Landlord and tenant — Conventional irritancy (forfeiture) — Unjust enrichment — Irritancy clause invoked — Whether landlord unjustly enriched — Whether tenant entitled to recompense remedy against landlord
In 1979 the
respondents, CIN, and CDC made an agreement whereby CDC would develop a
shopping centre and grant a headlease to CIN for a term of 125 years. CIN
agreed, inter alia, to finance the development and, on completion, to
grant a sublease to CDC for a term of 99 years. CIN were to obtain a return on
their investment in the development from the rent paid under the sublease, and
CDC would receive rents from the occupational subtenants of the shopping
centre. The sublease contained a conventional irritancy clause (a forfeiture
clause). CDC assigned the sublease to the appellants, DLC, who failed to pay
the rent under the sublease. CIN, as landlords, invoked the irritancy clause,
giving notice pursuant to section 4(2) of the Law Reform (Miscellaneous
Provisions) (Scotland) Act 1985 and raised an action for declarator of
irritancy of the sublease. The Lord Ordinary granted that decree and the Inner
House adhered to his interlocutor. The effect of this on DLC was that they
forfeited all rights under the sublease and subleases granted by CDC. CIN
became entitled to absolute possession. DLC appealed to the House of Lords,
contending, inter alia, that, in this complex commercial arrangement,
there was no reason in principle why a claim by DLC against CIN for unjust
enrichment was not competent; that where the irritancy was reasonably invoked
it did not prevent the court affording a remedy to the tenant where the adverse
consequences to him and the enrichment to the landlord were wholly
disproportionate to the breach; and that the court were entitled to consider
the disequilibrium to the parties.
the irritancy clause, having given notice of their intention to do so as
required by section 4 of the 1985 Act. The events that had occurred were
precisely those that flowed naturally from the operation of, and that are
provided for in, the irritancy clause. It was inevitable that CIN would be
enriched if the irritancy clause were enforced. The parties or their
predecessors had specifically and willingly contracted for this result, which
could not be said to be unjust. Where an irritancy clause is invoked, the
result of its exercise will normally be to confer an advantage on the landlord
to the disadvantage of the tenant whose rights are being brought to an end. The
benefit obtained by the landlord will accrue to him without any corresponding
right in the tenant to demand payment and will flow to him as a direct result
of the remedy exercised under the contract to bring the lease to an end. The
lease will normally have been preceded by a preliminary agreement in the
implement of which it was granted. CIN was entitled under the contract to enjoy
the entire fruits of the development; there were no words to the contrary used
in the irritancy clause. The remedy sought by DLC was excluded by the irritancy
clause.
The following
cases are referred to in this report.
Chalmer’s
Trustee v Dick’s Trustee 1909 SC 761
CIN
Properties Ltd v Dollar Land (Cumbernauld) Ltd
1992 SC(HL) 104
Dorchester
Studios (Glasgow) Ltd v Stone 1975 SC(HL) 56
Edinburgh
& District Tramways Co Ltd v Courtenay
1909 SC 99
Hannan v Henderson (1879) 7 R 380
Lucas’
Executors v Demarco 1968 SLT 89
Moncreiff v Hay (1842) 5 D 249
Morgan
Guaranty Trust Co of New York v Lothian Regional
Council 1995 SC 151
Ramsay
& Son v Brand (1898) 25 R 1212
Shilliday v Smith 1998 SLT 976
Stewart v Watson (1864) 2 M 1414
Varney
(Scotland) Ltd v Burgh of Lanark 1976 SLT 46
This was an
appeal brought by Dollar Land (Cumbernauld) Ltd against the decision of the
Inner House, which had adhered to the decree granted by the Lord Ordinary in an
action by CIN Properties Ltd (Scotland) for a declarator of irritancy.
Matthew Clarke
QC and David Johnston (instructed by Alexander Stone & Co, of Glasgow)
appeared for the appellants; Nigel Emslie QC and John Wright QC (instructed by
McClure Naismith, of Edinburgh) represented the respondents.
LORD BROWNE-WILKINSON agreed with the speech of Lord Hope of Craighead and dismissed the
appeal for the reasons given therein.
