England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		1 July 2005

Mr. Justice Hart:

1. This is the trial of a preliminary issue in relation to a landlord and tenant matter pursuant to an order of Master Moncaster dated 2^nd December 2004. The claimants are the landlords of premises at Colette House, Piccadilly, London. By a lease dated 12^th April 2001 the premises known as the Second Floor, Colette House were let to the defendant for a term of 5 years commencing on 24^th June 2001 at an annual rent of £66,024 (excluding VAT).
2. The lease contained a clause ("clause 10") in the following terms:

"Either party shall be entitled by giving not less than six months' notice in writing to the other to terminate this lease at the end of the third year of the Term ("Termination Date") and provided that up to the Termination Date in the case of a notice given by the Landlord the Tenant shall have paid the rents hereby reserved and shall have duly observed and performed the covenants on the part of the Tenant and the conditions herein contained this lease shall absolutely cease and determine on the Termination Date but without prejudice to any right or remedy of either party in respect of any antecedent breach by the other of the provisions of this lease"

3. By a notice given by a letter dated 10^th December 2003 the defendant purported to bring the lease to an end pursuant to that clause. In the action the claimants have disputed the effectiveness of that notice on the grounds that the defendant was in breach of its obligations under the lease as at the termination date. The defendant's primary case is that it is irrelevant whether or not it was in breach of the terms of the lease as at the termination date because its right to break was unconditional. Its alternative case is that any breach had been cured by the termination date as the result of a tender of a sum of money in respect of dilapidations. This preliminary issue is not concerned with that secondary question.
4. The question with which I am concerned is whether the defendant's right to terminate the lease was conditional on it having duly observed and performed its covenants at the termination date. It is common ground that such conditionality exists, if it exists at all, solely because of the express wording contained in clause 10. The difficulty for the claimants is that the express wording in clause 10 applies only "in the case of a notice given by the landlord". The claimants contend that on their true construction these words should be read as if they said "in the case of a notice given by the tenant" or, which amounts to the same thing, "in the case of a notice given to the landlord". Alternatively, the claimants contend that clause 10 should be rectified so to provide.
5. The history of the parties' relationship is set out in the witness statement of Brian John Levan dated 17^th February 2005. Mr Levan had acted for the defendant throughout its occupation of the premises as its solicitor. The defendant had originally occupied pursuant to an underlease dated 7^th February 1983 expiring on 21^st June 1988. Following service by the defendant of a section 26 notice dated 24^th November 1987 a new lease dated 3^rd December 1990 was granted, for a period of 10 years from 15^th February 1991 but with a break clause giving either party an option to determine the lease at the end of the fifth year on 6 months' prior written notice. That break clause contained no provisions making its exercise conditional on the defendant complying with the terms of the lease. The defendant exercised its option under that break clause and a new lease was negotiated dated 7^th March 1996 for a term of 5 years from 15^th February 1996. That lease contained no break clause.
6. On 1^st June 2000 the defendant served a section 26 notice in respect of the 1996 lease. The validity of that notice was challenged and, following the issue of proceedings in the county court by the defendant seeking the grant of a new tenancy, the question of the validity of the section 26 notice was directed to be tried as a preliminary issue. However, before that hearing took place, negotiations between the parties' respective agents (Mr Reiff for the defendant and Goodman Mann for the claimants) resulted in terms for a new lease being agreed, the terms being set out in a letter dated 11^th December 2000 from Mr Robert Littman on behalf of the claimants to Miss Alison Jane Gowman, a partner in the firm of DLA Piper Rudnick Gray Cary UK LLP, the claimants' solicitors. Those terms were as follows:

"Term 5 years with mutual break after 3 years

Term Commencement 24^th June 2001

Rent £36 per sq ft. The exact area will be agreed by both parties' surveyors early in the New Year.

Service Charge Capped at £7 per sq ft.

Rent Deposit The existing rent deposit will remain in place."

7. Miss Gowman prepared for Mr Littman's consideration a draft lease which followed the form of the 1996 lease but included, by way of rider, a new clause 10 in the following terms:

"The Tenant shall be entitled by giving not less than... six month[']s['] notice in writing to the Landlord to terminate this lease at the end of the ( third year of the Term ("Termination Date") and provided that up to the Termination Date the Tenant shall have paid the rents hereby reserved [and shall have duly observed and performed the covenants on the part of the Tenant and the conditions herein contained]:

1. this lease shall absolutely cease and determine on the Termination Date but without prejudice to any right or remedy of the Landlord in respect of any antecedent breach by the Tenant of the provisions of this lease…"

8. That rider consisted of a page from what appears to have been a precedent used by her firm which she had adapted. The precedent contained the following note:

"The following amendment should be inserted in clause 7 where the Tenant is to have the right to determine. In the light of the Trane decision, no well advised tenant is likely to make performance of covenants a pre condition; many will resist payment of rent as well. Provision is made for the Tenant to hand over its registered title documents if the break is exercised to facilitate closure of the Tenant's title."

