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Cite as: [2004] ScotCS 2, 2004 SCLR 739

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Howgate Shopping Centre & Ors v. Catercraft Services Ltd [2004] ScotCS 2 (07 January 2004)

OUTER HOUSE, COURT OF SESSION

CA 175/01

CA 192/01

 

 

 

 

 

 

 

 

 

 

OPINION OF LORD MACFADYEN

in the causes

THE HOWGATE SHOPPING CENTRE LIMITED and OTHERS

Pursuers;

against

CATERCRAFT SERVICES LIMITED

Defenders:

 

________________

Pursuers: Dewar; Maclay Murray & Spens

Defenders: Sandison; Morton Fraser

 

7 January 2004

Introduction

[1]     The first pursuers, The Howgate Shopping Centre Ltd (hereinafter referred to, unless the context otherwise requires, as "the pursuers"), are (or at least were at the dates on which the aftermentioned actions were raised) the landlords and the defenders are the tenants under a sub-lease of the premises which form Unit 22A of the Howgate Shopping Centre in Falkirk. A dispute has arisen between them as to the effect of the rent review provisions incorporated into the sub-lease. Two actions have been raised. In one ("the declaratory action") the pursuers conclude for declarator that the rent review provisions have the effect that the reviewed rent is to be the open market rent. In that action the defenders counterclaim for declarator that the reviewed rent is to be 23.15% of the open market rent. The pursuers also have an alternative conclusion for rectification, in the event that the sub-lease is to be construed as the defenders contend. Since the defenders ceased paying the pursuers rent and service charges under the sub-lease at about the time when the dispute about the rent review clause emerged, there is also a separate action ("the payment action") in which the pursuers conclude for arrears of rent and arrears of service charges. This Opinion is concerned with both actions.

The Sub-Lease

[2]    
The sub-lease which regulates the relationship between the parties as landlord and tenant of Unit 22A was entered into between R. Mathieson & Sons Ltd ("Mathiesons") and the defenders on 15 and 19 May 1995 and registered in the Books of Council and Session on 15 September 1995. An extract of the sub-lease is No. 6/2 of process. In it, the expression "the Lease" is defined as meaning the Lease between Meritclass Investments Limited ("Meritclass") and Mathiesons registered in the Books of Council and Session on 22 June 1993; "the Tenant" is defined as meaning Mathiesons; the defenders are referred to as "the Sub-Tenant"; and Meritclass are referred to as "the Landlord". The sub-lease is for a period of twenty-five years from 13 April 1995 to 12 April 2020.

[3]    
In terms of Clause SECOND of the sub-lease it was provided that the initial rent would be 55,000 per annum, payable quarterly in advance. The clause continues:

"Notwithstanding anything to the contrary contained in the Sub-Lease, it is specified for the avoidance of doubt that the rent payable in terms of this Sub-Lease shall be subject to review on the 13th April 1995 and at Five yearly intervals thereafter and that in every case in accordance with the whole conditions, provisions and stipulations imposed upon and undertaken by the Tenant in favour of the Landlord and contained in Schedule Part IV of the Lease."

The oddity that the first review date (13 April 1995) was the same as the date of entry, rather than a specified anniversary thereof, is perhaps explained by the fact that the initial rent of 55,000 had been agreed upon some time before the date of entry.

The Lease

[4]    
The lease between Meritclass and Mathiesons was entered into on 1 and 14 August 1991 and, as mentioned above, was registered on 22 June 1993. An extract of it is No. 6/1 of process. The date of entry was 13 April 1990, and the duration is for ninety-nine years, with an option to the tenant to extend it for a further twenty six years. In terms of Clause 4.1(a) the tenant was obliged to pay rent until the first review date at the rate of 10,001 per annum. By Clause 4.1(b) it is provided that "for each subsequent period of five years" the rent should be "fixed in accordance with or in pursuance of the provisions of Part IV of the Schedule". The expression "Review Date" is defined in Clause 1.2.27 as meaning the fifth anniversary of the Date of Entry and the date of expiry of each period of five years thereafter.

[5]    
Part IV of the Schedule to the lease contains inter alia the following provision:

 

"1.

Date of Review

The rent shall be reviewed and revised at each Review Date so as to equal to (sic) Twenty three and fifteen one hundred points of a cent per centum (23.15%) of the rent at which the Premises ... might then be expected to be let as a whole with vacant possession in the open market

   

by a willing landlord to a willing tenant without payment of grassum or premium for a period equal to the unexpired period of the Duration or fifteen years, whichever is the greater".

The paragraph continues with a statement of the hypotheses on which the valuation is to proceed and certain factors which are to be disregarded. Paragraph 2 contains machinery for determination of the open market rental value by a surveyor if the parties are unable to agree.

[6]    
Paragraph 3 of Part IV of the Schedule is in the following terms:

 

"3.

Upwards only

Notwithstanding any determination by such Surveyor the rent payable by the Tenant from each Review Date shall not be less than the rent payable immediately prior to that Review Date."

Background circumstances and the evolution of the bargain

[7]    
The provision in Part IV of the Schedule to the lease which provides that the reviewed rent thereunder is to be 23.15% of the open market rental value is clearly an unusual one. In approaching the construction of the sub-lease in order to see whether the reviewed rent under the sub-lease is to be discounted in the same way, it may be important to understand the circumstances in which and reason for which the discount provision entered the lease. These matters were explained in evidence by George Stevenson, the managing director of Mathiesons. Mathiesons carried on business as bakers and restaurateurs in Falkirk. At the time when the development of the Howgate Shopping Centre was first projected, Mathiesons were approached by Falkirk District Council and Central Regional Council (hereinafter together referred to


as "the Councils") who were working with the developer to procure the development of the shopping centre, which was to be constructed behind High Street, Falkirk. Mathiesons owned premises part of which extended over part of the area of ground required for the development of the shopping centre. The developer thus required to acquire a portion of Mathieson's land in order to assemble the site for the development. A bargain was entered into between Mathiesons and the Councils in terms of which Mathiesons were to sell the land required to complete the development site, and in return, in addition to a cash price of 1000, Mathiesons were to be granted a lease of a unit (in the event Unit 22A) in the centre, once developed, extending to 2200 square feet, at a rent of 10,001 per annum.

[8]    
By the time the lease was finalised (in 1991) the rental value of Unit 22A was 43,200 per annum. That value was a matter of agreement between the landlords, Meritclass, and Mathiesons. As I have already noted, however, under the bargain which Mathiesons had made with the Councils the rent which they were to pay for Unit 22A was only 10,001. The difference was, in effect, part of the price which the developers had agreed to pay to Mathieson's for the land which they had surrendered in order to permit assembly of the development site. In order that the benefit of that discounted rent would not be eroded as soon as the rent was reviewed, the rent review provision in paragraph 1 of Part IV of the Schedule provided that the reviewed rent would continue to reflect a discount to 23.15% of the open market rental value of the unit.

[9]    
It was originally Mathieson's intention to trade from Unit 22A, operating a restaurant in it. There was, however, a change in the identity of the developer, which caused some delay in the development. Ultimately it emerged that the centre was to have an area specifically devoted to catering outlets. Unit 22A was remote from the catering area. Mathiesons decided to tender for, and succeeded in securing, a larger space in the catering area. That was achieved in early 1989. The centre opened in 1990. By that stage Mathiesons no longer intended to operate Unit 22A as a restaurant. They considered using it as a baker's shop, but decided against doing so, since they had such a shop nearby in High Street. They therefore decided to seek to sub-let Unit 22A.

[10]    
At that time, according to Mr Stevenson, the property market was in decline. The units in the centre were slow to fill up. Conditions were therefore not favourable for subletting Unit 22A. Time passed without a sub-tenant being found. An offer to take a sub-lease of the unit was eventually made by a soft furnishings company, but that proposal did not attract the landlords' consent. An approach was made by Wimpy International Ltd ("Wimpy"), with a view to the use of the unit as a fast food outlet. Such use was favoured by the landlords. Negotiations took place, in which Mathiesons were represented by Mr Henderson of Ryden. The other party to the negotiations came to be the defenders, who were a franchisee of Wimpy. Informal agreement was reached in October 1994.

[11]    
The defenders' surveyor, Mr Crawford of DTZ Debenham Thorpe, conveyed to Mr Henderson the agreement of Mr Fitzsimmons, the principal of the defenders, to the terms which had been negotiated. He did so by letter dated 6 October 1994 (No. 6/13 of process). These terms included the following:

 

"1.

A new 25 year sub lease is granted, running co-terminous (sic) with the head lease, on a full repairing and insuring basis.

 

2.

Initial rental to be 55,000 per annum exclusive.

 

3.

A six month rent free period will be granted from the date upon which missives are concluded or indeed the building warrant is obtained, whichever is the later.

 

4.

A capital contribution of 125,000 exclusive of VAT is paid to Eddie Fitzsimmons upon date of entry."

Further provisions related to the bargain being conditional on planning permission, and to a guarantee by Wimpy. In a letter of the same date to Mr Fitzsimmons (No. 6/14 of process), Mr Crawford repeated the points made in paragraphs 2, 3 and 4 of his letter to Mr Henderson, as well as referring to the points about planning permission and a guarantee, although he did not mention the duration of the lease. By letter dated 10 October 1994 (No. 6/15 of process) Mr Henderson replied to Mr Crawford confirming Mathiesons' willingness to proceed with the sub-lease. In doing so he elaborated on certain of the points made by Mr Crawford. He stated inter alia:

 

"1.

The sub-lease to Mr Fitzsimmons will run until 12 April 2020. The lease will contain provision for rent reviews on 13 April 1995, to coincide with Mathiesons lease, and at five yearly intervals thereafter. In the unlikely [event] that the rental value of the unit is assessed at higher than 55,000 per annum next April, Mathiesons will retain the right to review the rent on the sub-lease at that time."