In his speech,
LORD JAUNCEY OF TULLICHETTLE
said: My lords, I have had the advantage of reading in draft the speech of my
noble and learned friend, Lord Hope of Craighead, with which I agree. It is
therefore unnecessary for me to set out in detail the circumstances in which
the appellants (DLC) came to be the tenants under the sublease of November 8
1983 and February 2 1984. Suffice it to say that DLC defaulted on their
payments of rent and the respondents (CIN) invoked the irritancy clause (5) in
the sublease. In CIN Properties Ltd v Dollar Land (Cumbernauld) Ltd
1992 SC(HL) 104 this House followed the earlier decision in Dorchester
Studios (Glasgow) Ltd v Stone 1975 SC(HL) 56 and rejected the
contention of DLC that the irritancy clause was unreasonable, in as much as the
relationship of the parties was more akin to a joint venture and the irritancy
was really a penalty clause. The Lord Ordinary’s decree of the declarator of
irritancy was accordingly upheld. It is significant that counsel for DLC before
this House on that occasion expressly declined to make any submissions on
oppression.
The present
appeal is the sequel to the 1992 appeal, in which it was pointed out that DLC
would lose a very substantial sum if the irritancy were incurred. DLC now claim
to be recompensed by CIN to the extent to which the latter were lucrati
by the operation of the irritancy on the basis of unjust enrichment. This claim
has failed before the Lord Ordinary and an Extra Division of the Inner House by
a majority.
The general
proposition that a tenant whose lease has been irritated for non-payment of
rent and who has thereby suffered loss has a right to recover from his landlord
the amount by which the latter has been enriched by the termination of the
lease is a novel one in the law of Scotland, and no case was referred to by Mr
Matthew Clarke QC, for DLC, in which such a right had been recognised. However,
he argued forcefully that the present situation was not the simple landlord and
tenant relationship under a single lease but a more complex commercial
arrangement whereby the headlease was intended to provide security to CIN for
their investment, and that there was no reason in principle why a claim by DLC
for unjust enrichment in these circumstances was not competent. Although, in a
particular situation, it might be perfectly reasonable for a landlord to
enforce an irritancy clause in a lease, that did not prevent the court
affording a remedy to the tenant where the adverse consequences to him and the
enrichment to the landlord were wholly disproportionate to the breach. In such
a situation, the court was entitled to consider that the disequilibrium to the
parties warranted its intervention.
Counsel
referred to three cases involving agricultural leases that demonstrated, he
submitted, that the purpose of a conventional irritancy was to enable a
landlord to get rid of an unsatisfactory tenant, but which did not exclude a
subsequent claim by the tenant for unjust enrichment. In Moncreiff v Hay
(1842) 5 D 249 and Chalmer’s Trustee v Dick’s Trustee 1909 SC 761
it was held, as a matter of construction
enforcement thereof had deprived the tenants of all property in the crops
growing at the time when the leases were terminated. In Stewart v Watson
(1864) 2 M 1414 the court held that an irritancy clause taking effect on the
sequestration of a tenant was lawful and, in contradistinction to a legal
irritancy, could not be purged. My lords, I do not find that these cases throw
any light on the proposition advanced by DLC.
It has long
been recognised that there exists a power to intervene where a conventional
irritancy is being enforced oppressively, although the researches of counsel
could find no case in which such power had been exercised. It is, however, one
thing to say that an irritancy should not be enforced in an oppressive manner,
but quite another to say that reasonable enforcement of an irritancy can
nevertheless give rise to a claim by the tenant in breach for recompense on the
basis of unjust enrichment to the landlord.
The basis of
DLC’s claim is that there is enrichment to CIN and that this enrichment is
unjust. The measure of their claim is quantum lucrati sunt CIN. That the
enforcement of an irritancy is likely to result in enrichment to the landlord
is far from unusual. In Moncreiff v Hay and Chalmer’s Trustee
v Dick’s Trustee, the landlord acquired the growing crops sown by the
tenant. When a grassum has been paid by a tenant for a lease, it has not
been suggested that it is recoverable if the lease is irritated. Similarly,
where a tenant has effected improvements to property in the expectation of
enjoying that property for a significant period, the value of those
improvements is not recoverable at common law. DLC accepted that mere
enrichment to the landlord is not enough; that enrichment must be unjust or, in
other words, disproportionate in all the circumstances to the consequences to
the landlord of the breach. Two difficulties stand in the way of DLC. In the
first place, a claim for recompense quantum lucratus est in the law of
Scotland normally arises where one party provides goods or services disconform
to contract that are nevertheless accepted by the other, as, for example, where
a builder departs substantially from the contractual plans for a house (Ramsay
& Son v Brand (1898) 25 R 1212) and is thereby disabled from
suing on the contract. Your lordships were referred to no case in which a party
was claimed to have been lucratus unjustly solely by reason of the
termination of a contract in accordance with the specific provisions thereof.
