Legal Services Centre Limited V. Miller Samuel And Others

JurisdictionScotland
JudgeLord Glennie
Neutral Citation[2009] CSOH 141
CourtCourt of Session
Date27 October 2009
Docket NumberA214/04
Published date27 October 2009

OUTER HOUSE, COURT OF SESSION

[2009] CSOH 141

A214/04

OPINION OF LORD GLENNIE

in the cause

THE LEGAL SERVICES CENTRE LIMITED

Pursuers;

against

MILLER SAMUEL LLP, PETER MICHAEL SAMUEL, DENIS ALEXANDER RODIE, ROBERT PETER KERR, GRAHAM CHARLES EDEN, IAIN ARTHUR DORAN and SIMON JOHN BLACK HUTCHISON

Defenders:

________________

Pursuers: Haddow QC, Davies; Harper Macleod LLP

Defenders: McNeill QC, Dunlop; Brechin Tindall Oatts

27 October 2009

Introduction
[1] The pursuers are a subsidiary of Credential Holdings Limited ("CHL"), a company involved in the acquisition, development, letting and sale of commercial and residential property.
The principal behind the pursuers is Barrie Clapham, the chairman and chief executive of CHL and the holder of a controlling interest therein. In late 1986 the pursuers instructed the defenders, a firm of solicitors experienced in drafting and negotiating commercial leases, to advise in relation to the negotiation and drafting of certain leases pertaining to a site at Ballater Street/Gorbals Street, Glasgow ("the site"), and, in particular, a proposed occupational sub-lease between the pursuers and the Secretary of State for the Environment ("the Secretary of State"). That occupational sub-lease was to include a rent review clause. In this action of professional negligence, the pursuers contend that the defenders failed to comply with their instructions as to the terms of the rent review clause.

Background
[2] The context in which the relevant events took place was not seriously dispute.
In early 1986, the Crown Office wished to build new offices for the Procurator Fiscal at the site, close to the (then new) Sheriff Court building. The Property Services Agency ("PSA"), acting on behalf of the Secretary of State, invited tenders for the development of the site. The pursuers' tender was accepted in mid-1986. The tender panel consisted of an official Glasgow District Council ("the Council"), who owned the site, an official of the SDA, and William Fleming, the then head of PSA Scotland West. At that stage, and during the early stages of the negotiations which followed, it was envisaged that the building would be smaller than, and of an inferior specification to, that which was eventually built.

[3] Mr Clapham had been aware of the potential development at Ballater Street from as early as 1984 and had for some time been engaged in discussions about it. Once their tender had been accepted, the pursuers entered into negotiations with representatives of the PSA. For reasons which I need not go into, but which involved the provision of funding by the Scottish Development Agency ("SDA"), it was proposed that the Council, as owners, would lease the site to the SDA, who would sub-lease it to the pursuers. As a condition of the sub-lease, the pursuers were required to develop the site according to a specification agreed with the PSA, and then to let the offices (or at least the major part of them) under an occupational sub-lease to the Secretary of State for use by the Procurator Fiscal.

[4] In November 1986, the pursuers instructed the first defenders to advise them in relation to the sub-leases from the SDA and to the Secretary of State. The individual who undertook the work was Mr Rodie, a solicitor experienced in negotiating and drafting commercial leases. He is the third defender. In addition, the pursuers had already instructed and were working closely with Mungo Tulloch and Campbell Hart, both of Webster & Co. (as it was then called), a firm of chartered surveyors, to advise them on the evaluation and financing of the project. Mr Tulloch had specific responsibility for the evaluation, financing and investment appraisal of the project and prepared the Development Appraisal (6/18 of Process), which was an attempt to assess the viability of the proposed development.

[5] The dispute between the parties to this litigation involves the negotiation and drafting of the rent review clause in occupational sub-lease between the pursuers and the Secretary of State. Those negotiations were part of the negotiation of the occupational sub-lease as a whole. They were carried on between the pursuers (and their professional advisers) and the PSA, though the SDA had an interest in relation to the scheme as a whole. The main individuals at the PSA concerned in the matter were Eric Gadsbey, Bill Fleming and David Watson. Mr Gadsbey was, at the material time, a Senior Surveyor with the PSA. He reported to Mr Fleming, the Principal Surveyor, who reported in turn to Mr Watson, the Superintending Surveyor. Mr Watson took very little part in the negotiations with the pursuers, which were largely carried out by Mr Gadsbey and Mr Fleming. The solicitor for the PSA principally involved in the negotiations and matters of drafting was Fiona Bevan.

