FULL COURT

(Sheriff MacLeod, Mr J. Smith)

THE MOUNT STUART TRUST v McCULLOCH

(Application RN SLC/190/08 – Order of 26 February 2009)

AGRICULTURAL HOLDINGS – NOTICE OF IRRITANCY – WHETHER RENT PAYABLE WHILE RENT REVIEW ONGOING – WHETHER FAILURE TO PAY RENT TIMEOUSLY A REMEDIABLE BREACH

The respondent was tenant of an agricultural holding on a lease containing an irritancy clause specifying, as one of the grounds of irritancy, allowing one half year’s rent to remain unpaid after it had become due. The irritancy clause contained a proviso to the effect that in the case of a breach which was capable of being remedied the landlords had to first serve written notice requiring the tenant to remedy the breach within a period of two months. In 2004 the respondent had applied to the Court for a determination of the rent payable for the holding from 28 May of that year, which review was still ongoing when the applicants raised the present proceedings seeking to enforce an irritancy based on failure to pay timeously the half-year’s rent said to be due on 15 May 2008. No demand for payment had been served prior to service of the notice of irritancy. In opposing the application, the respondent argued (1) that although the underlying obligation to pay rent continued to exist during a rent review it was unenforceable until such time as the new rent was known and that, therefore, on the facts of this case, no rent had been due as at 15 May 2008 and the notice of irritancy was, therefore, invalid; and (2) esto rent was payable as at that date, failure to pay the sum due was a remediable breach entitling the respondent to notice by way of a demand for payment in terms of said proviso and such notice not having been served the notice of irritancy was invalid for that reason.

The Court held (1) that rent at the pre-existing level continued to be payable during a rent review and that rent at that level had, therefore, been due on 15 May 2008, but (2) that failure to pay rent timeously was a remediable breach entitling the respondent to the protection of the notice to remedy proviso and, no such notice having been served, the notice of irritancy was invalid and application dismissed. Dicta of Lord Penrose in Aubrey Investments Ltd v D S Crawford Ltd (in receivership) infra and of Slade LJ in Expert Clothing Service & Sales Ltd v Hillgate House Ltd infra applied.

The Note appended to the Court’s Order is as follows:-

[1] In this application the applicants seek (1) declarator that the respondent as the tenant of the lands and farm of Kilmichael, Bute, has incurred an irritancy of his lease; (2) declarator that the lease has been effectively terminated as from around 17th July 2008 and that the applicants are entitled to enter and take possession of the subjects; (3) an Order for the removal of the respondent; and (4) the expenses of the application.

[2] Both parties have preliminary pleas and we heard debate on these pleas at Edinburgh on 13th February 2009 when the applicants were represented by Mr Gordon Reid, QC, and the respondent by Sir Crispin Agnew of Lochnaw, QC.

Background

[3] The respondent is tenant of Kilmichael Farm in terms of a lease from the Marquess of Bute dated 29th October and 2nd November 1987. The lease was for one year from Martinmas 1987 and from year to year thereafter.

[4] The rent in terms of the lease is £6,000 per annum payable half yearly at Whitsunday and Martinmas, backhand, with a fifth part more of each term’s payment as liquidate penalty in case of failure in punctual payment. Additionally the lease contains the following provision re interest on late payment of sums due:-

“[T]he Tenant shall not be entitled to withhold or consign any payment of rent or any other sum payable by the Tenant to the Proprietors in terms hereof or of any agreement to follow hereon or otherwise on account of any claim which the Tenant may have against the Proprietors or for any other reason whatsoever it being specifically agreed that the rent shall be paid at the due terms hereinbefore specified and that all such other sums payable shall be paid when they fall due (as hereinafter defined) notwithstanding any such claims … DECLARING that in the event of the Tenant failing to make any payment of rent or of any such other sum on the date upon which the same becomes due (which in the case of rent shall be the aforesaid terms …) he shall be bound to pay interest thereon to the Proprietors at a rate five percentage points above the base rate of the Bank of Scotland in force from time to time from the date upon which payment becomes due as aforesaid until payment thereof and such interest shall be recoverable as if the same were rent in arrears and due under this lease;”