Mr Henderson went on to confirm the guarantee arrangement, and the initial rent of 55,000 per annum. He set out in more detail how the rent-free period would operate, and the instalments in which the capital contribution would be made.

[12]    
Mr Stevenson said that it was not Mathieson's intention to pass on the benefit of the discounted reviewed rent of 23.15% of the open market rent to the defenders. The matter was not mentioned in the negotiations with Wimpy/the defenders. Mathiesons would not have been willing to enter into a sub-lease on such terms. "Why", Mr Stevenson asked rhetorically, "would I give away something of such


value?" If it had been contemplated, it would have been the subject of express discussion. It was inconceivable that, if there had been any such agreement, it would have gone unmentioned in the correspondence settling the heads of terms. Mr Stevenson had had no direct discussion with Mr Fitzsimmons. The only discussions he had were with Mr Henderson, and were accurately reflected in the correspondence mentioned in paragraph [11] above.

[13]    
In the course of cross-examination Mr Stevenson made the point that the lease prohibits Mathiesons from sub-letting the unit except at "a rent which ... is a reasonably current full market rent" (Clause 5.2.3.1). Meritclass's letter of consent to the sub-lease (No. 6/9 of process) refers to a rent of 55,000 per annum, and makes no reference to the possibility of the reviewed rent having the benefit of the same discount as the rent paid by Mathiesons under the lease.

[14]    
A number of other points were put to Mr Stevenson in cross-examination. He accepted that under Clause 5.1.1 of the lease Mathiesons were under an obligation not to leave the unit vacant, and under Clause 5.1.3 were obliged to keep the premises open and trading. He further accepted that those obligations were fenced with an irritancy clause (Clause 11). He did not accept, however, that on that account Mathiesons were under pressure to sub-let at all costs. Although the possibility of irritancy was mentioned by the landlords in the background to their acceptance of Wimpy (or a Wimpy franchisee) as sub-tenant, the fact was that if necessary Mathiesons could have moved from their High Street premises into Unit 22A if the landlords had pressed the irritancy point. Mr Stevenson was also cross-examined about Mathiesons' financial state at the material time, but he did not accept that on that account either they were desperate to sub-let at all costs.

[15]    
Mr Stevenson was also asked in cross-examination about the attempt made in 1998 to secure the surrender of the defenders' sub-lease for 125,000 (see No. 7/4 of process). He explained that the new landlords, Capital and Regional Property Management Ltd, were keen to bring new life into the central mall area. They felt that it would be beneficial to bring the main catering operation, which had previously been on a lower level of the centre, up to mall level under Mathiesons' control. They thought that they could use Unit 22A for that purpose, and therefore instigated the approach to the defenders. The landlords would have funded the surrender. In the event, when the defenders declined to surrender the sub-lease, another unit was deployed for the purpose. Mr Stevenson rejected the suggestion that it was strange, if the defenders were to continue to pay a full market rent, that they should be offered more to surrender their sub-lease. He expressed the view that it was not strange at all in the wider context of the new landlords' plans for the centre.

[16]    
When asked about the Assignation (No. 6/3 of process) dated August 2001 (but with entry at 30 April 1999) by which Mathiesons sold their interest in the lease to the pursuers, Mr Stevenson said that the price paid for the assignation (500,000) was based on valuations which assumed that the defenders would continue to pay a full market rent for the duration of their sub-lease. Competing valuations by Mr Henderson for Mathiesons (No. 6/16 of process) and by the pursuers' surveyor were respectively a little above and a little below 500,000, and agreement was reached on that figure. When asked if Mathiesons might have a liability to the pursuers if it were found that the defenders were entitled under the sub-lease to the benefit of the discount on reviewed rent, Mr Stevenson took the implication of the question to be that he had been party to defrauding the pursuers of part of the price they paid for the assignation. He expressed himself as aghast at the inference which he drew from the defenders' pleadings (the passage in Answer 7 - "The basic form of Sub-Lease ... no substantial interest in the Property for the remaining term of the Sub-Lease") that it was suggested that he had intentionally passed on the benefit of the discount to the defenders, then sold the lease at full value to the pursuers.

[17]    
Mr Henderson confirmed Mr Stevenson's evidence about the origin of the 23.15% discount provided for in the rent review provision in the lease. He regarded it as a very unusual provision, unique in his experience. It was not a normal way of paying for land required for the purpose of assembling a development site. When asked if the discount was personal to Mathiesons, he pointed out that the benefit of it would have passed to any assignee of theirs. He was instructed in 1991 to act for Mathiesons in sub-letting Unit 22A. He confirmed that the market was not then favourable. He confirmed the other offer in 1994 which came to nothing because the landlords did not consent. He explained that that was because the landlords were in negotiations with a competing company to take a lease of another unit. Although Mathieson's were keen to sub-let Unit 22A, their outlays in maintaining the lease (rent of 10,001, empty rates and services charges) were nominal when viewed in the context of the capital value of the lease in 1994, which he assessed at 426,000. He had not had any discussions concerning Mathiesons' general financial position. He was aware of the terms of the lease and of the fact that Mathiesons could be regarded as having incurred an irritancy, but said that "none of that was happening". Mr Henderson spoke of his negotiations on Mathiesons' behalf with Mr Crawford on the defenders' behalf. Agreement was reached reasonably quickly. The first issue was rent. 55,000 per annum was agreed as the open market rent, on the basis of comparison with the rents being obtained elsewhere in the centre. It was not a notional figure. Mr Crawford's firm, DTZ, acted for the landlords in letting units in the centre, and he was therefore well placed to know the market value of the units. It was necessary to acknowledge in the negotiations that Unit 22A was a shell unit that required to be fitted out, and that the landlords, in the units which they were letting, were offering inducements to attract tenants. Tenants taking Unit 15 were offered a nine month rent-free period, plus a reverse premium of 100,000. It was to compete with that that the terms agreed with the defenders allowed a rent-free period of six months and a capital payment of 125,000. It was no part of the bargain that the defenders were to get the benefit of the discount of the reviewed rent to 23.15% of open market value. Had that been part of the bargain, it would undoubtedly have been expressly mentioned in the heads of terms. However, it made no commercial sense, having offered the generous incentives that were offered, to pass on in addition the benefit of the discounted reviewed rent, thus largely giving away the capital value of Mathiesons' leasehold interest in the unit. The understanding reached, and reflected in paragraph 1 of his letter of 10 October 1994 to Mr Crawford, was that the rent would be reviewed to open market rent on the same dates as the rent payable by Mathiesons to the landlords was reviewed. Mr Crawford and his clients could have had no reason to think otherwise.

[18]    
Mr Crawford confirmed that his firm, DTZ, had acted for successive landlords in letting units in the centre. Through Wimpy he was put in touch with the defenders, who asked him to act for them in connection with their taking a sub-lease of Unit 22A. He obtained specific permission from the landlords to act for the defenders in that connection. Terms were agreed between him and Mr Henderson. They were each seeking to get the best bargain they could for their respective clients. 55,000 was agreed as the open market rent of the unit. The inducements that were offered and accepted were consistent with what were offered elsewhere at the time, but were at the high end of the expected range. When Mr Henderson mentioned rent review in paragraph 1 of his letter of 10 October 1994, he (Mr Crawford) understood it to be a reference to review to the open market rent at the review date. Although, as a result of his previous involvement on behalf of the landlords, he was aware in general terms of the provision in Mathiesons' lease discounting the reviewed rent (the like of which he had not seen in any other lease), he had no expectation of getting the same discount for the defenders. Mathiesons, and Mr Henderson on their behalf, would not have accepted that. If such a discount for the defenders had been agreed, it would have been reflected in the written heads of terms.

[19]    
Following the exchange of correspondence between Mr Crawford and Mr Henderson in October 1994, formal missives were entered into. The formal offer to let Unit 22A to the defenders was made on Mathiesons' behalf by their solicitors, A & JC Allan & Co, on 3 March 1995 (No. 6/4 of process). Clause 1 was in the following terms:

"The sub lease to your clients will endure until 12 April 2020. The sub lease will contain provision for rent reviews on 13 April 1995 to coincide with our clients lease and at five yearly intervals thereafter. In the unlikely event that the rental value of the unit is assessed at higher than 55,000 per annum in April 1995 our clients will retain the right to review the rent and the sub lease at that time."

The offer reflected the other points set out in the exchange of correspondence between Mr Crawford and Mr Henderson. Clause 14 referred to an enclosed draft sub-lease, and provided that the exact terms would be agreed prior to the conclusion of missives. The defenders' solicitors, David Johnson & Co, responded by letter of 7 March (No. 6/5 of process). Their qualified acceptance proposed no alteration to Clause 1 of the offer. With regard to Clause 14, their counter-proposal was that the draft lease would be adjusted "in normal commercial terms" prior to the date of entry. The missives were concluded by two further letters of 7 March, which added nothing on the point in issue.

[20]    
Mr Rattray, the partner in A & JC Allan & Co who dealt with the matter on Mathiesons' behalf, said that he was first consulted in October 1994, was advised of the negotiations between Mr Crawford and Mr Henderson, and was given copies of the letters which had passed between them on 6 and 10 October. The matter was 'put on hold' for a time, but at the end of December he was instructed to proceed. In drafting the missives, he understood that 55,000 was the open market rent, and that the contemplated rent review was to be to the open market rent as at the review dates. Nothing was said to him to indicate otherwise on either point. He suggested that the rent-free period and the capital contribution be regulated by back letter, and a back letter dealing with these matters was executed by Mathiesons, in accordance with a draft prepared by the defenders' solicitors and revised by him, on 3 April 1995 (No. 6/8 of process). If the agreement had been that the defenders were to get the benefit of the discounted reviewed rent provided for in the lease, Mr Rattray said that he would have expected specific instructions on that point, but he received none. The matter would also have been included in the back letter.