[6] It was proposed that the duration of the occupational sub-lease to the Secretary of State would be for a period of 60 years, that being the anticipated life of the Sheriff Court building. However, the site was located in an area in which, when the lease came to an end, there were unlikely to be any alternative tenants or purchasers for office accommodation of the size and quality proposed. The offices were, therefore, expected to have little or no value at the end of the lease. Accordingly, for the development to be commercially viable, the rent over the lifetime of the occupational sub-lease to the Secretary of State had to be sufficient to enable the pursuers, by that means alone, to recover their entire development costs (including finance costs) and to achieve a reasonable return on their investment. To this aim the rent review clause was critical. To ensure that the rental income to the pursuers would be sufficient over the lifetime of the lease and that the development would be attractive to institutional investors, a special rent review clause was required which would take into account not only the unusual length of the lease but also the fact that, because of the location of the site, there would be no relevant comparators for rental levels. It is Mr Rodie's role in framing the rent review clause which was ultimately agreed which is under scrutiny in this case.

[6] The negotiations between the pursuers and the PSA dragged on for many months. Agreement was finally reached on the terms of the occupational sub-lease in early October 1987. Certain amendments were agreed by exchange of missives on 20 and 26 October 1987. The occupational sub-lease was formally executed only on 21 December 1989, but nothing turns on this.

[7] The rent review provisions, as finally agreed, are to be found in Part 6 of the Schedule to the executed occupational sub-lease. Only paragraphs 1 and 2 of the provisions are of any importance for present purposes, the remaining paragraphs being concerned with arbitration and other ancillary matters. Paragraphs 1 and 2 are in the following terms:

"1. As from each Review Date the yearly rent hereinbefore provided for shall be increased to an amount (hereinafter "the Revised Rent") equal to the full market rental value of the Subjects at the Relevant Review Date.

2. The full market rent of the Subjects at each Review Date shall be such an amount as may be agreed between the Landlords and the Tenants, or determined in accordance with paragraph 3 of this Part of the Schedule, and shall be calculated by multiplying the total floor area of the Building, in square feet, as specified in Part 1(A) of the Schedule, by the prime office rental value per square foot within Glasgow City Centre, at the Relevant Review Date, together with, in addition, the rent per car parking space equivalent to that obtainable per car parking space within Glasgow City Centre, at the Relevant Review Date, multiplied by the total number of car parking spaces (that is to say, 40) leased to the Tenants. The prime office rental value per square foot and the rent per car parking space within Glasgow City Centre is to be determined on the basis of open market value at the Relevant Review Date, with vacant possession between a willing landlord and a willing tenant, without payment of grassum or premium and upon the supposition (if not a fact):-

(a) that all parts of the Subjects are then available for use for the purposes herein permitted, and

(b) that the Tenants have complied with all the obligations imposed on them by this Lease (but without prejudice to any rights of the Landlords in regard thereto)

and taking no account of:-

(i) any goodwill attributable to the Subjects by reason of any trade or business carried on therein by the Tenants;

(ii) any effect of any improvements to the Subjects (to which the Landlords shall have given written consent) carried out by the Tenants otherwise than in pursuance of an obligation to the Landlords;

(iii) the destruction of or damage to the Subjects or the Common Parts or any part thereof by the Insured Risks or otherwise in any manner of way whatever;

(iv) any effect on rent of the fact that the Tenants may have been in occupation of the Subjects; and

(v) all fittings and fixtures affixed to the Subjects carried out with the approval of the Landlords either by the Tenants or a permitted sub-tenant;

and in all other respects on the terms and conditions of this Lease."

[8] The pursuers complain that the clause as drafted was ineffective to achieve its purpose. The problem is said to arise from the inclusion at the end of paragraph 2 of suppositions (a) and (b), disregards (i)-(v) and the same terms reference ("and in all other respects on the terms and conditions of this Lease"). I have italicised the parts of which complaint is made. Without the suppositions (regards) and disregards and the same terms reference, it is said that the clause would have operated in such a way that the revised rent would be calculated simply by multiplying the (contractually assumed) square footage of the total floor area of the...

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