and an irritancy clause in, so far as relevant, the following terms:-

“[In] the event of the Tenant during this lease (a) becoming apparently insolvent or divesting himself of his estate and effects by trust deed for creditors or otherwise or diligence is performed against the Tenant or his goods … and remains undischarged after a period of seven days or (b) failing to reside personally in the farmhouse or (c) assigning this lease or sub-letting the Farm or any part of it without the consent of the Proprietors in writing or (d) allowing one half-year’s rent to remain unpaid after it has become due or (e) failing to have a sufficient stock on the Farm which shall be bona fide the Tenant’s own property or (f) failing to cultivate and manage the Farm according to the rules of good husbandry and in accordance with the provisions hereof or (g) using any part of the land or buildings for a purpose other than agricultural or pastoral or except in accordance with the provisions hereof or (h) failing to fulfil any of the remaining obligations incumbent upon the Tenant in terms of this lease or of any agreement to follow hereon then and in any of these events and without prejudice to any other remedy competent to the Proprietors it shall be in the power of the Proprietors (provided always that in the case of an alleged breach which is capable of being remedied the Proprietors or their factor have first served written notice on the Tenant by recorded delivery post requiring the Tenant to remedy the alleged breach within a period of two months from the date of the said notice and the Tenant has failed to remedy the same) by written intimation addressed to the Tenant and posted in a registered or recorded delivery letter forthwith to put an end to this lease and immediately to resume possession of the Farm …”

[5] The half-year’s rent payable as at 15th May 2008 was not paid by the tenant. On 16th July, without having served a notice requiring payment of the outstanding rent within two months, the applicants served a notice purporting to irritate the lease. (That notice mistakenly referred to the lease as being dated 1989 rather than 1987 but although the irritancy notice is said to be invalid on that ground in the respondent’s pleadings the point was not insisted upon at debate.) On 21st July 2008 the respondent sent the applicants a bank draft for the outstanding rent but it remains uncashed. In this application the applicants seek to enforce the alleged irritancy.

[6] The other matter which is relevant is that there is also pending before the Court an application (RN SLC/228/04) for a rent review in terms of section 13 of the Agricultural Holdings (Scotland) Act 1991 (“the 1991 Act”) at the instance of the present respondent which asks the Court to determine the rent payable in respect of the holding from 28th May 2004.

[7] The respondent lodged Answers to the present application contending that the notice of irritancy was invalid or unenforceable on several grounds, including said error as to the date of the lease and waiver on the part of the applicants, but at debate it became clear that opposition was now confined to two grounds; viz(i) that the effect of an ongoing rent review was that no rent was payable until the new rent had been determined and that, therefore, in this case no rent had been payable as at 15th May 2008, and (ii) that failure to pay rent by the due date was in any event a remediable breach and the applicants had therefore been obliged to serve a demand for payment within two months in the absence of which the purported notice of irritancy was invalid.

Legislation, authorities and textbooks

Legislation

Agricultural Holdings Act 1948, sec 24(2)(d)
Agricultural Holdings (Scotland) Act 1991, sec 22(2)(d)

Cases

Aubrey Investments Limited v D S Crawford (in receivership) 1998 S.L.T. 628
British Rail Pension Trustee Company Limited v Wilson 1989 S.L.T. 340
Dickinson v Boucher (1984) EG 1159
Expert Clothing Limited v Hillgate House Limited [1986] Ch 34-340
Hannaford v Smallacombe [1994] 1 EGLR 9
Stoneman v Brown [1973] 1 W.L.R. 459
Whitbread Group plc v Goldapple Limited 2005 S.L.T. 281

Texts

Erskine, Institutes III
Hon Lord Gill, The Law of Agricultural Holdings in Scotland 3rd ed
Gloag, The Law of Contract in Scotland 2nd ed

Submissions

(i) for the respondent

[8] Sir Crispin moved us to dismiss the application. Alternatively, if we were minded to grant decree of removal, to (1) require the applicants to produce evidence that they were the infeft proprietors of the holding before decree was granted; and (2) supersede extract of any such decree so that the respondent could request a suitable period of time within which to vacate the farm in an orderly fashion. Mr Reid immediately took exception to the first of these, submitting that having paid and tendered rent and so forth it was not now open to the respondent to challenge the applicants’ title.

[9] Sir Crispin then dealt with the factual background. It is as set out above.

[10] The notice of irritancy was being resisted on the two grounds we have already mentioned.

[11] The irritancy clause provided that an irritancy would arise if one half year’s rent remained unpaid “after it had become due”. Section 13(1) of the 1991 Act allowed the landlord or tenant of an agricultural holding to have determined by this Court the question what rent should be payable in respect of the holding as from the next day after the date of the notice on which the tenancy could have been terminated by notice to quit (or notice of intention to quit) given on that date. In terms of that section the Land Court was determining “what rent should be payable in respect of the holding” and that “as from” the specified date. The result of that was that no rent was due until the Court had determined what the rent was to be. There was an obligation to pay rent but the rent could not be due because the amount of the rent had not been determined. If one was to ask the question what rent a landlord could sue for as at the rent payment date there was no answer to that. Commercial leases normally provided that the existing rent would remain payable until a new rent had been determined but the 1991 Act said nothing like that.

[12] As at Whitsunday 2008, therefore, the “debt” was an illiquid debt because its amount had still to be ascertained and a debt could not be due until it had been ascertained; Erskine Institute’s III.1.6, Gloag page 645/6. A debt became liquid only when it was both due and ascertained.

