Strand, London, WC2A 2LL
B e f o r e :
| DAVY'S OF LONDON (WINE MERCHANTS) LIMITED
|- and -
|(1)THE CITY OF LONDON CORPORATION
(2) SAXON LAND B.V.
Mr Joseph Harper QC (instructed by Nabarro Nathanson) for the Defendants
Hearing dates: 10th & 13th September 2004
Crown Copyright ©
MR JUSTICE LEWISON:
i) Whether the new tenancy should include a redevelopment break clause and
ii) If so, when should it be exercisable and on what terms?
i) The building of which Davy's holding formed part was at least in need of extensive refurbishment. A major refurbishment could not take place with Davy's still in occupation. But refurbishment alone did not make economic sense. The best solution was a wholesale redevelopment. The judge found that redevelopment of the site, whether 120 Fenchurch Street alone, or on a wider scale was an obviously reasonable and sensible approach.
ii) The City Corporation did not wish to carry out the redevelopment itself. It had negotiated a sale of the building to a developer, Coronation Land (or more accurately one of its subsidiaries called Wingmast Ltd). However, by the date of the hearing contracts had not been exchanged. But the judge was told both by the City Corporation and by Coronation Land that the acquisition would go ahead at the agreed price irrespective of the outcome of the proceedings. The judge was satisfied that both the City Corporation and Coronation Land were committed to the transaction.
iii) Coronation Land had extensive plans for a comprehensive redevelopment of an island site. In addition to 120 Fenchurch Street itself, the island site consisted of 116, 117 and 118/119 Fenchurch Street, 4/5 Hogarth Court, Excess House, Fen Court and 14 Fenchurch Avenue. One of Coronation Land's subsidiaries had bought a 49 year leasehold interest in 118/119 Fenchurch Street. But apart from that, the site still had to be assembled. The judge said that the process of site assembly would be extremely complex and protracted. His judgment set out the details of the titles to each part of the island site. Mr Herring, a representative of Coronation Land, had said in his witness statement that the process of site development could take one to two years; but in his oral evidence he revised that upwards to two to three years. However, the judge concluded, on the evidence, that the process of site assembly could take substantially longer than three years. The wholesale redevelopment of the island site was the only evidence of redevelopment placed before the judge. The landlord adduced no evidence of a fallback position. It was not suggested to the judge that 120 Fenchurch Street would be redeveloped on its own.
iv) No planning application had been submitted. Coronation Land had been advised to wait until the island site had been acquired before applying for planning permission.
v) The judge heard evidence from two expert valuers; Mr Lown for the City Corporation and Mr Taylor for Davy's. Their evidence was directed to the question whether the development was economically viable. Mr Lown said that it was; Mr Taylor said that it was not. The judge preferred Mr Taylor's view. The judge concluded:"that while in time the economic climate will be such as to make redevelopment a practical proposition that time has not yet come and is unlikely to come for some years".
i) Given time, Coronation Land would succeed in assembling the site well within the term of the new lease;
ii) The time would come in the foreseeable future and certainly well within the term of the new lease when the development would become an economic proposition;
iii) Davy's would be adequately compensated by the reduced rent that would be payable under a lease containing a break clause.
"Saxon Land do not presently intend to pursue the development of the larger site as previously contemplated by Coronation Land. Instead, Saxon Land intend to redevelop the building as a stand alone development."
"The evidence before me indicates that Saxon Land does not intend to develop 120 Fenchurch Street as part of an island site at all but as its own site and as its own freestanding separate development project."
"20. I accept that the discretion that I have should be exercised sparingly and I accept the basis of the sparingness as being that indicated by Russell LJ and ask myself whether it would be an affront to one's sense of justice to allow these appeals to proceed without the court being aware and having the benefit of the fresh evidence. If I pose the question in that form it seems to me that the answer is self-evident. Neither side could honestly and conscientiously advance their existing appeals on the existing evidence because each side would necessarily be advancing a false case to its own knowledge. It seems to me to be quite inescapable that this fresh evidence must be admitted before the court because the court cannot conscientiously deal with the appeals on any other basis.
