Judgment Title: The Barge Inn Ltd v Quinn Hospitality Ireland Operations 3 Ltd
Neutral Citation:  IEHC 387
High Court Record Number: 2013 602 P
Date of Delivery: 15/08/2013
Court: High Court
Composition of Court:
Judgment by: Laffoy J.
Status of Judgment: Approved
Neutral Citation:  IEHC 387
THE HIGH COURT
[2013 No. 602P]
THE BARGE INN LIMITED
QUINN HOSPITALITY IRELAND OPERATIONS 3 LIMITED
Judgment of Ms. Justice Laffoy delivered on 15th day of August, 2013.
Parties and their relationship
2. After the collapse of the Quinn Group enterprises, by virtue of a conveyance for value dated 2nd December, 2011, Barge Public House Limited conveyed the freehold reversion in the Demised Property to the defendant, whereupon the defendant became the plaintiff’s landlord in relation to the Demised Property.
3. Mr. Hickey had been the tenant of the Demised Property since 1994. Initially, he held the Demised Property under an agreement for lease dated 13th June, 1994 from Quinn Hotels Limited, whereby the Demised Property was agreed to be let to Mr. Hickey for the period commencing on 10th June, 1994 and ending on 31st March, 2004. After that term expired on 31st March, 2004, Mr. Hickey or the plaintiff continued to trade in the Demised Property without the formalities of a new lease being put in place, although the understanding was that a new lease would be put in place at an initial rent of €400,000 per annum. While there is some confusion on the evidence on this point, I consider that it can be assumed that rent at that rate was actually paid from approximately May 2005. While these proceedings only concern the Demised Property, and the attempt by the defendant to terminate the landlord and tenant relationship between the defendant and the plaintiff by forfeiture of the 2009 Lease, the issues which have been raised in the proceedings necessitate the consideration of two other landlord and tenant relationships between companies in the Quinn Group and companies effectively controlled by Mr. Hickey in relation to two other licensed premises in Dublin city centre.
4. One of those licensed premises was formerly known as Messrs. Maguire (Messrs.) and was located at 1 – 2, Burgh Quay, Dublin, 2. By virtue of a lease dated 11th June, 2008 made between Messrs. Maguire Public House Limited, a company in the Quinn Group, and Oreldrove Taverns Limited (Oreldrove), of which Mr. Hickey and Danny O’Connell (Mr. O’Connell) were directors, Messrs. was demised to Oreldrove for the term of four years and nine months from 3rd March, 2008 at the initial yearly rent of €670,000, which rent from 3rd March, 2010 was subject to review yearly in accordance with the Consumer Price Index. By virtue of a conveyance for value dated 2nd December, 2011 made between Messrs. Maguire Public House Limited of the one part and Quinn Hospitality Ireland Operations 5 Limited of the other part, the freehold and leasehold reversions in Messrs. became vested in Quinn Hospitality Ireland Operations 5 Limited. Subsequently, in early November 2012 the lease of 11th June, 2008 was forfeited and Quinn Hospitality Ireland Operations 5 Limited re-entered and took possession of Messrs. Mr. Hickey accepted that the lease of 11th June, 2008 was forfeited and thereupon he ceased to have an interest in Messrs. At the time of the forfeiture, the rent payable by Oreldrove was in excess of €1.3m in arrears.
5. The other licensed premises in which Mr. Hickey had an interest was during his tenancy known as The Q Bar, having been formerly known as “The Harp Bar”, and was situate at O’Connell Bridge, Dublin, 2. Mr. Hickey was originally the tenant of The Q Bar from around 2000 to 2005. Subsequently, a company of which Mr. Hickey and Mr. O’Connell were directors, the correct name of which was Balendale Inns Limited (Balendale), not Ballendale Inns Limited as appears in the relevant agreements, became tenant of those premises from a company in the Quinn Group, Quinn’s Q Bar Limited, initially for a term of four years and nine months from 1st September, 2005 at a rent which was subject to review in accordance with the Consumer Price Index. By an undated agreement executed by Quinn’s Q Bar Limited and Balendale, The Q Bar was demised to Balendale for a further term of one year from 1st June, 2010 at a rent of €13,199 exclusive of VAT per month, equivalent to an annual rent of €158,388 exclusive of VAT. The title position in relation to The Q Bar was obviously complicated, because those licensed premises, which are on the ground floor of O’Connell Bridge House, were, in turn, held by the landlord company in the Quinn Group as lessee from a landlord variously referred to as Carlisle, or Carlisle Trust, or John Byrne in the documentation before the Court. In any event, there was an arrangement that the rent payable by Balendale in respect of The Q Bar would be paid in part to Carlisle and in part to the Quinn Group landlord. While I have found it impossible to understand the full implications of that arrangement from the evidence, I consider that it is not of any great relevance to the issues this Court has to determine. The arrangement between Carlisle and the Quinn Group and also Balendale’s interest in The Q Bar were terminated by agreement in December 2011 between the three parties involved, who agreed that the terms of settlement would be confidential. The important point is that Mr. Hickey ceased to have a tenant interest through Balendale in The Q Bar from December 2011, although Balendale remained in occupation until January 2012 by agreement. As I understand it, Balendale was subsequently wound up in a creditors’ voluntary liquidation.
6. The core issue in these proceedings is what was agreed between the agents of the defendant’s predecessor in title, Barge Public House Limited (hereafter referred to as “Barge former landlord”), and the plaintiff in April 2010 in relation to the rent payable by the plaintiff in respect of the Demised Property in the future. A subsidiary issue which emerged at the hearing of the proceedings is what, if anything, was agreed in January 2012, after the defendant had acquired the freehold reversion, between the defendant and the plaintiff in relation to the rent payable in the future by the plaintiff in respect of the Demised Property.