[13] Similarly, if a landlord served a written demand under section 22(2)(d) of the 1991 Act for what sum would the demand be served? He could not in fact serve such a demand because the rent due was unknown. A demand for the wrong amount of rent would be an invalid demand. A demand for payment of “any rent due” which did not specify the amount would be valid in a situation where the tenant would know how much was due (Dickenson v Boucher, per Oliver LJ at page 1162 in relation to the equivalent English provision then in force, sec 2(3) of the Agricultural Holdings (Notices to Quit) Act 1977, which replaced sec 24(2)(d) of the Agricultural Holdings Act 1948). But here the tenant would not know how much was due because the rent had not been determined. The same reasoning should apply to an irritancy notice as applied to these statutory provisions: if an irritancy notice was served in respect of rent said to be due but at a time when the amount of that rent was unknown and undetermined it must be invalid. It would be in respect of an illiquid debt which, as such, could not be said to be “due” on the date referred to in the notice.

[14] In response to a question from the Court as to whether his approach meant that a tenant could obtain a lengthy rent holiday while a rent review was ongoing, Sir Crispin said it could not be said that the former rent remained due until the new rent had been set because there was no provision in section 13(1) of the 1991 Act for a later accounting. A rent determination could result in an increase or decrease in rent and why should one party be in pocket and the other party out of pocket by virtue of the previous rent being payable while the determination was ongoing? It should be remembered that in 1948, when rent review provisions had first come in, minimal statutory guidance had been given as to the rent should be determined and an arbiter could, therefore, resolve the question very quickly. Modern rent reviews were more complex and took longer, the ongoing rent review in the present case being an example of one which was taking much longer than Parliament had contemplated. It was clear from the statutory machinery for rent review that Parliament had thought one year long enough for the purpose.

[15] Turning to the terms of the irritancy clause, Sir Crispin’s submission was that the clause, on its terms, could not be invoked until the landlord had given two months notice to the tenant of any breach that was capable of being remedied. The failure to pay rent on the due date was such a breach. It was clear from the wording of the clause that prima facie the phrase “in any of these events” meant that the provision for a notice to remedy applied to all of the listed breaches. They were all, therefore, to be regarded as breaches which were capable of being remedied but in any event non-payment of rent was by its nature a remediable breach.

[16] Although it was true that subsequent events could never alter the fact that rent had not been paid at a particular date, that was also true of all the other breaches: they were all in respect of obligations which had been due for performance at a particular time. By their very nature breaches occurred at a particular time and on the applicant’s position in this case no breach would be remediable.

[17] In support of this branch of his case Sir Crispin founded strongly on the following passage from the judgement of Lord Penrose in Aubrey Investment Ltd v D S Crawford Ltd (in receivership), a case involving irritancy following upon appointment of a receiver:-

“I consider that the expression ‘which is capable of being remedied’ imports a test of practical application rather than one of theoretical or conceptual legal analysis. If the proviso were otherwise apt to apply in a case of insolvency within one of the grounds of irritancy and the tenant were known to be absolutely insolvent it would be the worst kind of formalism to require the landlord to decide on a reasonable period for remedy of that state of insolvency, and to proceed to give notice to the tenant requiring it to be remedied. There could, on this hypothesis, be no reasonable period for remedy, or alternatively there would require to be an infinite period. There is nothing to compel one to adopt such a view of the provisions. The expression ‘is capable of being remedied’ imports a straightforward practical test. In this case there is no suggestion that the company could ‘remedy’ the receivership by securing the recall or suspension of the receiver’s appointment. I should say that I would not have supported the pursuer’s argument … that receivership is not capable of being remedied. If the appointment of a receiver were within the expression ‘breach, non-observance or non-performance’ by the tenant, rather than an event affecting the tenant brought about by a third party, it would have been necessary to construe the expression ‘capable of being remedied’ in that context. The situation is not materially different from the remedy of a breach of contract. Remedial action may eliminate loss, but the facts which constituted the breach may not alter. The conduct which constitutes a breach of the user clause of a lease may be terminated, and the breach remedied. But that cannot alter the fact of past misuse. The remedy required is one which restores the situation apart from the offending Act, and I would have considered that in an appropriate case recall of the appointment of a liquidator or receiver should satisfy that requirement.” (pages 632K to 633B):

[18] In the present case the landlord was obliged to give an opportunity for the breach to be remedied: section 22(2)(d) of the 1991 Act had effectively been incorporated into the lease. The provision making interest payable on late payments of rent at page 31 of the lease supported the view that late payment of rent was a remediable breach. By paying the rent and interest due the position could be restored.