21. What I do not decide, and that would be a matter for decision at a future occasion, is whether the admission of the fresh evidence would mean that the relevant time for the purpose of deciding whether there should be the grant of a new tenancy and if so, on what terms, should be the date of the hearing by the County Court judge in November 2003 or the date of the hearing before the appellate court, whenever that is, in 2004. It may be that arguments could be advanced to the effect that whatever the subsequent evidence and the change of plans by the competent landlord, nevertheless the City Corporation and Davy's and their respective successors in title are bound by the judgment of Judge Cox, which was right when he gave it. As I say, I do not decide that point, that will be a point for further argument on the further hearing if counsel on either side considers it worth doing so. "
"(1) The evidence on behalf of the [City Corporation], I the form of the witness statements of Teresa Pugsley made on 1 July 2004 and of Gary James Stewart made on 29 June 2004 be admitted in the parties' appeals
(2) Permission to the [City Corporation] to amend its Appellant's Notice dated 8 December 2003 in the light of the fresh evidence
(3) Permission to the [City Corporation] to amend the particulars specified in its acknowledgment of service dated 28 March 2002 in accordance with the form attached to the application
(4) Saxon Land BV be joined in the proceedings as a second defendant to [Davy's] claim for a new tenancy, second appellant to the [City Corporation's] appeal, and second respondent to [Davy's] appeal
(5) Permission to Saxon Land BV to put in fresh evidence on the parties' appeals, limited to
(a) confirmation, by way of evidence of fact, of its position in the circumstances of which evidence has been admitted by (1) above; and
(b) any consequential evidence from an expert valuation surveyor, in respect to levels of rent needed by reason of the amendment to the acknowledgment of service permitted in (3) above
Such evidence to be served and filed by 13 July 2004
(6) [Davy] to file and serve evidence in response to the fresh evidence of the [City Corporation] and Saxon Land by 3 August 2004
(7) The [City Corporation] and Saxon Land to file and serve any evidence in reply by 17 August 2004"
Part II of the Landlord and Tenant Act 1954
"Duration of new tenancy
Where on an application under this Part of this Act the court makes an order for a new tenancy, the new tenancy shall be such tenancy as may be agreed between the landlord and the tenant, or, in default of such an agreement, shall be such a tenancy as may be determined by the court to be reasonable in all the circumstances, being, if it is a tenancy for a term of years certain, a tenancy for a term not exceeding fourteen years, and shall begin on the coming to an end of the current tenancy."
"The terms of a tenancy granted by order of the court under this Part of this Act (other than terms as to the duration thereof and as to the rent payable thereunder) shall be such as may be agreed between the landlord and the tenant or as, in default of such agreement, may be determined by the court; and in determining those terms the court shall have regard to the terms of the current tenancy and to all relevant circumstances."
"It was no part of the policy … of the 1954Act to give security of tenure to a business tenant at the expense of preventing redevelopment."
"In considering what would be proper leases in the circumstances of this case I think that the predominant considerations are two. First, that so far as reasonable the leases would not prevent the superior landlord from using the premises for the purposes of development. Secondly, that a reasonable degree of security of tenure should be provided for the tenants. Those considerations are to some extent in conflict. The function of the court is to strike a reasonable balance between them in all the circumstances of the case."
"The policy of the Act is to give a landlord who has purchased more than five years ago the absolute right to get possession for his own business; leaving it to the court to do what is reasonable if he has purchased less than five years."
"I have already expressed the conclusion that Mr Herring's proposed time scale for assembling the site, procuring planning permission and so on is unrealistic. I appreciate that there may be an overlap in these processes but on the evidence of Mr Taylor I am of the view that even if Mr Herring's time scale were to be achieved, development of the site would not be an economic prospect for some years."
"I recognise that in a sense I am being driven to pluck a figure out of the air. I am satisfied that in fairness the landlords should not have to wait ten years but on the other hand it would be unfair to the tenants to expect them to take on a lease which could be determined almost immediately. I have concluded that, having particular regard to the evidence of Mr Taylor and Mr Edwards the appropriate period is five years."
"… the appellate court should only interfere when they consider that the judge of first instance has not merely preferred an imperfect solution which is different from an alternative imperfect solution which the Court of Appeal might or would have adopted, but has exceeded the generous ambit within which a reasonable disagreement is possible."
The second stage
The rival arguments
i) Wrong or
ii) Unjust because of a serious procedural or other irregularity in the proceedings in the lower court. (CPR 52.11 (3))
"To justify the reception of fresh evidence or a new trial, three conditions must be fulfilled: first, it must be shown that the evidence could not have been obtained with reasonable diligence for use at the trial; secondly, the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; thirdly, the evidence must be such as is presumably to be believed, or in other words, it must be apparently credible, though it need not be incontrovertible."
"Negatively, fresh evidence ought not to be admitted when it bears upon matters falling within the field or area of uncertainty, in which the trial judge's estimate has previously been made. Positively, it may be admitted if some basic assumptions, common to both sides, have clearly been falsified by subsequent events, particularly if this has happened by the act of the defendant. Positively, too, it may be expected that courts will allow fresh evidence when to refuse it would affront common sense, or a sense of justice."
"In the face of these changes, to allow the appeal to proceed on the basis of factors (accepted at the trial) which have been falsified to such an extent would hardly be creditable to the judicial process."