9. Mr Littman's response, so far as material, was to say by a letter dated 27^th December 2000:

"c) The lease gives the tenant the option to break after three years. What was agreed was a mutual break and a clause will need to be added giving us the right to serve notice on the tenant."

10. Miss Gowman then altered her existing draft by making the break clause mutual and by including the words "in the case of a notice given by the landlord". She then sent that draft lease both to Mr Littman and to Mr Levan. The draft lease so sent was in the form (so far as the present point is concerned) of the lease as eventually executed save that the draft clause 10 was (as were all other departures from the 1996 lease) double underlined.
11. It is quite plain that clause 10 as it stands is an absurdity. There can be no rhyme or reason in making the exercise by the landlord of its right to terminate conditional on the performance by the tenant of its obligations under the lease. No commercial purpose in such a provision can be imagined. Moreover the inclusion of such a provision would put it in the power of the tenant, by its own breach of covenant, to defeat the right conferred on the landlord. Although there is nothing grammatically or syntactically wrong with the formulation, it is in my judgment obvious that something has gone wrong with the clause. A landlord needs a condition of this kind in relation to its right to break in the same way that a fish needs a bicycle.
12. For the claimant it was submitted that not only was it obvious that something had gone wrong with the clause but that it was also obvious what the error was. The error was to have used the words "in the case of a notice given by the landlord" when what was intended was "in the case of a notice given by the tenant". On that basis, Mr Ayres submitted on behalf of the claimants that the court could, as a matter of construction, simply read the reference to "landlord" as a reference to "tenant" in accordance with the principle set out in the judgment of Clarke LJ in Holding & Barnes plc –v- Hill House Hammond Limited (Number 1) [2001] EWCA Civ 1334, [2002] L&TR 7, 103 at paragraphs 17 to 21, per Sir Martin Nourse ibid. at paragraph 46 and per Peter Gibson LJ ibid. at paragraph 50, and in Jis (1974) Limited –v- MCP Investment Nominees Limited [2003] EWCA Civ 721 per Carnwath LJ at paragraphs 14 to 19.
13. Mr Rutledge on behalf of the defendant conceded that something could be seen as having gone wrong with the clause, but submitted that it was not the kind of error which could be corrected by a process of construction. That, if I understood his submissions correctly, was for two reasons. First, he submitted that because the clause was grammatically and syntactically unexceptionable, and semantically possible, it was not correct to say that it was obviously mistaken. Secondly, he submitted that, while the clause as drawn admittedly produced an odd result, it was not possible to say what really had been intended. This latter submission he put in two different ways. First he suggested that the real mistake which had been made had been a mistake on the part of Miss Gowman in including any words of conditionality at all. He suggested that she had had no instructions at any stage to include words of conditionality in the draft to be proffered to the defendant, and had included them either by mistake (not realising the extent to which they added to the import of what had been agreed between the agents), or deliberately but without instructions. On either view, it was submitted, there was no evidence that the claimants ever intended that the tenant's right to break should be subject to conditionality.
14. Even if it were relevant to the question of construction, I do not think that this submission can succeed on the facts. Miss Gowman had plainly indicated to Mr Littman her intention of proffering to the defendant a conditional formula in relation to a notice given by the tenant. Mr Littman did not demur to that indication, although he made the point that the clause needed to be expanded so as to give the landlord a right to terminate. There can be no doubt in my judgment that the inclusion of the words of conditionality in the draft lease proffered to the defendant was deliberate. I should add that I also have no doubt, having heard his evidence, that Mr Levan perfectly understood what Miss Gowman's intentions were and assumed them to reflect those of the claimants.
15. An alternative way of putting the case, suggested by the court, was that it was not obvious what the error was since it might have been the case that Miss Gowman had deliberately introduced some qualification in relation to a notice given by the landlord but had then accidentally included an entirely inapposite condition which was relevant only to a notice given by the tenant. The weakness of that approach however is that it is difficult (and I have found it impossible) to hypothesise any corresponding condition which either party could sensibly have wished to introduce in relation to a notice given by the landlord.
16. In my judgment, looking at the clause it is obvious not only that a mistake has been made in its formulation but also obvious what that mistake is. I would accordingly construe the words "in the case of a notice given by the landlord" as "in the case of a notice given by the tenant".