[21]    
The draft lease referred to in the missives, as revised by the parties' solicitors (No. 7/6 of process) contained Clause SECOND in inter alia the following terms:

"Notwithstanding anything to the contrary contained in the Sub-Lease, it is specified for the avoidance of doubt that the rent payable in terms of this Sub-Lease shall be subject to review on 13th April 1995 and at five yearly intervals thereafter and that in every case in accordance with the whole conditions, provisions and stipulations imposed upon and undertaken by the Tenant in favour of the Landlord and contained in Schedule Part IV of the Lease."

Mr Rattray explained that that clause was based on a style which he selected. He inserted the words printed above in bold in blanks in the style when he was first preparing the draft. He added the words in bold italics by later revisal. No revisals to that part of the clause were proposed by the defenders' solicitors. Mr Rattray's evidence was that in writing into Clause SECOND of the sub-lease the cross-reference to Part IV of the Schedule of the lease, his intention was to incorporate the provisions of the lease to the effect of reflecting the heads of terms. He was trying to provide for rent review to open market value. He acknowledged that the wording could and should have been "tightened up".

[22]    
Two solicitors in succession acted for the defenders in concluding missives and settling the terms of the sub-lease. Initially, the defenders were represented by Mr Jurgensen of David Johnson & Co, but when he left the firm at the end of February or beginning of March 1995, Mr Johnson took over. For reasons related to his health, the precise nature of which was not explored in evidence, Mr Jurgensen's recollection of events was very poor. It is evident from the reference which it bears that Mr Jurgensen may have drafted the qualified acceptance dated 7 March 1995, but he said that the signature on the letter was not his, and the letter of the same date concluding the bargain bears Mr Johnson's reference. It appears, however, that it was Mr Jurgensen who revised the draft sub-lease. He had, however, no recollection of the process of revisal. He did not recall any specific discussions with Mr Fitzsimmons, in particular about the rent review provision. He did not recall ever seeing the lease, or its rent review provisions. Although he said that he would have told Mr Johnson about the transaction when he was leaving, he did not recall his discussions with Mr Johnson. Mr Johnson's recollection was also poor. A relevant file had been lost, and he had thus been unable to refresh his memory. He recalled a discussion with Mr Jurgensen about one of the clauses in the sub-lease, but was unable to be more specific. He recalled, and reiterated several times, that his clients were very happy with the deal that had been done. He had an impression that "Mathiesons were dumping their deal onto us". The clients had been pleased to get the sub-lease without themselves bearing the cost of fitting out the unit, and with "long term low rent". He said that it was not his understanding that the rent review was to be on an open market basis, but he was at considerable pains to avoid going further on that point. He had no recollection of having himself advised the defenders about the terms of the rent review provision; he thought that Mr Jurgensen would have done that. He could not remember speaking to Mr Fitzsimmons about the discount contained in the rent review clause in the lease. He acknowledged that there was nothing in the heads of terms or the missives to the effect that it was agreed that the defenders would pay less than the open market rent. He had a recollection that Mr Jurgensen drew one particular aspect of the sub-lease to his attention and asked "Can this be right", but he could not say that it related to the 23.15% discount.

[23]    
Mr Fitzsimmons explained in evidence that he had been a director of the defenders from the company's inception in 1994. The company held a Wimpy franchise for a fast food restaurant in the Howgate Centre. He was introduced by Mr Cameron of Wimpy to Mr Crawford. He met Mr Crawford only once. He would have sent Mr Crawford's letter to him dated 6 October 1994 (No. 6/14 of process) to his solicitors (Mr Jurgensen) to await his instructions. He was content with the terms set out in that letter. He and Mr Jurgensen were responsible for settling the terms of the sub-lease; Mr Crawford was not involved in that. He was aware of the terms of the draft lease (No. 7/6 of process) at the time it was being revised. Mr Cameron was aware, before the defenders became involved, of the sort of incentives available. There were no negotiations about these in which the defenders were involved. Mathiesons were very keen to sub-let Unit 22A. Everything the defenders asked for they obtained. Mr Crawford, he said, told him that the landlords wanted to see a rent of 55,000 because it would help them in letting other units. Mr Fitzsimmons said that he understood that the incentives were dealt with by way of backletter because otherwise they might set a precedent. So far as rent review was concerned, he read the documents and thought that the result was very very good. Mr Jurgensen pointed out the link to the head lease and "clarified it" for him. Mr Fitzsimmons understood that the reviewed rent would be only a percentage of open market rent. He gave no thought to Mathiesons' financial position. He had had no previous dealings with them, and "gratefully accepted what was given" to him. In cross-examination, Mr Fitzsimmons reiterated that he was "comfortable" with the terms negotiated by Mr Crawford. He could not remember any mention of 55,000 being the open market rent, but he could not dispute what Mr Crawford said about his understanding being that the rent review was to be on an open market basis. At that stage he was unaware of the terms of the Meritclass lease. He later accepted the terms of the sub-lease, and thought no more about it. He could offer no comment as to why Mathiesons might transfer to him the benefit of the discount. He acknowledged that there was no commercial sense in their doing so. Mr Fitzsimmons also accepted that when discussing the possible surrender of the lease he did not suggest that the reviewed rent would benefit from the discount.

The construction issue

[24]    
Mr Dewar, for the pursuers, without examining the authorities on which it was based, adopted a passage from my opinion in Glasgow City Council v Caststop Ltd 2002 SLT 47 (affd. 2003 SLT 526) at paragraphs 33 and 34 as summarising the relevant principles which fall to be applied in construing a contract. The view which I expressed was:

"On the one hand, the approach adopted by the Lord President (Rodger) in Bank of Scotland v Dunedin Property Investment Co Ltd [1998 SC 657] involved first inquiring as to the ordinary meaning of the words used, then, having reached a conclusion on that matter, considering the surrounding circumstances in which the contract was entered into to see whether they affected the result of the original inquiry. On the other hand, the approach advocated by Lord Hoffmann in Investors Compensation Scheme Ltd [v West Bromwich Building Society [1998] 1 WLR 896] runs those two stages together, by regarding the task of construction as the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge reasonably available to the parties in the situation in which they were at the time of the contract. Whichever of these approaches is adopted, it seems to me that the result should be the same. The language of the contract is of paramount importance. ... The importance of the background circumstances is, however, it seems to me, a matter of degree. ... So long, however, as proper weight is given both to the language used by the parties and to the circumstances known to the parties at the time when that language was used, it does not seem to me that much turns on which approach is adopted in taking those two considerations into account."

[25]     Mr Sandison, for the defenders, cited a number of authorities. He adopted, as a clear statement of what the proper scope was of evidence of surrounding circumstances, the following passage from the opinion of Lord Kirkwood in Bank of Scotland v Dunedin Property Investment Co Ltd at 670H:

"The question then arises as to the nature of the surrounding circumstances which the court is entitled to take into account. It is clear, on the authorities, that evidence of prior negotiations and evidence of the subjective intention of either of the parties will not be admissible. However, the court can have regard to 'facts which both parties would have had in mind and known that the other had in mind at the time when the contract was made'. ... The limits to be placed on the evidence of surrounding circumstances which will be admissible in any particular case may be difficult to define".

Mr Sandison stressed the reference to "both parties". He also cited Prenn v Simmonds [1971] 1 WLR 1381, per Lord Wilberforce at 1384G-1385D and Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 per Lord Wilberforce at 995H, 996E-F and 997C-D. In the former case, Lord Wilbeforce said (at 1385B):

"... if it can be shown that one interpretation completely frustrates [the commercial, or business] object, to the extent of rendering the contract futile, that may be a strong argument for an alternative interpretation, if that can reasonably be found. But beyond that it may be difficult to go".

In the second passage cited from the latter case Lord Wilberforce said (at 996D):

"It is often said that, in order to be admissible in aid of construction, these extrinsic facts must be within the knowledge of both parties to the contract, but this requirement should not be stated in too narrow a sense. When one speaks of the intention of the parties to the contract, one is speaking objectively - the parties cannot themselves give direct evidence of what their intention was - and what must be ascertained is what is to be taken as the intention which reasonable people would have had if placed in the situation of the parties. Similarly when one is speaking of aim, or object, or commercial purpose, one is speaking objectively of what reasonable persons would have in mind in the situation of the parties."

Reference was also made to Charter Reinsurance Co Ltd v Fagan [1997] AC 313, and in particular (1) to a passage at 325F where Mance J discussed the role that reasonableness or "commerciality" might have in construction, (2) to a passage at 355A-C where Staughton LJ discussed the relevance of the consideration that the literal meaning of the words yielded an unreasonable or absurd result, and (3) to a passage at 384B-C where Lord Mustill reasserted the primacy of the natural meaning of the words used. Mr Sandison also cited the principles enunciated by Lord Hoffmann in Investors Compensation Scheme Ltd at 912H-913E. He also drew attention to the observations by Lord Bingham of Cornhill in Bank of Credit and Commerce International SA v Ali [2002] AC 251 at 259F (paragraph 8) where reference was made to "the relevant facts surrounding the transaction so far as known to the parties". In the same case at 269D-F (paragraph 39) Lord Hoffmann emphasised that in the second principle which he formulated in Investors Compensation Scheme Ltd he did not mean to suggest that the admissible background went beyond what a reasonable man would have regarded as relevant. At 272E (paragraph 49) Lord Hoffmann added:

"It would be contrary to basic principles of construction for the meaning of a document to be affected by facts which were known to one party but not reasonably available to the other".

