable as between the parties. The court is concerned only with the assignment and with whether or not it is reasonable for the landlord to withhold consent to that assignment. But in determining that matter, as Bickel shows, the correct approach is to consider what the reasonable landlord would do when asked to consent in the particular circumstances. The rule of law derived from Killick introduces a rigidity which makes it impossible to apply that approach. It should, for that very reason, be rejected.
70 Indeed the reasoning in Killick requires the landlord to proceed in a way in which, it appears to me, no reasonable landlord would actually proceed. It is accepted, by analogy with the position where a landlord is asked to consent to a sublease, that a landlord may act reasonably if he refuses consent where the assignment of the lease will necessarily result in a breach of a user covenant: Packaging Centre Ltd v Poland Street Estate Ltd (1961) 178 EG 189 and Granada TV Network Ltd v Great Universal Stores Ltd (1963) 187 EG 391; Killick v Second Covent Garden Property Co Ltd [1973] 1 WLR 658, 661-662. And one can easily see that a reasonable landlord faced with such a prospect could well decide to withhold consent. But one can equally easily see that a reasonable landlord, faced with the prospect that the assignment of the lease is likely to result in a breach of a user covenant, could well reach precisely the same decision. After all, a landlord considering whether to accept a tenant in the first place would almost certainly reject a person who would probably, even if not necessarily, use the premises in breach of a covenant in the lease. His decision to do so would be both rational and reasonable. In my view it may be equally rational and reasonable for a landlord to withhold consent to an assignment to a prospective assignee who will probably, even though not necessarily, breach the covenant. In deciding whether to withhold consent to an assignment reasonable landlords need not confine their consideration to what will necessarily happen; like everyone else taking an important decision, they may have regard to what will probably happen.
71 The central plank in the reasoning of the court in Killick seems to be that it would be unreasonable for the landlord to withhold consent because the assignment does not change the legal relationship between the landlord and the tenant. So the landlord would have exactly the same powers to prevent a breach of covenant by the assignee as by the existing tenant. The landlord would therefore be in the same position, neither better nor worse, to enforce the user covenant. As an analysis of the landlord's legal position that is undoubtedly correct. But the reality is that a reasonable landlord could well look at the matter more broadly and see that his position would be significantly altered by the assignment. It is one thing to have a tenant who complies with the user covenant in the lease and against whom there is no need to take steps to enforce the covenant. It is quite another to have a new tenant who does not comply with, or who challenges the interpretation of, the user covenant and against whom the landlord might need to take steps to enforce it or to contest the tenant's interpretation, with all the inconvenience and potential cost involved. It is also a different thing to have a new tenant who intends to apply to the Lands Tribunal under section 84 of the Law of Property Act 1925 to discharge or modify the user covenant. Again the landlord would face the prospect of becoming embroiled in legal proceedings. If they occurred, all or any of these matters would make a huge practical difference to the landlord. So the prospect that one or other of them will probably happen is one which a reasonable landlord must be entitled at least to take into account when asked to consent to the assignment of a lease. It is therefore in my view wholly unrealistic to suggest, as Killick does, that no reasonable landlord, faced with the probability of real changes of these kinds, would withhold consent to an assignment simply because, technically, his legal position and his legal remedies would remain the same. I accordingly reject the central strand of the reasoning on which the decision in Killick depends.
72 Mr Lewison submitted that, if the council were permitted to withhold consent in a case like the present, they would in effect have the power to impose their interpretation of the user covenant and the tenant would have no real interest to pursue the matter. So far as the tenant's interest is concerned, the history of the present proceedings, where the respondents have pursued a point of interpretation all the way to this House, would seem in itself to show that the argument cannot be pressed too far. For the rest, it is simply not the case that the landlord would have power to impose his particular interpretation of a user covenant. On the contrary, a tenant who is faced with a refusal of consent based on a particular interpretation may always apply to the county court for a declaration as to the proper interpretation. If the ruling shows that the landlord's interpretation is wrong, then it would plainly be unreasonable for the landlord to continue to withhold consent on that basis.