7. There has been a large element of continuity between the personnel involved on both sides of the landlord and tenant relationship in relation to the Demised Property. On the tenant side, at all material times Mr. Hickey and Mr. O’Connell have been directors of the plaintiff. Mr. Hickey effectively ran the public house business in the Demised Property, whereas Mr. O’Connell was the accountant and financial controller of the business. He was also involved in the business since 1994. On the landlord side, in April 2010 there was Ms. Colette Quinn (Ms. Quinn), a daughter of Sean Quinn, who had been employed by the Quinn Group from 2004 as Hotel Operations Director. She was involved in the arrangements put in place in April 2010 in relation to the rent of the Demised Property. At that time, Mr. Anthony Fitzpatrick (Mr. Fitzpatrick) was Financial Accountant in the hotels and property division of the Quinn Group. He is now an Asset Manager with Quinn International Property Management of which, as I understand it, the defendant is a subsidiary, being a special purpose vehicle which holds the freehold reversion in the Demised Property. Mr. Paul Morgan (Mr. Morgan) is the Chief Executive Officer of Quinn International Property Management. Prior to April 2011, when Irish Bank Resolution Corporation enforced its security over, and effectively took control of, the Quinn Group property portfolio, Mr. Morgan was involved with the Quinn Group and, in particular, towards the end of 2010 he became involved in the management of the licensed premises in the Quinn Group in general. From the beginning of 2011 he was more heavily involved in dealing directly with Mr. Hickey and Mr. O’Connell in relation to the licensed premises let to Mr. Hickey’s companies.
8. Mr. Hickey, Mr. O’Connell and Ms. Quinn gave evidence on behalf of the plaintiff as to the arrangement entered into concerning the rent payable in respect of, inter alia, the Demised Property in April 2010 and Mr. Fitzpatrick gave evidence on behalf of the defendant. The principal factual controversy in these proceedings arises on the core issue, as to what was agreed by the plaintiff and Barge former landlord at that time in relation to the rent payable in the future for the Demised Property. Before considering the evidence and attempting to resolve the controversy, I think it is useful to consider the inter partes correspondence between the solicitors for the defendant (William Fry) and the solicitors for the plaintiff (Noel Smyth & Partners) from 31st October, 2012 until these proceedings were initiated and then to consider the plaintiff’s case as pleaded and the defendant’s defence and counterclaim as pleaded.
Inter partes correspondence
10. In their response of 2nd November, 2012, the plaintiff’s solicitors stated that they did not accept that the forfeiture notice was valid. The one point they made which remains of peripheral relevance only for present purposes was that they contended that the defendant had reduced the rent in respect of the Demised Property to €22,140 inclusive of VAT (i.e. €18,000 plus VAT at 23%) per month since January 2012, to which the defendant’s solicitors, in their letter of 5th November, 2012, responded as follows:
11. On the same day, 7th November, 2012, the plaintiff’s solicitors, on behalf of the plaintiff, discharged the sum of €251,454.52 claimed by the defendant to be due by the plaintiff in full. However, payment was made on the basis that part of that sum amounting to €58, 658.70 was paid without prejudice to the plaintiff’s contention that the rent had been reduced since January 2012 on the basis outlined earlier. By letter dated 9th November, 2012, the defendant’s solicitors acknowledged receipt of the sum of €251,454.52 and confirmed the defendant’s withdrawal of the forfeiture notice dated 31st October, 2012, while rejecting again the plaintiff’s contention that the rent had been reduced by agreement in January 2012.
12. The next step taken by the defendant effectively precipitated these proceedings. By letter dated 16th November, 2012, the defendant’s solicitors, having once again rejected the plaintiff’s contention that the rent had been reduced from January 2012, went on to state:
13. The response of the plaintiff’s solicitors, by letter dated 5th December, 2012, was that the reduction in rent to €273,228 per annum was not a temporary arrangement, but was agreed “as a permanent reduction as part of an overall agreement to reduce the total rent to €1,100,000 for three pubs; Q-Bar, The Barge and Messrs. Maguire”.
14. The ultimate outcome was that the defendant served a fresh forfeiture notice dated 14th January, 2013 on the secretary of the plaintiff and on Mr. Hickey. The alleged breach of covenant was failure to pay rent totalling €19,491.20 inclusive of VAT, on the basis that the rent reserved by the 2009 Lease was €400,000 per annum from 16th November, 2012. There was no allegation in that forfeiture notice that there was a breach of the covenants in the 2009 Lease by reason of non-payment of rates or non-payment of water rates.
15. The response of the plaintiff was to initiate these proceedings, which were initiated by a plenary summons which issued on 21st January, 2013. On the following day, 22nd January, 2013, the High Court (Laffoy J.) made an interim order restraining the defendant from re-entering the Demised Property until further order. The plaintiff has continued in possession of, and has been trading in, the Demised Property since then.
The plaintiff’s claim as pleaded in the statement of claim
(b) that financial difficulties were being encountered by the vast majority of tenants, including the plaintiff;
(c) the importance to the defendant from an estate management point of view in securing the mutually beneficial continuation of the plaintiff in the management of a successful, well run and well known business from the Demised Property; and
(d) the fact that no substitute tenant would be found on the open market capable of replacing the plaintiff as a quality tenant of the Demised Property.
17. The plaintiff specifically pleaded that the agreement of 8th April, 2010 was acted on by both parties and they placed reliance on it. The position of the plaintiff was elaborated on in a reply to notice of particulars served on behalf of the defendant, in which the plaintiff asserted that in reliance thereon, the plaintiff had invested money, time and effort in the business on the understanding and belief that the parties had negotiated a sustainable rent which was mutually beneficial. Improvements carried out by the plaintiff to the Demised Property after April 2010 were itemised.
18. It was pleaded that the plaintiff paid the arrears of rent claimed by the defendant on 7th November, 2012 in reliance on the agreement of 8th April, 2010 and in reliance on the defendant’s acknowledgement of it and, in the circumstances, the defendant is estopped from denying the existence of the said agreement and its effect.
19. The plaintiff’s case, as pleaded,was that by purporting to terminate the agreement of April 2010 and by claiming that the contractual rent is €400,000 per annum, the defendant has acted unlawfully, in breach of contract, negligently and in derogation of grant. Further, it was contended that the defendant is by its actions estopped from terminating, resiling from or otherwise denying the ongoing lawful effect of the agreement of April 2010 upon which the plaintiff has relied and continues to rely and that the defendant is estopped from purporting to seek to forfeit the 2009 Lease or re-enter the Demised Property.
20. Two “fallback” positions have been maintained by the plaintiff in the pleadings and at the hearing of the proceedings. The first is that, if the defendant had an entitlement to terminate the agreement of April 2010, it could only do so by notice. The second is that, if that agreement has been terminated, then the plaintiff is entitled to and seeks relief against forfeiture pursuant to s. 14 of the Conveyancing Act 1881 (the Act of 1881).