[26]     In submitting that Clause SECOND of the sub-lease should be construed as providing that the reviewed rent should be the open market rent at the review date, and not 23.15% of that rent, Mr Dewar relied both on the language of the relevant provisions and also on background circumstances. So far as the language of the clause was concerned, Mr Dewar placed reliance on the phrase "in accordance with the whole conditions, provisions and stipulations imposed upon and undertaken by the Tenant in favour of the Landlord". The effect, he suggested was not to incorporate into the sub-lease the whole of Part IV of the Schedule to the lease, but only to incorporate such parts as imposed a burden on the tenant in favour of the landlord. Thus the rent review provisions in Part IV of the Schedule, so far as they subjected the tenant to procedures which were designed periodically to increase the burden of tenant's obligation to pay rent, and the "upward only" provision (paragraph 3), were duly incorporated. The benefit of the discount of the reviewed rent to 23.15% of open market rent could not, however, be regarded as a burden on the tenant. It could not be a "condition, provision or stipulation imposed upon and undertaken by the Tenant in favour of the Landlord". The incorporation of the discount into the sub-lease would have required different language.

[27]    
Mr Dewar further submitted that the relevant background circumstances strongly supported the construction for which he contended. The purpose of the sub-lease, he submitted, was to provide the defenders with the use of the premises on satisfactory terms, while allowing Mathiesons to realise the profit rental (i.e. the difference between the discounted rent which they had to pay and the full open market rent). He relied, too, on the origin of the discount in the history of the site; Mathiesons had owned land which was essential for the development of the shopping centre, and the lease of Unit 22A at the heavily discounted rent was part of the price paid for making available the land needed for the development. That reason for the discount simply did not relate to the defenders at all. The value of the lease with the discounted rent was very considerable - about ₤500,000. It was not a mere incidental benefit which they might pass on to their sub-tenant for nothing. The defenders had identified no explanation why Mathiesons might have been willing to pass on the benefit of the discount. The state of the retail property market at the material time explained the fact that they were slow to find a subtenant, and explained the incentives which they offered and which were expressly agreed to in the backletter, namely the rent-free period and the capital contribution to fitting-out costs. But there was evidence that these incentives expressly agreed were at the high end of the expected range (Mr Crawford, see paragraph [18] above). There was no basis in the state of the market for the inference that the discount in reviewed rent was passed on to the defenders as a further incentive to them to take the sub-lease. The suggestion that the initial rent of ₤55,000 was not the true market value was rejected by both surveyors. There was nothing that the defenders could point to as recording an express agreement that the discount should be passed on. It was inconceivable that such a substantial benefit would not have been the subject of clear express provision, not only in the sub-lease, but in the missives and in the original heads of terms. The undisputed incentives - the rent-free period and the capital contribution - were the subject of such express provision. When the possible surrender of the sub-lease came to be discussed, it was extraordinary, if Mr Fitzsimmons believed that the defenders had the benefit of the discounted reviewed rent, that no mention of that consideration was made in the course of the negotiation. All in all it made no commercial sense for Mathiesons in effect to give away to the defenders the benefit of the discounted rent on top of the other incentives to which they did agree.

[28]    
Mr Sandison, in introducing his submissions on the construction issue, made the salutary point that, because the pursuers had an alternative conclusion for rectification, much material had been admitted in evidence which was not properly relevant to the construction of the sub-lease. Evidence of the parties' subjective intentions was irrelevant to the construction issue. Equally, direct evidence of what was said in the course of negotiations was not relevant to that issue.

[29]    
Mr Sandison submitted that the ordinary meaning of the words of Clause SECOND of the sub-lease was that the review to which the rent payable under the sub-lease would be subject on 13 April 1995 and at five-yearly intervals thereafter would in all respects be in accordance with the provisions of Part IV of the Schedule to the lease. That incorporated not merely the machinery for assessing open market value, with the hypotheses on which the assessment was to proceed and the matters which were to be disregarded, but also the discount. Part IV of the Schedule did not contain two separate provisions, namely (1) a conventional review to ascertain the open market rental to be paid from the review date, and (2) a separate provision conferring on the tenants an entitlement to a discount to 23.15% of the open market rental so ascertained. The reviewed rent was directly expressed as 23.15% of the open market rental value. A review to full open market rental value would not be a review "in accordance with" Part IV of the Schedule. The phrase "imposed upon and undertaken by the Tenant in favour of the Landlord" did not militate against that conclusion. The obligation to pay the reviewed rent was imposed upon and undertaken by the defenders in favour of their landlords. There was no obligation imposed on them to pay the full assessed open market rent. The discount was thus an integral part of the measure of the obligation, not a separate benefit conferred on the tenant, which could be regarded as not having been incorporated into the sub-lease because of the effect of the words "imposed upon and undertaken by". In any event, it would be wrong to strive too hard to base a fine distinction on the words "imposed upon and undertaken by" when it was clear from the evidence of Mr Rattray that these were words taken from a style which he had chosen to use.

[30]    
Turning to his submissions as to the relevant background circumstances, Mr Sandison submitted that the fact that subjectively Mathiesons did not intend to pass the benefit of the discount to the defenders was not a relevant factor. The aim of the transaction, viewed objectively, was merely to install the defenders as sub-tenants. Any more specific aim was subjective. The objective by-stander would know that the market was weak, that Unit 22A had been difficult to let, and that incentives would be required to attract a sub-tenant. He would know that the unit was empty and not fitted out. He might know that because of their failure to occupy the unit and use it in accordance with the lease, Mathiesons were vulnerable to irritancy. Mathiesons themselves were certainly aware of that. The objective by-stander would also know that the granting of a sub-lease at an initial rent of ₤55,000 per annum resulted in a significant boost to Mathiesons' revenue position. He might perhaps know that at the time Mathiesons were in revenue difficulty. He would appreciate that even on the defenders' construction of the rent review provision, the granting of the sub-lease did not involve in the long term the loss of the capital value of the lease. There was a revenue benefit to Mathiesons in the first five years of the sublease; they avoided the risk of complete loss of the capital value of the lease through irritancy; the long term capital value was not lost; the only drawback was temporary diminution of the capital value. The landlords of the centre were keen to get a fast food outlet into Unit 22A, and were encouraging Mathiesons in that regard. In all these circumstances, it could not be said that the defender's construction of the rent review clause was inconsistent with the commercial purpose of the transaction, applying the strict standard set by Lord Wilberforce in Prenn v Simmonds at 1385B. Moreover, the objective by-stander would know that, as Mr Fitzsimmons said in evidence, the type of business operated by the defenders found it difficult to pay a full market rent.

[31]    
Mr Sandison submitted that much of the material founded on by the pursuers as background circumstances was not truly of that character. Much of it depended on Mathiesons' subjective intention and motivation. The issue was not whether it was a good idea for Mathiesons to sub-let the unit on terms which passed to the defenders the benefit of the discount. The history of how Mathiesons came to have the lease of the unit with the benefit of the rental discount was irrelevant. In any event, it placed Mathiesons in a position in which they were able to pass on the benefit of the discount without losing anything. There was no evidence that the defenders were, or ought to have been, aware of the history of the discount. The fact that the evidence was that the initial rent of ₤55,000 was the open market rent at the date of the sublease was not a significant factor bearing on the interpretation of the rent review provision. It begged the question to say that there was no written or oral agreement to pass on the benefit of the discount. On the defenders' construction that was exactly what the sub-lease (and for that matter the missives by virtue of the incorporation of the draft sub-lease) did provide for. It was not correct that the defenders had not seen the lease. The proper inference from the evidence of Mr Fitzsimmons, Mr Johnson and Mr Jurgensen was that at least the lawyers among them had seen it. In all the circumstances, there was nothing in the relevant background circumstances of sufficient force to overcome the ordinary natural meaning of the words of the sub-lease.

[32]    
Mr Sandison recognised that, if his contention was correct that Clause SECOND of the sub-lease was to be construed as importing the whole of Part IV of the Schedule of the lease into the sub-lease, it brought with it paragraph 3 of Part IV, namely the "upwards only" provision. According to its terms, if it formed part of the sub-lease, its effect would be that the original sub-lease rent of ₤55,000 per annum would remain the exigible rent until a review date was reached at which the open market value had risen so far that 23.15% of it was more than ₤55,000. Realistically, if that were the correct construction of paragraph 3, the rent payable under the sub-lease would remain the same for the foreseeable future. In order to avoid that result, Mr Sandison made a brief submission the effect of which, as I understood it, was as follows. Paragraph 3 in its application to the sub-lease should be construed as intended merely to ensure that the defenders were never liable to pay less to Mathiesons than Mathiesons were liable to pay to their landlord. It should therefore be given effect not as preventing alteration to the rent payable under the sub-lease until 23.15% of the open market rent exceeded ₤55,000, but as ensuring that the rent under the sublease did not fall if 23.15% of the open market rent under the sublease turned out to be less than was payable by Mathiesons under the lease.

[33]    
It is, in my view, convenient to recognise at the outset that on any reasonable construction of Clause SECOND there was incorporated into the sub-lease paragraph 3 of Part IV of the Schedule to the lease. The rent review provisions in the sub-lease were therefore subject to the "upwards only" provision contained in that paragraph. I am unable to accept Mr Sandison's submission as to the meaning to be given to paragraph 3 in the context of the sub-lease. The effect for which he contended involves in my view an extremely strained interpretation of paragraph 3. I can see no good reason to regard paragraph 3, in the context of the sub-lease, as having any different effect from that which it has in the lease, namely to ensure that if the reviewed rent would be less than the prevailing rent, there is to be no change. I am therefore of opinion that the effect of paragraph 3 is that in the sub-lease, the rent will remain unchanged at 55,000 until the reviewed rent, assessed on a sound construction of Clause SECOND, exceeds that figure. The result is that, if the defenders are right in contending that the reviewed rent in terms of Clause SECOND is to be 23.15% of the open market rent, it is likely to be a very long time before any change in the rent results from the application of the review provisions. A change would only occur once the open market rent reached about four times its original amount. It seems to me that that militates against the likelihood that the parties intended the rent review provisions to operate in that way.