73 For these reasons I would reject the supposed rule of law that the Court of Appeal derived from Killick. In so far as Killick is thought to lay down any such rule, it should be overruled. Since the decision of the Court of Appeal to make the third declaration was based solely on an application of Killick, it follows that the council's appeal against that part of the court's order must be allowed.
74 It is important not to exaggerate the effect of overruling Killick. In particular, it does not establish any contrary rule of law that it will always be reasonable for a landlord to withhold consent to an assignment simply on the ground that the proposed assignee intends to use the premises for a purpose which would give rise to a breach of a user covenant. While that will usually be a reasonable ground for withholding consent, there may be circumstances where refusal of consent on this ground alone would be unreasonable. As Lord Denning MR stressed, it will depend on the circumstances of the particular case."
[23] In responding to those submissions, senior counsel for the pursuer stressed that there was no dispute as to the relevant authorities. It was submitted that the outcome of the debate turned on a proper construction of the terms of the lease and had no wider legal significance. Senior counsel for the pursuer stressed, as counsel for the defender had previously acknowledged, that the lease had not been very happily drafted. It was clear, nevertheless, that it had certain central features. The lease was to run for 98 years. There were no break provisions. The only means by which the pursuer could relieve itself of its obligations under the lease was by the granting of an assignation or a sub-lease, consented to by the defender. If consent to do so was not forthcoming, the pursuer would sustain loss. Those were the background circumstances, in which it was important to construe the lease on the basis of its whole terms.
[24] Senior counsel for the pursuer sought to analyse Clause SECOND of the lease as falling into three parts. The first part he identified as running from the beginning of the clause up to and including the words "all matters necessary therefor". He submitted it was clear from the language used that this first part of Clause SECOND applied only to the original tenants, namely the pursuer, and to their business of bankers and financiers.
[25] Senior counsel for the pursuer identified the second part of Clause SECOND as being "or such purposes as the landlords in their absolute discretion may from time to time approve and for no other purposes whatever unless with the consent in writing of the landlords". Counsel for the pursuer submitted that this was an important control, which the landlords were able to exercise over the original tenants and applied only to those tenants.
[26] In his submission, the remaining part of Clause SECOND applied to both the original tenants and to any assignees and sub-tenants, and applied subject to any variation in the terms of Clause SECOND, which might be agreed, from time to time, with the landlords.
[27] Senior counsel for the pursuer described Clause THIRD (22) of the lease as being in the nature of a code, which had been intended by the original parties to the lease to regulate the granting of assignations and sub-tenancies and which fell to be construed with that explicit intention in mind. Clause THIRD (22) provided the landlords with the means by which they could decide whether or not to agree to any transfer of the tenants' obligations, whilst the terms of that clause recognised that the tenants had the right to seek consent to the grant an assignation or a sub-lease. The landlords had a right to be consulted in advance, to consider prospective assignees and tenants and, in the case of a proposed sub-lease, to require such additional and further obligations which they, as the landlords under the lease, wished. Senior counsel for the pursuer submitted it was clear that, when the terms of the lease were read as a whole, the original parties to the lease had agreed that there was to be a user regime and a transfer regime. There was no need, let alone any requirement, to construe the lease in such a manner that the qualified discretion of the landlords, that was to be found in Clause THIRD (22), could be usurped by the exercise of the absolute discretion referred to in Clause SECOND. Senior counsel for the pursuer submitted that his approach to the construction of the lease gave content to both of these important clauses and yet yielded a commercial sensible result, which it could be inferred that the original parties to the lease had agreed to. Such a construction provided a mechanism by which the tenants could seek to relieve themselves of their obligations, subject to the interests of the landlords being adequately protected. I should accept such a construction as being what the original parties had intended.