21. Arising from the foregoing, the primary relief sought by the plaintiff is an order restraining the defendant from re-entering the Demised Property or taking any steps on foot of the forfeiture notice dated 14th January, 2013. The plaintiff has also claimed a declaration that the rent payable by the plaintiff to the defendant under the 2009 Lease is in the sum of €273,225 per annum from 1st April, 2010 up to 1st April, 2014, thereby, apparently, abandoning the claim that the rent payable is €18,000 plus VAT per month.
The defence of the defendant and its counterclaim
(b) any such concessions were part of a temporary arrangement for the reduction of the rent in respect of the Demised Property, The Q Bar and Messrs. and, in circumstances where neither the plaintiff nor any of its related companies or members hold any interest in Messrs., and the defendant no longer has an interest in The Q Bar, the plaintiff is not entitled to continue to assert or rely on the temporary arrangements or concessions given by the defendant;
(c) any agreement to vary the terms of the 2009 Lease is not enforceable by virtue of the provisions of s. 51 of the Land and Conveyancing Law Reform Act 2009 (the Act of 2009), but reliance on the provision, which provides that no action shall be brought to enforce any contract for the sale or other disposition of land unless the agreement on which the action is brought, or some memorandum or note of it, is in writing and signed by the person against whom the action is brought or that person’s authorised agent, was not specifically argued in support of the defendant’s defence at the hearing; and
(d) without prejudice to the foregoing matters, the plaintiff is not entitled to rely upon acceptance by the defendant of part of a liquidated sum due as being in satisfaction of the whole sum due, which, as will appear later, amounts to a plea that the plaintiff gave no consideration for the rent reduction put in place in April 2010 and the so-called rule in Pinnel’s Case applies.
24. In reliance on the forfeiture clause in the 2009 Lease and the failure of the plaintiff to discharge the rent claimed in the notice of 14th January, 2013, the defendant counterclaimed for recovery of possession of the Demised Property and for judgment for arrears of rent and mesne rates.
The plaintiff’s reply and defence to counterclaim
26. The core factual controversy raised on the pleadings is the controversy which has been identified earlier: what if anything was agreed between Barge former landlord and the plaintiff in April 2010 in relation to the future rent payable under the 2009 Lease.
The evidence in relation to the core factual controversy
28. A meeting was held on 25th March, 2013 to address the issue of the rents in relation to the three licensed premises. Present at the meeting were Mr. Quinn, Ms. Quinn and Ms. Kenny on behalf of the landlords and Mr. Hickey and Mr. O’Connell on behalf of the tenants. Mr. Hickey’s evidence was that the position of the tenants was that the rents were too high and they wanted a permanent rent reduction. His evidence was that at the meeting Mr. Quinn agreed to reduce the aggregate rents for the three licensed premises from approximately €1.7m per annum to €1.4m per annum and the breakdown of the reduction between the three premises was to be decided on by the landlords. Mr. Hickey’s evidence was that, as far as the tenants were concerned, the agreement was a permanent agreement, which, as regards the Demised Property, was to last until the next rent review date under the 2009 Lease, that is to say, until 1st April, 2014.
29. Mr. O’Connell’s recollection of what occurred at the meeting of 25th March, 2010 was that most of the meeting was taken up with Mr. Hickey and Mr. O’Connell explaining their position and explaining that a rent reduction would be needed and that a temporary solution would not be adequate. His recollection was that before the meeting came to an end, Mr. Quinn stated, as he put it “quite abruptly”, that he was going to reduce the rent on the three licensed premises to €1.4m and that the breakdown between the three would be addressed by Ms. Quinn and Ms. Kenny and communicated to Mr. Hickey and Mr. O’Connell. Mr. O’Connell’s evidence was that 25th March, 2010 was the first occasion on which the rents payable in respect of the three licensed premises were considered “in the one figure”. Further, the Quinn Group agreed that the rent for the month of March 2010 would be waived in respect of all three licensed premises.
30. By e-mail dated 26th March, 2010, which was the date following the meeting, from Ms. Kenny to Mr. Fitzpatrick, Ms. Kenny summarised what “was agreed” at the meeting with Mr. Hickey as follows:
re [Messrs.] they will still be entitled to the other two month’s free rent (as agreed last year).
this one month’s free rent can be applied against the existing arrears.
From 1st April overall rent on the 3 combined pubs has been reduced to 1.4m. This can be split as we decide. I will call you to discuss this . . ..”
As will be clear from the table, the rent in respect of Messrs. remained the same. Of the revised rent for The Q Bar as set out in the table, €158,383 (or €13,199 per month, which subsequently was the rent reserved by the unexecuted agreement referred to earlier, whereby the leasehold term of The Q Bar was extended for one year from 1st June, 2010) was payable to the Quinn Group and €298,392 was payable to Carlisle. As regards the Demised Property and The Q Bar (including the rent payable to Carlisle), the total reduction of €338,717 represented almost 20% of the aggregate of the rents previously paid by the lessees in respect of the three licensed premises.
32. Effect was given to the revised rents immediately. In respect of each month from April 2010 to December 2010 inclusive, the plaintiff paid the revised rent plus the relevant VAT in relation to the Demised Property to Barge former landlord. However, towards the end of that period, the plaintiff, as Mr. O’Connell put it, started to fall behind with the rent.
33. In her evidence, Ms. Quinn explained the approach adopted by the Quinn Group personnel in offering the Revised Rent Schedule. They wanted to have some logic behind the way they applied the reduction. On the basis of the accountancy information which had been furnished by Mr. O’Connell at the time, the Quinn Group was satisfied that the lessee of Messrs. would be able to pay the then current rent. Therefore, the reduction was split between the lessee of the Demised Property and the lessee of The Q Bar “equally”, which I understand to mean that each lessee got the same percentage reduction, which was in the region of 32%.
34. Ms. Quinn testified as to her understanding of the arrangement between the parties following receipt of the e-mail of 8th April, 2010 from Mr. O’Connell: it was that the proposal made by the Quinn Group was accepted by the lessees. Although Ms. Quinn acknowledged that there was no discussion at the meeting as to for how long the reductions were going to last, her evidence was that the revised annual rent of €273,225 was the rent which was to be paid in respect of the Demised Property from April 2010 until the next rent review. In the case of Messrs. and The Q Bar, the revised rents were to be paid until the end of the relevant leases, which were short-term leases. Ms. Quinn rejected a proposition put to her in cross-examination that what was on offer from the Quinn Group was a package in relation to the three licensed premises. Her evidence was that it was never intended to be a package and that each public house was looked at individually.
