British
and Irish Legal Information Institute
Freely Available British and Irish Public Legal Information
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> KPMG Llp v Network Rail Infrastructure Ltd [2006] EWHC 67 (Ch) (31 January 2006)
URL: http://www.bailii.org/ew/cases/EWHC/Ch/2006/67.html
Cite as: [2006] EWHC 67 (Ch)
[New search] [Printable RTF version] [Help]
CHANCERY DIVISION
Strand, London, WC2A 2LL |
||
B e f o r e :
____________________
| KPMG LLP |
Claimant |
|
| - and - |
||
| Network Rail Infrastructure Ltd |
Defendant |
____________________
Michael Driscoll QC and Tom Leech (instructed by Thomas Eggar) for the defendant
Hearing dates: 29th & 30th November, 2nd, 5th, 6th, 7th and 8th December 2005
____________________
Crown Copyright ©
- These proceedings raise two main issues, the construction of a tenant's break clause and (depending upon how that issue is resolved) a claim to rectification of that clause. They arise out of the terms on which the claimant, KPMG LLP, occupies office premises at 1 Puddle Dock, London EC4. KPMG currently holds the property as sub-undertenant of the defendant, Network Rail Infrastructure Ltd, pursuant to a reversionary sub-underlease which is dated 11 July 1985 and was granted for a term of 31 years from 25 July 1998. The sub-underlease was made between British Railways Board ("BRB") as landlord and Messrs P J Butler, R V J Chadder, T F L Webber and G Acher acting on behalf of themselves and the other partners in the accountancy firm then known as Peat Marwick Mitchell & Co ("PMM") as tenant. The landlord's reversionary interest has come to be held by the defendant, Network Rail, and the tenant's interest by KPMG.
- So far as it is necessary to state at this stage, the site at 1 Puddle Dock, which adjoins Blackfriars Bridge, was redeveloped in 1970s by the construction on it of office premises. This occurred as a result of a co-operative venture between the freehold owners who were BRB (as to a part) and King's College, Cambridge (as to the remainder). The development was complicated by various third party interests, including those of the (then) London Transport Executive and the City of London Corporation. A particular problem was the presence at and under the site of Blackfriars Station of an underground line. The details of this do not matter.
- The ultimate legal structure which was adopted was that on completion of the development by BRB and King's College, a lease and underleases would be contemporaneously granted so as to result in BRB holding the premises as undertenant for a term of 99 years less 3 days on the footing that it would grant a 52 year sub-underlease of the premises to PMM. So far as PMM was concerned, the structure was reflected in an agreement for lease (the Agreement for Lease) dated 13 December 1974 and made between (1) BRB (2) King's College and (3) partners representing PMM. The Agreement for Lease provided, among other matters, for the construction of offices (to be carried out in two stages) in accordance with certain plans and specifications, a provision for the calculation of the annual rent for the premises to be payable by PMM and the grant by BRB to PMM of a sub-underlease for a 52 year term commencing from the date of practical completion of stage two of the development and at the rent calculated in accordance with the earlier provision. By clause 10 the sub-underlease was to be in the terms set out in the form of the document annexed to the Agreement for Lease:
- Practical completion of stage 2 of the development occurred in 1977. There was a considerable delay, however, in the formal grant of the various leasehold interests. A further eight years were to pass before they were granted.
- In the meantime, King's College and BRB agreed between them a large number of amendments that they wished to make to the form of sub-underlease annexed to the Agreement for Lease ("the annexed sub-underlease"). Some were occasioned by the fact that the development had by then been completed (for example, the incorporation for use in connection with the operation of the rent review provisions of a schedule of floor areas on each floor level of the new building). Others were in the nature of drafting improvements. Yet others were changes which King's College and BRB wanted in their own interests as landlords and which on any fair reading of clause 10 of the Agreement for Lease went beyond what was contemplated by that clause (for example, the insertion of a provision restricting the extent to which the tenant would be entitled to underlet without the need for consent). Some of these amendments were agreed by PMM, some were not and some were agreed only after further amendments. Very much towards the end of this process, in order to accommodate PMM's wish to achieve a saving of stamp duty, it was agreed by BRB and King's College that PMM's 52 year lease would be split into two: (a) a sub-underlease ("the initial sub-underlease") for 21 years from 25 July 1977 taking effect immediately in possession and (b) a 31 year reversionary sub-underlease ("the reversionary sub-underlease") for the remainder of the 52 year term calculated therefore from 25 July 1998 and taking effect in possession on the expiry of the initial sub-underlease.
- Eventually, on 11 July 1985, this was how the matter was completed. The two sub-underleases were granted. They incorporated the many amendments that had been made to the annexed sub-underlease resulting from the exchanges between the parties over the preceding years.
- The break clause which has given rise to these proceedings is contained in the reversionary sub-underlease. (The initial sub-underlease contained no break clause.) The grant of the 31 year term from 25 July 1998 is subject "to the right for the Tenants to determine this lease as provided by paragraph 5 of Part II of the Fifth Schedule hereto …". Part I of the fifth schedule contains the schedule of floor areas in the completed building to which I have already referred. Part II is brought into play in the reddendum to the lease which reserves, as the initial rent, a sum equal to the rent payable under and at the expiry of the initial sub-underlease. The rent is expressed to be payable quarterly in advance on the usual quarter days and is made "Subject to increase on review pursuant to the provisions contained in Part II of the said Fifth Schedule hereto…".
- Part II of the fifth schedule is in the following terms:
- The dispute concerns the meaning of the words "and thereafter during the year immediately preceding the eleventh and twenty-first years respectively of the said term" to be found in the latter part of the parenthesis contained in paragraph 5. Those seventeen words, insofar as they are introduced by the phrase "and thereafter", do not sit at all easily with the words which precede them in the parenthesis or with the wider structure of the paragraph.
- Network Rail contends that this is because, when typing out the sub-underlease (in the course of King's College and BRB agreeing between themselves amendments to it before it was submitted, with the amendments, to PMM for the latter's approval), certain words were erroneously left out. Those words, which for convenience I shall refer to as "the relevant words", are as follows:
- Those words appeared in paragraph 5 of the fifth schedule as it appeared in the annexed sub-underlease. The earlier paragraph 5 was in the following terms (italicised emphasis added):
- When the relevant words are inserted into the parenthesis, paragraph 5 of the reversionary sub-underlease reads as follows (with the relevant words set out in italics):
- Network Rail contends, for reasons I will come to later, that it is permissible as a matter of construction to read and construe the paragraph as if it contained the relevant words and that, if this is done, it is plain how the break clause operates. In such event it operates, and only operates: (a) if there has been a rent review of the rent payable at the expiration of the first, eleventh and twenty-first years respectively of the term, (b) if the particular rent review results, on determination, in an increase in rent payable, (c) if the tenant serves a written notice to break of not less than six months, (d) if the notice is given to expire on a quarter day and (e) if the quarter day falls not earlier than the expiry of the third year of the term (in the case of an increase in rent following a determination on a rent review taking place at the expiry of the first year of the term) or not earlier than the expiry of the thirteenth year of the term (in the case of an increase of rent following a determination on a rent review taking place at the expiry of the eleventh year of the term) or not earlier than the expiry of the twenty-third year of the term (in the case of an increase in rent following a determination on a rent review taking place at the expiry of the twenty-first year of the term). It is pointed out that the alteration in the relevant years of the term (comparing paragraph 5 as it appears in the reversionary sub-underlease with paragraph 5 as it appears in the annexed sub-underlease) is occasioned by the splitting of the 52 year term into two so that the twenty-fourth year of the term, as referred to in the annexed sub-underlease, has become the third year of the term in the reversionary sub-underlease, and so on in the case of the other years referred to.
- In effect therefore Network Rail contends that the tenant has three, and only three, opportunities of breaking the lease, each of which is dependent upon the landlord activating the rent review machinery at the expiry of the relevant year of the term, and then only if the rent review results in an increase in rent.
- KPMG contends that it is not permissible to construe paragraph 5 as if it contained the relevant words. It contends that the paragraph as it appears in the reversionary sub-underlease is quite capable of construction and that, fairly construed, it provides the tenant with five opportunities to break the lease. Three of them can only be exercised after a rent review has taken place and then only if the rent review in question is of the rent payable from the end of the first, eleventh and twenty-first years of the term. These break rights are not dependent upon the rent review resulting in an increase in the rent payable but if on the wording of the remainder of the fifth schedule it is the landlord alone which can invoke the right to have the rent reviewed, then the exercise of these rights is dependent upon the landlord electing to activate the rent review machinery by serving a rent review notice. The remaining two opportunities to break are, as it was described, "free-standing" in that they are not dependent in any way upon the landlord's actions. These further opportunities are (a) a right to break (by giving not less than six months' written notice expiring on any quarter day) if served during the tenth year of the term and (b) a similar right if the written notice is served during the twentieth year of the term.
- KPMG has a fall-back position. This is that part II of the fifth schedule should be construed as conferring (by implication) on the tenant a right to activate the rent review machinery.
- Network Rail has two fall-back positions. The first is that, even if it is not permissible to read in the relevant words and the tenant does indeed have two additional break rights, those rights are, like the other three rights, dependent upon there having been a prior rent review. Network Rail's final fall-back position, prompted by a passing remark from myself, is that the words from "and thereafter" to the end of the parenthesis in paragraph 5 can be ignored as meaningless.
- The practical significance of the dispute on construction has been whether the tenant enjoys the two free-standing rights to break. This is because, subject to KPMG's fall-back contention, the other rights to break depend upon the landlord choosing to activate the rent review machinery with the consequence that it is always open to the landlord to forego the right in order to deny the tenant the opportunity to break. That the landlord should choose not to activate the rent review machinery is far from fanciful. I am told that it chose not to serve a review notice at the end of the first year of the term. It will be open to Network Rail (or whoever the landlord may then be) to seek a rent review at the end of the sixth year of the term but that will not trigger any break right in the tenant (whatever the outcome of the rental determination) since the sixth year of the term, like the sixteenth and twenty-sixth years of the term, is not one to which any break right in the tenant is attached.
- With that summary of the respective positions on construction, I now come to the parties' detailed submissions. I begin with those of Miss Williamson QC who appeared with Mr Fowler, instructed by Linklaters, on behalf of KPMG and then come to those of Mr Driscoll QC who appeared with Mr Leech, instructed by Thomas Eggar, on behalf of Network Rail.
- Miss Williamson submitted that, although not well drafted, the provisions of paragraph 5 as a whole, and the final seventeen words of the parenthesis in particular, are capable of sensible construction and that it would be quite wrong to dismiss those words as either surplusage (since they do not duplicate anything) or as devoid of effect (since it is perfectly possible to give them a sensible meaning). The starting point, she said, is the instrument, the reversionary sub-underlease itself, which contains the words in which the parties have chosen to express their bargain. This is particularly so where, as here, the parties have expressed their bargain in a legally drafted document.
- She pointed to the so-called "five principles" set out in the speech of Lord Hoffmann in Investors Compensation Scheme v West Bromwich Building Society [1998] 1WLR 896 which emphasise that a contract is to be construed objectively in the light of any relevant fact surrounding the transaction and known to the parties which a reasonable man would have in mind as shedding light on the parties' meaning of the words used. But those facts, as Lord Hoffmann pointed out (see the third of the five principles), exclude, for reasons of practical policy, evidence of negotiations or of the parties' subjective intentions which are only admissible in rectification claims. This is not least because it is a matter of speculation how far such negotiations or intentions were carried into effect.
