Dispute Resolution

Regent Quay Development Company Limited V Tyco Fire & Integrated Solutions (UK) Limited (extra division, inner house)

Following the landlord’s first unsuccessful attempt to argue that a break notice was invalid before the Outer House of the Court of Session in this case, the Inner House, Scotland’s appeal court, has now reaffirmed the approach to assessing the impact of errors in break notices and held, again, that the break notice is valid.

As a reminder of the facts, the tenant (Tyco) entered into a lease of two commercial units with a landlord (Regent). A subsequent minute of variation added a third unit, extended the lease, and gave Tyco an option to terminate the lease upon giving six months’ notice. A break notice was served on time by Tyco’s agents on 11 January. In its heading, the notice only referred to the two units that were subject to the original lease but in the body of the notice there was reference to the Lease and the Minute of Variation. Once the six month deadline had passed, Regent informed Tyco that they considered the notice to be invalid because the notice did not refer to the additional unit under the Minute of Variation Tyco ended up raising proceedings against Regent, presumably because Regent, surprisingly some tenants might think, would not concede that the break notice was valid. Lord Tyre decided in the Outer House that the suggestion by Regent that the notice was invalid because it conveyed an intention by Tyco to terminate the lease in respect of only two of the units (despite this being technically impossible) was sufficiently far-fetched to be disregarded as a reasonable interpretation, or even as one capable of creating confusion in the mind of the reasonable recipient.

Regent appealed to the Inner House, arguing, amongst other things, that as the notice had been drafted by a solicitor, the reasonable recipient would assume that the words in the notice had been chosen with care. Therefore, it was argued, Regent was entitled to believe that the notice only intended to terminate the lease in respect of two of the units. Whilst there was no power in the lease to do this, the notice could reasonably be considered, so Regent contended, to be either a deliberate attempt or a “try on” to quit the lease in respect of two units only. This was not so improbable that a reasonable recipient would reject this, or at least have no doubt in their mind as to what the notice meant.

In refusing the appeal, the Inner House confirmed that the correct approach to the interpretation of a notice by reference to the reasonable recipient test is still to be found in the 1997 House of Lords case, Mannai Ltd v Eagle Starr Assurance Co. Ltd. In finding against them, the Court took the view that Regent’s counsel focused too heavily on the words, rather than considering the notice as a whole in its overall context. When read as a whole therefore, despite the error, the notice was unambiguous. In future cases, when assessing a notice which can be construed by reference to the reasonable recipient test (and bear in mind that there are notices which will not fall into that category), the court must consider “the impression immediately made on the reasonable recipient who would have been informed by knowledge of the relevant context.”

With regards to the fact that the letter was from a solicitor, the court found that this resulted in no assumption of deliberate and careful use of words. Indeed, rather than suggesting a deliberate attempt or a “try on”, the fact that the letter was from a solicitor pointed to the opposite conclusion. A solicitor would know what their client is entitled to and “engaging in what would in effect, be a type of concealment by way of a try on, is not conduct which the reasonable recipient would, we think, attribute to a solicitor.”

Despite the fact that Tyco’s notice was valid and, therefore, a firm measure of good sense was applied by the court, lessons can still be learned from this case. Generally speaking, drafting notices can be difficult but there are ways in which to reduce the scope for challenges. This may be counterintuitive, but if the lease and circumstances permit, it may be worthwhile to include some general drafting which could serve to broaden the scope of any definitions applied in a notice – avoiding of course the possibility of ending up with a notice so vague as to render it invalid.

Stephen Goldie

Head of Litigation & Partner at Brodies LLP
Stephen is a partner at Brodies and heads up the Business Disputes and Asset Recovery team. Stephen acts for oil & gas companies, private equity funds, commercial lenders‚ institutional investors, estate owners, retailers and corporate occupiers throughout the country.
Stephen Goldie

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