35. Two reasons were given by Ms. Quinn in her evidence for the Quinn Group’s willingness to reduce the rent paid by Mr. Hickey’s companies. The primary reason was that the Quinn Group had a long relationship with Mr. Hickey and wanted to keep him as tenant. They did not feel they would get more rent from anybody else. Secondly, even if some other prospective tenant would come close to paying the rent which Mr. Hickey would pay, it would cost the Quinn Group during what she referred to as “the down time”, because they would have had to run the public houses for a month or two themselves until new tenants were installed.
36. In relation to the reference in Ms. Kenny’s e-mail of 26th March, 2010 to “free rent” periods, Mr. O’Connell in his evidence explained that in the previous year, 2009, it had been agreed that Messrs. would be “given three months off rent” in 2009, followed by two months free of rent in 2010 and one month free of rent in 2011. It is clear on the evidence that those concessions were implemented. Ms. Quinn’s evidence was that at the time of the meeting of 25th March, 2010, the representatives of the Quinn Group were of the view that something was needed which was going to be “more long-term” than the arrangement entered into in the previous year because, as she put it, “this to-ing and fro-ing just wasn’t the way we wanted to operate”.
Findings on core factual controversy
38. Fortunately, there is contemporaneous documentary evidence of the consensus as to the amount of the reduction of the rent reserved by the 2009 Lease. The major problem which confronts the Court is that there is no contemporaneous documentary evidence of the intention of the parties as to the duration of the reduction. It is true that the Court has evidence from one of the main players on each side of the negotiations, Mr. Hickey, on the tenant side, and Ms. Quinn, on the landlord side, as to what was their understanding as to what was agreed as to the duration of the reduction and there is consensus between them that it was to be until the next review date, that is to say, 1st January, 2014. However, as I have recorded, Ms. Quinn acknowledged that the duration of the reduction was not discussed at the meeting on 25th March, 2010. Therefore, while I have no doubt that both Mr. Hickey and Ms. Quinn were endeavouring to give the Court a true version of what happened, I suspect their evidence on that point is tinged with hindsight.
39. In order to ascertain what was the intention of the parties in March and April 2010 as to the duration of the rent reduction, it is necessary to consider the surrounding circumstances. What preceded the “Revised Rent Schedule” in the document e-mailed by Mr. Fitzpatrick to Ms. Quinn on 1st April, 2010 was merely a mathematical exercise to work out the impact of various variations, for example, a flat reduction of €9,400 per month in respect of each of the licensed premises. Accordingly, that document is of no assistance in pointing to what the parties intended as the duration of the rent reduction.
40. Mr. O’Connell’s e-mail of 28th January, 2010, following the meeting on 21st January, 2010, is much more helpful. Mr. O’Connell attached a spreadsheet to that e-mail in which he set out the turnover and the rent of each of the licensed premises from the year 2006 and the percentage of rent to turnover. It also gave details of costs incurred by the businesses over the four year period and demonstrated the percentage change in relation to various categories of cost, with a view to demonstrating that the turnover and costs did not decrease in the same proportions. Mr. O’Connell analysed the figures in relation to the Demised Property. He pointed out that sales and gross profits had decreased by 34% over the period. He summarised in a general way what had happened in relation to the various categories of costs over the same period. He pointed out that after provision for the various categories of costs, there was, as he put it, €695,000 left for rent in 2006, whereas in 2009 what was left was €318,000, despite the fact that the costs had been controlled. His point was that with a rent of €400,000 in 2006 there was still a comfortable surplus, whereas by 2009 the business was making a serious loss. It was made clear in that e-mail that what the plaintiff was asking for was “a reduction in rent to a reasonable market rent”. In the subsequent e-mail of 2nd March, 2010, prior to the meeting of 25th March, 2010, Mr. O’Connell furnished further data to the Quinn Group in relation to expenses of the public houses in 2009. In that e-mail he reiterated that it was essential that the rents “should be reviewed to reflect current conditions”.
41. The whole thrust of the plaintiff’s case as made to the Quinn Group in early 2010 urging reduction of rent in relation to the Demised Property was that because of the economic conditions a rent of €400,000 per annum was no longer sustainable. When the Quinn Group, on behalf of Barge former landlord, offered to reduce the annual rent to €273,225 in response to that case and the plaintiff accepted the reduction, in my view, it must be implied that the reduction was to endure while the economic conditions continued to similarly affect the business carried on by the plaintiff in the Demised Property. Such an implied term was reasonable and it gave business efficacy to the landlord and tenant relationship between the parties, which would probably have otherwise collapsed. In contrast, the defendant’s contention that what there was consensus on was that the reduced rent was temporary in nature, applicable on a month to month basis and revocable at will flies in the face of commonsense, because it would patently not have resolved the problem confronting the parties. Moreover, it is inconsistent with what subsequently happened. For instance, when the term of the tenancy in The Q Bar was effectively extended for one year from 1st June, 2010, the agreed reduced rent payable to the Quinn Group lessor was applied for the whole of the extended period.
42. The defendant has, in effect, invited the Court to find that it was an implied term of the agreement reached on 8th April, 2010 that it was a “package deal” and that the rent reductions would only continue in force while a Quinn Group company or its successor was the lessor of each of the three licensed premises and a company owned by Mr. Hickey was the lessee of each. That was certainly not the stance adopted by the defendant when the interest of both the Quinn Group lessor and Balendale in The Q Bar ceased by agreement with Carlisle in December 2011. Apart from that, each of the three licensed premises had, as lessor, a corporate entity which was separate and distinct from other lessor companies in the Quinn Group. Moreover, the corporate lessee of each was separate and distinct from the other corporate lessees, although they were all effectively owned by Mr. Hickey. Aside from the question whether, as a matter of law, the various companies could enter into a package deal of the type suggested by the defendant, which was not addressed at the hearing and on which no view is expressed here, as a matter of commonsense, it is difficult to see how it could benefit the plaintiff to participate in a “package deal” the consequence of which would be that if, say, one of the other lessee companies was liquidated and its lease disclaimed, the agreement in relation to the reduction of the rent on the Demised Property would terminate. Accordingly, I find that, notwithstanding that the consensus reached covered the three licensed premises, there was a “standalone” consensus to reduce the rent of the Demised Property to €273,225, which was to be unaffected by what would transpire in relation to the leases of Messrs. or The Q Bar.