[19] The English case of Expert Clothing Ltd v Hillgate House Ltd was authority for the proposition that a breach of a positive covenant to do something by a particular date was remediable by performance of the covenant and payment of compensation. Particular reference was made to the following passage from the opinion of Slade L.J. (at page 355B-c):-

“I would, for my part, accept Mr Neuberger’s submission that the breach of a positive covenant (whether it be a continuing breach or a once and for all breach) will ordinarily be capable of remedy. … [T]he concept of capability of remedy for the purpose of section 146 [of the Law of Property Act 1925] must surely be directed to the question whether the harm that has been done to the landlord by the relevant breach is for practicable purposes capable of being retrieved. In the ordinary case, the breach of a promise to do something by a certain time can for practical purposes be remedied by the thing being done, even out of time. For these reasons I reject the plaintiff’s argument that the breach of the covenant to reconstruct by 28 September 1982 was not capable of remedy merely because it was not a continuing breach.”

An irremediable breach was, therefore, one which caused irremediable loss. The test as to whether a breach was remediable was a practical test and the question was whether the damage done could be retrieved.

[20] Scammel and Densham at paragraph 31.53 listed late payment of money among a number of remediable breaches in relation to incontestable notices to quit. Although the passage referred to rent being treated separately, that was because rent was treated separately in the relevant statutory provision, Case D of Schedule 3 to the Agricultural Holdings Act 1986.. In Whitbred Group plc v Goldapple Limited (at page 283) the Lord Ordinary had accepted, without discussion of the point, that non-payment of rent was a remediable breach. A pre-irritancy notice in that case had been served in terms of section 4 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 which provides that a landlord cannot treat a lease as being terminated on the ground of failure by the tenant to pay rent, or make any other payment on or before a due date, unless a notice has been served requiring payment of the unpaid sum with interest thereon in terms of the lease within a period of not less than 14 days. That provision was not applicable here (by virtue of sec 7 of the 1985 Act) but the situation here was similar because of the provisions of section 22(2)(d) of the 1991 Act dealing with payment of rent and remediable breaches.

[21] On the strength of the foregoing authorities, therefore, non-payment of rent was a remediable breach and, by the virtue of the irritancy clause in the present lease, service of a notice to remedy the breach within a period of two months was required. That had not happened and the subsequent irritancy notice was therefore invalid.

[22] Finally, Sir Crispin sought certification of the cause as suitable for the employment of senior counsel, its subject matter being of critical importance to his client.

(ii) for the applicants

[23] Mr Reid’s motion was to repel the respondent’s pleas-in-law, sustain those of the applicants and grant the orders sought. Expenses should follow success and Sir Crispin’s motion for certification of the cause as suitable for the employment of senior counsel was not opposed.

[24] Mr Reid set the context for his argument in the form of eight propositions, only two of which remained contentious, given the abandonment of certain parts of the respondent’s case as pled. These propositions were:-

(i) The lease contained a valid irritancy clause.

(ii) The failure to pay rent on the due date in terms of the lease was a breach which was not capable of being remedied. He drew attention to the difference between his formulation of that position and the formulation used by Sir Crispin which had referred only to a failure to pay rent; in Mr Reid’s submission it was the failure to pay on the due date which was important in terms of the contract between the parties.

(iii) The tenant as a matter of undisputed fact had allowed at least half a year’s rent to remain unpaid after it had become due.

(iv) The landlord had subsequently exercised the option vested in him by virtue of the power contained in the irritancy clause of the lease by recorded delivery letter dated 16 July 2008 putting an end to the lease.

(v) While a rent review is outstanding the liability to pay rent is not suspended and, on the contrary, the contractual obligation to pay the rent in terms of the lease continues.

(vi) No question of waiver arose in this case.

(vii) If Sir Crispin were to succeed on either of his arguments then the case fell to be decided in his favour, whereas if he failed on both the applicants were entitled to the orders sought, subject only to the question of a possible stay of execution.

(viii) As to whether an order for removing should be granted now or suspended, the applicant’s position was, broadly, that it should not in any event be suspended beyond Whitsunday 2009.

[25] Dealing with the matters which remained contentious, the first of these was whether the failure to pay rent on the due date was a breach capable of being remedied. Mr Reid invited us to notice that this was a breach which referred to a single circumstance or event while the other paragraphs of the irritancy clause, or at all events paragraphs (b) (e) and (f), were all capable of being remedied. These remediable breaches had their counterpart obligations earlier in the lease. The provisions relating to rent were the primary rent provision at page 11 stipulating that the first payment of rent became due and payable at Whitsunday 1988, and was therefore backhand, the lease having commenced at Martinmas 1987. Then there was the usual provision for payment of a fifth part more in case of delay. The significance of that was that it showed the importance of payment of rent being made timeously. Then, at page 31, there was the interest provision, again emphasising, in Mr Reid’s submission, the importance of timeous payment. These were the rental provisions of the lease. Therefore rent was payable on these terms, whereas other obligations were prestable on demand.

