Scottish Sheriff Court Decisions

SHERIFFDOM OF LOTHIAN & BORDERS   Case Number: SD722/10
	Judgment by   SHERIFF PRINCIPAL MHAIRI M STEPHEN   In the cause   STEPHEN JOHN SCOTT AND SUSAN JANE SCOTT Pursuers & Respondents   against   Mr Graham Muir and Mrs Maureen McLeod Bain Defenders & Appellants     _______________________

 

 

 

Act: Ms Davie, Advocate instructed by H B J Gateley Waring, Solicitors

Alt: Mr Thomson, Advocate instructed by Halliday Campbell, Solicitors

 

 

 

 

EDINBURGH,  7 December 2011

The Sheriff Principal, having resumed consideration of the cause, answers the first supplementary question in law in the affirmative; declines to answer the remaining questions in law in the stated case or any other supplementary question in law as unnecessary; allows the appeal, recalls the interlocutor of 1 March 2011 complained of, assoilzies the defenders and appellants, continues the cause to 24 January 2012 at 10am to deal with all questions of expenses in connection with these proceedings.

 

(signed) Mhairi M Stephen

 

NOTE:

1. This appeal proceeds upon the case stated by the sheriff together with supplementary questions in law allowed subsequent to the sheriff finalising his stated case. The appellants departed entirely from the grounds of appeal originally lodged and restricted his argument on appeal to the first supplementary question in law as follows:-

"1. Did I err in failing to assoilzie the defenders on the ground that the pre-irritancy warning notice dated 19 February 2010 was invalid?"

 

2. On the face of it the supplementary question in law appears to be in conflict with the sheriff's finding in fact no 8. However it is evident from the sheriff's note and, indeed there appears to be no dispute about this, that the validity of the pre-irritancy warning notice was not raised as an issue at proof in February/March this year. The validity of the notice did not form part of the original note of appeal upon which the sheriff prepared his stated case. Indeed the original ground of appeal solely related to the sheriff's alleged failure to permit copy cheques tendered by the defenders at the diet of proof to be used in evidence. There also appeared to be a suggestion that the sheriff had erred in law by failing to give adequate weight to certain aspects of the evidence.

 

3. In the proceedings before the sheriff the defenders were party litigants. The pursuers were represented by solicitors.

 

4. The appellants sought to introduce new questions of law by way of a note of adjustments presented to the sheriff. The sheriff quite properly declined to allow the adjustments standing the provisions of Summary Cause Rule 25.3 (2). The appellants sought to introduce the new questions of law by way of incidental application. I heard that application on 1 July 2011 and allowed the further questions of law to be introduced. The main issue in law and indeed the only issue to proceed at appeal related to the validity of the pre-irritancy warning notice. Whether the notice was valid or invalid was a point of law which remained open to the appellants even though the point had not been taken before the sheriff. The principal reason that the point had not been taken at the stage of proof relates to the defenders' decision to represent themselves and not to have legal representation. It was likewise accepted that the original grounds of appeal made no reference to the validity or otherwise of the notice but the point was taken albeit late and it was a proper issue for appeal. If the notice was invalid the pursuers' case that the lease had been brought to an end by way of irritancy could not succeed.

 

5. The appeal duly proceeded on 16 August and 2 September 2011.

 

Appellant's submissions

6. Mr Thomson for the appellants confirmed that the point which he wished to argue on appeal would be restricted to the validity or otherwise of the pre-irritancy warning notice dated 19 February 2010 being a letter sent by the respondents' solicitors to the appellants. The notice purports to be a notice in terms of section 4(2) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 ("The Act") however the appellants would seek to argue that the notice failed to comply with the terms of that statute and was accordingly invalid.

 

7. Before presenting his submission in law Mr Thomson referred to the important documents on which the appeal proceeds. Firstly, the respondents and pursuers' statement of claim; the lease and the letter of 19 February 2010 being the notice sent by the pursuers in terms of section 4 of the Act.

 

8. Firstly with regard to the pursuer' statement of claim it was observed that Paragraph 3 of the statement of claim purports to set out the terms of Clause 5 of the lease relating to "Irritancy". The lease is lodged in process and it is self-evident that the excerpt from Clause 5 is simply incorrect and does not accurately reflect the terms of the lease. Furthermore, the tenant's obligations are inter alia to pay the rent and to reimburse the landlord all reasonable sums paid for insuring the premises within seven working days of demand. The tenant is also obliged to pay interest "at the prescribed rate" on any rent due but which remains unpaid for 14 days from the date when it became due until paid. It was suggested therefore that the sheriff in his stated case incorrectly describes the rent and insurance charges as "rent" in Finding in Fact 2.

 

9. The lease has been lodged and is the basis upon which the action proceeds. The parties derive their contractual rights and obligations from the lease. In addition to the tenant's monetary obligations already referred to the parties set out at Clause 5 on page 9 the manner in which the lease may be irritated thereby allowing the landlord (pursuers) to bring the lease to an end. Clause 8 of the lease regulates the form of notices or demands and states that notices shall be in writing and "shall be deemed to be sufficiently served at the expiry of 48 hours after posting if sent by recorded delivery post". These are the important clauses in the contract of lease for the purpose of the appeal.