- To similar effect, she said, is the parol evidence rule which excludes evidence designed to add to, vary or contradict written terms of a contract made wholly in writing. This extends to an antecedent agreement, such as the Agreement for Lease and in particular the annexed sub-underlease, which, as occurred here, is superseded by the later agreement, here the initial and reversionary sub-underleases. Since the later instrument has superseded the earlier and it is impossible, without more, to say, to the extent that the two differ, that the parties have not intended to alter the terms of their earlier bargain, it follows that the terms, and a fortiori any arguable meaning, of an antecedent agreement are of no assistance and therefore of no relevance in construing the words of the instrument which the parties finally used to express their bargain. She referred me to the following passage from the judgment of Rix LJ in HIH Casualty and General Insurance Ltd v New Hampshire Insurance Co [2001] 2 Lloyds Rep 161 at paragraphs 81 to 84:
- It may very well be that the fact that there was an antecedent agreement, in this case the Agreement for Lease, is an admissible background fact but, for the reasons explained by Rix LJ, that fact is of little if any assistance and the terms in which, in that earlier agreement, the parties have expressed themselves, of no assistance. Beyond that the only admissible background facts are (1) the nature of the property (commercial office premises) and (2) the fact that the reversionary sub-underlease follows immediately on from the expiry of the initial sub-underlease. Indeed, the initial sub-underlease is referred to in the reversionary sub-underlease for the purpose of identifying the initial rent payable under the latter.
- Looking simply at paragraph 5 which alone sets out the tenant's break rights the right to break the lease arises if (1) the tenant is "desirous of determining … the said term … at any time after the expiration of the third thirteenth and twenty third years of the … term" but since the thirteenth and twenty-third years are necessarily "after the third" year of the term, the effective requirement is a decision to determine at any time after the third year of the term, (2) the tenant serves "not less than six calendar months' notice in writing" and (3) the notice complies with the conditions set out in the ensuing parenthesis. If those three matters are fulfilled then, on expiry of the notice, the term ceases but without prejudice to accrued rights.
- It is the conditions of the notice set out in the parenthesis that require close consideration. What are those conditions? They are (1) that the notice is given so as to expire on a quarter day which can be any quarter day and (2) that it is given either (a) "within a period of six months following the determination of the reviewed rent to be payable from the expiration of the first eleventh and twenty-first years respectively" of the term or (b) "during the year immediately preceding the eleventh and twenty-first years respectively of the said term" (ie, during the tenth and twentieth years of the term).
- Miss Williamson accepted that this approach construes "and thereafter" as meaning "and otherwise" or "and after this availability" or "and separately" or, more simply, as "or". She pointed out that, in context, the expression "and" can mean "or" (or the other equivalents just mentioned). She submitted that this approach was justified by reference to the expression "during" which follows "and thereafter". "During" can only sensibly be a reference to a further occasion when a valid notice may be given; the draftsman is identifying when this separate right to break the lease arises. The word is pointing to a separate "block" of break rights. The first "block" begins to take effect after the first year of the term (conditional upon there being a rent review) but is not effective to determine the lease before the expiry of the third year of the term. The second (free-standing) "block" comes into play only at a rather later date, namely not before the tenth year of the term and hence "thereafter" as regards the inception of the first block. It is also to be noted, she said, that the tenth and twentieth years of the term are apparently unrelated to any rent review at the end of the first, sixth, eleventh, sixteenth, twenty-first and twenty-sixth years of the term. Another way of understanding the word "thereafter" she said is to read it as if it had been followed by the expression "respectively" so that the two further break dates (triggered by service of notices in, respectively, the tenth and twentieth years) are respective to the prior expiry of the first and third years of the term (in the case of the free-standing break right arising in the tenth year of the term) and to the prior expiry of the eleventh or thirteenth years of the term (in the case of the free-standing break right in the twentieth year of the term).
- She went on to submit that there was nothing extraordinary about the tenant having two sets of break rights especially, given the initial sub-underlease, as the tenant is in occupation under what is effectively a 52 year term with the right to break arising, at the earliest, not before the expiry of the twenty-fourth year of the overall term.
- She submitted that the words "and thereafter" cannot sensibly refer to and be dependent upon the antecedent rent determination. There is no sense in giving the tenant two break rights linked to the same rental determination. That apart, the words "and thereafter" more naturally relate to the inception of the first "block" of break rights than they do to the determination of the rent payable at the end of the first, eleventh and twenty-first years of the term.
- She accepted that the result for which she contends could have been more simply expressed but, on any view, the paragraph is oddly worded. For example the expression "at any time after the expiration of the third, thirteenth and twenty third years of the said term" is unhappily worded (why refer to the thirteenth and twentythird at all and, in any event, how long after is "after"?). Likewise the expression "not less than six calendar months notice". It invites the question: how much longer than six months may the notice be? Also the expression "the year immediately preceding the eleventh and twenty-first years … of the said term". It could more simply have referred to the tenth and twentieth years. But that is how the parties have chosen to express themselves.
- Miss Williamson's fall-back submission, which assumes that, and therefore only arises if, the sole right in the tenant to break the lease is dependent upon there having been a prior rent review, depends upon an implication by reason of business efficacy. She submitted that if the tenant's break right (ex hypothesi dependent upon there having been a rent review) is not to be thwarted by the landlord foregoing a rent review in the relevant year (namely, at the end of the first, eleventh and twenty-first years), it is necessary as a matter of business efficacy to imply a right in the tenant itself to initiate a review. That can be achieved by construing the opening words of paragraph 2 of part II (of the fifth schedule) as if after "the date of" in the expression "within three months after the date of service of the review notice" the words "or for" had appeared so that the opening words should mean "if the Landlord and Tenants cannot agree within three months after the date of service of or for the review notice…". It is permissible, she said, to do this since paragraphs 2 and 3 are more a matter of review machinery than of substance.
- Moreover, it was to be noted, she said, that by paragraph 3 of part II - concerned with what rent is payable if the landlord fails to initiate the rent review machinery within the period permitted by paragraph 1 of part II or if by the relevant review date the parties have not agreed what the reviewed rent is to be and the valuer (appointed under paragraph 2) has not given his decision - it is apparently provided that the old rent should only continue to be payable until either an agreement has been reached on the reviewed rent or a determination has been made by the valuer. In short, paragraph 3 appears to envisage that even if the landlord does not exercise his right to initiate a rent review the old rent will continue to be payable but only until such time as there is an agreed rent or a decision by the valuer. This implicitly recognises that a mechanism exists to bring about a determination in the absence of a landlord's notice triggering the rent review machinery. That can only sensibly be if the tenant can initiate the determination machinery. That gives force, she said, to the suggested implication.
- Network Rail's belief, said Mr Driscoll, is that in the process of transcribing the annexed sub-underlease the typist's eye wandered from the expression "the said term" where that expression occurs on the ninth line of paragraph 5 (as set out at paragraph 11 above) to the same expression where it next occurs in that paragraph missing out the words in between. (This phenomenon is technically known, it seems, as an homoeoteleuton.) The error was not picked up by those responsible for checking the draft and fed through into subsequent drafts and eventually into paragraph 5 in the executed reversionary sub-underlease. Mr Driscoll submitted that the omission of the relevant words was an obvious mistake and that the natural reading of the paragraph without those words makes no sense, commercial or otherwise. It was, he said, nonetheless an obvious mistake even though, as he accepted, many lawyers had failed over the years to spot it. In response to KPMG's suggested construction, he asked why the parties would agree that the tenant could break the lease on three specific dates but only if there had been an increase in rent on review but at the same time agree that the tenant should have an unqualified right to break the lease that was not linked to any increase in rent but was (a) wholly independent (b) exercisable, apparently, "at any time after the third year" but (c) with its exercise postponed to the tenth year of the term and before any review at the end of the eleventh year. He submitted that when paragraph 5 as appearing in the reversionary sub-underlease is compared to the corresponding paragraph in the annexed sub-underlease it was obvious what had happened: two lines of text had been missed out in the course of retyping the draft.
- He submitted that, if satisfied that the mistake occurred and is obvious and that paragraph 5 makes no sense without the relevant words or even if satisfied merely that it makes better sense with them, the court should correct the matter by reading the relevant words into the paragraph as a matter of construction. That was subject only to changing the dates set out in the relevant words so that they accord with the altered dates elsewhere in the paragraph consequent upon the division of the original 52 year term into the initial and reversionary sub-underleases. As so construed, paragraph 5 gives only three rights to break and operates in the way to which I have already referred (see paragraph 13 above).
- Mr Driscoll accepted that even as originally drawn in the annexed sub-underlease paragraph 5 was not perfectly worded. He instanced the reference to six calendar month's notice in writing (neither more nor less) in the fourth line of that draft and to the fact that a notice of that length would fall short of the minimum needed if the review rent should be agreed or determined at any time earlier than 18 months after the review date. He pointed also to the reference towards the end of the parenthesis to "during the year immediately preceding the thirty-second and forty-second years respectively …" which, he said, should have read "during the years immediately preceding the expiration of the thirty-second and forty-second years respectively …".
- Mr Driscoll's primary submission was that in construing paragraph 5 it is permissible, contrary to Miss Williamson's submissions, to have regard to the wording of paragraph 5 as it appears in the annexed sub-underlease. He submitted not only that the Agreement for Lease with the annexed sub-underlease (including the very words of paragraph 5) was admissible "background" against which paragraph 5 of the reversionary sub-underlease falls to be construed but also that all subsequent negotiations, which it is common ground took place between the making of the Agreement for Lease on 13 December 1974 and the execution of the initial and reversionary sub-underleases on 11 July 1985, are inadmissible background and are to be wholly disregarded.
- He submitted that authority justifies this conclusion. He referred to East v Pantiles Plant Hire Ltd [1982] 2 EGLR 111 at 112A in which Brightman LJ stated that two conditions had to be satisfied before a mistake in a written instrument could be corrected as a matter of construction without obtaining a decree in an action for rectification, namely "first, there must be a clear mistake on the face of the instrument; secondly, it must be clear what correction ought to be made in order to cure the mistake". He submitted that the decision of the Court of Appeal in Holding & Barnes plc v Hill House Hammond Ltd [2001] EWCA Civ 1334 had carried the principle further in showing that the court will look at the same background facts to determine not just whether the two conditions referred to by Brightman in LJ in East v Pantiles are satisfied but also for the purposes of construction generally. In that case which concerned a landlord's repairing covenant the Court of Appeal looked at six other leases executed contemporaneously with the lease in issue as part of the same overall transaction in determining (a) that the words of the particular covenant contained an obvious mistake (because as it stood the clause was nonsensical) and (b) what the mistake was. It did so by comparing the wording of the covenant it had to construe with the wording in the corresponding covenant in one of the other leases. In so proceeding, the court concluded that certain words in the covenant in question should be simply ignored.