43. In summary, I find that there was consensus between Barge former landlord, the defendant’s predecessor in title, and the plaintiff that the rent payable by the plaintiff in respect of the Demised Property would be reduced to €273,225 per annum and that the reduction would continue while the business carried on by the plaintiff in the Demised Property was adversely affected by prevailing economic circumstances. The legal implications of such consensus will be considered later. It is appropriate now to consider some other factual controversies which arose out of the evidence.
Other factual controversies
44. As recorded earlier, in their letter dated 2nd November, 2012 in response to the first forfeiture notice, the plaintiff’s solicitors contended that the defendant had reduced the rent in respect of the Demised Property to €22,140 inclusive of VAT (i.e. €18,000 plus VAT at 23%) per month from January 2012. Further, in discharging the arrears of rent claimed by the defendant in the accompanying letter dated 7th November, 2012, the plaintiff’s solicitors stated that the arrears were being discharged on the basis that €58,658.70 of the sum paid over was paid without prejudice to the plaintiff’s contention that the reduction of rent had been agreed to by the defendant and that the plaintiff reserved the right to pursue the defendant for recovery of the same.
45. What happened after the consensus reached on 8th April, 2010 that the rent of the Demised Property would be reduced to €273,225, as has already been recorded, was that rent at the agreed reduced rate of €273,225 per annum was paid in respect of the Demised Property for the months of April to December 2010 inclusive, although in the latter part of that period the monthly payments were made late. For example, the payment due in respect of December 2010 was not made until mid-March 2011. It is clear on the evidence that an arrangement was entered into early in 2011 between the Quinn Group, on the one hand, and Mr. Hickey and his companies, on the other hand, that a combined rent of €20,000 plus VAT per week would be paid in respect of the three licensed premises and that the arrangement was to last for a twenty six week period. Mr. O’Connell’s evidence was that the plaintiff paid rent at the rate of €6,694.21 (i.e. one third of €20,000) plus VAT, making a total of €8,100 per week, in respect of the Demised Property from March 2011 and made in total nineteen payments in that amount between 18th March, 2011 and 7th September, 2011. There is no evidence as to how the Quinn Group or its successor appropriated the payments made under the arrangement for payment of €20,000 per week plus VAT in respect of the three licensed premises and, accordingly, I assume it was on the same basis as regards the Demised Property. It is to be noted and, indeed, it was observed in the course of Mr. Morgan’s evidence that €6,694.21 multiplied by 52, gives a figure of €348,088 in respect of a full year, which is higher than the agreed reduced rent of €273,225 in respect of the Demised Property. In any event, after 7th September, 2011, no further payments of rent in respect of the Demised Property were made by the plaintiff until March 2012.
46. Between 6th March, 2012 and 25th September, 2012, the plaintiff made payments of €18,000 plus VAT at the rate of 23% (aggregating €22,140) to the defendant in respect of the Demised Property covering the months of January to September 2012 inclusive. While the defendant accepted the said payments, I am satisfied on the evidence that the defendant did not agree to reduce the rent payable by the plaintiff in respect of the Demised Property to €18,000 per month plus VAT from January 2012 onwards. While Mr. O’Connell’s evidence was that he made a proposal to Mr. Morgan that the plaintiff would pay rent at that level as part of an agreement which would be in place for a period of at least two years, Mr. Morgan did not agree to the proposal but suggested that the plaintiff should start paying that sum anyway, which Mr. O’Connell interpreted as being a “holding agreement” until some other agreement was reached. Mr. Morgan’s evidence was clear: he did not tell Mr. O’Connell that he was accepting the proposal, nor did he tell him that it was a holding arrangement. What he told Mr. O’Connell was that the plaintiff “better pay some rent” because, if the defendant was to come to an arrangement with the plaintiff, the defendant needed “to see rent coming in”. While there was undoubtedly the prospect of a new arrangement between the plaintiff and the defendant in relation to the Demised Property in the background at that time, it did not come to fruition. I accept Mr. Morgan’s evidence that he did not accept the proposal from Mr. O’Connell, because he considered the amount of the proposed rent, €216,000 (exclusive of VAT) per annum, was too low.
47. The manner in which the defendant invoiced the plaintiff in respect of the monthly rent payable in respect of the Demised Property in the period during which the plaintiff was paying rent at the rate of €18,000 plus VAT per month gave rise to some confusion. However, I consider that Mr. Morgan’s explanation as to why the defendant adopted the course it adopted is wholly plausible. It is convenient to illustrate the course adopted by reference to what happened in the month of April 2012. The defendant issued an invoice to the plaintiff for rent for the month of April in the sum of €22,769 (i.e. one twelfth of €273,225), together with VAT at the rate of 23%, the total amount of the invoice being €28,005.87. The defendant also issued a credit note to the plaintiff dated 30th April, 2012 “for difference of rental charge an amount actually received” (€4,769) and VAT at 23%, aggregating €5,865.87. That credit note reflected the difference between the reduced annual rent of €273,225 plus VAT and the rent which the plaintiff was paying on foot of its proposal, €18,000 per month plus VAT. I am satisfied that the invoice/credit note device, which Mr. Morgan testified the defendant used after consultation with the Revenue Commissioners, was designed to limit the liability of the defendant to remit VAT to the Revenue Commissioners on the amount actually received from the plaintiff. The device does not in any way corroborate the plaintiff’s contention that there was a “holding arrangement”, whereby the plaintiff was only liable for rent at €18,000 per month plus VAT from January 2012.
48. In fact, the plaintiff has not pleaded in its statement of claim that the parties agreed to a further reduction of the rent payable in respect of the Demised Property to €18,000 (exclusive of VAT) per month in January 2012. As has been recorded earlier, the declaration sought in the prayer in the statement of claim is a declaration that the rent payable under the 2009 Lease is in the sum of €273,225 per annum from 1st April, 2010 to 1st April, 2014 (the reference to 2015 being acknowledged to be an error).