 

10.              The document which is subject to scrutiny in the sole remaining question in law is the pre-irritancy warning notice being the letter from the pursuers' solicitors H B J Gateley Waring to the defenders and appellants dated 19 February 2010. This letter is production no 8 in the second inventory of productions for the pursuers. It is sent by recorded delivery. It makes two requirements of the tenants in the following terms:-

(i)                 WE HEREBY REQUIRE, you, as the tenants, to make payment to our clients, per ourselves (quoting our reference at the top of this letter) of such rent and other monies totalling sterling £7,800 together with interest thereon as provided for in the said lease before; and

(ii)               WE HEREBY STATE, if you, as the tenants, do not comply with the requirements mentioned in paragraph (i) above, said lease MAY, without in any way prejudicing our clients' whole rights and remedies, BE TERMINATED on 11 March 2010.

 

11.              The notice contravenes the statutory requirements as it fails to specify (1) the periods of rent which the tenant has failed to pay, (2) the period which the tenant has to pay the sums due together with interest. The landlord cannot rely on the second paragraph to supply the want of specification of the period which the tenant is allowed to make payment as the second paragraph conveys a different message to the tenant namely, when the landlords may terminate the lease if the tenant fails to comply with what is required of them in part (i). Thirdly the notice also contravenes the statutory requirements by requiring a global sum to be paid which is unintelligible and incapable of being broken down into arrears of rent, and from what period. Without that information the notice cannot convey to the tenant the accurate information on which the interest component can be calculated or assessed by the tenants.

 

12. Thus the appellants contend that an analysis of the letter and in particular the requirements of the Statute would reveal certain significant omissions (1) the sum of £7,800 is not particularised or broken down into how much is rent and how much may relate to other monies and what these other monies might be. It is not specified for what period the rent is or was due and from which the recipient can know how long the rent is overdue. (2) Interest is also demanded, as provided for in the said lease (Clause 2(6)) however it is impossible for the recipient of the notice to know how much interest is due or how it may be calculated as the sums cannot be referred to any particular date. (3) There is no stipulation of the period of time in which the demand is to be met. In other words there is no set date or deadline given in Part (i) of the Demand. No specific timescale is given instead the notice merely advises what may happen come 11 March 2010.

 

13. Counsel for the appellants sought to persuade me that the notice failed to contain the information required by statute and is therefore invalid on account of the pursuers' failure to comply with the statutory requirements. If his argument was correct there was no need to consider the test set down in the case of Mannai Investment Company Limited v Eaglestar Life Insurance Company Limited 1997 HL 749.

 

14.              Mannai was concerned with interpretation of the terms of a lease rather than statutory interpretation. The majority decision of the House of Lords in that case introduced the reasonable recipient test ie what the reasonable recipient would have understood the notice to mean. The appellants argue that the "reasonable recipient" test does not apply here as this case deals with statutory requirements rather than contractual obligations.

 

15. I was referred to Vol 12 of the Stair Memorial Encyclopaedia on Interpretation of Statutes. At paragraph 1114 the author states -

1114. Duty of Courts to avoid injustice.

As has already been stated, when the language of a statute is unambiguous and explicit, it must receive full effect, regardless of any harsh consequences. However, if an enactment is open to two possible constructions and if it appears that one of those constructions will do injustice and the other will avoid that injustice 'it is the bounden duty of the court to adopt the second and not to adopt the first of those constructions'.

That, according to the appellants, encapsulates the principle to be adopted. It was submitted that it would be unjust to demand payment without reference to the specific sums due; when they were due and why. In this case the pursuers say either pay up without that intimation or wait until we tell you at proof. The appellants refer to the conflicting accounts of which sums are overdue. The letter from the pursuers' agents dated 9 June 2010 (Production 21 for the pursuers) conflicts with the evidence given by the pursuers at proof which in turn referred to arrears of rent due prior to November 2009 and in December 2009.

 

16. The next important submission for the appellants still relating to statutory interpretation is the mischief rule (Stair Encyclopaedia paragraph 1115) - that is:- look at the law, both statutory and common law, when the act was introduced and ask - what was the mischief or defect which the statute was designed to remedy? Reference was made by the appellants' counsel to the Scottish Law Commission Report and the draft Bill which is part of the appellants' bundle of authorities. Chapter 4 of the Law Commission Report deals with the main proposals for reform in particular at 4.2 it is stated

"Our object in devising such a notice, or ultimatum, procedure was to ensure that, where the possibility of remedy existed, the irritancy clause in the lease would act as a compulsitor for the taking of remedial action and not as a means whereby a landlord could take immediate advantage of the breach so as to procure an opportunistic termination of the tenancy."