[34]    
Turning back to the language of Clause SECOND, it seems to me that prima facie the ordinary meaning of the clause is that the rent under the sub-lease is to be reviewed in the same way as the rent under the lease. The structure of paragraph 1 of Part IV of the Schedule to the lease does not involve two separate elements in the form of (a) a review of the open market rent, and (b) a discount of the reviewed rent to 23.15% thereof. Although the open market rent requires to be assessed before it is possible to tell what 23.15% thereof amounts to, the reviewed rent is directly identified as 23.15% of the open market rent. It follows that it is not in my view possible to distinguish, as Mr Dewar sought to do, between those parts of Part IV of the Schedule to the lease that constituted conditions etc. imposed upon and undertaken by the defenders, and those parts which involved the conferring of a benefit on them. The discount, if the defenders were to have the benefit of it, was simply part of the measure of the obligation imposed on or undertaken by them. I am reinforced in that conclusion by the consideration that the language of Part IV of the Schedule on which Mr Dewar relied was not selected specifically for the purpose of this contract, but formed part of a style form which Mr Rattray chose to adopt.

[35]    
In my view, however, although that is the way in which Clause SECOND would fall to be analysed if viewed in isolation from the background circumstances, the point is capable of yielding to indications to the contrary in the background circumstances. The analysis set out in the preceding paragraph concentrates on the form rather than the substance of the provisions in Part IV of the Schedule to the lease. If the background circumstances were to be held to point strongly to the discount as something personal to Mathiesons which the parties cannot have intended should be passed on to the defenders, it would in my view be possible to regard the cross-reference to Part IV of the Schedule as importing the whole of the mechanics of the rent review provision, the assumptions to be made and the matters to be disregarded, from the lease without also importing the discount. In my opinion it follows that the issue cannot in this case be resolved without considering the effect of the background circumstances on the interpretation of the language of Clause SECOND.

[36]    
In seeking to identify the background circumstances which may legitimately be taken into account in interpreting the rent review provisions of the sub-lease, I bear in mind that regard may be had only to circumstances knowledge of which was, or ought reasonably to have been, available to both parties. The point has been variously formulated in the authorities. In Bank of Scotland v Dunedin Property Investment Co Ltd, Lord Kirkwood said (at 670H):

"... the court can have regard to 'facts which both parties would have had in mind and known that the other had in mind at the time when the contract was made'."

In the first of the principles set out by Lord Hoffmann in Investors Compensation Scheme reference is made (at 912H) to "all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract". In BCCI v Ali Lord Bingham of Cornhill referred (at 259F) to "the relevant facts surrounding the transaction so far as known to the parties", and Lord Hoffmann pointed out (at 272E) that:

"It would be contrary to basic principles of construction for the meaning of a document to be affected by facts which were known to one party but not reasonably available to the other".

However, in Reardon Smith Line Ltd v Hansen-Tangen Lord Wilberforce said (at 996E):

"It is often said that, in order to be admissible in aid of construction, these extrinsic facts must be within the knowledge of both parties, but this requirement should not be stated in too narrow a sense."

The aspect of this matter which, in my view, presents a need for particular care is where the respective parties to a contract had differing degrees of knowledge about certain of the background circumstances.

[37]    
The relevance to the interpretation of the rent review provision in the sub-lease of the history of how the rent review provision in the lease came to include the discount to 23.15% of open market rent requires in my view to be particularly carefully assessed. That history - the process of site-assembly for the shopping centre development; the fact that Mathiesons owned land which was essential for that purpose; the terms on which they made that land available to the developers; the let of Unit 22A at a discounted rent as payment of part of the consideration for the surrendered land; the origin of the discount to 23.15% in the proportion which the rent agreed in the original bargain with the Councils (₤10,001) bore to the open market rental value of the unit at the time when the lease was finalised (₤43,200) - if it had been known or available to both parties would, in my view, have been a powerful indicator that the discount was known to be something intended to benefit Mathiesons alone, and therefore not something which the defenders could expect to have passed on to them. But that history was not known or available to the defenders. The details of the history are therefore not in my view part of the relevant background circumstances. On the other hand, there were related matters which were known to the defenders or available to them, and which therefore can properly be taken into account. In the first place, by the time the sub-lease was entered into the defenders were or ought to have been aware of the terms of the lease. They therefore were or ought to have been aware of the terms of paragraph 1 of Part IV of the Schedule. In other words they were or ought to have been aware that the rent under the lease fell to be reviewed at the five-yearly review dates, not to the open market rent (however defined in point of detail) - which would have been in accordance with virtually universal practice in commercial leases - but to 23.15% of open market value. They were or ought to have been aware that that discount was not explained in terms in the lease. They were or ought to have been aware that that provision was unique to the lease. None of the surveyors who gave evidence had ever seen the like of it before. It was quite exceptional. It therefore ought to have been plain to the defenders that, in the absence of some specific reason for Mathiesons wishing to confer on them the windfall benefit of paying (once the discount took effect) less than a quarter of the rent which the unit could attract on the open market, it was unlikely, almost inconceivable, that they intended to pass the benefit of the discount to them.

[38]    
Attention therefore focuses on whether, objectively, there was any good reason for passing the discount on to the defenders. The defenders sought to find such reason in Mathieson's "desperation" to let the unit, but the evidence does not in my view support the inference that Mathieson's were so keen to sub-let the unit that they were prepared to pass on the benefit of the discount to their sub-tenant. I accept that sub-letting the unit improved Mathieson's revenue position. I do not, however, consider that the evidence supports the conclusion that Mathieson's financial position was, at the time, so precarious that they had to sub-let the unit at all costs. Nor do I consider that Mathiesons were under irresistible pressure to sub-let because they had incurred an irritancy through not occupying and using the unit. I accept the assessment of that aspect of their position offered by Mr Stevenson and Mr Henderson. There was, in my view, no real threat that the irritancy, which no doubt had been incurred, would in fact be enforced. I accept that at the material time the market for retail premises such as the unit was weak. That is why (a) there was a delay in finding a sub-tenant and (b) the incentives which were agreed upon and reflected in the back letter were offered by Mathiesons. In my view, however, the evidence of Mr Henderson and Mr Crawford, which I accept, shows that the incentives reflected in the back letter were commensurate with what the market demanded at the time. Mr Henderson illustrated that point by reference to the incentives being offered by the landlords of the shopping centre in respect of Unit 15, and Mr Crawford said more generally that those incentives were consistent with what was offered elsewhere at the time, and indeed were at the high end of the expected range. In the result, I am of opinion that the evidence does not show that there was any objective, commercially sensible, reason for Mathiesons to wish, or to be willing, to pass on the benefit of the discount to the defenders, or for the defenders to expect them to do so.

[39]    
The position is complicated by the impact of the "upward only" clause. What was being passed on to the defenders, according to their construction of the sub-lease, was not immediate enjoyment of the discount. I have no hesitation in accepting the evidence of Mr Henderson and Mr Crawford that ₤55,000 was the full open market rental value as at the date of the sub-lease. There was thus no immediate enjoyment of the discount. The first review date was, somewhat unusually, the same as the date of entry, but because of the "upward only" clause, no reduction of the rent payable under the sublease would have been achieved if a review had been carried out then. Indeed, if the "upward only" clause falls to be construed as I have held it should, it will produce the odd result that the discount to 23.15% of open market rental value would, if the defenders are entitled to it, be unlikely to be achieved for many years, if ever. At the same time, again if the defenders are right that they are to benefit from the discount to 23.15% of open market rent, the rent review provisions as a whole are unlikely for many years to achieve any increase in the rent payable, because it will be a very long time before 23.15% of the open market rent exceeds ₤55,000. It might be said that the former of these factors reduces the impact of the considerations mentioned in paragraph [37] above, but on the other hand it might be regarded as a circumstance pointing to the objective improbability that the parties intended to give the sub-tenant the benefit of the discount while, at the same time, by virtue of the "upward only" clause procuring that the enjoyment of that benefit was virtually indefinitely postponed. Indeed, construing the effect of the "upward only" clause as I have done, and Clause SECOND as the defenders seek to do, might be regarded as a very complicated way of depriving the rent review provision as a whole of any practical effect virtually indefinitely. One other complication introduced by the "upward only" clause is that it makes it impossible to accept Mr Johnson's somewhat inelegantly expressed assessment, that Mathiesons were "dumping their deal" onto the defenders. Leaving aside the consideration that that expression seems inappropriate in a context in which the "deal", if the sub-lease is to be construed as the defenders contend, would operate to their benefit, the fact is that the sub-lease did not "dump" the terms of the lease on the defenders. The terms of the sub-lease were significantly different from those of the lease in that the initial rent was a full open market rent, not a heavily discounted one, and consequently, the "upwards only" clause has, if the discount is incorporated into the sub-lease, a different impact there from that which it has in the lease.

[40]    
Another consideration which, in my view, forms a relevant part of the surrounding circumstances is the total absence of reference to the discount prior to its appearance in Clause SECOND of the sub-lease (or, to be more precise, in the draft sub-lease which formed part of the missives). I am conscious that ordinarily it is not legitimate to look to the course of negotiations as an aid to construction of the concluded contract. But the rationale for that rule was explained thus by Lord Wilberforce in Prenn v Simmonds at 1384G:

"There were prolonged negotiations between solicitors, with exchanges of draft clauses, ultimately emerging in clause 2 of the agreement. The reason for not admitting evidence of these exchanges is not a technical one or even mainly one of convenience ... It is simply that such evidence is unhelpful. By the nature of things, where negotiations are difficult, the parties' positions, with each passing letter, are changing and until the final agreement, though converging, still divergent. It is only the final document which records a consensus."