[26] The submission being made on remediability was that the tenant could never remedy the failure to pay by a specific date. The arrears could be paid but he could never remedy the non-timeous aspect of the payment. Breaches of other requirements were capable of being remedied, such as the requirement that the tenant reside on the holding. In Mr Reid’s submission the correct analogy was with how the Court had approached similar arguments about non-payment of rent under section 22(2)(d) and its English equivalents. Reference was made to Gill at paragraph 17.13.

[27] When the two months period referred to in that subsection had expired the tenant could not save himself by making payment of rent before service of the notice to quit. That proposition was vouched in Gill (supra) by, among others, the two English Court of Appeal cases of Stoneman v Brown and Hannaford v Smallacombe, the latter approving the former. Particular reference was made to the passage from the opinion of Lord Denning M.R. in Stonemanat page 462 E to F:-

“Once the tenant allowed the two months to expire without payment, payment thereafter could not save him. Even if he paid the rent after the two months, but before the notice to quit was given he would still have to quit. The words of the statute are plain. There is no escape from them”.

In the present case the words of the contract were plain and there was no escape from them.

[28] Under further reference to Stoneman Mr Reid argued that what mattered was whether the landlord’s right to serve a notice to quit had accrued (per Lord Denning MR page 462H). In that case the Court had decided that the landlord’s right to serve a notice to quit had indeed accrued and, that being the case, once the landlord served a notice to quit the tenancy was ended. In the present case the same had happened by virtue of the contractual mechanism contained in the lease. This being a conventional irritancy it was not purgeable and that in itself was destructive of this whole branch of the respondent’s argument.

[29] Another point to be noted from Stoneman was that the late payment there had come before service of the notice to quit. The present case was worse because payment of rent came after the exercise of the landlord’s accrued right.

[30] The opening passage of Cairns L.J. judgement in Stoneman (at page 463 D to E) dealt with the way Sir Crispin had framed his proposition, ignoring, in Mr Reid’s submission, the requirement that the rent be paid timeously. That passage is as follows:-

“In my opinion if notice is given requiring payment of rent within two months and the rent is not paid within two months, the notice has not been complied with. I do not consider it can be said that the essential requirement of the notice is simply that rent is to be paid, treating the provision as to time as inessential so that the time can be extended up to the date of the notice to quit.”

[31] Mr Reid founded strongly on the approach taken in Stoneman as to the matter being one of accrual of a right. What had happened in the present case was the accrual of a contractual right and treating the failure as remediable was to innovate on the contract: it was to treat the provision for timeous payment as inessential and capable of extension and that is not what the contract provided.

[32] Hannaford v Smallacombe, approving Stoneman, was further authority for the proposition that subsequent payment of rent could not cure the failure to pay timeously: once a right to possession had accrued to the landlord it could not be lost unless waived (Henry L.J. page 13 G to K).

[33] Nothing that had been said by Lord Penrose in Aubrey affected the soundness of Stoneman and Hannaford nor the soundness of the analogy between these cases and the present irritancy clause. If the thrust of Sir Crispin’s submission was sound then requiring payment of rent within a specific time became a somewhat pointless exercise and the principle that a conventional irritancy could not be purged, at least in relation to rent, became redundant.

[34] With further reference to Aubrey, it was not permissible to take dicta about the interpretation of one contract and apply it generally to other contracts unless they were identical. The court having pointed out that the terms used by Lord Penrose suggested quite a broad approach, Mr Reid accepted that that was so but submitted that these comments had been made in an entirely different context and the court should be influenced more by the analogy with the statutory provisions of the Agricultural Holdings Acts than with a case involving a commercial lease. Even, however, if one were to accept the stress placed in the commercial cases on a practical approach that, of itself, was not inconsistent with the approach in Stonemanand Hannaford. And even if that was wrong, the court here had to give effect to the contractual rights and obligations of the parties and if we were to hold that non-timeous payment simply meant non-payment which could be cured then that would be to innovate on the contract. The fact was that the lease contained an obligation to pay on a specific date. Aubrey was of no assistance to the respondent and nothing said in Expert Clothing detracted from the proposition Mr Reid had advanced on this branch of the argument.

[35] Turning to the argument that the rent had not in any event been due because its amount had not been ascertained, it was relevant to look at the respondent’s pleadings in Answer 6. On a fair reading of that Answer there could be little doubt that the tenant was accepting that the rent had been payable and was averring that he had in fact paid it by delivery of the bank draft. On that basis it was very difficult to see how the respondent could advance his argument based on the ongoing rent review consistently with the terms of Answer 6. His position, as a matter of fact and law in terms of Answer 6, was that the rent had been sent on 21 July 2008. That involved an admission, if not expressly then by implication, that the rent was paid late. That had founded the respondent’s argument on waiver and although that argument had now been abandoned the basis of it was still there in the pleadings. It formed part of the agreed position between landlord and tenant in this litigation and how, therefore, could the respondent now say that the rent had not been due after all?