There follows, the Law Commission's Recommendations on monetary breaches, at paragraph 4.3:-

"We therefore recommend that, where there is default in the making of a monetary payment under a lease, the landlord should not be entitled to rely on such default as grounds for termination of the lease unless he is given the written notice specifying a period of not less than 14 days for the remedying of the default in payment and stating that, unless the default is remedied within the period specified, irritancy may result."

 

17. The Scottish Law Commission's recommendations became Clause 1 of the Irritancy and Leases (Scotland) Bill prior to being enacted as section 4 of The Act albeit with certain minor amendments. Both the Law Commission Report and the Bill Explanatory Notes referred to the notice being a warning and compulsitor for performance of the tenant's monetary obligations and refers to giving the tenant the opportunity to obtain protection from the threat of irritancy.

 

18.              I was referred by the appellants' counsel to Mannai (supra); Ethel Austin Properties Holdings Limited v D & A Factors (Dundee) Limited (unreported); Tawne Overseas Holdings Limited v Newmilne Farms & Others [2008] CSOH 12; Kodak Processing Companies Limited v Shoredale Limited 2010 SC 113.

 

19.              Accordingly the appellants contend that the pre-irritancy warning notice of 19 February 2010 does not comply with the requirements of the statute on three specific heads. Firstly, it fails to give proper notice to the tenant of what the arrears of rent are and when they arose in order to enable him to perform his obligations in respect of rent or as proposed by the statutory requirement. The notice does not allow the recipient to know whether the requirements of Clause 5 of the lease have been satisfied. That clause requires there to be arrears for a period of 14 days minimum before any notice can be served. Both the statutory and contractual requirements mean that proper information must be conveyed in the notice rather than a bald assertion that a specified sum is due and outstanding. Secondly, the appellants argue that the interest component is incapable of being ascertained and verified without reference to specific periods of time over which the arrears have accrued. Thirdly, the notice fails to comply with the essential requirement that a minimum of 14 days is allowed for payment following service of the notice. Section 4(2)(a)(i) requires a period to be specified. The notice does not do so and the suggestion that part 2 of the notice provides that is a flawed interpretation of the statutory requirement. Part 2 does not relate specifically to the period to be given to the tenant to perform his obligations and obtain the protection which the Scottish Law Commission's recommendations clearly intended.

 

Respondents' Submissions

20.              The respondents' submission put short is that the notice sent on behalf of the pursuers to the defenders and appellants satisfies the minimum requirements prescribed by the Act (section 4); that the notice also complies with the terms of the lease as agreed between the parties and accordingly complies with both the contractual and statutory requirements. The remaining question in law with regard to the validity of the pre-irritancy warning notice should therefore be answered in the negative and the appeal dismissed.

 

21.              Counsel for the respondents took no issue with the authorities cited by the appellants. Counsel relied on the case of CIN Properties v Dollar Land (Cumbernauld) Limited 1990 SC 351 and the decision of Lord Morton of Shuna at page 362. That case also dealt with a notice under section 4 of the Act and whether the landlords were entitled to enforce the irritancy in view of the wording of the notice which referred in the second part to a court action being raised against the tenants in the event of failure to pay the rent due. The tenants also pled oppression relying on a number of circumstances including the allegedly misleading terms of the notice. Lord Morton held that the tenants' averments relating to the notice were irrelevant and further could not, if proved, establish oppression on the parts of the landlords. Oppression was different from "unfairness". Lord Morton at page 362 states:-

"The defenders' argument was that the notice was misleading. The last paragraph of the letter fairly read suggested that court proceedings would be necessary before the lease could be terminated and that the court would have some discretion as to whether the lease should be terminated. The letter, it was argued, was defective as a notice complying with section 4(2)(a) in that it suggested by implication that the decision whether to terminate the lease was one for the court to take and a decision on which the court had discretion.;

His lordship then goes on to say:-

"In my opinion, section 4(2) of the 1985 Act lays down minimum requirements of an adequate notice and does not prescribe any form which the notice should take or confine the notice to contain only the requirement to pay and the statement that if payment is not made within the time provided "the lease may be terminated".

I consider that the two sentences quoted above in the letter of 15 December clearly comply with the statutory provision as there is the requirement to pay and the statement that if there is failure to meet the requirement the lease "may be terminated". By beginning the second sentence with the words "in addition to the other remedies" the meaning that seems most obvious to me is that termination of the lease is a possibility supplementary to and different from the court action threatened in the first sentence. I accordingly consider that the defenders' attack on the adequacy of the letter fails and in consequence shall repel their first plea-in-law."