But in the present case it is not a question of looking at the evolution of a particular clause the meaning of which requires to be determined. On the evidence, Clause SECOND appeared for the first time in the draft sub-lease. It was in the same form as it ultimately took in the sub-lease. It was the incorporation into the sub-lease of the rent review provisions in the lease. According to the defenders, that incorporation included the incorporation of a discount of the reviewed rent. One circumstance which can, in my opinion, be taken into account in judging objectively whether the parties intended to confer the benefit of that discount on the defenders is that that matter was not mentioned at all in the negotiations which underlay the missives. Moreover, although express provision was made by way of back letter for other benefits given to the defenders to induce them to take the sub-lease, no such mention is made of the discounted reviewed rent. The discount is, it seems to me, a matter which the objective observer would have expected to be expressly mentioned. The initial rent was mentioned in the heads of terms. Rent review was mentioned only to establish the dates at which review would take place. These circumstances, known to both parties, can in my view legitimately be taken into account in construing the sub-lease.

[41]    
One further minor point which is, in my view relevant is the fact that, as the defenders can be taken to have been aware, since they (or at least their solicitors) had had sight of the lease, Mathiesons were prohibited by Clause 5.2.3.1 of the lease from sub-letting at less than a full market rent.

[42]    
I do not consider that this is a case in which it is possible to gain assistance in construing the sub-lease from an attempt to identify its particular aim or commercial purpose. In my view Mr Sandison was right to characterise as a subjective view the formulation of the purpose of the sub-lease offered by Mr Dewar. The part of that formulation (see paragraph [27] above) which referred to allowing Mathiesons to realise the profit rental was, in my view, a reflection of Mathiesons' subjective aim, but not something of which the defenders were or ought to have been aware.

[43]    
In the result I have reached the conclusion that, construing the language of Clause SECOND in the light of those circumstances which I have held to form part of the relevant factual matrix, the proper objective conclusion is that the parties did not intend the cross reference to Part IV of the Schedule to the lease to incorporate into the provisions regulating the review of the rent payable under the sub-lease the discount of the reviewed rent to 23.15% of open market value. I am therefore of opinion that the pursuers are entitled to decree of declarator generally in terms of the first conclusion of the summons. In the interests of certainty, I consider that the declarator should (1) have the reference to "Schedule 4 of the Lease" corrected to read "Part IV of the Schedule to the Lease", and (2) have inserted into its terms after the words "Clause SECOND of the Sub-Lease shall" the qualification "(subject to the effect of paragraph 3 of the after-mentioned Part IV)"

Rectification

[44]    
In the light of the conclusion which I have reached on the construction issue, the pursuers' alternative claim for rectification does not require to be entertained. Lest the matter go further, however, it is appropriate that I should set out the view which I would have taken on that issue had it remained live.

[45]    
Section 8 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 provides inter alia as follows:

 

"(1)

... where the court is satisfied, on an application made to it, that-

   

(a)

a document intended to express or to give effect to an agreement fails to express accurately the common intention of the parties to the agreement at the date when it was made; ...

   

it may order the document to be rectified in any manner that it may specify in order to give effect to that intention."

[46]    
The rectification which the pursuers seek, in the event of the sub-lease being construed in accordance with the defenders' contentions, is the insertion into Clause SECOND, at the end of the passage quoted in paragraph [3] above, of the words:

"so as to be equivalent to the rent, identified in paragraph 1 of [Part IV of the Schedule to] the Lease, of which the rent payable by the Tenants under that Lease is expressed to be 23.15%".

[47]    
The pursuers' pleadings do not make it very clear what the circumstances are on which they rely in support of the claim for rectification. In article 9 of the condescendence, having set out the contention that on a proper construction of the sub-lease the reviewed rent was to be the open market rent, they aver:

"Esto that is not the case (which is denied), the Sub-Lease fails to express accurately the common intention of the parties to the Sub-Lease at the time that it was concluded. Reference is made to Article 8 hereof".

In article 8 reference is made to the missives and to the "intention of [Mathiesons] and the defenders from the period during which missives were entered into to conclusion of the Sub Lease" which, it is said, "was that the rent payable in terms of the Sub Lease should be the full market rent". The remainder of the averments in article 8 appear to deal with the construction issue rather than the rectification issue.

[48]    
In relation to the proper approach to rectification under section 8 Mr Dewar referred to two cases, namely Shaw v William Grant (Minerals) Ltd 1989 SLT 121, and Huewind Ltd v Clydesdale Bank plc 1995 SLT 392. Mr Sandison added reference to Rehman v Ahmad 1993 SLT 741. In Shaw Lord McCluskey identified (at 121G-H) a number of matters of which the court requires to be satisfied before it can order rectification. They include:

"(1) that there is a document to be rectified; (2) that that document was intended to express or give effect to an already existing agreement arrived at between two (or more) parties; (3) that there was, when the document was executed, such a pre-existing agreement ...; (4) that that agreement itself embodied and was an expression of one or more intentions common to (that is to say, shared by) the parties ..."

In Rehman Lord Penrose (at 751E) identified the elements that require to be proved as follows:

"There had to be a document. The document must have been intended to express or give effect to an agreement. There had to have been an agreement reflecting the common intention of the parties at the date it was made. There had to be proof that the document failed to express that intention."

In Huewind Lord Kirkwood said (at 403):

"in my opinion it is sufficient for the pursuers to narrate the terms of the alleged prior agreement and the fact that the document failed to express accurately the common intention of the parties to the agreement."

[49]    
In the present case the document to be rectified is the sub-lease. For the case of rectification to succeed there must be identified an antecedent agreement which the sub-lease was intended to express or give effect to. The pursuers must then prove that the sub-lease failed to express the common intention of the parties embodied in the antecedent agreement.

[50]    
Mr Sandison submitted that, on a proper view of the pursuers' pleadings, the antecedent agreement was to be found in the missives, not in the exchange of correspondence between Mr Crawford and Mr Henderson (Nos. 6/13 and 6/15 of process). He reminded me that at a By Order hearing on 25 March 2002 in connection with amendment of the pursuers' pleadings, Mr Dewar had confirmed that the rectification claim proceeded on the basis that the sub-lease did not properly implement the missives, and that the pursuers were not seeking to go behind the missives to any agreement underlying them. My own notes of that hearing confirm that Mr Dewar did indeed give that indication of the pursuers' position. In any event, it seems to me to be obvious that the sub-lease was intended to give effect to the agreement contained in the missives. The missives must therefore be the antecedent agreement, and any claim for rectification of the sub-lease must proceed on the assertion that it failed to express the common intention of the parties to the missives. If the intention had been to go one stage further back, and to rely on a common intention of the parties to the informal agreement which lay behind the missives, it would, in my opinion have been necessary for the pursuer to seek (a) rectification of the missives, and then (b) consequential rectification of the sub-lease. As the pursuers' pleadings stand, and in light of the explanation of their position offered by Mr Dewar on 25 March 2002, the case for rectification which is before the court proceeds solely on the allegation that the sub-lease fails to express the common intention of the parties to the missives.

[51]    
In these circumstances, the rectification case requires examination of the missives to identify the common intention of the parties at the time when they were concluded, and exploration of whether it can be said that the sub-lease failed to express that common intention. The field of examination is, of course, confined to the common intention as to whether or not the sub-lease should incorporate the part of the rent review provisions in the lease which provided that the reviewed rent would be 23.15% of the open market rent, since that is the only aspect of the sub-lease which the pursuers seek to have rectified.

[52]    
In my view there are two elements in the missives that support the conclusion that the sub-lease, if (contrary to my primary decision) it falls to be construed as providing that (subject to the "upward only" provision) the defenders were to have the benefit, on review of the rent, of the discount to 23.15% of open market value, failed to give effect to the common intention of the parties. The first of these elements is to be found, in my opinion, in condition 1 of the offer of 3 March 1995 (No. 6/4 of process). That condition provided for quinquennial rent review, and added:

"In the unlikely event that the rental value of the unit is assessed at higher than 55,000 per annum in April 1995 our clients will retain the right to review the rent and the sub lease at that time."

That condition was agreed to by the defenders. It points, in my view, unequivocally to an understanding or common intention that the reviewed rent should reflect full open market value. There was no realistic prospect that between the date when the initial rent of 55,000 was settled and the April 1995 review date the market value would have risen so far above 55,000 that the ability to obtain merely 23.15% of it would have made it worthwhile for Mathiesons to reserve the right to insist on a review as at April 1995.

[53]    
The second element supporting rectification is, in my view, to be found in condition 14 of the qualified acceptance of 7 March 1995 (No. 6/5 of process). In condition 14 of their offer Mathiesons had stipulated that the exact terms of the draft sub-lease would be agreed prior to the conclusion of missives. In condition 14 of their qualified acceptance the defenders stipulated:

"Condition 14 of your said offer is delete. The Sub-Lease will be in terms of the draft Sub-Lease already exhibited and will be adjusted in normal commercial terms between the parties prior to the date of entry."