In the second place, the allegedly unjust nature of CIN’s enrichment arises
directly from the terms of the irritancy clause. It is the second difficulty
that, to my mind, presents an insurmountable hurdle for DLC. They must show not
only that CIN were enriched but that they were unjustly enriched.
Clause 5 of
the sublease provides, inter alia:
the Tenant
shall forfeit all right and title under these presents and the Lease hereby
granted and all transmissions and subleases thereof with all that has followed
or can competently follow thereon shall become ipso facto void and null
and that without the necessity of any declarator, process of removal or other
procedure at law and the leased premises shall thereupon revert to the Landlord
and it shall be lawful for the Landlord or any person or persons duly
authorised by the Landlord in that behalf to enter upon the possession of the
leased premises or any part thereof in name of the whole and to uplift rents,
eject the Tenants, Subtenants and occupiers and thereafter use, possess and
enjoy the same free of all claims by the Tenant, Subtenants and others as if
these presents had never been granted…
The effect of
these provisions is, in my view, clear. DLC forfeited all right under the
sublease and the subleases granted by CDC under clause 2(27)(vi), whereby CDC,
and later DLC, received the rents from the occupational tenants, with the
result that DLC’s income stream dried up. CIN then became entitled to absolute
possession of the subjects, with the ability to do with them what they willed.
If they renegotiated the occupational subleases, then they would receive all
the rents payable thereunder instead of only the 77% that they received while
DLC had rights under clause 2, but they would, of course, incur administration
expenses for which DLC had previously been responsible. In short, the events
that have occurred are precisely those that flow naturally from the operation
of and are provided for in clause 5, and which should have been readily
apparent to DLC when they acquired CDC’s interests under the headlease and the
sublease. It was inevitable that CIN would be enriched if the irritancy clause
were enforced. I simply do not see how results for which parties or their
predecessors had specifically and willingly contracted could be said to be
unjust. On this short ground alone, I would dismiss the appeal.
In my speech
in CIN Properties Ltd v Dollar Land (Cumbernauld) Ltd 1992 SC(HL)
104, I confessed at pp126–127 to doubts as to whether irritancy clauses for
non-payment of rent fairly reflected social policy in the case of long-term
investment leases. This case has done nothing to remove those doubts. To permit
claims for recompense after enforcement of an irritancy could, in my view,
create many problems, not least to a landlord who might not know until it was
too late whether enforcement of an irritancy was, for him, a beneficial course.
Any reform of the law could, in my view, more aptly proceed along the lines of
the observations of Lord Shand at p383 in Hannan v Henderson
(1879) 7 R 380, to which I referred on p126, as to the possibility of attaching
conditions to the purgation of an irritancy where enforcement involved the loss
of large vested rights of property.
LORD NOLAN and LORD HOFFMANN
agreed with the speech of Lord Hope of Craighead and did not add anything.
In his speech,
LORD HOPE OF CRAIGHEAD
said: My lords, in this appeal the appellants seek to obtain compensation under
the law of unjustified enrichment for the loss that they have sustained as a
result of the exercise against them of a conventional irritancy. The issue that
they have raised brings into competition two quite different remedies. On the
one hand, there is the law of unjustified enrichment, by which the person
enriched is obliged to restore or make good to the other the amount or the
extent of his enrichment. On the other, there is the contractual remedy that a
landlord is entitled to exercise against the tenant in terms of an irritancy
clause. In this case, the appellants incurred the irritancy because they
allowed the rent to remain unpaid for the relevant period. A declarator of
irritancy has been granted, and their interest as tenants has come to an end.
The question now is whether they can recover compensation from their former
landlords for the enrichment that the former landlords have obtained at their
expense as a consequence of the exercise of the irritancy.