- He also referred me to the decision of the Court of Appeal in St Edmundsbury and Ipswich Diocesan Board of Finance v Clark (No. 2) [1975] 1WLR 468 at 476G, to a dictum of Lord Hope to like effect in Melanesian Mission Trust Board v Australian Mutual Provident Society [1997] 2 EGLR 128 at 129F, and to a dictum of Lord Steyn in Sirius International Insurance Co v FAI General Insurance Ltd [2004] 1WLR 3251 at paragraphs [18] to [19] emphasising the need to construe a commercial instrument not with a view to probing the real intentions of the parties to it but "to ascertain the contextual meaning of the relevant contractual language" in order to establish objectively "what a reasonable person, circumstanced as the actual parties were, would have understood the parties to have meant by the use of specific language" and thereby to endeavour to arrive at "a commercially sensible construction". He also referred to an observation of Patten J in HSBC Bank plc v Liberty Mutual Insurance Co (UK) Ltd [2001] AER D 61 at paragraph [20] that:
- As an example of where the court was willing to construe a clause in an instrument as if certain words (not contained in the clause ) were included, Mr Driscoll referred me to the decision of the House of Lords in Homburg Houtimport BV v Agrosin Private Ltd [2004] 1 AC 715. In that case there was an obvious gap in the wording of a so-called Himalaya clause contained in a bill of lading. The particular clause read as follows:
- Lord Bingham said this (at paragraphs [21] to [23]):
- Agreeing, Lord Millett said this (at paragraphs [192] to [194]):
- Mr Driscoll submitted that the fact that the reversionary sub-underlease (together with the initial sub-underlease) superseded the earlier Agreement for Lease did not mean that the earlier contract could not be looked at in order to construe the later document. He referred me to the same observations of Rix LJ in HIH Casualty and General Insurance Ltd v New Hampshire Insurance Co (see above) as Miss Williamson had cited. He also referred to other examples of where the court has looked at an earlier agreement to construe a later instrument between the same parties. Thus, in Ladbroke Group plc v Bristol City Council [1988] EGLR 126 the Court of Appeal stated that it was permissible and relevant to look at the terms of a draft lease (annexed to an agreement for lease) to ascertain the parties' intention in providing in the lease for a period of delay before a rent review should take place. It did so in order to establish the date from which the period of delay was intended to start (and thus to ascertain the duration of the delay). In Peacock v Custins [2001] 1 EGLR 87 the Court of Appeal looked at an antecedent contract to ascertain the precise size and location of a right of way granted by a conveyance executed with a view to implementing the earlier contract.
- Mr Driscoll's first fallback submission, if his argument in favour of reading the relevant words into paragraph 5 should not succeed and the court must construe the words of paragraph 5 as they stand, was that there are indeed two additional break opportunities available to the tenant over and above the three which arise by giving a written notice within six months of the determination of the reviewed rent payable on expiry of the first, eleventh and twenty first years respectively of the term. However, like these other three, the two additional opportunities only arise if there has been a determination of a reviewed rent at the expiry of the first or, as the case may be, the eleventh years of the term. Since the court must construe the words as they stand, he accepted that there would not be the additional requirement (present if his preliminary submission succeeds and the relevant words are read into the paragraph) that the determination has resulted in an increase in the rent payable.
- In support of this fall-back construction, he pointed to the fact that paragraph 5 appears in part II of fifth schedule which is otherwise exclusively concerned with rent reviews. He submitted that the break right was therefore probably intended to be linked to a rent review rather than to be free-standing or independent. The two additional break opportunities would comprise a break right exercisable in the tenth year ("… the year immediately preceding the eleventh …year[s]… of the said term …") if but only if there had been a rent review in the first year of the term (which, it appears, there has not been) and a break right exercisable in the twentieth year of the term ("… the year immediately preceding the twenty-first year[s] … of the said term…") if but only if there should be a rent review in the eleventh year of the term. This, he said, would enable some meaning to be given to the word "thereafter" in that the words "and thereafter" would relate back to the words "determination of the reviewed rent". In other words and on this approach, the tenant may serve a notice terminating the lease after "the determination of the rent review to be payable from the expiration of the first, eleventh and twenty-first years respectively of the said term".
- He accepted that this construction made far from perfect commercial sense but submitted that it was preferable to Miss Williamson's construction which in substance involved construing "and thereafter" as "or" and made less grammatical sense. He said that his construction also avoided having to ignore (as Miss Williamson's construction required one to do) the reference to the eleventh and twenty-first years in the composite phrase "from the expiration of the first eleventh and twenty-first years respectively of the said term" or, depending upon which block of dates was referred to, to ignore the references to the thirteenth and twenty-third years of the term in the composite phrase "after the expiration of the third thirteenth and twentythird years of the said term".
- Mr Driscoll's second fall-back submission, which like the first only arises if the court must construe the words of paragraph 5 as they stand, was that the last seventeen words of the parenthesis (ie all of the words in the parenthesis from "and thereafter" onwards) should be ignored altogether on the ground that the court cannot give any sensible meaning to them.
- While I accept Mr Driscoll's submission that the admissible background includes the fact that the parties entered into the Agreement for Lease (to which was attached the annexed sub-underlease containing paragraph 5 in a form which included the relevant words), I am not persuaded that it is open to me, without more, to read paragraph 5 of the reversionary sub-underlease as if the relevant words had been inserted.
- As the authorities make clear, not least the citation referred to from the speech of Lord Bingham in Agrosin, it must be clear to the court of construction not only that words have been erroneously omitted but also what the words are (or at least their gist). I am willing to go along with Mr Driscoll in agreeing that something has gone wrong with the wording of paragraph 5 but I am far from persuaded, by doing no more than looking at paragraph 5 in the annexed sub-underlease, that the error is one of omission and that what is missing are the relevant words.
- There are two reasons why I am not persuaded. The first is that it cannot be right simply to have regard to the Agreement for Lease (with its annexed sub-underlease) as a relevant background circumstance against which to construe the reversionary sub-underlease without also having regard to the fact, which in my judgment is also admissible background, that the parties thereafter set about negotiating amendments to the annexed sub-underlease (even if the court is not entitled to have regard to the precise course of those negotiations) between 13 December 1974 when the Agreement for Lease was entered into and 11 July 1985 when the initial and reversionary sub-underleases were executed. It is obvious from a comparison of part II of the fifth schedule (as executed) with the fifth schedule as it appeared in the annexed sub-underlease that several amendments (going beyond merely stylistic or cosmetic changes) had been made, not least to paragraph 5 itself. The court cannot be clear that there has been an erroneous omission of the relevant words. For all the court knows, the parties' intention may have been to omit all of the words in the parenthesis from and after the words "but in the event only…" (as they appear in paragraph 5 in the annexed sub-underlease), alternatively the word "thereafter" may have been mistranscribed from an intermediate draft, alternatively some other words might have been intended but, in the course of typing, erroneously left out. Once one admits as a possibility that the parties may have agreed alterations to the wording of paragraph 5 (and a comparison of paragraph 5 as executed with paragraph 5 as it appears in the annexed sub-underlease shows that in other respects the parties do seem in fact to have agreed alterations) it is not possible to conclude that the omission is of the relevant words simply because that is how that part of paragraph 5 appeared in the annexed sub-underlease.
- I should add that the fact that the alterations (or some of them), including the altered effect of paragraph 5 resulting from the omission of the relevant words, are not modifications to the annexed sub-underlease within the ambit of what clause 10 of the Agreement for Lease (set out at paragraph 3 above) permits – a point which Mr Driscoll deployed at one stage of his submissions – does not assist him since, irrespective of what clause 10 states, it was always open to the parties to agree any alteration they wanted to make to the sub-underlease (for example, splitting the single 52 year term into two consecutive leases) and signify that agreement by executing instruments which reflected those changes. The question is whether the altered form of paragraph 5 is one of the agreed changes and if not what it was that was agreed?
- The second reason for rejecting Mr Driscoll's submission is that the plain and obvious intention of the parties, at any rate to judge simply by looking at the Agreement for Lease and the subsequent execution of the initial and the reversionary sub-underleases, was that the latter should set out the terms of the leasehold relationship between the parties for the combined 52 years term to which they relate and that they were intended to do so to the exclusion of the terms set out in the annexed sub-underlease which the parties had earlier agreed should govern that relationship. Once that position is reached, the remarks of Rix LJ in paragraph 83 of HIH Casualty and General Insurance v New Hampshire Insurance (cited in paragraph 22 above) are in point, namely, that the parties' contract must be found exclusively in the terms of the initial and reversionary sub-underleases and that the Agreement for Lease, in particular the annexed sub-underlease, cannot be used to contradict those terms.
- It follows that, tempting though it is to adopt the course so eloquently advanced by Mr Driscoll as his primary submission and undertake the simple comparison of the draft and executed versions of paragraph 5, there is in my view no escape from having to examine the course of dealings between the parties from December 1974 until July 1985 to determine whether certain words were accidentally omitted from the paragraph and if they were whether the mistake is of a kind that can be put right by recourse to the equitable doctrine of rectification.
- I should also add that I did not find the authorities to which Mr Driscoll referred me to be of any particular assistance. Over and above the various statements of general principle governing questions of construction and, in particular, setting out the circumstances in which a court may by construction correct a mistake in a written instrument, the closest analogy to the present case was the willingness of the House of Lords in Agrosin to read the Himalaya clause in that case as if certain relevant words had been included. But it is to be observed that it was agreed between the parties to that dispute that a mistake had occurred. In any event, a reading of the clause made it fairly obvious that there had been. In the result the only question was how the omission was to be corrected. As to that, the House had no difficulty in supplying the missing words from a form of clause "in very wide use" (according to Lord Bingham) and which (according to Lord Millett) had been taken from a precedent of which "several versions … are in circulation" but all of which "employ the same mechanism of agency to give legal efficacy to the clause", "do so by identical or nearly identical words" and "incorporate the mechanism at precisely that part of the present clause where words have been omitted". That, in my view, is a far cry from this case where the paragraph in question is, or would seem to be, one specially drafted for use in the sub-underlease. Of the other cases, Holding & Barnes turned on the acceptance by both sides that the other leases, all of which had been executed at the same time, were admissible in evidence (on the correctness of which Sir Martin Nourse preferred to express no concluded view: see paragraph 43) and the fact that of the other six leases one was, on the point in issue, in pari materia to the lease in dispute and enabled the court to reach the conclusion it did. In the Ladbroke Group case the court felt able to look at the earlier agreement because the lease was expressed to be granted pursuant to it and because the reference to a particular date in the lease was "quite inexplicable" (see page 128M) if read in isolation, ie without recourse to the earlier agreement. In Peacock v Custins the court was concerned to establish just what it was that had been granted by way of easement by the conveyance in question, for which purpose the antecedent contract, which was capable of shedding light on the matter, was an obvious port of call.
- What then is the correct construction of paragraph 5 as it stands?
- I reject Mr Driscoll's second fall-back submission that the last seventeen words of the parenthesis are incapable of sensible meaning.
- I also reject Miss Williamson's fall-back submission that the tenant can initiate the rent review machinery. As to that, paragraph 1 states that the reviewed rent shall be subject to upwards only review "… as follows …". What follows is the agreed mechanism for achieving the review. It is not permissible to imply some other mechanism for review (whether upwards only or otherwise). Paragraph 1(1) enables the process to be activated by the landlord serving a written notice. If the parties had intended that either party should have the right to give the notice or otherwise activate the review machinery, the clause could easily have so provided. That simple fact cannot, in my view, be sidestepped by reading in (as Miss Williamson would have me do) "or for" into paragraph 2. In any event, as Mr Driscoll pointed out, what falls to be agreed or determined is the "reviewed rent". According to paragraph 1(3) the reviewed rent is the rent that falls to be reviewed following service by the landlord of a review notice in accordance with the earlier provisions of the paragraph. Nor does paragraph 3 assist Miss Williamson. That provision, fairly construed, merely provides for what should happen if either the landlord does not serve a review notice (ie there is no review) or he does but by the relevant review date the reviewed rent has not been agreed or determined. In either case the passing rent continues to be paid. It is true that the phrase "… until agreement shall be reached or the said decision shall be made whichever shall first occur" at the end of the first sentence in paragraph 3 is not happily worded since it omits the other possibility, namely that the landlord has failed to serve a review notice. But the intention in such event that the passing rent should continue to be paid is reasonably obvious. In my view, business efficacy (even in the event that Miss Williamson's primary argument on construction does not succeed) does not justify the implication which she urged.