The cross-reference to the rent review provisions of the lease entered the contract between Mathiesons and the defenders only because it was mentioned in Clause SECOND of the sub-lease. It was paragraph 1 of Part IV of the Schedule to the lease, incorporated into the sub-lease by Clause SECOND, that on the defenders' contention introduced into the sub-lease the discount of the reviewed rent to 23.15% of the open market rental value. The effect was, on the defenders' contention, that the rent review provision of the sub-lease gave them the benefit of the discount. In my opinion, it is clear that in the missives the parties did not contemplate that result. They contemplated that the sub-lease would be "adjusted in normal commercial terms". Normal commercial terms would have included provision for periodical rent review. Although there is room, no doubt, for variation in the detail of how rent review clauses approach the assessment of open market rental value, normal commercial terms contemplate review to keep the rent in step with the rent which the subjects would obtain at the review date on the open market. It is in my view quite beyond the range of "normal commercial terms" that the sub-tenant should be given the benefit of a discount in the reviewed rent to 23.15% of open market value. In my opinion, therefore, condition 14 of the qualified acceptance, which was proposed by the defenders and accepted by Mathiesons, points clearly to a common intention that the sub-lease should be in normal commercial terms and should therefore not include the highly unusual discount provision taken from paragraph 1 of Part IV of the Schedule to the lease.

[54]    
Had I construed the sub-lease in the way contended for by the defenders, therefore, I would have been satisfied by the two considerations which I have discussed that the sub-lease failed to give effect to the common intention of Mathiesons and the defenders as agreed between them in the missives. I would therefore in that event have granted the rectification which the pursuers seek. In the event, however, because of the view I have taken of the construction issue, it is unnecessary for me to follow that course.

Title to sue

[55]    
In the course of the proof an issue arose as to the first pursuers' title to sue. That resulted in the lodging of a minute of amendment by the pursuers in the declaratory action, which the defenders answered. Adjustment of the minute and answers followed, and on 12 November 2002 the summons and defences were amended in terms of the minute and answers as adjusted. The effect of the amendment in the declaratory action was to introduce two additional pursuers, namely, as second pursuers, Howgate Three Limited, and as third pursuers, Howgate Four Limited. The minute of amendment also introduced averments narrating various assignations of various interests in the subjects with which the action is concerned. As a result of the amendment process, the defenders added three new pleas-in-law, namely (1) a plea that the action was incompetent in respect that (a) the second and third pursuers on their averments advanced no claim to title or interest to sue and (b) separatim it was at the instance of pursuers with no relevant community of interest; (2) that the pursuers had no title to sue; and (3) that the second and third pursuers had no title to sue.

[56]    
The sequence of events that gave rise to the title issue is somewhat complex. To understand it properly it is necessary to be clear as to where the various interests in the subjects in question lay from time to time. The structure of the leasehold interests in the subjects of which Unit 22A formed part was in three layers. The highest layer was a head lease of the whole shopping centre granted by the Councils in favour of Meritclass in 1988 and 1989 (see the definition of "the Head Lease" in Clause 1.2.11 of the lease). The next layer was the lease of Unit 22A, originally granted by Meritclass in favour of Mathiesons in 1991 (see paragraph [4] above). The third layer was the sub-lease of Unit 22A, originally granted by Mathiesons in favour of the defenders in 1995 (see paragraph [2] above). It appears that the Councils were succeeded by Capital and Regional Shopping Centres Ltd as landlords under the head lease. It appears, further, that Meritclass were succeeded in their interest as tenant under the head lease, and therefore landlord in the lease, by Xebec Investments Ltd, who were in turn succeeded by the first pursuers by assignation dated June 1997, although the recorded title remains with Meritclass. By assignation dated 24 and 29 August 2001 (No. 6/3 of process) Mathiesons assigned their interest as tenants under the lease to and in favour of the first pursuers with entry as at 30 April 1999 (see paragraph 1 of the Joint Minute, No. 31 of process). By assignation dated 31 October 2001 (No. 6/18 of process) the first pursuers assigned their interest as tenants in the head lease (and thus as landlords in the lease) to and in favour of the second and third pursuers equally pro indiviso between them, with entry as at 23 November 2001 (see paragraph 2 of the Joint Minute, No. 31 of process).

[57]    
The critical features of that history, it seems to me, are (1) that by virtue of the assignation in August 2001 (No. 6/3 of process), the first pursuers, who already held the tenant's interest in the head lease, and thus the landlord's interest in the lease, acquired the tenant's interest in the lease; and (2) that by the assignation in October 2001 (No. 6/18 of process) the first pursuers assigned their interest as tenants in the head lease to the second and third pursuers. The questions which arise are whether these events had the effect (a) of depriving the first pursuers of title to pursue the declaratory action, or (b) of conferring such title on the second and third defenders.

[58]    
Since ultimately Mr Sandison, as I understood him, did not maintain the defenders' first and second pleas-in-law, and argued only that the second and third pursuers had no title to sue, I can deal with the submissions on this aspect of the matter relatively briefly. I heard detailed submissions on whether the lease was extinguished confusione when the first pursuers, already being the landlords in the lease, acquired also the tenants' interest thereunder. The texts and authorities cited to me on the subject included Wilson on Debt, second edition, paragraph 14.3; Gloag on Contract, second edition, 726-7; Halliday, Conveyancing Law and Practice, second edition, paragraph 46.60; Halliday's Conveyancing Opinions, 377 et seq (No. 91); Paton and Cameron, Landlord and Tenant, 102; Rankine on Leases, 524; Lord Blantyre v Dunn (1858) 20 D 1188; Campbell v McKinnon (1867) 5 M 636; Fleming v Imrie (1868) 6 M 363; Earl of Zetland v Glover Incorporation of Perth (1870) 8 M (HL) 144; Motherwell v Manwell (1903) 5 F 619; Healy & Young's Trustee v Mair's Trustee 1914 SC 893; Kildrummy (Jersey) Ltd v Inland Revenue 1991 SC 1; and Clydesdale Bank v Davidson 1998 SC (HL) 51.

[59]    
In my view it is clear that the same person cannot be both the landlord and the tenant of particular heritable subjects (Kildrummy (Jersey) Ltd, per Lord President Hope at 6). Thus, when the landlord's and the tenant's interests come to be held by the same person, "the lesser right is absorbed into the greater right and is extinguished" (Clydesdale Bank v Davidson, per Lord Hope of Craighead at 56C). The result in the present case is that when the tenant's interest in the lease was assigned by Mathiesons to the first pursuers, it was absorbed into the landlord's interest in that lease, which the first pursuers already held. But the real issues in the present case are (1) whether the amalgamation of the landlord's and the tenant's interest in the lease had any effect on the position of the defenders under the sub-lease, and (2) whether the assignation (No. 6/18 of process) by the first pursuers in favour of the second and third pursuers had the effect of making them the landlords in the sub-lease.

[60]    
In my opinion the amalgamation of the landlord's and tenant's interest in the lease had no effect on the subsistence of the sub-lease. The sub-tenants remained in a contractual relationship with the party who had succeeded to the tenant's interest in the lease (and thus the landlord's interest in the sub-lease). The defenders thus continued to hold Unit 22A from the first pursuers by virtue of the sub-lease, notwithstanding the amalgamation in the hands of the first pursuers of the landlord's and the tenant's interest in the lease. That question relating to the position of the sub-tenant when the interest of the landlord in the sub-lease and the interest of the landlord in the lease come into the same hands, appears to have been addressed directly only by Professor Halliday (Conveyancing Opinions, 380), who said:

"It makes no sense that valid sub-leases or heritable securities created over registered leases can be extinguished by the lessee acquiring the property, a transaction to which neither the sub-tenants [nor] the heritable creditors are parties".

I agree with that view. It does not seem to me to matter whether it is the landlord in the sub-lease who acquires the property (as Professor Halliday contemplated) or the landlord in the lease who acquires his tenant's interest (as in the present case). In my opinion a relationship of landlord and tenant under the sub-lease continued to subsist after the assignation of the tenant's interest in the lease by Mathiesons in favour of the first pursuers. The defenders remained entitled to possession by virtue of and in terms of the sub-lease. The landlord's interest in the sub-lease came to be held by the first pursuers (as assignees of Mathiesons), despite the fact that the lease originally entered into between Meritclass and Mathiesons came to be extinguished confusione. As at the date when the declaratory action was raised (September 2001), therefore, the first pursuers had, in my opinion, title and interest to raise it.

[61]    
The remaining question is whether, by the assignation (No. 6/18 of process) in favour of the second and third pursuers, the first pursuers divested themselves of title to sue and/or conferred such title on the second and third pursuers. There is some uncertainty in the authorities as to whether, when the landlord's and the tenant's interest in a lease come into the hands of the same person, the lease is wholly extinguished or merely suspended (Lord Blantyre v Dunn; Motherwell v Manwell, per Lord Kinnear at 631-632; Clydesdale Bank v Davidson, per Lord Clyde at 58E). The balance seems to me to favour complete extinction (Healy & Young's Trustee v Mair's Trustee, per Lord President Strathclyde at 902 and Lord Johnston at 899; Clydesdale Bank v Davidson, per Lord Hope of Craighead at 56C). In any event, it seems to me that, if it were possible to resuscitate the separate interests of landlord and tenant by assignation of one interest separately from the other, it would require clear provision in the assignation to achieve that effect. Mere assignation of the landlord's interest without reference to the tenant's interest would, in my opinion, be insufficient to effect such separation. In my opinion, the assignation in favour of the second and third pursuers (No. 6/18 of process) did not separate the landlord's and tenant's interests under the leases so as to leave the first pursuers holding the tenant's interest (even if it would in principle have been possible to do so), since it makes no express reference to such separation. It assigned the landlord's interest, in which the tenant's interest had been absorbed. Had the issue been live, therefore, I would have been inclined to hold that by the assignation (No. 6/18 of process) the first pursuers not only conferred on the second and third pursuers title to sue the declaratory action, but also divested themselves of such title. In the event, however, since the challenge to the title of the first pursuers was not maintained, it is unnecessary for me to deal with that. Certainly the first pursuers had title to pursue the declaratory action at the time when it was raised, and that action was therefore competently raised by them.