[28] In applying that construction, to the facts of the current dispute between the parties, senior counsel for the pursuer also founded on the detail of the correspondence dated 25 March 2003 and 31 March 2003. He submitted that it was clear from the second of those letters that the defender had refused consent to the proposed sub-lease, solely by having regard to the terms of Clause SECOND. The defender had not exercised its discretion in terms of Clause THIRD (22). The defender had not addressed the question of whether it would be unreasonable for it to refuse consent to the proposed sub-lease. On the contrary, the defender had refused an application, made under reference to Clause THIRD (22), by relying solely on another provision of the lease, namely Clause SECOND. In doing so, the defender had quite clearly taken no other factors into account.
[29] Senior counsel for the pursuer submitted that the facts were clear, as to what had happened when the pursuer's application for consent had been refused by the defender. He moved me to repel the defender's first plea in law and to grant decree de plano in favour of the pursuer.
[30] I have not found it easy to resolve the issues that were raised during the course of the debate. That is because the provisions of Clause SECOND and Clause THIRD (22) of the lease are difficult to reconcile. They and certain other provisions of the lease, including the seemingly random and illogical interchange between the use of the words "tenants" and "Tenants" and the use of the words "landlords" and "Landlords", give the distinct impression that the lease was drafted on a 'cut and paste' basis. It appears doubtful that the whole provisions of the draft lease were carefully revised with a view to ensuring that the lease, when finally executed, would set out, in clear and consistent language, the full terms of the agreement that the original parties to the lease intended to enter into. On the other hand, I must proceed on the basis that the terms of the lease do record the agreement between the original landlords and tenants. For that reason I must seek to construe the terms of the lease so as to give effect to them in a manner which is sensible and likely to correspond with the intention of the original parties to the lease.
[31] In construing the provisions of Clause SECOND and Clause THIRD (22), I must also endeavour to accord a natural meaning to the words to be found in those provisions. But I think that I must also recognise that, on occasion, commercial documents, and in particular commercial leases, are drafted in terms that give rise to an apparent conflict or inconsistency between provisions to be found in different parts of the one document. That appears to the situation that arises in the present case. Certain of the terms of Clause SECOND of the lease suggest that the landlords should have an absolute right to determine what use is to be made of the Premises, whereas the language found in Clause THIRD (22) appears to indicate that if the use, to be made of the Premises, is to be that of a sub-tenant or an assignee, then the landlords' consent to such a proposed use should not be unreasonably withheld "in the case of a respectable and responsible sub-tenant or assignee". Faced with such a conflict, what a court requires to do is to seek to identify a construction of the apparently conflicting provisions, so that they fit sensibly together. Insofar as it is possible to do so, a court should also be looking for a construction that is likely to correspond with the intention of the original parties.
[32] In considering the provisions of Clause THIRD (22), it is, of course, necessary to bear in mind that, when the terms of that particular clause were agreed to, the parties also agreed to the terms of Clause SECOND. The latter include, as senior counsel for the pursuer acknowledged, the words "The subjects hereby let are let for the purpose only of banking and office premises in connection with the tenants' business of Bankers and Financiers and all matters necessary therefore or such other purposes as the Landlords in their absolute discretion may from time to time approve and for no other purposes whatever unless within the consent in writing of the Landlords". There was, in my opinion, considerable force in the submission, made by senior counsel for the pursuer, that no sub-tenant or assignee of the pursuer could ever comply with the terms of that opening part of Clause SECOND, which culminate in the words "in connection with the tenant's business of Bankers and Financiers". In my opinion that opening part of Clause SECOND falls to be construed as referring to the business of the original tenants, namely that of the pursuer, not to the business of any subsequent sub-tenants or assignee.
[33] It also clear that the original parties to the lease anticipated that all or part of the Premises could be occupied and used by sub-tenants and assignees. That is a necessary inference from the terms of Clause THIRD (22). In my opinion, having regard to the structure of Clause SECOND, the original parties to the lease must also be deemed to have anticipated that such use by sub-tenants or assignees would not be 'for the purpose of banking and office premises in connection with the (pursuer's) business of Bankers and Financiers and all matters necessary thereto', which is the only use explicitly permitted by the provisions of Clause SECOND. But even if such a construction of the opening provisions of Clause SECOND was not correct, the following provisions of Clause SECOND confirm that the original parties to the lease clearly envisaged the possibility of the Premises, which constitute the subjects of the lease, being occupied and used by tenants (or assignees or sub-tenants), who would not carry on business as bankers and financiers and that the second part of Clause SECOND allowed the landlords to sanction the type or purpose of use involved, even if that had not previously been authorised.