 

22.              In essence the respondents' position is that the drafters of the legislation sought a simple form of notice referring to the sum due by the tenant together with a requirement to pay within a specified time and a warning of the consequences of failure to pay. Nowhere is it suggested in the Scottish Law Commission Report or in any other case that it is necessary for the landlord to break down and specify the amount of rent due and how the arrears are made up. The terms of the notice in the present case can be distinguished from the situation envisaged in Kodak Processing v Shoredale. However in that case Lord Osborne stated at page 123 in the context of considering the method of service of a notice "We conclude that the words used in section 4(4) can only be read as a reference to that mechanism of communication. Following the observation of Lord Reid in Kammins Ballrooms Company Limited v Zenith Investments (Torquay) Limited, one might be driven to a different conclusion if the result of adopting the meaning just indicated was plainly unreasonable or, worse, absurd. However, we do not think that that is the case. It seems to us entirely comprehensible that the Scottish Law Commission, in formulating their recommendation, should have adopted what had become recognised as a cheap and reliable method of formal communication, in the context of the service of notices in connection with the irritancy of leases, a matter of common place occurrence, which could be undertaken by a lay man without any difficulty."

 

23.              The intention of the Commission was that the notice would give an ultimatum to the tenant alerting him to the fact that he was in arrears; providing him with an opportunity of purging or clearing the arrears and advising of the risk of irritancy in the event that the arrears are not paid. There is no suggestion on the part of the Scottish Law Commission that the landlord required to enter into some form of accounting with the tenant. That in turn is translated into the statutory requirement which is to provide a minimum of adequate notice of arrears and an opportunity to remedy the breach. The statute does not stipulate a prescribed or set form unlike the Agricultural Holdings Act. The notice was accordingly valid and complied with the technical requirements of the statute.

 

24.              The respondents took issue with the approach adopted and advanced on behalf of the appellants namely, that the landlords in effect had to pass a double hurdle firstly in respect of validity of the notice and thereafter by submitting the notice to the reasonable recipient test. It was the respondents' submission that this was not the correct approach. There was nothing inherently unclear about the requirements of the Act. It was the respondents' contention that this was not a case to which the canons of statutory interpretation required to be applied. The requirements of section 4 of the Act could be interpreted in a manner which would support both the appellants and respondents' contention. The respondents' contention was that the giver of notice required to do nothing other than give notice of the sum due and an opportunity to remedy the arrears. The terms of the statute were clear and unambiguous and thus there was no reason to apply the double test as suggested by the appellants- that double test being firstly to construe the statute to avoid injustice and secondly to apply what is known as the mischief rule.

 

25.              However, even if the respondents were wrong in their submission that the statute terms were clear and unambiguous the terms of the statute if construed in accordance with the double principles of statutory interpretation the notice still succeeded the test of validity. It was not correct to say that the lack of specification of the sums due led to unfairness. The amounts due are set out in terms of the contract between the parties namely the lease. The parties alone knew what had been paid and the information was all within the knowledge of the landlord and indeed the tenant. There was no requirement to enter into some process of special accounting. Furthermore, the second principle of statutory interpretation - the mischief rule was also satisfied. The mischief to be addressed is indeed set out in the Law Commission Report namely that the potential for irritancy should be used as a compulsitor for remedying the breach. The tenant is thus given an opportunity to remedy the breach. It was contended on behalf of the respondents that protection of the tenant was not the sole objective of the legislation and a balance has to be struck between the rights of the landlord and the tenant and in this regard I was referred to the Scottish Law Commission Report paragraphs 2.9 and 3.3 as evidence of that balance. On the one hand the pre-irritancy warning notice is designed to protect the tenant against the oppressive use of irritancy and on the other hand proper weight has to be given to the characteristics of the contract between the landlord and tenant. At paragraph 3.3 of the Law Commission's Report it is stated "for example it was emphasised to us, and we think fairly, that irritancy was a remedy specifically designed so that an owner of land could ensure that the land was restored to his possession in circumstances where a tenant had become unable, through commercial failure or otherwise, to perform his obligations as possessor and that it was important to appreciate that a landlord had an interest as owner and not merely as collector of rent." Accordingly, it was argued that the protection of the tenant was not the sole object of the legislation and therefore oppression of a tenant was not the only mischief which had to be remedied by the Act.

 

26.              The respondents also referred to Mannai and the conclusion to be drawn from the case. The reasonable recipient test must be applied against the context of the lease and the knowledge which both parties have of the lease and the performance of their obligations. In this case the tenant was aware of the rent which was outstanding. There is objective evidence of this in the stated case and the appellant's admissions in their answers. The appellants' answers admit the figure for rent and insurance payments as a consolidated sum. There would be no reasonable doubt in his mind about what he was due to pay to the landlord every month.

 

27.              The respondents' submission on the issue of interest is that interest is irrelevant with regard to irritancy of the lease. This is a contingent contractual liability on the part of the tenant. Defaulting on payment of interest can never be a ground for irritating a lease. I was referred to the case of Whitbread Group PLC v Goldapple Limited 2005 SLT 281. In effect the respondents' submission put forward the proposition that the issue of interest was to all intents and purposes an irrelevant consideration and interest had been mentioned in the notice as the notice as drafted followed the wording of the 1985 Act which of course at section 4(2)(a)(i) states "requiring the tenant to make payment of the sum which he has failed to pay together with any interest thereon in terms of the lease".