- How then is paragraph 5 as it stands to be construed? Neither of the rival constructions advanced in argument strikes me as particularly compelling from a commercial standpoint. Both involve some violence to the language used. Of the two I prefer that advanced by Miss Williamson. I do not regard it as inherently unlikely that the tenant should have a right to break independent of a rent review given, as I have concluded, that whether there is a rent review in the relevant years is entirely at the landlord's discretion. The effect is that the tenant has the opportunity, independent of any rent review, to break the lease on a quarter day falling in the second half of, or after the expiry of, the tenth and, separately, the twentieth years of the term and, in addition, a right to break (if the landlord initiates the relevant rent review) on a quarter day falling after (and likely to be shortly after) the third, thirteenth and twenty-third years of the term. The fact that, on this view, the two additional free-standing rights to break are not linked to a rent review, notwithstanding that they appear in a schedule otherwise entirely concerned with rent reviews, is not, in my view, a sufficient factor to lead me to favour the construction advanced by Mr Driscoll. I accept that the construction involves construing "and thereafter" as "or".
- It follows that, subject to Network Rail's Part 20 claim, I would be willing to make the first of the two declarations sought on the amended particulars attached to KPMG's Part 8 claim form.
- In view of my conclusion on construction, Network Rail's rectification claim now falls to be considered. The claim is for rectification of paragraph 5 of part II of the fifth schedule to the reversionary sub-underlease by the insertion of the relevant words before "and thereafter".
- The foundation for the claim is that, as I have mentioned, the relevant words were left out by BRB in error. Network Rail believes that this happened accidentally in the course of transcription (the homoeoteleuton) when the annexed sub-underlease was re-typed with amendments in or about late 1978. Its case is that at no material time were BRB, King's College or their respective advisers (and in particular Simmons & Simmons, their solicitors) aware of the error.
- The claim is put on three alternative bases. The first is that PMM did not become aware of the omission or of the effect of it but executed the reversionary sub-underlease intending and believing that paragraph 5 was in this respect the same as in the annexed sub-underlease. The second is that PMM did become aware of the omission but believed that the only effect of it was to remove the condition for exercise of the break right that the rent review at the end of the relevant year should result in an increase in rent. The third is that PMM did become aware of the omission, appreciated that this probably gave to it five rights to break and that the additional two were not dependent upon any rent review determination and, acting though a Mr Terence Webber, a salaried partner at the time of PMM, and a Mr Donald Amlot, a partner at the time of Stephenson Harwood & Tatham, knew that this was an error. The first two ways in which the claim is put rely on mutual mistake; the third relies on unilateral mistake.
- If any of these bases of claim can be proved, it is contended that a sufficient case for rectification of the reversionary sub-underlease by the inclusion of the relevant words would be established since it would be unconscionable in such circumstances for KPMG (as PMM's successor in title to the reversionary sub-underlease which it took with notice of the rectification claim) to object to rectification.
- In considering a claim such as this, where the material events occurred so long ago, where some of the key participants have died and where some of the relevant documentation is missing, I remind myself of the well known observation of Brightman LJ in Thomas Bates Ltd v Wyndham's (Lingerie) Ltd [1981] 1WLR 505 at 521 on the standard of proof in rectification claims that:
- A major difficulty in this case is that the relevant events occurred for the most part in early to mid-1980. Several of the participants have since died, in particular Mr Douglas Benzie who was a senior equity partner in PMM at the time. Those who remain and who were called had, not surprisingly, very little independent recollection of the relevant events and no or practically no recall of any of the details. Another difficulty was that the only available files were those kept by the two firms of solicitors involved at the time, Stephenson Harwood & Tatham (to whom I shall refer simply as Stephenson Harwood which is how the firm is currently known) on behalf of PMM and Simmons & Simmons on behalf of BRB (and King's College). Neither PMM's files nor those of BRB or King's College have survived. Nor has the travelling draft (or drafts) passing between BRB and King's College between December 1974 and March 1980. This culminated in a revised form of draft sub-underlease (based upon the annexed sub-underlease) which did not contain the relevant words and was sent to Stephenson Harwood under cover of a letter dated 3 March 1980 for consideration and approval by PMM. Much of the oral evidence was little more than an attempt to reconstruct events by reference to the available correspondence. There was a considerable element of "I would have done this or that" or "my practice was to do so and so" rather than recollection of what actually occurred.
- The documentary evidence establishes that proposals for the joint redevelopment of the site at Puddle Dock went back to 1970, if not earlier, since by that date King's College Cambridge, which owned a part of the site, and BRB (as it then was), which owned the remainder, were in negotiation with PMM, which was looking for new head office accommodation. The negotiation was with a view to PMM becoming the occupying tenant of the proposed new building. King's College was represented on the legal side by Simmons & Simmons and on the property side by Savills. BRB had its own in-house team of lawyers and property specialists. Prominent among them were a Mr Kersey, BRB's chief solicitor, and his successor, a Mr Roberts. Both are believed to have since died. PMM was advised by Stephenson Harwood (from mid-1972 or so led by Mr Donald Amlot who was the firm's senior property partner) on the legal side and by Jones Lang Wootton ("JLW") on the property side. Mr Amlot was called to give evidence. As matters worked out, Simmons & Simmons, led by Mr John Calvert one of its partners, represented both King's College and BRB in the negotiations with PMM and its advisers. Mr Calvert has since died.
- By March 1972 the three parties, King's College, BRB and PMM, were in negotiation over heads of agreement designed to set out the basis of their proposals for the site. In fact, heads of agreement, the terms of which were more or less finalised by late July 1974, were never signed. They were replaced by the Agreement for Lease (with the annexed sub-underlease) entered into by the three parties on 13 December 1974.
- The negotiations contemplated, as ultimately reflected in the draft heads of agreement, the construction of a building of approximately 100,000 square feet together with private parking. The works of construction were to be carried out in two stages to agreed drawings and specifications. The negotiations also contemplated that PMM should take a 52 year lease from the date of practical completion of stage two at an initial rent of £8.60 per square foot of net useable office space (with a lesser rate for other types of space) to be on the terms of a form of agreement for lease with attached lease to be agreed (with a mechanism for settling the documents in the event of disagreement). The draft heads envisaged upward only rent reviews to open market rent at the end of the seventh year of the term and at the end of each subsequent fifth year.
- The heads of agreement, as I have mentioned, were replaced by the Agreement for Lease entered into on 13 December 1974. Attached to it, as I have also mentioned, was the annexed sub-underlease for 52 years from the date of practical completion of stage two of the building works (in the event from 25 July 1977).
- One matter which was a topic of considerable debate between King's College and BRB on the one hand and PMM on the other was how frequently PMM should be entitled to break its lease. By early July 1972, according to the correspondence, it had been agreed in principle that PMM's right to break should be linked to a review of the rent (in that it should be exercisable within a given period of determination of the reviewed rent) but should only be exercisable (as it was put in a draft dated 29 June 1972) "in the event that such new rent exceeds the rent payable prior to such date of review".
- A sharp difference of opinion arose over the frequency of exercise of the right. In a letter dated 12 July 1972 from Savills to Mr Calvert of Simmons & Simmons, sent following a meeting between Savills and JLW, Savills reported that difference in the following terms:
- This resulted in Savills sending to JLW under cover of a letter dated 25 July 1972 a further draft of the heads of agreement in which the tenant's right to break is exercisable only at the expiry of the twenty-fourth year of the term following determination of the new rent to be payable as from the expiry of the twenty-second year and then only "in the event that such new rent exceeds the annual rent payable during the 22nd year of the term".
- This evoked a speedy response. By a letter dated 28 July 1972 JLW stated:
- By letter dated 10 August 1972 Savills replied to JLW acknowledging:
- A further meeting took place in the course of that month. Further revisions to the draft heads of agreement followed. Among them, in the shape of an attached rider called "Rider C", was a provision entitling PMM to break the lease at the end of the twenty-fourth year of the term and two years after each subsequent rent review date. The covering letter from Stephenson Harwood stated:
- The story now moves forward a year to October 1973 when Stephenson Harwood sent the amended draft of the heads of agreement both to PMM (their client) and to Simmons & Simmons. The draft contained further amendments to Rider C. In their covering letter to PMM Stephenson Harwood stated:
- This marks the point at which what was later to become paragraph 5 of the fifth schedule to the annexed sub-underlease became fixed as regards the essential terms of the tenant's break right. More exchanges followed between the parties but, so far as can be seen, not on this issue. The relevant clause at this stage was as follows (I read from the draft sent by Simmons & Simmons to Stephenson Harwood under cover of a letter dated 15 March 1974):
- By letter dated 20 March 1974 Stephenson Harwood reported to PMM with a copy of the draft heads of agreement. Their comment on clause 5(2) was that it came from their amendments to the previous draft. Correspondence between the parties continued on other matters, including whether there existed any binding contract between them notwithstanding non-signature of the draft heads of agreement. Eventually, the form of the heads of agreement was agreed (it contained the tenant's break clause in the form already referred to) but it was not executed. The likely explanation is that BRB was not prepared to enter into heads of agreement until the terms of a superior lease had been agreed.
- Instead, in early October 1974, a draft form of Agreement for Lease was prepared by Mr Kersey, at the time chief solicitor to BRB. A draft of what was to become the annexed sub-underlease followed in early December. There appears to have been no discussion over the wording of the tenant's break right (now to be found in paragraph 5 of the fifth schedule), at all events no discussion of which any documentary record survives. There was, it seems, some pressure on the parties for fiscal reasons to conclude the Agreement for Lease. Under cover of a letter dated 9 December 1974 Stephenson Harwood wrote to Mr Kersey enclosing a marked-up version of the annexed sub-underlease. The draft shows that the tenant's break clause had been lifted from the draft heads of agreement with only minor changes in language and that Mr Amlot of Stephenson Harwood had no objection to it.
- As I have mentioned, on 13 December 1974 the Agreement for Lease (with the annexed sub-underlease) was executed.
- I can take up the matter again in 1978. In the meantime construction of the new offices had proceeded to practical completion and PMM had taken up occupation of the new building.
- Between January 1978 and January 1980 the terms of the annexed sub-underlease were the subject of discussion and amendment between BRB's solicitor, Mr Roberts (he had taken over from Mr Kersey), and Mr Alan Butler of Simmons & Simmons. It will be recalled that in communications with PMM and Stephenson Harwood, Simmons & Simmons represented both King's College and BRB. But as between BRB and King's College, they were the solicitors advising the latter. Mr Butler, a partner in Simmons & Simmons, had become involved in the transaction in about mid-1974 and by 1979 if not earlier was the principal partner with responsibility for the matter. He too was called to give evidence. There was no suggestion, at any rate in any of the correspondence that has survived, that paragraph 5 of the fifth schedule should be modified in any way. Its terms do not appear to have been the subject of any mention in the course of the communications between the parties over this fairly prolonged period.