[34] Bearing those factors in mind, I have reached the conclusion that the lease falls to be construed on the basis that the original parties to the lease intended and agreed that the landlords would consider any application for consent under Clause THIRD (22) in light of all the relevant circumstances and would not refuse such an application unreasonably. In my opinion, it is unlikely that the original parties to the lease intended that the landlords could refuse consent to a proposed assignation or sub-lease solely by reference to the fact that the proposed use by the proposed assignee or sub-tenant would not comply with the provisions Clause SECOND and irrespective of the criterion of reasonableness. When one bears in mind that the criterion of reasonableness, laid down in Clause THIRD (22), applies only in respect of applications relating to proposed assignees and sub-tenants, which are "respectable and responsible", it is extremely unlikely that the original parties to the lease would have agreed to a situation in which the landlords would, for all practical purposes, be able to exercise an absolute veto on assignees and sub-tenants, by focussing solely on the nature and purpose of the proposed use. That would be difficult to reconcile with the fact that the original parties to the lease clearly contemplated, that, throughout the 98 years of the lease's existence, assignees or sub-tenants of the original tenants might succeed to the rights and obligations of the pursuer and laid down a mechanism or procedure, which would allow the pursuer (and any successors as the tenants) to apply to the landlords for consent to the grant of an assignation or a sub-lease.
[35] In practical terms that means that an application to the landlords, in terms of Clause THIRD (22), cannot be determined solely by reference to the single factual issue of whether the intended use of the proposed sub-tenants (or assignee) would conflict, in any way, with the terms of Clause SECOND, which set out the use to be made of the premises by the original tenants, namely the pursuer. Standing the structure and language used in Clause SECOND, such a conflict would be unavoidable, with respect to any proposed assignee or sub-tenant and in particular one which did not carry on business as bankers and financiers.
[36] During his submissions, counsel for the defender volunteered, quite unequivocally, that the question before the Court in the present case was whether the defender's decision to refuse consent had been a reasonable one. In my opinion, such a formulation of the question involves the defender accepting that, however the terms of Clause SECOND fall to be construed, Clause THIRD (22) cannot be construed on the basis that the defender enjoys an unqualified right to veto an application in terms of Clause THIRD (22), for consent to a sub-lease or an assignation, solely by considering whether it would involve a change in the nature or purpose of the use being made of the Premises by the original tenants.
[37] In my opinion, that is particularly so, in a situation, such as the present, where it is proposed that part of the office premises, forming the subjects of the original lease, should be still be used as office premises, but for a purpose other than that of carrying on the original tenants' business of bankers and financiers.
[38] In overruling Killick v Second Covent Garden Property Co Ltd, the House of Lords held that there was no rule of law that it was unreasonable for a landlord to withhold consent to a proposed assignment (or sub-lease) solely on the ground that the intended use would be in breach of a user covenant in the lease. What the House did not hold, however, was that it would be reasonable for a landlord to withhold consent to a proposed assignment (or sub-lease) solely by having regard to the proposed use of the assignee (or sub-tenant). Nor did the House hold that it would always be reasonable for a landlord to withhold consent to a proposed assignment (or sub-lease) in circumstances in which the proposed assignee (or sub-tenant) intended to use the whole or part of the premises for a purpose that would give rise to a breach of a user covenant (cf. Lord Bingham at para. 6 and Lord Rodger at para. 74 in Ashworth Frazer).
