TRADE DEVELOPMENT BANK v WARRINER & MASON (SCOTLAND) Ltd
| Jurisdiction | Scotland |
| Judgment Date | 21 December 1979 |
| Docket Number | No. 8. |
| Date | 21 December 1979 |
| Court | Court of Session (Inner House - First Division) |
FIRST DIVISION.
Lord M'Donald.
Heritable property—Standard security—Standard conditions—Reference in recorded standard security to unrecorded minute of agreement—Whether prospective tenant under a sub-lease by debtor in standard security thereby bound to enquire into debtor's title to sub-let—Good faith—Whether heritable creditor entitled to remedy of reduction—Whether tenant entitled to recompense from creditor—Conveyancing and Feudal Reform (Scotland) Act 1970 (cap. 35), secs. 9, 11, 16, 19, 20, Schs. 2, 3, 4.
In 1971 Lyon Group Ltd. took a lease for 120 years of 101·5 acres of land from Lanark County Council. In 1973 Lyon and the county council entered into three fresh leases over the same land. These leases were registered, and on the same day Lyon granted to the pursuers a standard security over the land which was the subject of one of the three leases. The personal obligation on the granter was contained in a minute of agreement which was not recorded. The standard security provided that the standard conditions laid down in Sch. 3 to the Conveyancing and Feudal Reform (Scotland) Act 1970 and any lawful variation thereof would apply. It also provided that the standard conditions would be varied in accordance with the said minute of agreement. Standard condition 6 reads : "It shall be an obligation on the debtor not to let, or agree to let, the security subjects, or any part thereof, without the prior consent in writing of the creditor, and “to let” in this condition includes to sub-let."
In 1975 Lyon granted to the defenders a sub-lease of 2·35 acres of the subjects covered by the standard security. Shortly thereafter, Lyon went into liquidation. The pursuers called up the standard security and, on Lyon's default, sought to exercise their rights under sec. 20 of the 1970 Act. They sought reduction of the sub-lease granted by Lyon in 1975, declarator that the defenders had no right or title to the 2·35 acres, and decree of removing. The Lord Ordinary, after a hearing on procedure roll, granted decree de plano and dismissed the counter-claim.
Held (1) (diss. Lord Kissen) that, since the minute of agreement had not been recorded, the defenders had no notice that standard condition 6 applied to the standard security. (2) That the terms of the standard security were, nevertheless, such as to put the defenders on their inquiry. (3) That the defenders had not acted in good faith, having taken the 1975 sub-lease without having obtained the prior consent of the pursuers as heritable creditors or instituted a search of the register. (4) That there was no relationship between tenants under a sub-lease and heritable creditors of a third party such as would support a claim for recompense. (5) (By Lord Kissen) that the recording of a standard security constituted publication of the standard conditions, and a potential sub-lessee could not assume that any particular standard condition had been excluded by virtue of the terms of an unrecorded deed.
Trade Development Bank raised an action against Warriner & Mason (Scotland) Ltd. in which they sought reduction of a pretended lease, entered into without their consent, at a date subsequent to the granting by the heritable proprietor of a standard security in their favour; declarator that the defenders had no right, title or interest in the subjects referred to in, and supposedly sub-let by, the sub-lease; and for removal of the defenders. The defenders counter-claimed for recompense in the event of their defence of the principal action being unsuccessful.
The facts are set out in the opinion of the Lord Ordinary.
In the action, the pursuers pleaded, inter alia:—"(4) Said pretended lease between Lyon and the defender having been entered into without the written consent of the pursuers as security holders, is null and void and falls to be reduced. (5)Separatim said pretended lease between Lyon and the defenders having been entered into in prejudice of the pursuers” rights as security holders aforesaid falls to be reduced."
The defenders pleaded, inter alia:—"(3) The defenders having right and title to occupy the same subjects in virtue of the said missives dated 22nd and 29th November and 6th December 1972et separatim the lease in their favour dated 1st March and 4th April 1975, the defenders should be assoilzied. (4) The standard security so far as relating to Lyon's rights in the area comprising Unit 2 having been entered into by the pursuers in mala fide the defenders should be assoilzied. (5) Esto the said lease was entered into without the Written consent of the pursuers, it having been within the power of Lyon to grant it in favour of persons transacting with them in good faith and without notice of the security, the defenders should be assoilzied. (6) In any event, the said lease not being to the prejudice of the pursuers” rights as security holders, the defenders should be assoilzied."