- In the minutes of a meeting which took place on 1 November 1978 between King's College and BRB (it was one of a series of regular meetings on the matter that took place between them) with Savills and Simmons & Simmons present, it was recorded that the "draft lease, underlease and sub-underlease have been re-typed and are being circulated for checking". This duly occurred. Thereafter further meetings took place and further correspondence passed between BRB and Simmons & Simmons to discuss and agree further amendments to the form of sub-underlease. The re-typed draft of that document became a new travelling draft. This continued over a period of many months. The process was described thus in a letter dated 24 May 1979 by Mr Butler to Mr Richard Arkwright, the Estates Bursar of King's College:
- The process of amendment continued. As yet no version of the updated sub-underlease had been submitted to PMM or their advisers.
- By October 1979 Mr Arkwright of King's College was asking Mr Butler to arrange for clean copies of the draft sub-underlease to be circulated. By letter dated 12 October 1979 Mr Butler responded by stating that clean copies of the corrected draft were being printed and that he hoped to distribute them at the beginning of the following week. This duly happened and under cover of letters dated 17 October 1979 he sent clean copies of the draft sub-underlease to both King's College and to BRB. In his letters to Mr Roberts of BRB Mr Butler invited him to make any appropriate amendments to the draft which arose out of his final revisions to it and to return the amendments to him "so that I can have these put onto the automatic typewriters …"
- The process of further amendment continued however. By a memorandum passing between a Mr Chiverton of BRB's Property Board and Mr Roberts yet further amendments to the draft were discussed and agreed and the resulting exchange passed to Mr Butler for incorporation into the draft. Mr Butler's letter to Mr Arkwright of King's College dated 27 December 1979 referred to the further amendments as "all trivial in the extreme" adding that "in order that we may finally resolve the draft document I have incorporated them into my copy." By now a note of frustration was creeping into Mr Butler's communications with King's College over the propensity of those at BRB involved in the matter to suggest further amendments to the draft. Thus, on 9 January 1980, by which time the process of amendment to the draft had reached a conclusion, Mr Butler wrote to Mr Arkwright enclosing a copy of the further revised sub-underlease and expressing the hope that it was now "in its final form" but that:
- A few days later, Mr Amlot of Stephenson Harwood wrote to Mr Butler. He referred to having last heard from Simmons & Simmons on 10 April 1979 and asked whether Mr Butler was in a position to "make progress" adding that:
- Mr Butler replied to this on 6 February in which he expressed the hope "to be able to let you have the updated drafted lease shortly" adding that so far as he, Mr Butler was aware, he only awaited copies of some plans.
- Mr Butler was finally able to let Mr Amlot have a copy of the revised draft sub-underlease in early March 1980. Under cover of a letter dated 3 March, he sent two copies of the draft to Mr Amlot with a full set of plans. His letter stated:
- Unhelpfully from Mr Amlot's standpoint (and therefore, from the point of view of PMM whom he was advising) the draft was, in effect, a clean copy; it did not show the extent to which it differed from the terms of the annexed sub-underlease. In fact, it did so in over 40 different respects. Nor, in my view, was it altogether correct for Mr Butler to have written that "none of the variations are of any substance". At least two of them and arguably others were.
- Mr Amlot arranged for someone in his office to compare the new draft with the annexed sub-underlease of which, of course, he had a copy. The differences were highlighted in red on the new draft. The document has survived and a copy of it was in evidence. Whoever it was who carried out the exercise, although he highlighted in red the point at which the relevant words had been left out (although he did not indicate what the relevant words were) and noted changes elsewhere in the schedule, nevertheless missed at least three other changes in the schedule, one in paragraph 2, another in paragraph 4 and the third in paragraph 5 itself.
- Armed with the results of this comparison exercise, Mr Amlot then sent a detailed letter to Mr Benzie of PMM identifying a number (but not all) of the changes. At the time Mr Benzie was, as I have mentioned, a senior equity partner of PMM and member of an internal PMM committee, called the Accommodation Committee, which had the responsibility of managing the firm's transfer to its new accommodation. Mr Amlot's letter which was dated 21 March 1980 ran to just over four pages. It began by referring to a recent conversation with Mr Benzie and enclosed a copy of the new draft of the sub-underlease together with Mr Butler's covering letter. Mr Amlot's letter continued:
- Mr Amlot then proceeded to "comment on the amendments". In some he expressed himself in clear terms. Thus, in reference to one amendment he noted: "the word 'not' has been omitted. I am sure this is just a typing error." In another he noted: "the following words have been omitted where indicated." The words in question are then set out followed by a comment introduced by the words "it may well be that …". Of another (an indemnity) he commented: "this is completely new … to require an indemnity from you seems unnecessary." Of yet another (relating to various exceptions) he stated: "these have been amplified but seem within the spirit of the original Agreement". Of another he noted: "the Landlords have in fact slightly reduced what they require to except and reserve." Of another he noted: "A new right has been added … on the face of it there is no objection to this and seems within the spirit of the Agreement." One alteration which had been made was to the covenant relating to assignments and under-letting. Its scope had been widened to BMM's detriment. Mr Amlot's comment was that:
- When it came to the fifth schedule, Mr Amlot noted that part I (the schedule of accommodation) was new. He said that the implications of it must be very carefully considered with JLW. Coming to part II he noted that, as was the fact, certain words had been added to the end of paragraph 1(2) which "seemed to be to your advantage". He did not comment on the amendment, which had been noted in red, to paragraph 2 but commented at some length on the re-worked version of paragraph 3 (it contained an interest payment provision which Mr Amlot advised PMM to resist).
- As regards the highlighted omission of the relevant words from paragraph 5, Mr Amlot commented simply:
- Mr Amlot concluded his letter by stating that he was enclosing a copy of his letter and of the new draft stating that he imagined Mr Benzie would want to forward them to JLW. He added:
- On the same day that he was reporting to Mr Benzie, Mr Amlot wrote to Mr Butler. He said this:
- Mr Butler replied to Mr Amlot four days later (on 25 March) stating:
- At the same time, he reported to Mr Arkwright at King's College. He enclosed a copy of Mr Amlot's letter to him of 21 March together with a copy of his reply. He then stated:
- That same day, 25 March 1980, Mr Benzie of PMM wrote to Mr Amlot to thank him for his letter of 21 March (reporting on the revised draft) together with copies of that draft and of Mr Butler's covering letter. He stated that:
- On 28 March Mr Amlot acknowledged Mr Butler's letter of 25 March and welcomed Mr Butler's assurance set out in that letter. He sent copies of the exchange to Mr Benzie who acknowledged them a few days later and repeated his earlier promise to let Mr Amlot "have our comments in due course".
- For a while there was no further response from PMM. On 23 June 1980 Mr Amlot wrote to Mr Benzie to enquire: "whether you are yet in a position to discuss the form of lease". He went on to say that a Mr Roger Chadder of PMM (the partner in PMM who chaired PMM's internal Administration Committee in succession to Mr Benzie) had been in touch and that, in the light of what Mr Chadder had said, it seemed important to get the lease agreed as soon as possible. Three days later Mr Benzie replied to say that he had "asked Terry Webber to hurry the matter along" adding that he believed Mr Webber would be "seeing Chris Peacock [of JLW] that week". At the time Mr Webber was a salaried partner of PMM and a member of PMM's Accommodation Committee, and Mr Peacock was the partner in JLW who was advising PMM in the matter. Mr Webber and Mr Peacock were both called to give evidence.
- At some time between 25 June and 11 July 1980 a meeting between Mr Amlot and Mr Webber took place. Mr Peacock may also have attended. There is no note of the meeting. Mr Webber believed he would have prepared a written report which would have gone to Mr Benzie. If there was one it has since been destroyed or otherwise lost as has all of PMM's internal file on the matter. This is not a criticism of PMM since they were only alerted to the existence of a difficulty over paragraph 5 in late 1999. That was almost 25 years after the Agreement for Lease had been entered into and over 14 years after the initial and reversionary sub-underleases had been granted.
- Under cover of a letter dated 11 July 1980, Mr Amlot returned the travelling draft (ie the clean copy of the revised draft sub-underlease) to Mr Butler. It was marked up in red with Mr Amlot's amendments. In his letter he commented on certain of them and on certain other points. In some cases the amendment was agreed; in others it was returned with further amendments. Yet others were struck out as "unacceptable" (or the like) or on the basis that the original wording was to stand. When, towards the end of his letter, Mr Amlot came to the fifth schedule, he indicated that part I was being considered by PMM's surveyors (ie JLW), that the original wording of paragraph 1(2)(c) of part II had to stand and that certain additional words at the end of paragraph 1(2) were being considered. He referred to the small amendment to paragraph 2 that had been noted stating that it was not accepted. He commented on an amendment which he, Mr Amlot, had made to the paragraph. He commented on the radical reworking of paragraph 3 stating:
- At the same time, 11 July, Mr Amlot wrote to Mr Webber. In that letter Mr Amlot referred to their meeting, enclosed a copy of the draft sub-underlease in the form in which it had been returned to Simmons & Simmons, and of his covering letter to them and stated that "I trust that I have amended the document as agreed between us". He stated that he had sent copies to Mr Peacock.
- Mr Amlot followed up his letter of 11 July to Mr Butler with a further letter expressing PMM's wish, for stamp duty reasons, to have a sub-underlease and reversionary sub-underlease (running from July 1977) rather than, as envisaged by the Agreement for Lease, a single sub-underlease of 52 years. It was a matter which had been first raised (then not pursued) as early as October 1974. This wish was to be overlooked yet again until it was revived four years later in September 1984.
- Over the following months Mr Amlot's amendments were sent to Mr Roberts of BRB (but only those parts of the revised drafts containing manuscript amendments), meetings on both sides took place to discuss them and Mr Butler and Mr Amlot were in correspondence about them. There was a considerable debate in the correspondence concerning Mr Butler's attempt to tighten the alienation provisions in the draft but Mr Amlot stood firm in resisting them. In a letter he wrote to Mr Webber he stated that the alienation provisions had been "one of the most fiercely negotiated clauses" (ie, negotiated in the period leading up to the Agreement for Lease in December 1974).
- The matter dragged on. By September 1982 Mr Butler was reporting to Mr Calvert that, apart from one of two outstanding points, all of the documentation was agreed. Still the matter dragged on. Other issues were raised, for example over the maintenance of certain walkways. A meeting between the parties and their representatives took place to discuss this. By February 1984 issues had arisen over the length of the head lease (with which PMM was not concerned).
- By now under the terms of the annexed sub-underlease (and of the travelling draft) a rent review was due. There was an issue over whether, in the absence of an executed lease, BRB was entitled to call for one. Eventually PMM backed down on the point. In the meantime, the issue over the length of the head lease was resolved and further last minute corrections to the travelling draft, mostly of a very minor nature, were identified and dealt with.
- Just when it seemed that all was in place to complete the matter and execute the sub-underlease, Mr Amlot suddenly recalled PMM's wish that, in order to save stamp duty, the fifty-two year term should be split into two by the grant of an initial twenty-one year sub-underlease and, at the same time, by the grant of a reversionary thirty-one year sub-underlease to take effect on the expiry of the initial sub-underlease. The matter was raised by him with Mr Butler. Obtaining approval to this from BRB and King's College took some time.