[39] It follows, in my opinion, that when the defender was presented with a request for its consent to a proposed sub-lease, as set out in the letter of 25 March 2003, the provisions of the lease placed an obligation on the defender to consider that application against the criterion of reasonableness, in the light of the full provisions of the lease and having regard to the whole of the information placed before it, about the proposed sub-tenants and the proposed sub-lease.
[40] As the letter of 25 March 2003 makes clear, the application for consent to the proposed sub-lease was made under reference to the provisions of Clause THIRD (22). In my opinion, that necessitated the full provisions of that clause being considered by the defender. Equally importantly, the provisions of Clause SECOND did not fall to be ignored by the defender, because those provisions entitle the landlords to authorise the use of all or part of the Premises, which are, of course, office premises, for a purpose other than that of bankers and financiers.
[41] In my opinion, it was incumbent upon the defender to approach its decision on the basis that it had a qualified discretion, which it required to exercise. It was not open to the defender to proceed on the basis that it had an absolute discretion. If it can be established that a landlord, such as the defender, has failed to understand that its decision to refuse consent requires to be a reasonable one, such a failure amounts not only to an error of construction or interpretation of the lease. Such a failure could render, as unreasonable, a decision to refuse consent for a proposed sub-lease (cf. para. 72 of Lord Rodger's speech in Ashford Frazer).
[42] The next question that arises is whether the pursuer has averred facts on which the Court could hold that the defender's refusal of consent was unreasonable. In my opinion, in considering that question it is important that I should have regard to the whole terms of the lease and to the correspondence referred to in the pleadings of parties, including the proposed sub-lease that was enclosed with the letter dated 25 March 2003. In my opinion, it would be quite artificial for me to endeavour to resolve what Lord Bingham repeatedly stressed was a question of fact, without having recourse to documents that is agreed constitute the application for consent to the proposed sub-lease and intimation of the defender's decision refusing that application. My view to that effect is reinforced by the fact that both parties invited me to determine the issue of whether or not the defender had acted reasonably, without holding a proof. Counsel for the defender sought dismissal of the action. Senior counsel for the pursuer invited me to pronounce decree de plano.
[43] Having considered the submissions made by counsel, I am quite satisfied that the pursuer's pleadings give adequate notice of the grounds upon which the pursuer seeks to challenge the defender's decision and to obtain the declarator concluded for in the summons. In arguing that the defender's refusal of consent was unreasonable, the pursuer founds on the provisions of Clause THIRD (22). The pursuer criticises the decision to refuse consent because that decision was taken on the basis that the provisions of Clause SECOND, on their own, gave the defender an absolute right to refuse an application for consent, in circumstances where the proposed sub-tenant's use of the third and fourth floors would not comply with the full provisions of Clause SECOND. The pursuer also avers that, on a proper construction of Clause SECOND, the whole provisions of that clause do not apply to a sub-tenant or assignee of the original tenants. Whether or not that particular submission is well founded, it is clear that the defender's decision is also criticised on the basis that the defender failed to take into account the good standing of the proposed sub-tenant.
[44] In my opinion, the nature of the pursuer's challenge to the reasonableness of the defender's decision is further illustrated by reference to the correspondence, which is referred to in the pleadings and which I have quoted. The terms of that correspondence suggest that in reaching its decision to refuse consent, the defender may not have addressed the criterion of reasonableness. It is also arguable that the terms of the second paragraph of the letter of 31 March 2003 indicate that the defender took the view that a proposed sub-lease to a sub-tenant, who would not carry on business as bankers and financiers, could be, and indeed should be, refused consent on that basis alone, without the defender being required to give any consideration to any other factors relevant to the issue of reasonableness.
[45] In these circumstances, I consider that there was force in the submission made by senior counsel for the pursuer that the pursuer's case against the defender is that the defender's approach, to the decision it had been requested to take under Clause THIRD (22), involved that decision being taken on the basis that it was limited to an exercise of an absolute discretion vested in the landlords, in terms of the provisions of Clause SECOND. In my opinion, properly construed, the lease does not require or indeed permit that to occur. In these circumstances, I have reached the view that the pursuer has given fair notice of its case that the defender failed to address the issue of reasonableness, before it took its decision to withhold consent to the proposed sub-lease, and that such a failure rendered the defender's decision an unreasonable one. Equally, if the onus is on the defender to establish that the decision was reasonable, the pursuer's reliance on the terms of the letter of 25 March 2003 provides the defender with perfectly clear and fair notice that the defender has acted in breach of contract.