[36] Turning to the question whether rent had in fact been due on 15 May 2008, there was no authority or statutory provision which said that the contractual obligation to pay rent in terms of the lease (as that rent may previously have been varied) was suspended by virtue of an application for a rent review. Until the Land Court determined the new rent under section 13(2), or the parties agreed it, then the rent remained unchanged and the existing provisions of the lease as to liability for payment were applicable. Section 13 did not say that the rent payable was suspended and one could not read in to section 13 a provision to that effect. Liability to pay rent in accordance with the provisions of the lease was not suspended by a rent review.

[37] If Sir Crispin’s position was correct then a tenant in a lease running on tacit relocation could secure for himself a very lengthy rent holiday. The rent review in the present case related to rent due from 2004 and we were, therefore, in a situation in which another rent review application could now be made. That meant that payment of rent could, on the respondent’s submission, be suspended for an indefinite period which could easily be five years or more, which might then give rise to difficult questions under the law of prescription.

[38] Sir Crispin’s argument raised a range of uncertainties which section 13 simply did not create and which could be avoided by clinging firmly to the basic proposition that unless or until the agreed rent was varied by order of the Court the contractual liability remained in place. Appropriate financial adjustment, as by repetition of sums overpaid, could follow once the new rent was known.

[39] The authorities relied upon in relation to what the term “due” meant were simply beside the point.

[40] Finally, if we were to find in favour of the applicants we should put the case out By Order in relation to when the tenant was to remove.

Rejoinder for the respondent

[41] We heard Sir Crispin in relation to the cases cited against him. Neither Stoneman nor Hannaford were relevant to the issue in this case. They might be relevant to the situation after a demand to remedy had been served because what they were dealing with was the statutory construction of section 24(2)(d) of the Agricultural Holdings Act 1948 (and its successors) and the failure to comply with the demand specified in the statutory provisions. In so far as these cases dealt with an accrued right it was a right arising following a failure to pay within two months and the cases were dealing solely with that statutory provision but in the present case the landlord’s accrued right arose in relation to a remediable breach only where a demand to remedy the breach had not been complied with and the question was whether a failure to pay rent was a remediable breach. What Lord Penrose in Aubrey and the Court of Appeal in Expert Clothing were saying was that even if there was a time restriction it could be remedied after that time. In no way did the English cases cited by Mr Reid consider whether a failure to pay rent was or was not a failure which could be remedied.

[42] In a way the terms of the present lease were very similar to section 22(2)(d) of the 1991 Act because the lease contained a notice to remedy provision. It was of significance that the irritancy clause listed certain events which could found an irritancy and then went on to apply that notice provision to all of these if remediable. If the intention had been to exclude rent as something non-remediable the clause could easily have been divided up so as to provide for that. The question was what, objectively, was meant by a breach being remediable and we should follow the guidance of Lord Penrose on that. The references to accrued rights in the context of the statutory provisions did not assist in the construction of the lease in the present case.

[43] So far as any possible difficulty with prescription was concerned, the relevant period for the purposes of prescription would run only from the date upon which rent was actually due. It was not disputed that there was a rental obligation. What was disputed was that it was due in the sense of being enforceable in respect of any particular sum while the rent review was ongoing.

[44] In order to meet the point taken about the inconsistency in Answer 6 of the respondents pleadings, Sir Crispin moved to be allowed to amend that Answer by deletion of the words “the rent” in the second line thereof and the substitution of the words “a banker’s draft”.

Response by Mr Reid

[45] Mr Reid opposed Sir Crispin’s motion to be allowed to amend. It was quite plain that the statement contained in Answer 6, as it stood, had been fully considered by the respondent’s advisers as representing the correct factual and legal position. This was an attempt to move the goal posts. It was not in the interests of justice that amendment should be allowed at this stage. It was abundantly clear that rent was paid because it was thought to be due. There was no justification for allowing the respondent to change his position at this stage and in any event the proposed amendment did not cure the defect addressed by Mr Reid’s argument on section 13.

[46] With reference to the wording and structure of the irritancy clause within the lease, that was such that, at the very best for the respondent, there would be somebreaches which were capable of remedy and others which would not. And to give content to the proviso contained in the clause there must be at least one in the list of possible breaches which was non-remediable and the “prime candidate” for that was the rent, for the reasons Mr Reid had given earlier.

[47] As to the effect of an ongoing rent review on the obligation to pay rent, Sir Crispin’s argument seemed to convert a liquid obligation to some sort of illiquid obligation. That would be “a brave conclusion” which would have the effect of disabling the provisions of section 22(2)(d) for an indeterminate number of years.

[48] Reverting to Sir Crispin’s motion to be allowed to amend, were we to allow that motion Mr Reid would not require to answer the amendment and accordingly we need not rule on that matter forthwith.