Intended capital investment by Quinn Group in the amount of €100,000
49. Either at the meeting held on 21st January, 2010 or at the meeting held on 25th March, 2010 there was a proposal that the Quinn Group would invest €100,000 in carrying out improvements to the licensed premises held by Mr. Hickey’s companies as lessees from the Quinn Group or some of them. On the evidence, I think it is probable that the proposal arose at the meeting of 25th March, 2010, because by e-mail dated 1st April, 2010 to Mr. O’Connell, Ms. Kenny asked Mr. O’Connell to put together proposals “for year 100k capital investment as discussed”. Mr. O’Connell had no recollection of responding to that e-mail at the time. However, four months later, he addressed the matter in an e-mail of 3rd August, 2010 to Ms. Kenny. That e-mail was primarily concerned with the payment by Mr. Hickey’s companies of rent over the remainder of the year. Mr. O’Connell stated that they were hoping to make full payment every month, but, in order to achieve this, they were hoping that sales would improve noticeably due to changes they were making in Messrs. and The Q Bar. He concluded the e-mail by stating:
Improvements carried out by the plaintiff to the Demised Property
51. The plaintiff’s witnesses proved that the plaintiff spent over €42,000 in improvements to, and the upgrading of, the Demised Property after 8th April, 2010. More than 50% of the expenditure related to the refurbishment of the kitchen. Other items of expenditure included the installation of CCTV equipment, the purchase of television sets, including a “3D TV and 100 glasses”, and the provision of planters for the external smoking areas. However, the evidence did not establish any direct link between the consensus reached between the representatives of the Quinn Group and the plaintiff to reduce the rent of the Demised Property to €273,225 per annum, on the one hand, and the decision of the defendant to incur such expenditure on improvements and upgrading. Moreover, the plaintiff had obligations under the lessee’s covenants in the 2009 Lease to comply with regulatory requirements and to keep the Demised Property in good order, repair and condition. On the evidence, it is impossible to form a view as to the extent to which the expenditure incurred by the plaintiff was necessary to comply with its obligations under the lessees’ covenants in the 2009 Lease and how much was actually voluntary.
The financial state of the defendant
52. Counsel for the defendant explored the financial state of the plaintiff both currently and in 2012 through cross-examination of the plaintiff’s witnesses. The following facts emerged from the evidence:
(b) Rates in respect of the Demised Property have been paid in full to 31st December, 2012. There is an agreement in place for the payment of rates for 2013, which are to be discharged by 31st December, 2013. Those facts have been confirmed by an e-mail from the Rate Collector.
(c) The plaintiff has an arrangement to discharge accrued water rates in the sum of €14,500, by monthly payments of €1,000 per month.
(d) Invoices issued to the plaintiff in respect of insurance premiums for which the plaintiff is liable in an amount of approximately €20,000 have not been discharged. Mr. O’Connell suggested that there may be an explanation for this. I consider that he cannot be faulted for not being able to give the explanation, as this matter arose, as it were, “out of the blue” in cross-examination. In any event, what the Court is concerned with is the entitlement of the defendant to forfeit the 2009 Lease on foot of the forfeiture notice of 14th January, 2013. Non-payment of the invoices in question was not alleged to be a breach of covenant in that forfeiture notice.
(e) The disclosure by Mr. O’Connell to Mr. Fitzpatrick and Mr. Morgan in August 2012 that Mr. Hickey and Mr. O’Connell had “found it necessary to cease trading through [the plaintiff] and Oreldrove” (per e-mail dated 28th August, 2012 from Mr. O’Connell to Mr. Morgan), gave rise to justifiable concerns on the part of Mr. Morgan, who characterised the unilateral action of Mr. Hickey and Mr. O’Connell as “a breach of trust”. It emerged at the hearing that trading in the Demised Property had been carried on through a company called Bitrill Limited from May 2012. I consider it is not necessary, having regard to the determinations the Court has to make, to come to a conclusion as to the motivation for, and the implications of, that change, although, on an objective assessment, it would seem likely to compound the plaintiff’s problems, rather than resolve them. In any event, it is not surprising that the defendant was not prepared to accede to the plaintiff’s request to give its consent to an assignment of the 2009 Lease to, or the creation of a sub-lease in favour of, Bitrill Limited. However, as regards the Demised Property, that request was not pursued. By e-mail dated 6th September, 2012, Mr. O’Connell informed Mr. Morgan:
Legal issues to be addressed
Given that the consensus as to the reduction of the rent payable in respect of the Demised Property reached between Barge former landlord, the defendant’s predecessor in title, and the plaintiff in April 2010 was not under seal, is the defendant’s submission that –
(ii) accordingly, the consensus did not give rise to an enforceable agreement correct?
Alternatively, is it open to the Court to find that Barge former landlord secured adequate collateral advantages from the plaintiff, so that it can be deemed that there was consideration for the reduction of rent?
If there was no consideration or collateral advantages given by the plaintiff for the reduction of the rent conceded by Barge former landlord, can the plaintiff rely on the equitable principle of promissory estoppel in support of its contention that the defendant was not entitled to increase the rent to €400,000 per annum on 16th November, 2012.
If the answer to (c) is in the affirmative, what is the effect of the doctrine of promissory estoppel, having regard to the facts established? In particular, is the defendant not entitled to withdraw the reduction of rent –
(iii) without giving reasonable notice to the plaintiff, or
(iv) having regard to the finding of fact made by the Court as to the intended duration of the reduction, for some other period.
Was the 2009 Lease effectively forfeited by the defendant serving the forfeiture notice dated 14th January, 2013, or, alternatively, by the delivery of the defendant’s counterclaim on 13th March, 2013?
If the 2009 Lease was forfeited, is the plaintiff entitled to relief against forfeiture?
55. I will consider the law on each of the foregoing issues and its application to the facts of this case in turn.
Consideration: legal principles
57. An interesting and a particularly relevant aspect of the decision in Foakes v. Beer for present purposes is the reference in the speech of Lord Fitzgerald (at p. 629) to the application of the rule in Pinnel’s Case in Ireland by reference to the judgment of Lefroy C.J., in Corporation of Drogheda v. Fairtlough 8 Ir. C.L.R. 98. The issue in that case arose from the reduction of the yearly rent payable under a lease granted by the Corporation of Drogheda. It is convenient to draw on the succinct summary of the facts of that case set out in Clark on Contract Law in Ireland (6th Ed., 2008) at p. 76. Premises were demised by the Corporation to a local clergyman in 1820 for a period of ninety nine years. The Corporation in 1837 passed a resolution agreeing to reduce the rent as a gesture to the tenant but before this could be done he died. The Corporation decided to carry out the resolution and in 1842 the old lease was surrendered by the clergyman’s successor and a new lease was executed in his favour for the remainder of the ninety nine year period at a rent which was approximately half of the old rent. The rent was paid at the new rate until 1854 when the Corporation sued for arrears at the original higher rate from 1842 to 1854. The action succeeded.