[46] In reaching those conclusions, I have, of course, had regard to the decision of the House of Lords in Ashworth Frazer Ltd and to the passages in the speeches that I have quoted. It is, I believe, important to bear in mind that Lord Bingham stressed that the question of whether a landlord's conduct was reasonable or unreasonable is one of fact to be decided by the tribunal of fact. He also stressed that, in the reported authorities, each decision rested on the facts of the particular case and that care must be taken not to elevate a decision made on the facts of a particular case into a principle or law. Those important observations must be borne in mind in considering the implications of the House's decision to overrule the decision of the Court of Appeal in Killick. In my opinion, the submissions on behalf of the defender are difficult to reconcile with Lord Bingham's reminders (a) that the question of whether the landlords' conduct was reasonable or unreasonable is a question of fact and (b) that in each case the decision of the court had depended on the "facts of the particular case".
[47] Lord Rodger stressed that overruling Killick does not "establish any contrary rule of law that it will always be reasonable for a landlord to withhold consent to an assignment simply on the ground that the proposed assignee intends to use the premises for a purpose that would give rise to a breach of a user covenant" (para.74). As Lord Rodger explained, whilst that will usually be a reasonable ground for withholding consent, there may be circumstances where the refusal of consent, on that ground alone, would be unreasonable.
[48] Normally when a question of fact is to be determined by a tribunal of fact, that tribunal would expect to hear evidence or be presented with an agreed statement of facts, before determining the factual questions before it. That has not happened, thus far, in the present action. Moreover, both counsel are agreed that, if the defender's decision to refuse consent was unreasonable, evidence may well be required on the issue of whether the consequent breach of contract on the part of the defender was so material as to justify the pursuer rescinding the contract. Indeed, counsel for the defender was adamant that such proof would be necessary. In such circumstances, I have carefully considered whether, without hearing evidence, I should reach a conclusion on the factual question as to whether the defender's refusal of consent was unreasonable. I have reached the view that I should not. Whilst it might be possible for me to reach a conclusion on the basis of the information before and that was what the defender's counsel invited me to do, I am not satisfied that I have the full facts before me. In any event, I agree with counsel for the defender that the issue of the materiality of any breach of contract on the part of the defender is not a factual question on which I could reach a conclusion without hearing evidence.
[49] Senior counsel for the pursuer presented an alternative submission to the effect that the use by the proposed sub-tenants would fall within the provisions of Clause SECOND and in particular within the first part of the clause. Senior counsel for the pursuer argued that, if this alternative submission was well founded, it would provide a further basis for challenging the decision by the defender to withhold consent. This alternative submission involved the contention that the proposed use of the third and fourth floors of the Premises by the proposed sub-tenants would involve them being used as office premises. That was a use, which could be held to fall within the scope of the provisions of the opening part of Clause SECOND, if the references there to banking and financiers were deemed to be pro non scripto. Senior counsel for the pursuer submitted that if the opening part of Clause Second had been intended to apply to tenants other than the pursuer, that was how its terms should be construed.
[50] In my opinion, that is not construction that can easily be placed on the provisions of the opening part of Clause SECOND. Furthermore, it is one that is equally difficult to reconcile with the existence and terms of the remaining parts of Clause SECOND. In these circumstances, I reject it.
[51] In the light of the conclusions I have reached, I will accordingly put the action out "By Order" on 30 January 2004, for a discussion as to further procedure and in particular the fixing of the proof that I consider to be necessary. I understood from the defender's counsel that in the event of a proof, the defender will wish to amend its pleadings before the proof took place. It may be that the pursuer will also wish to do so.