The answer to
that question must depend on whether the extent of the contractual remedy
excludes the remedy of recompense. So long as it can be said that the former
landlords have obtained no more than they were entitled to under their contract
as a result of the exercise of the irritancy, there will be no room for the
operation of the law of unjustified enrichment. An obligation in unjustified
enrichment is owed where the enrichment cannot be justified on some legal basis
arising from the circumstances in which the defender was enriched. There can be
no better justification for an enrichment than that it was obtained and is
being retained in the exercise of a contractual right against the party who
seeks to invoke the remedy.
The facts of
the case arise out of a commercial arrangement that was made between the
respondents, CIN, and CDC for the development and operation of part of the town
centre at Cumbernauld as a shopping centre. CIN entered into an agreement with
CDC dated May 30 and September 27 1979 by which CDC agreed to grant to CIN a
headlease of the site and to build the shopping centre. CIN agreed for their
part to provide the finance for the development and, upon its completion, to
grant a sublease of the site to CDC. CIN and CDC were to obtain a return on
their investment in the development from the rents paid by the occupational
subtenants of the shopping centre. The proportion of the rents representing the
amount of CIN’s interest in the development was to be transmitted to them by
CDC as the rent payable to CIN as landlords under the sublease. The rent
payable by CIN to CDC as landlords under the headlease was a nominal one: an
annual rent of £1 if asked. In pursuance of the 1979 agreement CDC granted to
CIN a headlease dated March 4 and 12 1980 for a term of 125 years from the date
of practical completion of the development. On completion of the development,
in implement of their obligation under the 1979 agreement, CIN granted to CDC a
sublease dated November
an option to extend the term for a further period of 26 years.
In 1987 CDC
agreed to sell their interest in the town centre of Cumbernauld, including the
shopping centre, to the appellants (DLC) for a consideration of £10m. DLC aver
that £2.2m of this amount represented the price for the shopping centre. By a
disposition dated October 12 1987 CDC conveyed their heritable interest in the
town centre to DLC, as a result of which DLC became entitled to the reversion
in the site of the shopping centre as landlords under the headlease. By an
assignation dated October 21 1987, with the consent of CIN, CDC completed the
transaction by assigning to DLC their interest as tenants under the sublease.
The amount of the rent payable to CIN by CDC and, after the assignation, by
DLC, was to be the greater of: (i) a basic return, calculated by reference to
development costs and, in certain circumstances, the rents payable by
occupational subtenants; and (ii) what was termed the ‘landlord’s equity
proportion’ of the net rents for each year. By a supplemental agreement dated
May 5 and October 15 1987 CIN and CDC agreed on figures for the final amount of
the development costs. They also agreed that the ‘landlord’s equity proportion’
of the net rents for the purpose of calculating the rent payable to CIN under
the sublease was 77.532%.
The situation
when DLC arrived on the scene, therefore, was that there was already in place a
completed development of the shopping centre, for their occupation of which the
occupational subtenants were already paying rent. The 1979 agreement between
CDC and CIN had been implemented by the granting of both the headlease and the
sublease, and the amount of the ‘landlord’s equity proportion’ had been agreed.