 

28.              Turning to the third attack on the notice namely, the failure to specify the time allowed for payment of the arrears it was the respondents' submission that one should look in effect at the notice in its entirety and ask whether it complies with the minimum requirements as referred to in CIN v Dollar Land and ask whether these requirements are satisfied. If the notice looked at as a whole got across to the tenant the message that the arrears required to be paid and the consequence of failing to comply that was sufficient. A date was provided in the notice and it left the tenant in no doubt as to the effect of ignoring the requirement to settle his monetary obligations. Failure to specify a time limit in the first part of the notice was certainly not fatal to the notice and its import.

 

29.              The final submission made on behalf of the respondents related to the new points of law raised in this appeal subsequent to the sheriff preparing a stated case. The respondents questioned the competence of raising new points of law at such a late stage and referred to the textbook by Derek Auchie - Summary Cause Procedure in the Sheriff Court (9.14) which is the second authority in the respondents' bundle. I was also referred to Drummond v Hunter 1948 JC 109 and in particular the dicta of the Lord Justice Clerk at page 113. The respondents submitted that there was real prejudice to the pursuers and respondents. The respondents were entitled to rely on the facts found by the sheriff and the appellate court should likewise be restricted to the points of law which were before the sheriff when he was drafting his stated case.

 

30.              The appellants replied to this submission on the competency of the new point of law.

 

Decision

31.              I will first of all address the final point raised by the respondents namely whether it was competent to allow the appellants to argue at appeal a point of law which was neither raised before the sheriff nor raised in the Note of Appeal which formed the basis of the stated case prepared by the sheriff. In my view the appellants, correctly, pointed out that the grounds of appeal had already been allowed to be amended to include the current question of law when the appellants' incidental application was dealt with in July. Notice had been given to the respondents, together with a list of authorities. The respondents therefore had notice of the additional points of law. The issue of prejudice had been dealt with at the time the appellants' incidental application had been considered. I took the view that the issue of prejudice was more illusory than real and the point of law which challenged the competency of the pre-irritancy warning notice went to the heart of the irritancy upon which the pursuers' case rested. If the issue is one of fundamental validity of a notice which was a pre-requisite for the pursuers ground of action against the defenders then it was an argument available to the defenders and appellants throughout the course of the proceedings. If the notice was invalid then no right of action existed. Although the point was not argued before the sheriff and did not feature in the stated case there was no need to remit the matter back to the sheriff as the validity of the notice was a point of law which did not depend to any extent on the sheriff's view of the facts at proof. Accordingly, an application having been presented under rule 25.3 in July, when both parties were heard, I allowed the grounds to be amended. Thus the objection comes too late. Accordingly, I would reject the respondents' argument as to the competency of proceeding with the appeal on the basis of the new point of law.

 

32.              The starting point has to be the statutory provisions namely section 4 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 -.

"4 -(1) A landlord shall not, for the purpose of treating a lease as terminated or terminating it, be entitled to rely-

(a) on a provision in the lease which purports to terminate it, or to enable him to terminate it, in the event of a failure of the tenant to pay rent, or to make any other payment, on or before the due date therefor or such later date or within such period as may be provided for in the lease; or

(b)      on the fact that such a failure is, or is deemed by a provision of the lease to be, a material breach of contract.

unless subsection (2) or (5) below applies.

(2) This subsection applies if-

(a) the landlord has, at any time after the payment of rent or other payment mentioned in subsection (1) above has become due, served a notice on the tenant-

(i) requiring the tenant to make payment of the sum which he has failed to pay together with any interest thereon in terms of the lease within the period specified in the notice; and

(ii) stating that, if the tenant does not comply with the requirement mentioned in sub-paragraph (i) above, the lease may be terminated; and

(b) the tenant has not complied with that requirement.

(3) The period to be specified in any such notice shall be not less than-

(a) a period of 14 days immediately following the service of the notice; or

(b) if any period remaining between the service of the notice and the expiry of any time provided for in the lease or otherwise for the late payment of the sum which the tenant has failed to pay is greater than 14 days, that greater period."

 

33.              Sub-section 1 provides that a landlord cannot rely on the irritancy clause contained in a lease nor a material breach by the tenant in respect of his monetary obligations under the lease in order to terminate the lease unless the landlord serves a notice in terms of sub-section 2. Sub-section 2 contains the requirements of the notice (section 4(2)(a)(i)) and therefore the landlord may only proceed to irritate or bring to an end the lease if he complies with the notice requirements of that subsection and the tenant fails to comply with what the notice requires him to do.

 

34.              The legislation implements the recommendations of the Scottish Law Commission (No 75) on irritancies in leases. The relevant parts of that report have been referred to in argument. Without doubt the driver behind the reference to the Scottish Law Commission was the decision of the House of Lords in Dorchester Studies (Glasgow) Limited v Stone and Another 1975 SC(HL). The recommendations of the Scottish Law Commission were designed to bring about statutory mitigation of the rigour of irritancy clauses for a tenant. Hitherto any mitigation by the landlord was solely a matter for the discretion of the landlord.