"In order to enable him to come to a just and true conclusion it is his duty, I think, to avail himself of all information at hand at the time of making his award which may be laid before him. Why should he listen to conjecture on a matter which has become an accomplished fact? Why should he guess when he can calculate? With the light before him, why should he shut his eyes and grope in the dark?"
Conclusion on deployment of the fresh evidence
"14. On a review of a decision like that of Master Eyre which involved the exercise of a discretion, the appeal court, subject to one proviso, is limited to considering whether he took account of irrelevant considerations, or failed to take account of relevant considerations, or whether he was wrong in the sense described by Lord Fraser in G v G in the passage quoted by Brooke LJ.
15. The proviso is that where the appeal court receives evidence on a review (as it may do under Rule 52.11(2)) the review will take account of that evidence in deciding whether the exercise of the discretion by the court below was flawed. Such a review is very different from the kind of rehearing envisaged by Brooke LJ, in which the appeal court is exercising its own discretion and, because of the "generous ambit within which a reasonable disagreement is possible", might well legitimately arrive at a different conclusion from the Master or judge in the court below."
"80. There must, however, be some feature of the case that unusually makes it unjust for the appeal to be limited to one of review. The fact that the appellant wishes to rely on evidence that was not before the lower court is not often likely by itself to be a sufficient reason for holding a rehearing rather than a review. That is because the power given by CPR 52.11(2) to receive such evidence is exercisable whether the appeal is by way of rehearing or review."
Findings of fact
i) Mr Stewart first became involved with the site in about 2001. At the time he was acting on behalf of Assicurazioni Generali S.p.A ("Generali"), the owner of 117 Fenchurch Street. Generali was keen to realise as much value from its building as possible. Mr Stewart also acted for Coronation Land when 118/119 Fenchurch Street came onto the market. Coronation Land acquired a leasehold interest in that building, which it still retains. Both buildings are part of the potential island site. One of the major attractions of the island site is that it can support a building with very large floor plates, which are keenly in demand, and which the City Corporation is keen to promote, in order to stem the flow of major companies to Canary Wharf.
ii) Saxon Land is, at the moment, a wholly-subsidiary of Babcock & Brown, an international investment and advisory firm, and private bank. The decision makers in relation to this project are Messrs Dawson and Carter, although neither is a director of Saxon Land. Neither of these gentlemen chose to give evidence (either written or oral) and the only director of Saxon Land who did give evidence (M. Pascal Marty) gave largely formal and anodyne evidence. M. Marty does not appear to have been copied in on any of the internal documents of any importance.
iii) From about January 2004 Generali and Babcock & Brown have been engaged in discussions about the development of the island site. The basic idea was that Saxon Land would become a joint venture company for the purpose of developing the island site. The project of developing the island site was called "Project Saxon". A draft business plan, dated March 2004 described it as follows:"Its primary goal will be to acquire, manage and promote the redevelopment of a site which comprises 116, 117, 118, 119 and 120 Fenchurch Street and 13 and 14 Fenchurch Avenue."
iv) On 29 March 2004 the UK Real Estate Team ("UKRE") of Babcock & Brown sought internal approval for the purchase of 120 Fenchurch Street. The report summarised the transaction as follows:"The subject of this paper is the acquisition of a single office property, 120 Fenchurch Street, for a net purchase price of [£xxx]. We believe that this single acquisition is attractive in its own right. However, further upside can be achieved via the assembly of a larger combined site.UKRE is seeking to acquire a series of adjacent income producing properties in the City of London. We have assumed the gross value of these purchases will be [£xxx].Once acquired this combined land holding ("the Island Site") will form a significant development site in the financial centre of London, with the consequent uplift in value approximately [£xxx]." (Figures redacted)
v) The report continued by saying that negotiations with Generali to form a joint venture were progressing; that UKRE were in negotiations to acquire 120 Fenchurch street, which it described as a "key property" to begin the process of site assembly.
vi) The report went on to consider 120 Fenchurch Street as a stand alone investment, and concluded that it was a good one. Apart from a discussion of turning the ground floor into a retail unit (which would not affect Davy's Holding), the report did not consider or discuss the redevelopment of 120 as a stand alone development.
vii) Under the heading "Exit Strategy" the report said:"UKRE strategy is two fold:On the basis of acquiring the asset as a stand alone investment UKRE would look to dispose of the property after two to four years. Market feedback indicates that in approximately two years time demand for buildings let of low rents with significantly reversionary potential plus the opportunity for redevelopment will be strong.Should the JV be entered into and the Island Site assembled UKRE's approach will be to seek detailed planning permission for a 600,000 sq ft office building by early 2005 and then seek to either:
- Dispose of the site with the benefit of planning permission or
- Carry out the Development itself."