DLC’s investment in the shopping centre was in expectation of the return to be
obtained from the 22.468% of the occupational rents that they were entitled to
retain once they had fulfilled their obligation to pay rent to CIN in terms of
the sublease. The structure of the arrangements under which they were to be
enabled to obtain that return on their investment was unremarkable. The
mechanism which CDC and CIN decided to employ when they entered into the 1979
agreement, which involved the interposition of a headlease and a sublease between
the interests of the site owner and the occupiers of the shopping development,
is one that is commonly found in commercial developments on this scale. Nor was
it remarkable that the sublease contained an irritancy clause, as clauses of
this kind are commonplace in commercial leases under Scots law. The clause was
in these terms:
Provided always and it is hereby agreed that these presents are made upon the express condition that if the
rent or any other payment under this Lease or any part thereof shall be unpaid
for twenty-one days after any of the days hereinbefore appointed for payment
thereof whether the same shall have been lawfully demanded or not or if the
Tenant while the leased premises or any part thereof remain vested in it shall
be wound up compulsorily or voluntarily (except for reconstruction or
amalgamation) or in the event of a receiver being appointed to any of the
Tenant’s property or in the case of an assignee of the Tenant not being a
corporation shall become notour bankrupt or make any assignment for the benefit
of his creditors or make any arrangement with his creditors for the liquidation
of his debts by composition or otherwise or if the Tenant or its Subtenants or
any other person deriving occupancy from it shall at any time fail to implement
or shall contravene any of the conditions, provisions, restrictions and others
herein contained then and in any of these events the Tenant shall forfeit all
right and title under these presents and the Lease hereby granted and all
transmissions and subleases thereof with all that has followed or can
competently follow thereon shall become ipso facto void and null and that
without the necessity of any declarator, process of removal or other procedure
at law and the leased premises shall thereupon revert to the Landlord and it
shall be lawful for the Landlord or any person or persons duly authorised by
the Landlord in that behalf to enter upon the possession of the leased premises
or any part thereof in name of the whole and to uplift rents, eject the Tenants
Subtenants and occupiers and thereafter use, possess and enjoy the same free of
all claims by the Tenant, Subtenants and others as if these presents had never
been granted without prejudice to any right of action or remedy of the Landlord
in respect of any antecedent breach by the Tenant, Subtenants and others of any
of the conditions in this Lease which irritancy is hereby declared to be
pactional and not penal and shall not be purgeable at the Bar …
DLC failed to
make timeous payment of the quarterly rent due under the sublease at Martinmas
1988. In December 1988 CIN gave notice of their intention to irritate the
sublease. In terms of section 4(2) of the Law Reform (Miscellaneous Provisions)
(Scotland) Act 1985 CIN gave DLC a period of 14 days within which to pay the
rent, failing which the irritancy would be enforced. DLC failed to make payment
during that period, whereupon CIN raised proceedings for declarator of
irritancy and removing against them. Decree was pronounced in their favour on
June 19 1990 by the Lord Ordinary, and on May 29 1991 the Inner House adhered
to his interlocutor. DLC then appealed to your lordships’ House, but their
appeal was dismissed by your lordships on May 21 1992: 1992 SC(HL) 104.
In the Court
of Session DLC argued that the irritancy had been used oppressively. In
accordance with the authorities this argument was directed to the circumstances
in which the irritancy had been exercised and not to its consequences: Lucas’
Executors v Demarco 1968 SLT 89. The argument was rejected by their
lordships of the Second Division and it was not renewed in your lordships’
House. But, in the course of the speeches that were delivered on that occasion,
concern was expressed about the severe nature of the penalty that DLC had
incurred as a result of the irritancy clause. Lord Keith of Kinkel said at p118
that he did not regard the result in that case as satisfactory, and Lord Goff
of Chieveley at p119 and Lord Jauncey of Tullichettle and Lord Browne-Wilkinson
at p127 made observations to the same effect. Lord Keith said at p119 that had
it not been for parliament’s intervention by section 4 of the Law Reform
(Miscellaneous Provisions) (Scotland) Act 1985, following consideration of the
matter by the Scottish Law Commission, he would have considered favourably a
submission that conditions should be annexed to the granting of an irritancy,
by which the landlord would be required to pay compensation for the value of
improvements to the subjects that have been brought about by the tenant or his
predecessors in title. But he agreed with Lord Jauncey’s observation at p125
that it was not open to your lordships’ House to develop the law in this field
further than was thought appropriate by parliament.
Mr Clarke made
it clear at the outset of his submissions for DLC that he was not seeking at
this stage to raise any further questions about the enforcement of the
irritancy. He said that his argument was directed to a different question,
namely whether it was possible after the event to obtain a remedy under the law
of unjustified enrichment that would enable the position as between the
landlord and the tenant to be adjusted to achieve an equilibrium. If that were
possible, it would go a long way towards meeting the anxiety that had been
expressed on the previous occasion about the unsatisfactory nature of the
result in this case and about the implications of the decision for the future
of commercial leases in Scotland generally. CIN have submitted, by way of a
cross-appeal, that this argument is no different in substance from the claim
for equitable relief that was presented to and rejected by this House on the
previous occasion or, alternatively, that it is susceptible to the plea of
competent and omitted, as it should have been presented then as a defence to
the action for declarator of the irritancy. But it is necessary to consider
first whether the argument that Mr Clarke advanced so attractively on DLC’s
behalf is open to DLC, having regard to the terms of the irritancy clause.