 

35.              The Law Commission Recommendations in respect of monetary breaches can be found at 4.3 of the report.

"We remain of the view that in cases of default by a tenant in the making of monetary payments (whether of rent or otherwise) where a minimum period for remedy of the default can be prescribed by legislation, a statutory procedure of the kind we originally envisaged is the most appropriate means for protecting the tenant. We have given careful consideration, in the light of consultation, to what the prescribed period should be and have come to the view that the relevant notice should specify a period of not less than 14 days from the date of its service. We therefore recommend that, where there is default in the making of a monetary payment under a lease, the landlord should not be entitled to rely on such default as grounds for termination of the lease unless he has given the tenant written notice specifying a period of not less than 14 days for the remedying of the default in payment and stating that, unless the default is remedied within the period specified, irritancy may result."

Thus the Law Commission had as its object the statutory protection to be provided for tenants against the peril of unqualified irritancy clauses. They specifically rejected the proposal that protection of tenants could be left to negotiation when the lease was being drawn up. The Law Commission decided that a statutory notice was necessary and Chapter 4.2 states:

"Our object in devising such a notice, or ultimatum, procedure was to ensure that, where the possibility of remedy existed, the irritancy clause in the lease would act as a compulsitor for the taking of remedial action and not as a means whereby a landlord could take immediate advantage of the breach so as to procure an opportunistic termination of the tenancy. We envisaged that the procedure would operate in all cases of remedial breach by a tenant; that the relevant legislation would prescribe an appropriate, fixed time limit for the taking of remedial action in cases where the breach consisted in a failure to make punctual payment of money;".

 

36.              The legislation does indeed prescribe the fixed time limit for the taking of remedial action and that is subsection 3 which I have set out above. The subsection is introduced by the words "the period to be specified in any such notice shall be...".

 

37.              The parties to this appeal appeared to be in agreement that although the statutory provision was reasonably explicit nevertheless competing contentions could be put forward for the specification required in the notice. Again there was no dispute as to the proper rules for statutory interpretation. The only dispute arose as to the application of these rules and whether the giver of the notice namely, the pursuers in this case, required to address the dual test of (1) avoiding injustice and (2) application of the mischief rule. I have dealt with the mischief which the statutory notice procedure (section 4) was designed to address that being the protection of the tenant from the harsh consequences of irritancy.

 

38.              The statutory notice must, in my view, be construed against the background to the legislation. It must also be construed objectively and having regard to the legal function which the notice is designed to serve.

 

39.              The decision in Mannai Investment Company Limited v Eaglestar Life Assurance Company Limited 1997 AC 749 was discussed at some length in the course of submissions. That case involved the parties contractual obligations in the form of a lease and whether the tenants had given notice to the landlords in respect of a "break clause" - by which is meant the tenant could determine or bring to an end the lease by serving notice - not less than six months notice in writing - on the landlords or his agents to expire on the third anniversary of the commencement date of the lease (13 January 1992). Notice was given to determine the lease on 12 January 1995 rather than 13 January 1995 (third anniversary). Reading from the rubric it was held (two Lords Ordinary of Appeal dissenting) "that the construction of the notices had to be approached objectively and that the question was how a reasonable the recipient would have understood them, bearing in mind their context; that the purpose of the notices was to inform the landlord of the tenant's decision to determine the leases in accordance with the break clauses; that a reasonable recipient with knowledge of the terms of the leases and of the third anniversary date would have been left in no doubt that the tenant wished to determine the leases on 13 January 1995 but had wrongly described it as 12 January; and that, accordingly, the notices were effective to the determine leases". This is taken to be the "reasonable recipient" test. Lord Goff who dissented took the view that the intention of the server of the notice (tenant) and the knowledge of the recipient (landlord) were irrelevant and that "the simple fact is that the tenant has failed to use the right key which alone is capable of turning the lock". He then went on to say at page 755 "The principle is therefore clear. The agreement between the parties provides what notice has to be given to be effective to achieve the relevant result. The question in each case is: Does the notice which was given, properly construed, comply with the agreed specification? If it does, it is effective for its purpose. If it does not, it is not so effective; and the mere fact that the person serving the notice plainly intended, and was trying to give an effective notice under the clause, and that the recipient of the notice realised that he was doing so, makes no difference. This is because the notice, properly construed, did not comply with the agreement between the parties. The key does not fit the lock, and so the door will not open." Lord Jauncey who agreed with Lord Goff in his dissenting judgment stated at page 762 "Notices terminating a tenancy are technical documents because they are effective without the consent of the receiver. It is therefore essential that they conform to the statutory or contractual provisions under which they are given." Lord Steyn delivered what is in essence the leading judgment and this can be found at page 766 onwards. He came to the conclusion that the notices should be effective and summarised his analysis in the form of numbered propositions. The first proposition is set out at page 767 D-G. It is clear that Lord Steyn in Mannai was emphasising the application of the reasonable recipient rule in a case involving interpretation of contractual obligations being the terms of the lease rather than interpretation of a notice that must contain specific information. That in itself is sufficient to distinguish the present case from Mannai. Lord Steyn states "(1) This is not a case of a contractual right to determine which prescribes as an indispensible condition for its effective exercise that the notice must contain specific information". He is saying that the notice which might be given in the Mannai case could have been expressed in a variety of ways providing that it was in writing and served on the landlord not less than six months before. Thus it appears to me that the reasonable recipient test as set out in the Mannai case is not the apposite test in the present case where the question is whether the statutory requirements of notice have been satisfied rather than how the reasonable recipient might have construed that notice. Indeed, Lord Steyn's dicta do not support the application of the reasonable recipient test to a situation where notices must contain specific information. Accordingly, it is now appropriate to consider the notice against that background and whether the notice complies with the requirements that Parliament legislated for. In other words have the pursuers and respondents used the "right key" which will open the door to bringing the lease to an end.