- While the matter was being considered and in order to save time Mr Butler sent to Mr Amlot:
- He asked for Mr Amlot's confirmation that the proposed amendments were acceptable. The draft of what was to become the initial sub-underlease contained no paragraph 5 in its fifth schedule. On the other hand, the corresponding page in the proposed reversionary sub-underlease contained manuscript alterations to the dates referred to in paragraph 5. That was to make the dates correspond in the overall calculation of time with the dates appearing in paragraph 5 to schedule 5 of the annexed sub-underlease. There was also an alteration made to the date in paragraph 1(1). Copies of the proposed alterations under similar covering letters were sent to Mr Arkwright of King's College, to Mr Roberts of BRB and to Savills.
- By the end of 1984 BRB, although initially opposed to the split in the term, was willing to agree the proposal. The revisions to, inter alia, the fifth schedule were checked by a Mr Foster in Mr Amlot's office. No objections were raised by anyone to the amendments to the fifth schedule.
- The matter dragged on into 1985. This was in part because of a delay in executing the head lease. Eventually, in mid-July 1985, the matter was completed and the initial and reversionary sub-underleases (as by now they had become) were granted. They were dated 11 July 1985.
- At no stage and despite the very many communications passing between the two parties to the transaction (and among the advisers on each side of it) was any mention made of the omission of the relevant words from paragraph 5 apart from that one reference in Mr Amlot's letter to Mr Benzie dated 21 March 1980. The matter simply did not feature.
- Five persons gave evidence relevant to the issue of rectification. Three were called by KPMG and two by Network Rail. I regard all five as honest witnesses who endeavoured as best they could to recall their respective roles in this transaction all those many years ago. I begin with the three called by KPMG.
- Mr Amlot had been a partner of Stephenson Harwood (previously Stephenson Harwood & Tatham) between 1966 and 1996 when he retired from practice. Now aged 72, Mr Amlot had had no occasion since retirement, or indeed since the initial and reversionary sub-underleases were completed in 1985, to discuss or give any thought to paragraph 5 or any other particular aspect of the transaction which had culminated in the execution of those two documents.
- At the time he first became involved in the matter (in August 1972 or thereabouts) Mr Amlot was the senior property partner at Stephenson Harwood. The matter had been referred to him by Richard Eddis, the then senior partner of Stephenson Harwood, to whom PMM had written with instructions to act for the firm in the (then) proposed transaction. This was before the heads of agreement had been negotiated. Mr Amlot's main point of contact with the other side (BRB and King's College) was Mr John Calvert of Simmons & Simmons and by 1979 or so Mr Alan Butler.
- It was clear – Mr Amlot made the point early in his witness statement – that he was having to recall events 25 (and more) years after they had occurred and had little independent memory of the details of the events in question. Indeed, it was fairly plain that he had very little independent recollection of any of the events, let alone their details.
- With the aid of the documents that have survived he recalled seeing the cleanly typed sub-underlease (ie the amended version of the annexed sub-underlease) which had been sent to him by Mr Butler under cover of Mr Butler's letter of 3 March 1980. According to his witness statement, Mr Amlot's recollection was that he saw the change to paragraph 5 (because someone in his office had, on his instructions, compared the new draft with the annexed sub-underlease and had noticed that the relevant words had been omitted) and "assumed Simmons & Simmons had omitted these words intentionally". His witness statement went on to say that he had no reason to believe that the change to paragraph 5 was a mistake, that he reported the alteration to Mr Benzie of PMM in his letter of 21 March 1980 (in which he also drew attention to a large number of other amendments), had no recall of any discussion of that paragraph with anyone either at PMM or at JLW, did not believe that any such discussion took place and, as the matter was not raised in any later communication, assumed that it was agreed. In his oral evidence he observed that "the changes were simply noted as one among many and as a proposed change which was acceptable and required no further comment." Subsequently he stated that:
- He later added:
- He accepted, when cross-examined about the provision, that he understood and realised at the time that the change to it represented a considerable concession by the landlords even though, as he was aware, the conferring (by paragraph 5 of the annexed sub-underlease) of the three opportunities to break consequent upon upward rent reviews had been the result of hard negotiations prior to 1974.
- He emphasised in his witness statement (and repeated in cross-examination) that if he had even suspected, let alone believed, that the omission of the relevant words was a mistake he would have raised the matter with Simmons & Simmons. He was emphatic in denying that there was any kind of conspiracy of silence with PMM on the matter and regarded as utterly implausible any suggestion that PMM might have thought that Simmons & Simmons had made a mistake but decided to keep quiet about the matter.
- His belief on reading the amended paragraph 5 was that (consistently with how he put the matter in his letter of 21 March 1980 to Mr Benzie) all that it had changed was the requirement that there should be an increase in the rent as a condition of the right to break. As he put it when questioned about the matter:
- Looking at paragraph 5 as it appears in the reversionary sub-underlease Mr Amlot was unable to recall quite how he understood it in March 1980 (when he first saw it) or even whether he gave it much careful attention. He accepted that "it could be argued" that it was "not as clear as it might be" and, in particular, that the use of the word "thereafter" was "not the happiest word". He thought nevertheless that the "interpretation" of the paragraph (as contained in the reversionary sub-underlease) was clear, namely that there were "two groups of dates", although he had some difficulty in explaining just how the paragraph worked. It is noteworthy, however, that, as is evident from what he stated in his letter of 21 March 1980 to Mr Benzie, he did not suggest that there were five opportunities to break the lease or that PMM was, for the first time, to enjoy two independent free-standing break rights. If he had thought that the effect of paragraph 5 as it appeared in the new draft was to confer two new opportunities to break, he would surely have mentioned this.
- Mr Amlot was clear that he had a meeting with Mr Webber of PMM to obtain PMM's instructions at which amendments to the draft sub-underlease were discussed and which resulted in his letter of 11 July 1980 to Mr Butler. But he did not believe that the alteration to paragraph 5 by the omission of the relevant words was raised at that meeting. However, he had no independent recollection of what had occurred at the meeting. He could not recall, for example, whether Mr Peacock of JLW was present. No note of the meeting survives. Mr Amlot seemed to think that his clients had agreed the alteration to paragraph 5 but could not say how this had occurred. He accepted as possible that at that meeting he might have raised with Mr Webber (and whoever else was present) the various points identified in his earlier letter to Mr Benzie and including, therefore, the omission of the words but that if he had, it would have been no more than, as he put it, a "passing reference", that is, that when he came to a point "that seemed non-controversial" (as he understood the omission of the relevant words to be) the meeting simply "pass[ed] on". He speculated that he might have confined his discussion to those items which he referred to in his subsequent letter of 11 July 1980 to Mr Butler. If that had been the course followed, then, as the omission from paragraph 5 was not a matter referred to in the letter, he would not have raised the matter with his clients at that meeting. Mr Amlot was strongly of the view that if it had been appreciated at the meeting that PMM were now being offered an independent right to break which the landlords had not intended to give, he would have remembered it. He had no such recollection.
- He had no recollection of discussing paragraph 5 with PMM at any time after July 1980.
- Mr Webber was a partner of PMM's London partnership between 1 April 1974 and his retirement on 31 March 1993 after which he became, and until 1995 remained, a consultant with the firm. He was never at any time a general or equity partner of the overall firm.
- Like the other witnesses Mr Webber had very little independent recollection of the circumstances surrounding the grant to PMM of the initial and reversionary sub-underleases, at any rate so far as concerned the legal side of the transaction. Until March 2005 he had had no occasion since retiring to give any thought to the terms of PMM's occupation of 1 Puddle Dock, let alone to paragraph 5.
- His involvement in the matter had begun in April 1974, very shortly after he had become a salaried partner. At the time he was based in London. He was a member of PMM's Accommodation Committee which was chaired by Ian Bowie (one of PMM's equity partners) and of which Douglas Benzie (another of PMM's equity partners) was also a member. Although a member of that committee Mr Webber said that he was mainly concerned with (and had responsibility within PMM for) overseeing the technical or practical aspects of the firm's relocation to its new premises at 1 Puddle Dock including monitoring the building programme and bringing key issues relating to it to the Committee's attention, rather than with the terms of PMM's agreement with its prospective landlords. It is clear, however, that his involvement went beyond the mainly technical or practical aspects of the transaction. Thus it was to him that Mr Benzie referred Mr Amlot's letter of 21 March 1980. It was with him, and possibly Mr Peacock of JLW, that Mr Amlot had his meeting to discuss issues arising out of that letter and the draft sub-underlease which resulted in Mr Amlot's reply letter dated 11 July 1980 to Mr Butler. It was to him (and to Mr Peacock of JLW) that Mr Amlot sent a copy of the draft sub-underlease as amended by him and of his covering letter to Mr Butler. Even in the period leading up to the signing of the Agreement for Lease, Mr Webber was one of those present at meetings to discuss the terms of that document.
- He recalled that in the period after December 1974, particularly following practical completion of the new building in 1977 when PMM moved into its new accommodation, he was charged with Douglas Benzie to keep up pressure on the lawyers with a view to obtaining the sub-underlease. He acted as the point of contact for communications between Mr Amlot and the PMM Partnership.
- Mr Webber's recollection, as a result of his initial briefing in the matter, was that there were to be three separate break opportunities available to PMM under the proposed sub-underlease. He said that he was never at any stage told that there was going to be any different number of these. He could not recall whether the tenant's right to break was linked to increases in rent. He said that he had very little recollection of his meeting with Mr Amlot (in or about late June or early July 1980) at which the new draft sub-underlease was discussed. Beyond the fact that there was a meeting and that he believes, but cannot be absolutely certain, that he wrote a report to Mr Benzie following it, he had no particular recollection of what occurred at the meeting. He had no recollection of any discussion about the break clause or of having discussed the matter with Mr Benzie. In any event, he said that he had no authority to re-negotiate any of the terms of the proposed sub-underlease. He was of the view that anything to do with the break clause was not his responsibility, although it had been, he believed, within the authority delegated by the PMM Partnership to Mr Bowie and/or Mr Benzie and therefore that he would not have commented on it. He speculated, but could certainly not recall, that he may have had instructions from Mr Benzie about the response to some of the matters raised by Mr Amlot in the latter's letter of 21 March 1980. He seemed certain ("… I can say with confidence …") that he "did not review or consider the termination provisions" either at the meeting he had with Mr Amlot (and which preceded Mr Amlot's letter of 11 July 1980 to Mr Butler) or at any other time.
- Mr Peacock had become a partner of JLW in 1974. He was made European Chief Executive of the firm in 1996 and became its first global chief executive in 1997. In 1999 he was appointed a director of Jones Lang LaSalle (as the practice became on its incorporation) and was later made its chief operating officer and subsequently, until his retirement in 2004, its chief executive officer.
- JLW had been retained by PMM in relation to their move to 1 Puddle Dock. Mr Peacock's involvement in the matter, according to the correspondence, began in 1978. Until early 2005 Mr Peacock was unaware that there was a problem with paragraph 5. He had no particular recall of the details of the transaction which had culminated in the grant to PMM of the initial and reversionary sub-underleases. He had no recollection of being shown Mr Amlot's letter of 21 March 1980 and no recollection therefore of discussing it with anyone. He believed that he would have liaised with Mr Amlot and Mr Webber in finalising the (composite) sub-underlease and would have taken Mr Amlot's advice on any legal issues. He had no recollection of any discussion about paragraph 5 and no recollection of how it might have been negotiated.
- I turn now to the two witnesses called by Network Rail.
- Mr Scutt who qualified as a chartered surveyor had been employed by British Rail Property Board, a division of BRB, from 1956 until his retirement at the age of 58 in 1992. He was centrally involved on behalf of BRB (through the Property Board) with the Puddle Dock development between early 1973 and late 1982. At the time he was at the Property Board's headquarters as a development surveyor. His work there was with large development schemes of which the Puddle Dock project was one. He became deputy to the headquarters' development director. For a time he was a regional development director but retained his involvement in the Puddle Dock scheme during that period.