In the Court
of Session a majority of their lordships in the Inner House, sitting as an
Extra Division, agreed with the Lord Ordinary, Lord Coulsfield, that DLC’s
averments in support of their claim based on unjustified enrichment were
irrelevant: 1996 SC 331. Both Lord Sutherland and Lord Cullen held that the
claim was excluded by the terms of the irritancy clause. Lord Sutherland said
at pp345H–346A:
It appears to
me, therefore, to be quite clear that the windfall which has accrued
undoubtedly to the defenders in this case is one which accrued as a result of
the contractual entitlement under the irritancy clause. Because the receipt of
the windfall is part of a contractual entitlement this does not constitute
enrichment as that word is understood in the phrase ‘unjustified
was income obtained from the occupational subtenants and was therefore income
derived from the pursuers’ occupation of the land as tenants. It is precisely
that income which is dealt with in the irritancy clause and it is made
perfectly clear in that clause that in future all such income reverts to the
landlord.
Lord Rodger,
dissenting from the majority, said at p360D–F that, in his view, the irritancy
clause would exclude any action by DLC that arose out of CIN’s using,
possessing or enjoying the subjects as if the sublease had not been granted. In
the normal case the words of exclusion would prevent any action arising from
the landlord’s possession, since, as a result of the irritancy, the landlord
would possess the subjects in the same way as he would have done if the lease
had not been granted. But, in his opinion, that was not the position in this
case. CIN’s position was to a limited but important extent not the same as it
would have been if the lease had not been granted, but was, instead, enhanced
by the free enjoyment of the pursuer’s investment. In an earlier passage at
p357F he said that it was CIN’s possession of the subjects with complete
freedom to exploit them, without being obliged in terms of the 1979 agreement
to grant a fresh sublease, that lay at the heart of DLC’s action. He expressed
his conclusion at p360G–361A:
With some
hesitation I have reached the view that it would be wrong to approach the issue
between the parties in this particular case simply by looking at the terms of
the head lease and sublease in isolation. The very existence and terms of both
are explicable only against the background of the original scheme for the
development of the shopping centre which was embodied in the 1979 agreement.
When that wider context is examined, then in my view it becomes apparent that
the defenders’ possession of the subjects after the irritancy is in reality
different from and greater than the possession which they had before the
sublease was granted because the defenders now enjoy the fruits of the
pursuers’ investment as well as of their own. They are to that extent enriched
at the pursuers’ expense and, for the reasons which I have given, neither the
terms of the 1979 agreement nor the terms of the irritancy clause appear to me
to constitute a sufficient basis to entitle the defenders to retain that
enrichment.
Mr Clarke said
that the remedy that DLC sought was the remedy of recompense. In their
pleadings they describe the remedy that they seek as restitution. In the last
sentence of article 7 of the condescendence it is stated that the sum sought in
the fourth conclusion is intended to represent the amount of restitution to
which they are entitled. The same wording appears in their third plea-in-law
where it is stated that they are entitled to restitution of their equity
contribution to the development. This use of language requires some
explanation.
My attempt in Morgan
Guaranty Trust Co of New York v Lothian Regional Council 1995 SC 151
at p155C–D to describe the remedies that are available to redress an
unjustified enrichment has attracted some criticism: see Robin Evans-Jones and
Phillip Hellwege, Some Observations on the Taxonomy of Unjustified Enrichment
in Scots Law (1998) Edinburgh Law Review 180 at pp196–197. Underlying that
criticism is a desire that the law of unjustified enrichment should develop in
a uniform way, and a concern that if the law continues to express the remedies
in terms of restitution, repetition and recompense, it will inhibit that
development. I sympathise with the desire that the law of unjustified
enrichment should be unified in order to detach it from the confusing
subdivisions that have arisen from its explanation in terms of quasi-contract.
In his important contribution to this debate, Restitution: A View of the
Scots Law (1985) Current Legal Problems 57 at p63, Professor Peter Birks
said that the worst consequence of division by benefit received is the
impression given that the causes of action differ depending on the form in
which an enrichment is received and that the only cure was to unify the
subject. I sought to make my position clear when I said, in the Morgan
Guaranty case at p155E, that the important point was that these actions
were all means to the same end, which is to redress an unjustified enrichment
upon the broad equitable principle nemo debet locupletari aliena jactura.