 

40.              An analysis of the notice contained in the letter of 19 February 2010 can be made. The letter is found as Production 8 in the second Inventory of Productions for the pursuer. The letter refers to the lease in the first paragraph. The preamble to the second paragraph narrates that rent and other monies payable are currently in arrears in the sum of £7,800. The preamble gives no further information as to how that is constituted and what the other monies may be. The rest of the notice contains (1) what may be considered to be the requirements which the tenant must satisfy and (2) the consequences of failure to comply with these requirements. The only requirement made is to pay the rent and such other monies totalling £7,800 together with interest thereon as provided for in the lease. The lease provides for rent of £2,500, although it is expressed in the lease as an annual payment of £30,000 which is due to be paid monthly in advance. The tenants' obligations include payment of the rent and reimbursement of the landlord for insurance. It seems to be accepted that reimbursement of insurance expressed as a monthly liability would be £100 per month. However the obligation under the lease is to reimburse within seven working days of demand and the insurance is not expressed as a global figure along with rent. The lease also requires the tenant to pay rates and other charges and to contribute to the cost of common subjects and to pay interest on the arrears "at the prescribed rate on any rent.....which shall become due but remain unpaid for 14 days, such interest to run from the date when the same shall become due until payment thereof".

 

41.              Paragraph (i) of the notice fails to require the tenant to make payment within any specified period. There is no mention of a deadline or time limit in that part of the notice which is intended to set out the requirements on the tenant which he must comply with to avoid the lease coming to an end by way of irritancy. Section 4(3) of the Act is prescriptive about that. No period is specified in part (i) and therefore it appears that the notice does not comply with the minimum requirements of the statute. The respondents' argument, however, is that one would merely need to look at paragraph (ii) of the notice and that would supply the recipient with that information, namely, that the tenant would know that he had until 11 March 2010 to deal with his monetary obligations or face termination of the lease. That one date in the notice is sufficient to inform the tenant of the requirement to pay and the consequences of failing to pay. In my view, the respondents' construction of the import of the notice is flawed. A straight forward reading of the legislation makes it clear that the notice must specify a period within which the tenant must make payment of rent and that period forms part of the requirement which the tenant has to be given. The tenant requires to know what he has to do and within what period. Accordingly, the notice fails to comply with that statutory requirement.

 

42.              The second challenge to the notice relates to the landlord's failure to specify the rent overdue. The notice appears to require a payment of £7,800 which is more than three months rent but not four months rent. It may be three months rent and insurance payments as referred to in the stated case (Finding in Fact 2). Assistance can also be derived from the defences and the admission on the part of the appellants that the rent payable is £31,200 per annum - albeit this contradicts the terms of the lease which has been lodged in process. It appears that the total monthly payment made by the tenants to the landlords is £2,600 and this is referred to in paragraph 3 of the sheriff's note appended to the stated case. The sheriff has referred to the payment as rent for ease of reference. It is clear from the sheriff's stated case and the submissions that the periods for which the arrears of rent are due have proved problematic. On the hypothesis that it is accepted that £7,800 represents three months arrears of rent (for ease of reference) there appears to be a conflict between the parties as to the months to which the arrears apply. Further, the letter sent by the respondents' solicitors after the purported irritancy, that is the letter of 9 June 2010, refers to rent not paid in February and March 2010 and of course it is impossible to relate the section 4 notice to rent due on 1 March, the date of the notice being 19 February 2010. The correspondence alone is eloquent of confusion. It was contended on the part of the appellants that the pursuers having committed themselves in correspondence gave evidence at proof which related to rent not paid on different months.

 

43.              Clearly the tenant cannot know what the landlord's understanding of the rent arrears is unless he stipulates the dates from which the rent is due and unpaid. That would hardly be an onerous obligation on the landlord. The notices should be looked at in the context of the legal function of the statutory requirement and that is to ensure where the possibility of remedy exists that the giving of notice acts as a compulsitor for the taking of that remedial action. The time limit prescribed by the statute is designed to be reasonably short but to give sufficient opportunity for the defect to be remedied. It would not appear to give sufficient time, however, for detailed discussion or discovery as to the periods of default and it appears to me therefore that for the notice to be effective it should specify the periods from which the rent arrears arise.