- Mr Scutt recalled the Puddle Dock scheme not merely because of his long association with it but also because it was the first in which the Property Board had been allowed by BRB and the Government to invest British Rail and Government money in a development project of this kind. Previously, BRB's practice had been to grant a development lease to a third party developer to undertake. Like the other witnesses, however, Mr Scutt had no occasion to recall the details of this transaction from the time his involvement with it ceased, in his case in 1982, until very recently. He recalled that the initial rent PMM had agreed to pay was £8.60 per square foot because, at that level, the scheme was viable. He also recalled that it was agreed that there should be five yearly rent reviews after the first seven years of the term. He could vaguely recall that a break provision had been negotiated but not how it operated. His recollection was that from BRB's point of view, because it was having to justify the investment of considerable Government money, it was critical that PMM should be tied in to the lease for as long as possible at the best rent available. Both in his witness statement and in cross-examination he was clear in having no recall of any change being discussed, much less agreed, to the break clause provision contained in the annexed sub-underlease. In his witness statement he said this:
- He reinforced this in cross-examination. He stated in answer to a specific question on the point that it would have been unacceptable to BRB to have agreed to PMM having a break right conditional upon a rent review but without the rent going up consequent upon the review. It would have been unacceptable, he said, because of the drastic effect it would have had on BRB's investment.
- Mr Butler is a senior property partner at Simmons & Simmons. His firm's involvement with the Puddle Dock project lasted from the late 1960s until the formal grant of occupational sub-underleases in 1985. John Calvert, at the time a partner in the firm, was leading the matter until about 1979 or 1980 by which time Mr Butler was effectively in charge. Already from 1974 Mr Butler had become involved. This continued until completion in July 1985.
- In the years after 1974 it fell to Simmons & Simmons (and therefore increasingly to Mr Butler) on behalf of King's College to lead the process of negotiation initially with BRB and later, on behalf of both King's College and BRB, with PMM through Mr Amlot of Stephenson Harwood. King's College's interest in the development was eventually acquired by a third party.
- In late 1999 Mr Butler recalled being approached by solicitors acting for an entity managing the third party's interest to give access to Simmons & Simmons' files. It was at this time or by early 2000 at the latest that he first became aware of the problem over paragraph 5. Like the other witnesses therefore he had no reason to recall the relevant events until many years after they had occurred, although in his case he had been alerted to the problem a few years earlier than they had. Nevertheless, Mr Butler stated, and I accept, that the transaction was sufficiently substantial and, as he put it, "sufficiently troublesome" - a reference to his tortuous negotiations with BRB in the period leading up to March 1980 - for him to have a general recall of the matter if not of the detail. He had had the chance to refresh his memory from the correspondence files that Simmons & Simmons had retained. It appears however that none of the material drafts his firm had used had survived.
- Although he had not been involved in the matter at the time, he was aware from a reading of the file (and would have been aware at the time that his involvement began) that the negotiation of the tenant's break clause prior to the signing of the Agreement for Lease had been contentious and that, as he put it in his witness statement, "had there been any subsequent negotiation of such an extremely important commercial term of the arrangement between the parties, I am certain that I would remember it". He recalled no suggestion of any change to it being proposed or discussed either by PMM or by King's College or by BRB.
- In his first witness statement Mr Butler recalled that, following discussions between King's College and BRB, the draft sub-underlease (that is the document that I have described as the annexed sub-underlease) was retyped in October 1979 incorporating the proposed amendments to it that had been agreed between them. He initially thought that this was the first occasion on which the draft had been retyped (reflecting the amendments and updates that had been made to it up to that date) and that it was at that point that the relevant words were omitted from paragraph 5, the result, he believed, of a typist's copying error which, however, neither he nor anyone else picked up. He recalled that that by that time "electronic typewriters" (as he described them) were being used in his office. In his second witness statement he referred to notes of a meeting in November 1978 which indicated that the draft sub-underlease had been retyped in his office at that time as well, with the newly typed draft incorporating amendments made up to that time. He expressed the view, which as he accepted (none of the drafts, other than the actual annexed sub-underlease, having survived) could be no more than that, that it was in the course of that early process of retyping (rather than when the subsequent retyping occurred as he had initially thought) that the omission of the relevant words accidentally occurred. He ventured as the reason for this the phenomenon known technically as a homoeoteleuton (referred to above at paragraph 32). Since, according to his evidence in cross-examination, his firm was he believed still using mechanical typewriters in 1978 it is just as likely, if anything it is slightly more likely, that the error of transcription - if that is what it was - occurred when the later retyping of the document was carried out than that it occurred when the earlier retyping was undertaken. However, Mr Butler's evidence on this was a little confused, largely I suspect because he had no very clear idea exactly what typing equipment was in use at Simmons & Simmons at the relevant times.
- As I have already mentioned in the course of narrating the history of this matter, the draft of the proposed sub-underlease which Mr Butler sent Mr Amlot in early March 1980 did not show what amendments BRB (and King's College) had made to it. His covering letter of 3 March merely referred to the draft having been "updated" and "completed" with the assertion that "none of the variations are of any substance". I have already observed that at least two and arguably others were of some substance.
- Mr Butler accepted that it was poor practice on his part, indeed discourteous, not to have identified the many changes that had been made. In reply to the suggestion put to him by Miss Williamson in cross-examination that the statements he had made in his letters to Mr Amlot of 3 March and 25 March 1980 were disingenuous, Mr Butler stated:
- Mr Butler gave five reasons for believing that the relevant words had been omitted in error from paragraph 5. First, he had no recollection of any discussion, much less agreement, with King's College or BRB or their representatives or with PMM's representatives that might have led to their omission. Second, there was no reference to any such omission in any of the correspondence or notes in his firm's files and to the best of his recollection he made no amendments of any kind to paragraph 5 at any time prior to completion of the reversionary sub-underlease other than (1) to substitute the different years of the term that arose when the term was divided between the two sub-underleases and (2) to omit the paragraph altogether in the initial sub-underlease. All of those changes, he said, were alterations that did not involve any reconsideration of the mechanics of the paragraph itself. Third, if the effect of omitting the relevant words was that the tenant's right to serve a break notice was no longer to be tied to an immediately preceding increase in rent, that would have been a very material change in the commercial terms of the agreement whereas, both from reviewing his firm's papers and from his recollection, there was no negotiation of lease terms with PMM after the Agreement for Lease had been entered into and he could think of no good reason why such an amendment would have been unilaterally conceded by BRB and King's College without the subject having been raised. Fourth, if he had been given instructions to amend the draft sub-underlease to allow a tenant's break not tied to a rent review, he would not have approached the matter simply by omitting the relevant words. Fifth, given the very considerable period during which amendments to the sub-underlease were under discussion, and the correspondence that it provoked, if anyone at King's College or BRB had insisted upon such an amendment being implemented in the way in which in the view of KPMG it had been, he is sure that he would have recorded his objection.
- Network Rail puts its claim to have the reversionary sub-underlease rectified on three alternative bases. Two rely on mutual mistake and the other on unilateral mistake. KPMG contends that Network Rail failed on the evidence to establish any case for rectification, however it was put, that the second basis upon which the mutual mistake claim was advanced was wrong in law and that, in any event, the matter being one for the discretion of the court, there were reasons why the claim should not be admitted.
- It was common ground that for mutual mistake to apply it is necessary for the party seeking rectification and on whom the burden of proof lies, to demonstrate, on a balance of probabilities but by convincing proof, four matters:
- Mr Driscoll submitted that BRB, as prospective landlord, and PMM, as prospective tenant, plainly had a common intention to enter into a lease which should give to the tenant only three opportunities to break the lease, namely rights exercisable following expiration of the twenty-fourth, thirty-fourth and forty-fourth years of the originally envisaged fifty-two year term, and then only by notice given within six months of the determination of the reviewed rent, resulting in an increased rent, payable from the expiration of the twenty-second, thirty-second and forty-second years respectively of that term. He submitted that that common intention was given outward expression in paragraph 5 of schedule 5 to the annexed sub-underlease and, moreover, was made binding upon the parties by being annexed to the Agreement for Lease.
- The question, he said, was whether the parties had a continuing intention to enter into a lease which contained a limited tenant's break right of that nature (and no more) at the time of execution of the reversionary sub-underlease (as the instrument sought to be rectified). He submitted that, although in the period subsequent to the signing of the Agreement for Lease BRB proposed and intended that there should be a number of changes made to the form of sub-underlease to be entered into, BRB never had any intention of varying the very limited circumstances (as summarised above) in which the tenant should be entitled to break the sub-underlease. He pointed to the evidence of Mr Scutt and Mr Butler. He pointed also to the total absence of any communication passing between King's College and BRB proposing such a change. He submitted also that there could be no sensible reason why BRB as the prospective landlord should want to volunteer a change which, if KPMG should be correct on its construction of paragraph 5, would significantly widen the tenant's scope for terminating the lease. There was no reason, he said, not to accept Mr Butler's evidence that the omission resulted from a copying error which no-one on his side picked up.
- He submitted that the only question was whether PMM's intention in this regard changed as a consequence of the omission from the draft sent to Mr Amlot on 3 March 1980. As to this, he pointed to the evidence of Mr Webber who, following Mr Amlot's letter of 21 March 1980 to Mr Benzie, was the point of contact between PMM and Mr Amlot in relation to the terms of the proposed sub-underlease and therefore was likely to be the person through whom PMM gave its instructions to Mr Amlot on all matters affecting that document. Mr Webber's understanding was that, so far as he was concerned, the terms of the proposed sub-underlease had been settled from before even the Agreement for Lease was entered into and did not materially change thereafter. His evidence was that he had no recollection of discussing the break provisions with Mr Amlot and, although he had very little recall of his meeting with Mr Amlot at which, following Mr Amlot's letter of 21 March 1980, the new draft was discussed, he was "confident" that at that meeting the termination provisions were not reviewed or discussed.
- Mr Driscoll pointed to Mr Webber's acceptance that Mr Benzie would have briefed him against Mr Amlot's letter of 21 March 1980 and submitted that there is no conceivable reason why Mr Benzie would not have briefed Mr Webber on the break clause if Mr Benzie had picked up the point about the omission of the relevant words. There was no separate written response from Mr Benzie to Mr Amlot's letter to him, and no suggestion by Mr Amlot that he discussed the terms of the new draft separately with Mr Benzie. On the contrary, the contemporary communications passing between Mr Amlot and PMM suggested that Mr Benzie simply passed Mr Amlot's letter of 21 March to Mr Webber to deal with. To this must be added Mr Webber's further evidence that he could not recall any discussion about the break clause either between members of the Accommodation Committee or in any partnership meeting of PMM.
- Mr Driscoll submitted that on the basis of that evidence, if accepted at face value, no-one at PMM focused on the change to the break clause effected by the new draft beyond how it appeared in the annexed sub-underlease and that there was no evidence that PMM as a partnership changed its intention in this regard. The only proper inference to be drawn was that, although the change was picked up and briefly commented upon by Mr Amlot in his four page letter of 21 March 1980, it was lost among a large number of other points and registered no impact on Mr Benzie or anyone else at PMM. On this footing, PMM, no less than BRB, continued to have the same intention regarding the break clause as encapsulated in paragraph 5 of schedule 5 to the annexed sub-underlease. From this it followed that paragraph 5 as worded in the reversionary sub-underlease failed to reflect the continuing common intention of the parties because the relevant words were not intended to be omitted. The paragraph should therefore be rectified by re-inserting those words immediately before "and thereafter".