It is an
important part of this reasoning to recognise that the obligation to redress
the enrichment arises not from contract but from the separate duty that arises
in law from the absence of a legal ground to justify its retention: see Stair, Institutions,
I.7.7. On the other hand, it does not seem to me to be inconsistent with the
broad principle of the law of unjustified enrichment for the various situations
in which redress may be sought to be expressed in terms of remedies. In Shilliday
v Smith 1998 SLT 976, the Lord President pointed out that repetition,
restitution, reduction and recompense are simply examples of remedies that the
courts grant to reverse an unjust enrichment, depending on the way in which the
particular enrichment has arisen. It may be unrealistic to expect those who
practise in the courts to depart from such terminology. In the context of the
written pleadings that are used in our practice, the pursuer is expected to
state the nature of the remedy that he seeks, as well as the legal basis for
it. For my part, I see no harm in the continued use of these expressions to describe
the various remedies, so long as it is understood that they are being used
merely to describe the nature of the remedy that the court is being asked to
provide in order to redress the enrichment. The event that gives rise to the
granting of the remedy is the enrichment. In general terms it may be said that
the remedy is available where the enrichment lacks a legal ground to justify
the retention of the benefit. In such circumstances it is held to be unjust.
The remedy
that is sought in this case, as Mr Clarke explained it, is an adjustment of the
imbalance that has arisen due to the loss by DLC of the right to retain 22.468%
of the occupational rents for the remainder of the period of the sublease.
According to the terminology currently used in Scots law, the expression
‘repetition’ is used to describe the remedy where the pursuer seeks an order
for repayment of a sum of money, and ‘restitution’ is used to describe the
remedy where the order sought is for the return of moveable property. Where the
remedy sought is an order for payment of a sum representing the value of the
benefit that the other party has enjoyed, the expression that is used to
describe it is ‘recompense’. Recompense will usually involve a process of
assessment, as it requires a value to be placed on the benefit. In my opinion,
Mr Clarke was right to describe the remedy sought in this case as that of
recompense.
In Varney
(Scotland) Ltd v Burgh of Lanark 1976 SLT 46 at p51 Lord Fraser said
that nothing had happened since 1909, when, in Edinburgh & District
Tramways Co Ltd v Courtenay 1909 SC 99 at p105, Lord President
Dunedin said that he did not think that it was possible to frame a definition
of recompense that would, by itself, at once include all classes of cases that
fall within the doctrine and, at the same time, successfully exclude those that
do not, to make the framing of such a definition any easier. The approach that
he adopted was to identify the factors that are essential to the success of a
case based on recompense and to see whether they were present in that case. Now
that unjustified enrichment is more clearly seen as the event that justifies
the granting of the remedy, the more obvious it becomes that Lord Fraser’s
approach was the correct way in which to subject the facts to analysis. I think
that Lord Rodger stated the matter correctly in the present case at p353D when
he said that the pursuers must show that the defenders have been enriched at
their expense, that there is no legal justification for the enrichment and that
it would be equitable to compel the defenders to redress the enrichment.
As to the
first point there is no doubt whatever that CIN have been enriched by the
exercise of the irritancy. The effect of the irritancy was to bring to an end
the interest that DLC had in the shopping centre in terms of the sublease. They
are no longer in a position to collect rents from the occupational subtenants.
Their income in the form of 22.468% of the rents has dried up. CIN now collect
all rents from the occupational subtenants in terms of new subleases granted by
them following the enforcement of the irritancy. DLC have retained their
reversionary interest in the subjects as landlords under the headlease. But the
rent under the headlease is a purely nominal one, so they have no prospect
under the existing arrangements of obtaining any further return on their
investment in CDC’s share of the development. The entire benefit of that share
in the development now resides with CIN. As was observed on the previous
occasion when the case was before this House, the result cannot be regarded as
satisfactory. CIN were
notice of their intention to do so as required by section 4 of the Law Reform
(Miscellaneous Provisions) (Scotland) Act 1985. That section was enacted in the
terms recommended by the Scottish Law Commission after considering the
operation of the irritancy clause in leases of commercial and industrial
property. So it cannot be said that the result was outwith the scope of the
proposals that the Scottish Law Commission made for reform in this area of the
law. But equitable considerations suggest that CIN should be subjected to the
remedy of recompense unless the contract itself provides an answer to the claim
that the enrichment was unjustified.