 

44.              The respondents in answer referred to and relied on the dicta of Lord Morton of Shauna in CIN v Dollar Land. That case turns significantly on two different issues - the first being relevant to this case namely the terms of part (ii) of a section 4 notice that is the part of the notice which sets out for the tenant the consequences of failure to comply with the requirement made in part (i). The Dollar Land case also dealt with issues of oppression. The defences were repelled on the basis that the averments relating to both the notice and the oppression were irrelevant. In his judgment his Lordship states that section 4 lays down minimum requirements of adequate notice and did not prescribe any form which the notice should take. His Lordship decided that the notice in that case sufficiently conveyed the warning that failure to comply with the requirement may lead to termination of the lease. In so far as that decision relates to notices under section 4 the case can be distinguished from the present case. The challenge to the notice in the present case relates to the first part of the notice and the specification which should be given to the tenant in that part. That is clearly of importance to the tenant as it sets out or should set out what the tenant requires to do in order to avoid the consequences. It is however, interesting to note that the terms of the notice in CIN Properties Limited v Dollar Land is set out on page 354 of the judgment. The notice specifies the quarter's rent due and not yet paid. In addition it specifies the interest due on the rent, the interest due to 15 December 1988 and continuing at a daily rate which is also specified. The notice goes on to require payment of the arrears of rent together with interest before a specific date. That notice accordingly provides the type of specification which the appellants argue for in the present case and which was lacking from the notice served on 19 February 2010.

 

45.              Should I be wrong on the issue of specification of the arrears I am satisfied that if the matter of specification of the arrears of rent is taken along with the issue of interest then it follows that proper specification must be required. To require payment of interest on the arrears of rent which arrears must fall over a number of months it is imperative that the tenant on whom the notice is served knows how to calculate the interest. To calculate the interest the tenant requires to know the date from which interest should be calculated and therefore requires to know the month of arrears and also requires to know the prescribed rate. It is settled law that failure to pay interest alone would not result in an irritancy occurring. (Whitbread Group PLC v Gold Apple Limited 2005 SLT 281). The tenant has an obligation to pay interest on arrears of rent and that is clear from the lease at Clause 2(6). Nevertheless the notice of 19 February 2010 requires the tenants to pay the arrears together with interest as provided for in the lease. Failure to provide the correct information as to the months which the arrears are attributed to and how the interest can be calculated renders the notice incomprehensible to the tenants. The explanation given by the respondents is, to say the least, jejune. I understood the proposition to be that the landlord simply included the reference to interest as the landlord's agents were following faithfully the terms of section 4 of the Act. However, the notice is quite clear that it requires the payment of the sum stated together with interest. It cannot be suggested that interest can be calculated properly without the specification suggested by the appellants. Accordingly, the challenge to the validity of the notice must succeed. The inclusion of the requirement to make payment of interest puts beyond any doubt the force of the challenge to the specification given to the tenant in the first part of the notice.

 

46.              It is indeed my view that careful scrutiny of the notice appears to suggest that the landlord's solicitors have adopted a somewhat formulaic approach to the notice and have treated the legislation as a style notice. It appears that there was a clear omission of wording after "before" in the last line of paragraph (i). That would clearly be the obvious and natural place for a date to be inserted which of course had to be specified in accordance with the legislation and had to be a minimum of 14 days after service of the notice. Mention of another date 11 March 2010 in the second paragraph does not supply that want of specification.

 

47.              I am satisfied that even if I were to be wrong in my approach to the analysis and interpretation of the notice and that the reasonable recipient test should apply to the statutory requirement, none the less, given the lack of specification of the period which the tenant had to remedy the breach and given the reference to interest the calculation of which could not be undertaken by the recipient on the information he was provided with, then it could not be said that the reasonable recipient would have no reasonable doubt as to what was the correct meaning and import of the notice. A reasonable recipient would be misled by the terms of the first part of the notice due to the omission of his deadline for payment and the inclusion of a reference to interest whereas the obligation to pay interest per se would not give rise to irritancy. Accordingly the notice would fail the reasonable recipient test also and accordingly I will allow the appeal and grant decree of absolvitor.

 

48.              Although I took the view that the issue to be determined on appeal was an important one and fundamental to the action and its competence, I cannot conclude my decision without making reference to the apparent unwillingness on the part of the appellants to address issues of both fact and law at the appropriate time. The decision to dispense with legal representation and proceed as party litigants clearly had a direct bearing on this important issue of law being omitted when the matter was before the sheriff. Furthermore, the appellants' refusal to give evidence as to their understanding of the arrears and therefore the import of the notice further camouflaged the central issue. This no doubt led to the sheriff being handicapped in his consideration of the case. He gave his judgment on the basis of the limited evidence and submissions. It follows that although the appellants have been successful in this appeal the question of expenses deserves more careful scrutiny and accordingly I propose to hear the parties on the question of expenses occasioned by the proceedings before the sheriff and on appeal.