58. Lefroy C.J. in his judgment delivered in 1858 outlined the common law principle as follows (at p. 110):
60. In the Selectmove Ltd. case, the Court of Appeal distinguished a decision of the Court of Appeal in Williams v. Roffey Brothers & Nicholls (Contractors) Ltd.  1 QB 1, in which the Court of Appeal had upheld a decision at first instance that an agreement by the defendant main contractor to pay the plaintiff sub-contractor an additional sum over and above the contract price to complete the sub-contract work was enforceable and did not fail for lack of consideration. Rejecting a submission that the decision in that case should be followed, Peter Gibson L.J. stated as follows in In re Selectmove Ltd. (at p. 418):
62. It is beyond question that the rule in Pinnel’s Case still represents the law in Ireland and this Court is bound by it, although the introduction of a new element into the relationship of the debtor and creditor, such as the collateral advantage to the creditor may remove the relationship from the scope of the rule. Moreover, the application of the doctrine of promissory estoppel may obviate an inequitable outcome to which the application of the rule in Pinnel’s Case would otherwise give rise. As Arden L.J. stated, albeit obiter, apropos of the doctrine of promissory estoppel in her judgment in the Court of Appeal of England and Wales in Collier v. P. & M.J. Wright (Holdings) Ltd.  1 WLR 643 (at p. 659):
Promissory estoppel: the legal principles
65. Denning J. went on to state (at p. 136) that, if the case had been one of estoppel (meaning, as I understand it, a case based on a representation as to an existing fact rather than a promise or a representation as to intention in relation to the future), it might be said that in any event the estoppel would cease when the conditions to which the representation applied came to an end, or it also might be said that it would only come to an end on notice, but, in either case, it was only a way of ascertaining the scope of the representation.
66. In Truck and Machinery Sales Ltd. v. Marubeni Komatsu Ltd., Keane J recognised the existence of the doctrine of promissory estoppel in this jurisdiction in the following passage in his judgment (at p. 29):
67. The development of the doctrine of promissory estoppel is briefly outlined in Delany on Equity and the Law of Trusts in Ireland at page 756 et seq. Delany makes the point that one of the guiding principles which arguably has circumscribed the development of the doctrine of promissory estoppel has been that it should not undermine the requirement of consideration. Its operation has been confined to situations where a pre-existing contractual relationship or at least a relationship which gives rise to legal rights and obligations exists. Of course, the landlord and tenant relationship between the defendant and the plaintiff here is a situation in which there is a pre-existing contractual and legal relationship. Apropos of the decision in High Trees, Delany makes the following observations (at para. 757):
68. As Delany remarks in the course of her brief outline of the doctrine, it is often considered in a contractual context and fuller treatment of it is to be found in leading texts in that area, citing Clark op. cit. and McDermott on Contract Law (2001). Having considered both, I think it is true to say there is little divergence as to the current state of Irish law on the doctrine between the authors. McDermott lists the key ingredients of promissory estoppel as being the following:
(b) an unambiguous representation;
(c) reliance by the promisee (and possible detriment);
(d) some element of unfairness and unconscionability;
(e) that the estoppel is being used not as a cause of action, but as a defence; and
(f) that the remedy is a matter for the Court.
70. The authors are also ad idem on the effect of the estoppel: it suspends, not extinguishes, the promissor’s rights (per McDermott at para. 2.127); its effect is to suspend not to give up altogether a legal right, the right to resile from the promise being available where reasonable notice is given (per Clark at p. 79). Applying the suspensory effect of the doctrine to the various circumstances which may arise is the most difficult aspect of the application of the doctrine. In the U.K. textbooks, the terminology used to describe the effect of the doctrine tends to be to describe it as being either temporary or permanent, depending on the factual circumstances.
71. For instance, in Spencer Bower on The Law Relating to Estoppel by Representation (4th Ed.), the editors stated (at p. 486) under the heading “Relief”:
(1) that the other party has already altered his position;
(2) that the promisor can resile from his promise on giving reasonable notice, which need not be a formal notice, giving the promisee a reasonable opportunity of resuming his position; and
(3) the promise only becomes final and irrevocable if the promisee cannot resume his position.”
73. The decision in the Ajayi case was on an appeal from the Federal Supreme Court of Nigeria to the Privy Council. The facts of that case were that the defendant was defending a claim by the plaintiff for unpaid instalments under two hire purchase agreements relating to a number of motor lorries on the basis that, having had trouble with the lorries, the defendant relied on a letter from the plaintiff which stated, inter alia, that it was agreeable to the defendant withholding instalments due on the lorries as long as they were withdrawn from active service. After that letter the defendant had “laid up” the lorries, most of them with the plaintiff, and he contended that the plaintiff could not enforce payment pending the return of the lorries to service. He alleged that no notice had been given to him that the lorries were available for active service and that, as a result of the plaintiff’s promise, he had altered his position in a number of specified respects. On the facts, the Privy Council found that the defendant had not made good the equitable defence, for the evidence did not support his allegation that he had altered his position, and it could not be said to have been proved that the lorries were not made available to him after they had been repaired.
74. The facts in the High Trees case and the facts in the Ajayi case, both of which involved ongoing legal or contractual relationships, illustrate the distinction between the two cases and, consequently, the distinction between the situation covered by the third sentence and the situation covered by the penultimate sentence in the passage from Snell quoted above. In my view, it is that, if the Court can make a finding as to the terms on which there was consensus between the promisor and the promisee as to when the concession would cease, the promisor is entitled to withdraw the condition in accordance with those terms; otherwise, the concession may be withdrawn on giving reasonable notice, unless the promisee can demonstrate that he cannot resume his former position. It would hardly be consonant with fairness and equity, if the promisor could ignore the terms, express or implied, as to the duration of the concession, and terminate it at will or on notice, even on reasonable notice.
Application of legal principles to facts: consideration/collateral advantage
76. While another proposition advanced on behalf of the plaintiff, namely, that a court applying contract law will not scrutinise the adequacy of consideration is undoubtedly correct, the issue with which this Court is concerned is not whether there was adequate consideration. The Court’s task is to ascertain whether there was any consideration and, as Lefroy C.J. had to do, to ask the question: “what is the consideration?” In support of the plaintiff’s contention that it did give consideration for the reduction in rent, counsel for the plaintiff relied on a number of factors.