Discussion and decision

Amendment

[49] Although in terms of our decision nothing turns on it, we require to deal with Sir Crispin’s motion to amend. The amendment involves a change in the respondent’s position from saying that he tendered the outstanding rent on 21st July 2008 to saying that he merely tendered a payment. The respondent having abandoned his case based on waiver, he no longer needs to aver that by retaining possession of the banker’s draft by which that payment was tendered the applicants have accepted late payment of rent. He wishes instead to bring his averments in Answer 6 into line with his case that no rent was due as at 15th May 2008 which is made in the first part of Answer 4. That is a legitimate purpose of amendment in as much as it helps focus what the issues between the parties now are. Allowing the amendment does not, in our view, cause any prejudice to the applicants who have always known, by virtue of the averments in Answer 4, that they faced an argument that no rent was due. Accordingly we have allowed the amendment.

Was the rent sought due?

[50] We are satisfied that the argument as to the effect of a rent review under sec 13 of the 1991 Act is without merit. We say that for the following reasons.

[51] Firstly, it produces results which are unlikely to have been intended by Parliament. It seems to us unlikely that Parliament intended that a tenant could procure for himself what could be a lengthy rent holiday (or at least deferment) simply by instigating a review. In this case the length of that holiday would be five years come Whitsunday with no end in sight beyond that. We take Sir Crispin’s point that rent reviews nowadays take much longer than was the case when statutory rent review provisions were first introduced. However, Parliament was well aware of that change because the increased complexity of the current statutory provisions, legislated for by Parliament, is itself a cause of the protraction. The practical consequences of such a “holiday” would be drastic for landlords and not altogether wholesome for tenants. It is one thing for parties to live through a rent review knowing that some reckoning will be required when the new rent is known. It is quite another to expect a landlord to wholly forego any rental income during the currency of a rent review. Even from the tenant’s point of view such a deferment of rent may prove a mixed blessing. The prudent tenant would put money aside to cover the eventual liability but not all tenants are prudent and there will often be more immediately pressing calls on available funds. Another consequence for the landlord which we think unlikely to have been intended is that he would not be able to invoke the provisions of sec 22(2)(d) of the 1991 Act because it could not be known what rent was due. As Mr Reid submitted and as the pending rent review between these parties shows, that inability could persist for a number of years.

[52] Secondly, it offends against principle. In the absence of other reasons entitling a tenant to withhold rent, that a landlord should not be entitled to receive present rent while the tenant continues to be entitled to present possession just cannot be right.

[53] Thirdly, in order to be driven to a conclusion which produces these results we would require the most explicit statutory direction to that effect. There is nothing of that kind in sec 13. Instead Sir Crispin’s argument depended on subtle nuances in, and inferences from, the wording of the section. These are in our view wholly unsatisfactory as a basis for the argument which was advanced and, no other basis having been adduced in support of that argument, we have rejected it. Instead we are satisfied that the existing rent (i.e. the rent in terms of the lease as that rent may previously have been varied by agreement or determination) remains payable until the Court has made its determination, at which point a retrospective adjustment falls to be made. That produces a much fairer and less problematic result for both parties and accords more with principle. It is, we think, the result most landlords and tenants of agricultural holdings would expect and they would expect it, we think, for these reasons.

Was the breach remediable?

[54] In resolving this issue we have not found the analogy drawn by Mr Reid with sec 22(2)(d) of the 1991 Act and its English equivalent persuasive. We are not concerned here with interpretation of a statutory provision but with the interpretation of a contract. We do not see why there should necessarily be parallels between the statutory provisions relating to notices to quit and contractual provisions as to irritancy. They both have to do with termination of the lease by the landlord but that is the extent of it. The question we have to answer is whether this particular breach is remediable and in attempting to answer it we can find no assistance at all in the cases of Stoneman v Brown and Hannaford v Smallacombe.

[55] On this matter the cases cited by Sir Crispin are more helpful. Although the decision is not directly in point and the comments of Lord Penrose relied upon were obiter they at least offer clear guidance for the task before us. Mr Reid submitted, rightly, that one cannot take what is said about one contract and apply it to a differently worded contract. But what Lord Penrose said was clearly intended to be of general application and not confined to the contract before him. We repeat the relevant parts of the passage quoted because we regard them as highly relevant to the question before us. His Lordship said:-

“I consider that the expression ‘which is capable of being remedied’ imports a test of practical application rather than one of theoretical or conceptual legal analysis. … The expression … imports a straightforward practical test.” (page 632K-L)

And then, even more relevantly:-

“I should say that I would not have supported the pursuers’ argument … that receivership is not capable of being remedied. … The situation is not materially different from the remedy of a breach of contract. Remedial action may eliminate loss, but the facts which constituted the breach may not alter. The conduct which constitutes a breach of the user clause of a lease may be terminated, and the breach remedied. But that cannot alter the fact of past misuse. The remedy required is one which restores the situation apart from the offending act, and I would have considered that in an appropriate case recall of the appointment of a liquidator or receiver would satisfy the requirement.”