[62]    
On the view I have taken of the effect of the successive assignations (Nos. 6/3 and 6/18), however, I conclude that the second and third pursuers acquired, by the second of these assignations, title to maintain the declaratory action. Mr Sandison argued that for a party to have title to sue, it was necessary for him to have had such title at the date when the action was raised, and to continue to have such title throughout the action until final judgment (Donaghy v Rollo 1964 SC 278 per Lord Justice Clerk Grant at 285-6; Symington v Campbell (1894) 21 R 434; Bentley v Macfarlane 1964 SC 76; cf Rackstraw v Douglas 1919 SC 354). The second and third pursuers therefore could not have title to sue, because the declaratory action was raised prior to the assignation in their favour. In my opinion, that submission is unsound. It has been held that where the only pursuer has no title to sue at the time of raising the action, his subsequent acquisition of title by assignation will not cure the original defect (Symington; Bentley). Conversely, a party who had title to sue when the action was raised but subsequently lost it cannot maintain the action (Donaghy). But the authorities do not, in my opinion, support the proposition that where an additional or substitute pursuer is brought into an action by amendment, in the circumstances contemplated in Rule of Court 24.1(2)(b)(v), it is necessary that the additional or substitute pursuer should have had title to sue when the action was originally raised. It is sufficient that he should have title to sue at the time of the amendment, and thereafter until final judgment. The date of the amendment falls to be treated, in the case of an additional or substitute pursuer, as the date of the commencement of the action so far as it proceeds at his instance.

[63]    
The result is that the defenders' first and second pleas-in-law fall to be repelled because they were not insisted in. Their third plea-in-law falls to be repelled because the second and third pursuers had, when they were brought into the action, and continue to have title to sue the declaratory action as assignees under No. 6/18 of process from the first pursuers of the landlord's interest in the lease, with which the tenant's interest in the lease and thus the landlord's interest in the sub-lease had been amalgamated by the assignation No. 6/3 of process.

The payment action

[64]    
When the payment action was raised (having been signetted on 9 October 2001) the pursuers concluded for a single sum of 72,630.94, which was said to be the amount of the then outstanding arrears of rent under the sub-lease. The conclusions were subsequently amended, partly to take account of the passage of time, and partly to incorporate a claim for arrears of service and other charges. The sums claimed were: in respect of arrears of rent, 104,842.83, and in respect of arrears of service charges, 30,664.61. In the course of the proof the claims were further amended. The second and third pursuers were introduced into the action. Six substantive conclusions were stated. The pleas-in-law (although not the conclusions themselves) make it clear that the third to sixth conclusions are stated as alternative to the first and second conclusions. The alternatives reflect two views of the effect of the assignation by the first pursuers in favour of the second and third pursuers already mentioned (No. 6/18 of process). The first two conclusions reflect the revised amount of arrears of rent and service charges respectively, claimed on the hypothesis that title to advance the whole claims remains with the first pursuers. The third to sixth conclusions reflect the same total claims, allocated between the first pursuers on the one hand and the second and third pursuers on the other hand, on the hypothesis that title to sue passed from the first pursuers to the second pursuers as at the date of entry under the assignation, namely 23 November 2001.

[65]    
The parties have reached a limited agreement on the sums due. It is expressed in paragraph 5 of the joint minute (No. 25 of process) in the following terms:

"If the Pursuers are successful in establishing their contentions that rent and non-rent charges [i.e. service charges and insurance] are payable by the Defenders at the rates and amounts set out in the summons (which contentions the Defenders do not accept) No. 6/11 and 6/12 of process are true and accurate Statements of the sums due by the Defenders in respect of rent and interest thereon, service charges and interest thereon, and insurance, all inclusive of VAT as at 23 November 2001, and from 24 November 2001 to 27 June 2002 respectively."

[66]    
The statements referred to in paragraph 5 of the joint minute show the composition of the sums claimed by the pursuers. The arrears of rent to 23 November 2001 are shown (in No. 6/11 of process) as amounting to 48,950.72, the sum claimed in the third conclusion. The arrears of rent from 24 November 2001 to 27 June 2002 are shown (in No. 6/12 of process) as amounting to 40,468.86, the sum claimed in the fifth conclusion. The aggregate of these two sums is the sum claimed under the first conclusion. The arrears of service charges and insurance to 23 November 2001 are shown (in No. 6/11 of process) as amounting to 17,970.53, the sum claimed in the fourth conclusion. The arrears of service charges and insurance from 24 November 2001 to 27 June 2001 are shown (in No. 6.12 of process) as amounting to 9437.29, the sum claimed in the sixth conclusion. The aggregate of the latter two sums is the sum claimed under the second conclusion.

[67]    
The defenders advance inter alia the following plea-in-law in the payment action:

 

"1.

The action being incompetent in respect that it advances separate and competing claims to the same claimed debt, et separatim is at the instance of pursuers with no relevant community of interest, it should be dismissed."

In addition, by their second and third pleas-in-law respectively, they challenge the title to sue of the first pursuers, and of the second and third pursuers. I can be brief in dealing with the title pleas. At the time when the payment action was raised in early October 2001 the first pursuers had title to sue the action. They retain title to sue in respect of arrears of rent and service and other charges that fell due prior to the date of entry under the assignation, No. 6/18 of process. For the reasons discussed in the context of the declaratory action, I have held that the second and third pursuers became the landlords in the sub-lease with effect from that date of entry. They, therefore, in my opinion, have title to sue in respect of arrears of rent and service and other charges that have fallen due since 23 October 2001.

[68]    
The issues raised by the defenders' first plea-in-law remain to be considered. The first part of the plea advances the proposition that the action is incompetent because in it the pursuers put forward separate and competing claims to the same debt. It seems to me, however, that although some criticism might reasonably be made of the detail of the pursuers' pleadings, it is clear (a) that the third to sixth conclusions are an alternative formulation of the claims primarily made in the first and second conclusions, and (b) that the alternative claims are advanced on an "esto" basis (albeit not expressly stated in that form), namely that they are made against the eventuality that it is held, contrary to the first pursuers' primary contention, that from 23 October 2001 by virtue of the assignation, No. 6/18 of process, entitlement to rent and other charges payable by the defenders under the sub-lease passed to the second and third pursuers. These are to my mind matters of form, and the defenders suffer no prejudice if the alternative claims are entertained, so long as they are not found liable twice over in respect of the same debt.

[69]    
The second part of the plea invokes the rule that "two or more parties cannot conjoin in the same action in respect of separate and independent grounds of debt" (Boulting v Elias 1990 SLT 596 per Lord President Hope at 598E). In support of his submission that that rule made the payment action incompetent Mr Sandison cited Feuars of Orkney v Steuart (1741) M 11986; Killin v Weir (1905) 7 F 526; Brims & Mackay v Pattullo 1907 SC 1106; Paxton v Brown 1908 SC 406; Smith-Shand's Trustees v Forbes 1921 SC 820; and Boulting v Elias. Mr Dewar also referred to Maclaren's Court of Session Practice, 224-5; Thomson and Middleton, Manual of Court of Session Procedure, 55; and Mitchell v Grierson (1894) 21R 367. The authorities show that the rule is subject to two exceptions, namely where several unconnected persons (1) have been aggrieved by the same act of the defender, or (2) have a community of interest in the matter. There is a limited extent to which I consider that it can be said that the first pursuers and the second and third pursuers in the payment action have been aggrieved by the same act of the defenders. That is that they were both aggrieved by the defender's failure to pay the quarter's rent and service charges which spanned the entry date under the assignation No. 6/18 of process. With regard to the other quarters' rent and charges which are unpaid, however, the first pursuers and the second and third pursuers cannot be said both to have been aggrieved by the same act of the defenders, since each failure to pay on the due quarter date was a separate act. In my opinion, however, the case falls to be regarded as falling within the other exception. I am of opinion that the first pursuers and the second and third pursuers have, in the requisite sense, a community of interest in the payment action. They sue on the same contract, namely the sub-lease. They sue in the same interest, as the parties successively entitled to the landlord's interest in the sub-lease. They sue in respect of successive breaches by the defenders of the same provisions of the sub-lease. In my view the rationale of the rule does not require the assignor and the assignees of the landlord's interest in a lease to bring separate actions to recover from the tenant arrears of rent and other charges accumulated over a period beginning before and ending after the date of which the assignation took effect, so long as they make separate claims in separate conclusions.

[70]    
So far as the merits of the payment action are concerned, Mr Sandison argued that there was no adequate proof that the non-rental elements of the claim were due. He criticised aspects of the evidence of Ms Sarah Powell, who gave evidence in relation to the computation of the claims. In particular, he criticised her failure to relate the service charges claimed to the relevant provisions of the sub-lease and lease. I do not consider, however, that there is in the end any merit in this point. Under cross-examination Mr Fitzsimmons accepted that the sums claimed by the pursuers were due.

Result

[71]    
In the declaratory action I shall sustain the pursuers' first plea-in-law and repel their second and third pleas-in-law; repel the defenders' pleas-in-law; and grant decree of declarator in terms of the first conclusion of the summons, modified in the ways which I have already indicated in paragraph [42] above.

[72]    
In the counterclaim in the declaratory action, I shall sustain the pursuers' third plea-in-law; repel the defenders' pleas-in-law; and assoilzie the pursuers from the first conclusion of the counterclaim.

[73]    
In the payment action, I shall sustain the pursuers' first and fourth pleas-in-law and repel their second, third and fifth pleas-in-law; repel the defenders' pleas-in-law; grant decree for payment by the defenders to the first pursuers of the sums of principal and interest third and fourth concluded for; grant decree for payment by the defenders to the second and third pursuers of the sums of principal and interest fifth and sixth concluded for; and assoilzie the defenders from the first and second conclusions of the summons.

[74]    
I shall reserve meantime all outstanding questions of expenses.

 

 


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