77. First, it was submitted that the defendant secured the continued commitment to the Demised Property of Mr. Hickey operating through the plaintiff, an experienced tenant with a track record of business success. Further, the defendant avoided the disruption which would have ensued if there had been a change of tenant. I agree with the submission made by counsel for the defendant that that factor, which I have no doubt was present, goes to the motivation for, and demonstrates the rationale behind, the defendant’s willingness to reduce the rent. In this context, counsel for the defendant referred to the reference to Lord Blackburn’s criticism of the rule in Pinnel’s Case in Foakes v. Beer, which was considered in Re Selectmove. There, Peter Gibson L.J. stated (at p. 479):
‘All men of business, whether merchants or tradesmen, do every day recognise and act on the ground that prompt payment of a part of their demand may be more beneficial to them than it would be to insist on their rights and enforce payment of the whole.’
Yet it is clear that the House of Lords decided that a practical benefit of that nature is not good consideration in law.”
78. Secondly, it was submitted that, as part of the plaintiff’s commitment to the Demised Property, it made improvements and capital investments thereto by way of the improvement and upgrading works executed by the plaintiff subsequent to April 2010, which have been outlined earlier, and incurred expenditure in so doing, which will ultimately benefit the defendant as landlord. Even if the plaintiff had no existing obligation to effect all or some of the improvements which were carried out, the evidence does not establish that, as part of the “deal” for the reduction of the rent reserved by the 2009 Lease in respect of the Demised Property the plaintiff entered into a commitment with Barge former landlord to execute the works in question. I find, as a matter of fact, that no such commitment was given by the plaintiff.
79. In summary, the evidence establishes that the plaintiff gave nothing different or additional to, and undertook no new obligation for the benefit of, Barge former landlord in return for the reduction of the rent payable in respect of the Demised Property by 32%. Accordingly, I hold that no consideration moved from the plaintiff for the reduction of rent. Further, I find that no collateral advantage or benefit, whether big or small, was given by the plaintiff to the defendant for the reduction of rent. The plaintiff continued to be entitled to exactly the same rights and benefits under the 2009 Lease after April 2010 as it had been prior to April 2010, but at a considerably lesser rent.
Answer to issues (a) and (b)
81. The answer to issue (b) is that the Court cannot find that Barge former landlord secured adequate collateral advantages or benefits from the plaintiff, so that it can be deemed that there was consideration for the reduction of the rent of the Demised Property.
Application of legal principles: promissory estoppel
(ii) As regards ingredient (c), I am satisfied that the plaintiff did act in reliance on that promise. The plaintiff, through its directors and shareholders, expended time, energy and money in maintaining the business carried on in the Demised Property and in improving and upgrading the Demised Property at a time when proprietors of licensed premises were confronting unprecedented difficulties. While there was very little, if any, positive returns for their efforts, the directors and shareholders of the plaintiff acted in the belief that the lessor would abide by its promise. Insofar as it is necessary for the plaintiff to demonstrate that the promise to reduce the rent payable in respect of the Demised Property caused it to act to its detriment, on balance, I consider that, by reason of the same conduct since 2010, the plaintiff has so demonstrated.
(iii) As regards ingredient (d), I have come to the conclusion that there would be a very strong element of unfairness and unconscionability present if the defendant was allowed by the combined operation of –
(I) the giving by the defendant on 16th November, 2012 of purported notice to the plaintiff peremptorily withdrawing the reduction of rent with immediate effect; and
(II) the service of the second forfeiture notice on the plaintiff on 14th January, 2013 on the basis that arrears of rent had accrued since 16th November, 2012 on foot of the notice of that date purportedly withdrawing the rent reduction, to forfeit the 2009 Lease and recover possession of the Demised Property.
Answer to issue (c)
Effect of promissory estoppel on the facts
The projection for the year 2013, based on the 2009 figure, is €2.450m.
85. While this fact can have no bearing on the Court’s determination of the issues which have to be determined in this case, in my view, the rent of €400,000 per annum in respect of the Demised Property which was payable before the reduction must have exceeded the market rent which could have been obtained for the Demised Property in 2010 to a very considerable degree. It is also reasonable to infer that it exceeded what could have been a sustainable rent having regard to the turnover which the business carried on by the plaintiff in the Demised Property was capable of generating. In this connection, Mr. Morgan’s evidence during cross-examination is of interest. While he would not accept that the reduced annual rent of €273,225 was necessarily above market rent at any time during 2010 or 2011, he did testify that in early 2012 he had sought independent advice in relation to what the market rent should be and he was told that, typically, it would be in the region of 10% to 11% of total turnover. On the basis of the evidence, I have no doubt that a yearly rent in respect of the Demised Property greater than €273,225 is not currently sustainable having regard to the manner in which the plaintiff’s business carried on in the Demised Property has been and continues to be affected by prevailing economic circumstances.
Answer to issue (d)
Forfeiture: issues (e) and (f)
88. In the circumstances, issue (f), namely, whether the plaintiff is entitled to relief against forfeiture, does not arise. Accordingly, the Court does not have to grapple with the submission made on behalf of the defendant that, on the issue of relief against forfeiture, the Court would be entitled to have regard to the persistent failures of the plaintiff to pay the rent due, the rates, and its attempt to assign the lease without the consent of the defendant, which alleged defaults, in any event, in my view, are not entirely consistent with the evidence. Aside from that, glaring incongruity underlies the position adopted on each side. On the one hand, Mr. Morgan’s evidence on re-examination was that, if the plaintiff pays the rent of €400,000 per annum, he would be happy to leave the plaintiff in possession of the Demised Property. On the other hand, if the issue of relief against forfeiture was alive, the Court might derive some comfort from the assurance given by counsel for the plaintiff, in response to a question from the Court, that the plaintiff would seek relief against forfeiture, even if the Court was to hold that the rent is payable at the rate of €400,000 per annum until the next review date.
(b) an order restraining the defendant from withdrawing the reduction of the annual rent of €400,000 reserved by the 2009 Lease to €273,225 effected on 8th April, 2010 while the business carried on by the plaintiff in the Demised Property continues to be adversely affected by prevailing economic circumstances in the manner it was affected in April 2010;
(c) an order dismissing the defendant’s counterclaim.