In the counterclaim, the defenders pleaded, inter alia:—"(1) The pursuers being lucrati as a result of expenditure incurred by the defenders in the belief that they would obtain a valid right to occupy the said subjects as condescended on, are bound to recompense the defenders therefor. (2) The sum sued for in the counter claim being the amount expended by the defenders in respect of which they are entitled to recompense, decree therefor should be pronounced as concluded for."
The pursuers pleaded, inter alia:—"(2)Esto said expenditure was incurred by the defenders, they having incurred said expenditure for their own benefit are not entitled to recompense therefor. (3) Separatim, esto said expenditure was incurred by the defenders, they having occupied said subjects and incurred said expenditure in mala fide are not entitled to recompense therefor. (4) The counter-claim being premature, should be dismissed."
On 5th September 1978, after a hearing on procedure roll, the Lord Ordinary (M'Donald) granted decree de plano in favour of the pursuers and dismissed the defenders” counterclaim.
At advising on 21st December 1979,—
LORD PRESIDENT.—The pursuers are heritable creditors of a company known as Lyon Group Limited (in liquidation with effect from 14th April 1975) in virtue of a standard security dated 26th March 1973 and recorded in the General Register of Sasines on 9th April 1973. The subject of the security was, under exception of two small areas of ground with which this action is not concerned, a lease of 20·6 acres of land at Righead Industrial Estate dated 5th and 17th January 1973, and registered in the General Register of Sasines on 9th April 1973. The authors of this lease in favour of Lyon Group Limited, which I shall refer to hereafter as "Lyon," were Lanarkshire County Council.
By lease dated 19th March and 4th April 1975, and registered in the General Register of Sasines on 6th May 1975, the defenders became subtenants of Lyon in 2·35 acres of the subjects held by Lyon under their lease of 1973. This parcel of land was known as Unit 2.
It appears that in October 1975 the pursuers, as creditors in the standard security, served upon Lyon a calling-up notice under section 19 of the Conveyancing and Feudal Reform (Scotland) Act 1970. It appears further that Lyon are in default within the meaning of section 20 of that Act and the pursuers are thus entitled, if they wish, to exercise all the rights conferred upon them under that section.
In this action the pursuers seek reduction of the lease granted by Lyon to the defenders in 1975, declarator that the defenders have no right title and interest in and to the subjects thereof (Unit 2), and decree of removing. The defenders resist these conclusions and have tabled a counter-claim against the pursuers which falls to be considered only in the event of success for the pursuers in the principal action. After debate in Procedure Roll the Lord Ordinary granted to the pursuers decree de plano in terms of the conclusions of the summons and dismissed the counter-claim as irrelevant. In this reclaiming motion the defenders challenge the Lord Ordinary's decision in all its branches and we have heard full debate upon the relevancy of the pursuers' averments, the relevancy of the defences, and the relevancy of the averments upon which the counter-claim is presented.
In his opinion the Lord Ordinary has summarised clearly and succinctly the essential averments of both parties. I accept that summary with gratitude and have only to add that by amendment in the Inner House the defenders have amplified their averments in answer 4 on the matter of the state of knowledge of the pursuers in March 1973 of the "rights" said to have been granted over Unit 2 in favour of the defenders' parent company T.S.L., and that the pursuers have now averred in article 6 of Condescendence that as at 25th September 1979 the amount of Lyon's total indebtedness which was secured by the standard security was, including interest, £683,283.45. I should mention also at this stage that as a result of a Joint Minute between the parties we have been able, for the purposes of the reclaiming motion, to see the 1971 lease by Lanarkshire County Council in favour of Lyon, the 1973 Lease of 20·6 acres of land which is the subject of the standard security, the standard security itself, and the lease of Lyon to the defenders granted in 1975 almost on the eve of Lyon's liquidation.
The first matter to be considered is the relevancy of the averments of the pursuers who seek reduction of the defenders' lease. In course of the excellent debate to which we listened the defenders accepted that their right and title as sub-lessees were derived from the registered lease in favour of Lyon granted in January 1973. In particular it was no longer maintained for the defenders that the 1971 lease in favour of Lyon was not superseded by the 1973 lease or that it had not been implicitly renounced. After...
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