[56] The same approach was taken in Expert Clothing Ltd v Hillgate House Limited in the passage from the opinion of Slade L.J. (at page 355) founded on by Sir Crispin although that was in connection with the interpretation of the phrase “capable of remedy” in sec 146(1) of the Law of Property Act 1925. The purpose of that section was to restrain the exercise of rights of re-entry and forfeiture in leases so a liberal interpretation of the phrase “capable of remedy” is, perhaps, to be expected, although that is not in fact how the Court approached it. We note in particular from this case that in the passage referred to Slade L.J., adopting counsel’s submission, declines to make a distinction between continuing breaches and “once and for all” breaches for the purpose of deciding whether a breach is remediable. That has relevance to the situation in this case.

[56] Whitbread Group plc v Goldapple Ltd is, as Sir Crispin said, merely an example of failure to pay rent timeously being regarded as a remediable breach in the context of an irritancy clause not unlike the one we have here but without the contrary having been argued. So it is no more than a makeweight in the respondent’s side of the balance.

[57] Moving from the authorities on which they founded to what counsel had to say about the clause we have to interpret, both Sir Crispin and Mr Reid sought to derive something from its structure. It is possible to say, with Sir Crispin, that the proviso is capable – in terms of the structure of the clause – of referring to any of the listed breaches. Mr Reid argued that in order to give content to the proviso at least one of the breaches must be irremediable and he argued that the prime candidate was the non-payment of rent. We agree with the first part of that but not the second. We think the breach constituted by divestiture of the tenant’s estate for creditors, where matters are to some extent out of the tenant’s hands, is a more likely candidate.

[58] For our own part, however, we think very little assistance is to be derived from the terms or structure of the clause. We agree that the wording of the proviso is clearly suggestive of certain breaches being remediable and others not but that does not help us in deciding which are which. The fact is that parties have not made that clear. In the result we have to approach the question from first principles. We were initially inclined to the view that there was a distinction between continuing breaches and “once and for all” breaches, with the former being remediable and the latter not. The logic of what was said by Lord Penrose in Aubrey and Slade L.J. in Expert Clothing Ltd has, however, persuaded us otherwise. Given that the facts which constitute any breach can never be undone we think the answer to the question whether a particular breach is remediable must lie in whether the damage caused by the breach can be undone. Approaching matters in that way we have no hesitation in saying that the results of this particular breach can be made good, simply by payment of the rent due together with what is due in terms of the liquidate penalty and interest provisions of the lease.

[59] Mr Reid argued that to reach such a conclusion would be to (a) ignore the need for rent to be paid timeously and (b) innovate on the parties’ contract. We disagree. Part of the purpose of having an irritancy based on non-payment of rent is, of course, to secure punctual payment of rent. It is part of the landlord’s armoury along with the other provisions as to interest and liquidate penalty commonly found in leases, all designed with that end in view. Depending on the wording of the clause the non-payment can operate to produce an instant irritancy or to set in motion further procedure (such as the demand to remedy procedure we have here) which may in due course lead to irritancy. Even in the latter situation the clause serves its function in underlining the importance of punctual payment. It is not true to say that such a clause ignores the need for timeous payment: the failure to pay on time acts as a trigger for what follows. But parties can go further. They can contract on the basis that failure to pay rent timeously is to be an irremediable breach without further procedure. In the present case they have not done so. Instead they have merely included failure to pay rent timeously as one of a list of breaches some of which are evidently remediable and others not. In that situation Mr Reid’s own argument is as susceptible to the accusation of innovating on the parties’ contract as is the respondent’s. So far as the expression of parties’ intentions is concerned, we would also say this: that given the drastic nature of irritancy as a weapon against a defaulting tenant (see Gill para 15.01) we would require clear wording before concluding that a breach which seemed remediable in terms of the test we have applied was to be regarded as irremediable.

[60] Accordingly we have sustained this branch of the respondent’s case with the consequence that the application falls to be dismissed.

[61] Finally, we would mention that no argument was addressed to us to the effect that if the proviso did not apply then the breach merely echoed the legal irritancy contained in sec 20 of the 1991 Act and may, therefore, be purgeable in any event; British Rail Pension Trustee Co Ltd v Wilson. It may be that the requirement for notice by registered or recorded delivery letter contained in the irritancy clause is enough to differentiate it from the legal irritancy.

Expenses

[62] Mr Reid was content that expenses should follow success and that the application be certified as suitable for the employment of senior counsel. Accordingly we have so found and so certified.

For the Applicants: Mr J G Reid, QC; Messrs Turcan Connell, Solicitors, Edinburgh

For the respondent: Sir Crispin Agnew of Lochnaw, QC; Messrs McSherry Halliday Dale & Marshall, Solicitors, Galston