17. That conclusion renders it strictly unnecessary for me to consider the claimants' alternative case based on rectification. However, in case the matter goes further, I should set out the facts which I have found relevant to that issue.
18. The type of rectification relied on in the event was rectification based on unilateral mistake. For that purpose the claimants need to establish: first, that they had intended that the tenant's right to break should be conditional and erroneously believed that the lease contained a provision to that effect; secondly, that the defendant was aware that the failure to include such a provision was due to a mistake on the part of the claimants; and, thirdly, that the defendant omitted to draw the mistake to the notice of the claimants: see the judgment of Buckley LJ in Thomas Bates & Son Ltd –v- Wyndham's (Lingerie) Limited [1981] 1 WLR 505 at 516A-B. Those are necessary, but not sufficient, conditions for the doctrine to be invoked. A fourth element is required, namely either that the mistake must be one calculated to benefit the defendant (see Buckley LJ ibid.) or to be detrimental to the claimants (see Eveleigh LJ ibid. at 521A).
19. So far as the first of those requirements is concerned, Mr Rutledge submitted that there was insufficient evidence before the court that the claimants did believe that the documents contained the provision in question. I agree that the evidence is slight, but in my judgment it is sufficient. Mr Littman clearly knew that Miss Gowman was going to put forward a form of lease which contained words of conditionality in respect of the tenant's right to break. Moreover the claimants executed a lease which contained the relevant words of conditionality.
20. So far as the second element is concerned, the relevant knowledge was that of Mr Levan. I heard evidence from Mr Pollock, the director of the defendant responsible for giving instructions to Mr Levan, and was quite satisfied that he was unaware at the time either of the fact that words of conditionality had been included in the lease or of Mr Levan's attitude to that wording in recommending that the lease could be executed in the form negotiated by him. Mr Levan's evidence was to the effect that he had simply not concerned himself with whether or not the proffered clause made sense from the landlord's point of view: his only concern had been to ensure that it was acceptable to the tenant. Although he stoutly maintained that position in his answers in cross-examination, he was constrained to admit in the end, in answer to questions from me, that he had appreciated that the language with which he was presented did not achieve what the landlords were apparently seeking to achieve, that what they had apparently in mind was to subject the tenant's right to break to a condition which had not been previously canvassed in the negotiations between the parties, and that he felt free to advise his client to accept the lease because the landlord's wording did not in fact achieve its intention. As he put it to me: "I felt no shame in doing what I did because the landlord had tried to introduce a clause which had not been agreed". I think it may also have been the case that Mr Levan felt that he owed the claimants no favours since they had attacked the validity of what he described as "my" section 26 notice.
21. Mr Levan in my judgment came as close as it was possible to do, without actually saying so, to admitting that he knew that Miss Gowman had made a mistake in her drafting of the clause, which he determined to take advantage of on behalf of his client. On any view that was not, in my judgment, a prudent course for him to have taken on behalf of his client, since it exposed his client to the argument on construction which I have held in the event succeeds. Whether it was also a course of conduct which renders it inequitable for his client to insist on the literal meaning of the clause is another matter. This is not a case (as most of the reported cases are) where the mistake results in the previously common intention of the parties not being realised in the ultimate written document. In the present case there was no previous common intention that the tenant's right to break should be conditional. I accept also Mr Pollock's evidence that, had the landlord persisted in a requirement of conditionality, he would have caused the defendant to look for premises elsewhere. However, Mr Levan's knowledge of the claimants' mistake has to be imputed to the defendant for the purposes of the doctrine. The question therefore is whether the landlord's attempt to include in the draft lease a provision which had not previously been canvassed in the negotiations between the parties itself justified Mr Levan in taking advantage of the mistake which the landlord's solicitor made in doing so. I do not think it does. In the first place, there does not seem to me to have been anything underhand or otherwise open to criticism in the way in which Miss Gowman introduced the clause. Secondly, even if there had been, equity does not usually proceed upon the basis that two wrongs make a right.
22. Had it been necessary to decide the point I should therefore have held that it would have been unconscionable for the defendant to have resisted the rectification sought.