viii) The acquisition was authorised on the basis of this report. Contracts were exchanged in early June 2004 and completion took place on 22 June 2004. Generali were kept informed of progress, and shortly after exchange Mr Dawson sent them a draft of the key terms of the joint venture. They recited that:"B & B has agreed to purchase 120 Fenchurch Street through its subsidiary Saxon Land B.V. Generali owns 117 Fenchurch Street. These properties are to form part of the Joint Venture and the remaining parts of the Site will need to be acquired by it."
ix) On 28 June UKRE sought approval for the acquisition of 116 Fenchurch Street. The report summarised the transaction as follows:"This proposed acquisition forms the second stage in acquiring [an] overall development site in London ("Project Saxon")."
x) The report went on to say that UKRE was "finalising" negotiations with Generali to form a joint venture to acquire the six buildings forming part of the island site. It outlined the opportunities for Babcock & Brown that the transaction offered. These included the advantage that it:"Strengthens our negotiating position on a key development site within the city of London. If the Island Site can be accumulated it will be one of the premier development sites in the City and beneficial to the B & B Real Estate profile. Even if B & B were only to purchase 120 and 116 Fenchurch Street it will be a high profile transaction as it will enable B & B to control the street frontage of the Island Site along Fenchurch Street."
xi) The exit strategy was the same as that for 120 Fenchurch Street, namely, a disposal within two to four years if the joint venture did not take place, or (if the Island Site were assembled) either to dispose of the site with planning permission or to carry out the development itself. There is no mention in the report of a development consisting only of 116 and 120 Fenchurch Street or of 116 Fenchurch Street alone. On the contrary, the thrust of the report is the importance of the building as controlling access to the Island Site.
xii) On the following day, Mr Stewart made his witness statement in which he said:"I have been advising Saxon in their ongoing discussions with the owners and agents of other adjoining buildings. These discussions may result in Saxon purchasing some or all of the adjoining buildings and carrying out a larger redevelopment. This possibility is still being explored.However, Saxon's starting position has always been that the Building [i.e. 120 Fenchurch Street] is capable of being redeveloped as a stand alone development. The Building is nearing the end of its useful economic life and will shortly require total redevelopment. We have examined the viability of carrying out a major refurbishment and concluded that it is not practical. The rental returns are unlikely ever to justify the substantial cost of a major refurbishment. The major services have a very limited lifespan and will shortly require replacement. Therefore Saxon's intention is to redevelop 120 Fenchurch Street as soon as possible."
xiii) He exhibited to his witness statement a massing study of a stand alone building on the site of 120 Fenchurch Street, prepared by Saxon Land's architects, dated 28 June 2004, and a development appraisal, prepared by himself, dated 29 June 2004. This was the evidence before the Vice Chancellor.
xiv) On 1 July 2004 Generali sent Babcock & Brown an amended letter of intent. The document, according to Mr Stewart, originated with Babcock & Brown, but carried amendments made by Generali. On 5 July Generali faxed through to Babcock & Brown a signed version of the letter of intent. The objectives of the joint venture included the acquisition, management and development of the entire island site. Although Babcock & Brown have not themselves signed the letter, they have proceeded on the basis that it is agreed. The letter is however, expressed not to be legally binding (apart from some unimportant clauses). The mechanism for constituting the joint venture was to take the form of Generali acquiring shares in Saxon Land.
xv) On 9 July 2004 Mr Stewart thanked the architects for the massing study of 120 Fenchurch Street which he described as "very interesting and useful for the immediate purpose of exploring the viability of this as a stand alone development site."
xvi) In August 2004 Nabarro Nathanson, the solicitors for Babcock & Brown and for Saxon Land, produced a draft joint venture agreement to cover the agreement with Generali.
xvii) Mr Stewart has continued to produce development appraisals on the basis of a development of the whole island site.
xviii) Saxon Land has recently let (or is on the point of letting) some of the upper office floors of 120 Fenchurch Street. The leases exclude the operation of sections 24 to 28 of the Landlord and Tenant Act 1954. The leases contain a landlord's break clause under which the landlord can terminate the lease in question by serving six months' notice expiring on or after 1 March 2006. But if notice is served before 1 March 2007 (i.e. terminating the lease before 1 September 2007) the landlord will make the tenant a compensation payment.
i) Dispose of the property in two to four years (i.e. between June 2006 and June 2008) with the opportunity of redevelopment or
ii) Assemble the island site through the joint venture and then either dispose of the site with planning permission or carry out the development.
"Landlord's redevelopment break clause exercisable on 11 months' notice not to be served earlier than 1 July 2007"