It is on this
point, the second in the list of factors, that DLC’s case seems to me to run
into insuperable difficulty. The situation into which they placed themselves
when they purchased their interest in the shopping centre from CDC was one that
depended entirely upon the subsistence of their contracts with the occupational
subtenants, on the one hand, and their contract with CIN, on the other, in
terms of the sublease. The return that they expected on their investment was
their share of the stream of income in the form of rents from the occupational
subtenants. But their sole entitlement to participate in the rents from the
occupational subtenants was as landlords under the sublease from CIN. The
irritancy clause makes it absolutely clear that, in the event of its exercise,
the tenants were to forfeit all right and title under it, that the leased
premises were thereupon to revert to the landlords and that it was to be lawful
for the landlords to enter into possession to uplift the rents and to eject the
subtenants. The consequence to DLC of incurring the irritancy, as regards the
loss of the return on their investment in the shopping centre, was spelled out
for them precisely in that clause. The benefit that has enriched CIN is one
that was provided for them expressly in the contract of sublease.
Lord Rodger
saw a ground for holding the enrichment to be unjustified in the fact that CIN
were to be entitled to enjoy the fruits of CDC’s investment, which had been purchased
by DLC without making any payment for them. He said that CIN’s possession had
been enhanced by the free enjoyment of DLC’s investment, which was a different
kind of possession than that which they would have enjoyed if the sublease had
not been granted. He drew a distinction between this case and what he described
as the normal case, where the tenant’s possession was a direct counterpart of
the rent and the landlord would automatically be restored after the irritancy
to the situation that he was in prior to the grant of the lease. The
distinguishing feature that he saw in this case was the obligation in regard to
the sharing of the occupational rents between the participants in the
development by which CIN were bound in 1984 under the 1979 agreement when, in
implement of that obligation, they granted the sublease to CDC. When the
irritancy was enforced in 1992, CIN were no longer bound by that obligation so,
to that extent, their possession under the headlease was different.
I regret that
I am unable to follow that line of reasoning. It seems to me to overlook two
things that are almost always present when a landlord decides to exercise his
right under an irritancy clause. The first is that the result of its exercise
will normally be to confer an advantage on the landlord to the disadvantage of
the tenant whose rights are being brought to an end. The nature of that
advantage will vary from case to case. It may take the form of the right to
retain a grassum that was paid when the lease was granted or the right
to retain buildings or other improvements that the tenant has made to the
subjects, in the expectation that he would continue in occupation of them, or
the right to take advantage of an improved market by reletting the subjects,
perhaps to the same party, at an increased rent or by selling the premises with
open possession at a much higher price than he would have been able to obtain
for them if the lease had continued. In each of these cases, which I take only
as examples, the benefit obtained by the landlord will accrue to him without
any corresponding right in the tenant to demand payment. It will flow to him as
a direct result of the remedy to bring the lease to an end that he has
exercised under the contract.
The second is
that the lease will normally have been preceded by a preliminary agreement in
the implement of which it was granted. In the ordinary case that agreement will
be found in the missives that the parties have entered into to record their
agreement. The 1979 agreement was a composite one, in that it set out various
obligations relating to the carrying out of the development and the granting of
the headlease as well as the obligation to grant the sublease. It was, of
course, designed to enable both parties to participate in the fruits of the
development. But, in principle, the situation was no different from that which
always applies where a lease is granted in implement of an obligation to do so,
which is then superseded by the grant. In my opinion, the fact that CIN were
under an obligation to grant the sublease to CDC immediately prior to the date
when they granted it to CDC in implement of that obligation is irrelevant to a
consideration of the question of whether CIN are now entitled under the
contract to enjoy the entire fruits of the development. The answer to that
question depends on the words used in the irritancy clause.
For these
reasons, I consider that the remedy that DLC seek is excluded by the irritancy
clause. The Dean of Faculty, GNH Emslie, accepted that in these circumstances
it was not necessary for him to insist on the cross-appeal, and nothing more
need be said about it. I would dismiss the appeal.
Appeal
dismissed.