- Mr Driscoll's alternative submission as regards mutual mistake – it was raised by way of amendment to Network Rail's Part 20 claim on the fourth day of the trial – proceeded on the assumption, contrary to his primary submission, that Mr Benzie did take up Mr Amlot's comment in his letter of 21 March 1980 concerning the omission of the relevant words, except that, as Mr Amlot confirmed in the course of his oral evidence, the point which he was making in that comment was that, as a result of the omission, the tenant (ie PMM) would (as before) have three and only three opportunities to break the lease but with none dependent upon the rent review producing an increase in rent. On that basis, Mr Driscoll submitted, it could not be said that Mr Benzie could have thought, given Mr Amlot's comment, that the effect of the omission was to confer two additional free-standing rights to break; at the most he would have thought that BRB was offering or was prepared to agree the same three break rights following a determination on a rent review as before but without the need to show an increase in rent on the determination. It would therefore follow that Mr Benzie continued to intend that PMM should enter into a sub-underlease containing a break provision which was in every material respect the same as the break provision contained in the annexed sub-underlease and which it was also BRB's continuing intention to enter into. The only difference was that whereas BRB intended that the relevant determination of rent should result in a rent increase, PMM intended merely that there should be a determination of rent.
- Mr Driscoll submitted that although on this basis both parties did not share an identical continuing intention with regard to the break clause, they did as regards every material aspect of it except only the need to show a rent increase. In these circumstances, he submitted, it would be absurd to argue as a matter of equity and conscionability that the parties, although continuing to intend only three breaks and not five, nevertheless must both accept a document which confers five rights to break simply because they did not continue to have the same common intention about the terms of three breaks. Equity would require the formal document to give effect to at least their lowest common intention in this respect. This would be achieved by rectifying paragraph 5 so as to omit the last seventeen words of the parenthesis so that the parenthesis would end after the words "twenty-first years respectively of the said term" where those words first appear in it.
- Miss Williamson submitted that, given the state of the evidence, Network Rail failed to discharge the burden of establishing by convincing proof that the omission of the relevant words was unintended by BRB or, even if originally unintended, remained unintended by the time the reversionary sub-underlease came to be executed in July 1985. In short, she said, Network Rail failed to establish that there was any mistake on BRB's part at all.
- She pointed to the fact that there was no evidence before the court of BRB's authority to proceed with the transaction from which it might be seen what it was that BRB intended to sign up to at the time it executed the reversionary sub-underlease if it was other than the initial and reversionary sub-underleases as executed. The evidence suggested that Mr Roberts, who had become BRB's chief solicitor by the time that the amendments to the annexed sub-underlease were being discussed, was extremely cautious, was concerned with matters of detail, considered and approved the two sub-underleases in the eventual form they took and recommended them for execution. It was not to be inferred that Mr Roberts had failed to appreciate the changes made to paragraph 5, at any rate by the time of execution of the two sub-underleases, not least because when the 52 year term was split into two separate terms the dates in what was to become paragraph 5 of the fifth schedule to the reversionary sub-underlease had to be changed to correspond with the 31 year term to be granted by that instrument.
- There was, she said, no evidence from Mr Roberts who was now deceased, no files or documents from BRB relevant to the period leading up to March 1980 and beyond, and no direct evidence at all as to the position at BRB in 1985 (Mr Scutt having ceased to have any involvement in the matter by late 1982) or as to what final checks were made of the two instruments before they were executed. There were no drafts of the sub-underlease between 1974 and March 1980 and no evidence therefore as to what exactly was passing between King's College and BRB in terms of proposed amendments to the draft sub-underlease at the time (October 1978 or November 1979) when it was suggested that the omission of the relevant words occurred. There was no document to explain how and on whose initiative the words "not less than" came to be inserted – clearly deliberately – into paragraph 5 or whether, when it was made, the relevant words had already been omitted from the paragraph. It was common ground that other omissions were made by BRB to the fifth schedule. This only went to emphasise that careful consideration had been given to its terms.
- In all of the circumstances, Miss Williamson submitted, it was just not credible that the omission of the relevant words went unnoticed and therefore was unintended by BRB.
- Miss Williamson went on to submit that even if BRB did not intend to omit the relevant words the evidence did not justify a finding that PMM shared that intention. The fact is that Mr Amlot noticed the omission, reported the fact to Mr Benzie and advised that the omission was in PMM's favour and, impliedly, that it should be accepted. The question was whether PMM nevertheless intended to execute a lease that contained a break clause in its original form (with the relevant words) or whether it intended to execute a document that contained a break clause in the form in which its solicitor was advising the person to accept who was deputed to deal with the matter. She pointed out that Mr Webber alone had no authority to take a decision on the break clause. His evidence was that he would have taken Mr Benzie's instructions. Either the matter was reported to PMM's general partners or it was reported to Mr Benzie who was one of them who had delegated authority from them to deal with the matter. There was no evidence, because of the lapse of time and the death (in 1981) of Mr Benzie (and in 2002 of Mr Bowie) and the loss of the relevant files (including the report which Mr Webber thought that he had made to Mr Benzie following his meeting with Mr Amlot), to enable the court to consider just what did happen. But, whichever way the matter was considered within PMM, Network Rail failed to discharge the burden of showing that, despite Mr Amlot's advice, the decision makers within PMM continued to believe that the break clause was unchanged and that the reversionary sub-underlease was executed by it in that belief. It cannot be inferred that no thought was given to the matter and that PMM proceeded as if the omission had not been made. The evidence taken as a whole was as consistent and indeed more consistent with PMM following and accepting Mr Amlot's advice in relation to the omission than that the partnership simply did not notice the omission and never therefore intended the omission to have any effect.
- Miss Williamson submitted, in response to Network Rail's alternative mutual mistake claim, that it failed at two points critical to the principles applicable to rectification for mutual mistake: failure to establish the necessary continuing common intention and failure to demonstrate an outward expression of accord in respect of the relevant intention.
- As to the first of those two matters, she submitted that it was necessary for Network Rail to demonstrate a meeting of minds. That involved a positive intention to enter into the relevant term proven in the minds of both parties. If, as Mr Scutt and Mr Butler suggested, it was always BRB's intention that the tenant's break right should only be exercisable if there had been an increase in rent on a determination at the relevant review date and if (disregarding his evidence concerned with the existence of two independent free-standing break rights) Mr Amlot's understanding and PMM's intention were that the tenant's break rights should be conditional only upon a rent review having taken place at the relevant date (with no additional requirement that it result in an increase in rent) it followed that there was never any common intention as regards the circumstances in which the tenant should be entitled to break its lease. This element of the requirements for mutual mistake was not therefore established. In particular, it was not open to a claimant for rectification merely to take the "lowest common intention" (as Mr Driscoll had described it) ie, to look to those parts of the parties' respective intentions which are common to both sides but ignore those parts which are not. The whole of the relevant intention of each party must be considered. BRB's intention that there should be a rent review and an increase in rent consequent upon it (at the relevant review date) was composite in nature, the two elements of it being inextricably linked. It would not therefore be right to allow Network Rail to obtain rectification of paragraph 5 so that it takes on a meaning which BRB on its own case never intended, not least when it was BRB which proposed the form of wording found in the instrument as executed.
- As to the second of the two matters, even if it were open to a claimant for rectification to point to and rely on the parties' "lowest common intention" there was no evidence supporting the necessary outward expression of accord as to that fact. The most that Network Rail could point to was Stephenson Harwood's acceptance on behalf of PMM of the omission of the relevant words from paragraph 5 constituted by Mr Amlot's action in returning the travelling draft "agreed as amended in red" by his letter of 11 July 1980. Since the assumption relevant to the claim for rectification, however put, is that the wording of paragraph 5 confers free-standing break rights (apart from the three rights linked to a rent review) there was no outward expression of any accord as to the meaning or operation of the clause contended for.
- In any event, rectification for mutual mistake should not be ordered because PMM accepted the revised form of paragraph 5 at (as Miss Williamson put it) "face value on its terms amongst a raft of other amendments". It would be unfair and unreasonable to revisit this one clause after so long as this would risk upsetting the balance of the entire agreement which had been negotiated and agreed as a package. She pointed out that Mr Butler himself agreed that a transaction is negotiated as a package so that if one term of a schedule which had been negotiated were to be altered then one could not necessarily say that other amendments which had been negotiated with it would necessarily have remained in the same form. She submitted that the court should find that, even if there ought otherwise to be restoration of the relevant words, it would nevertheless be unfair and unreasonable to do so because the court could not be sure that the amendments to the remainder of schedule 5, especially those to paragraph 2, would have remained altered as they came to be. It was impossible, she said, for the court to be certain what form the total ultimate agreement would have taken. I call this submission "the package point".
- The applicable principles are well established and need no repetition. They are conveniently set out in the case of rectification for unilateral mistake, in Agip SpA v Navigazione Alta Italia SpA [1984] 1 Lloyd's Rep 353 at 360-362 (Slade LJ), Commission for New Towns v Cooper (Great Britain) Ltd [1995] Ch 259 at 277D to G and 280D (Stuart-Smith LJ) and, more recently, in George Wimpey UK Ltd v VIC Construction Ltd [2005] EWCA Civ 77. These principles were not a matter of controversy between the parties.
- For unilateral mistake to be established, Mr Driscoll accepted that Network Rail must show, at the least, that PMM knew (either actually or by wilfully shutting its eyes to the obvious or by wilfully and recklessly failing to make such enquiries as an honest and reasonable man would make) that the omission of the relevant words from paragraph 5 of the draft sent by Mr Butler to Mr Amlot on 3 March 1980 was a mistake and was unintended by BRB and further that PMM did not draw the mistake to BRB's attention with the result that BRB executed the reversionary sub-underlease believing that the relevant words were included in paragraph 5 when in fact they were not. He accepted that the circumstances in which this occurred must be such as to render it unconscionable for KPMG, as PMM's successor in respect of the reversionary sub-underlease, to insist upon the terms of paragraph 5 as it stands (ie without the relevant words).
- Mr Driscoll submitted that PMM, either through Mr Webber or through Mr Amlot, had the requisite knowledge. He relied on sixteen particular matters in support of the submission: (1) the break clause had, to Mr Amlot's knowledge, been the subject of detailed discussion in the course of negotiating the heads of agreement when BRB had only been prepared to allow three rights to break each of which was to be conditional upon a rent review at the relevant date resulting in an increase of rent; (2) Mr Amlot had been involved in the drafting of the paragraph in the form in which it was to be found in the annexed sub-underlease; (3) the terms of the break clause had been agreed by July 1974 such that by the time the Agreement for Lease came to be entered into in December 1974 Mr Webber regarded the legal issues concerning PMM's occupancy rights of the Puddle Dock development as settled; (4) Mr Amlot accepted that giving PMM two free-standing break rights (unconstrained by any rent review requirement), which is how at one stage of his evidence he said that he understood the paragraph without the relevant words, was an unexpected "gift" for his client; (5) Mr Amlot accepted that he did not know what background negotiations had taken place and whether the omission of the relevant words had been agreed between BRB and PMM; (6) Mr Amlot accepted that paragraph 5 was an important clause and would have wanted to work out how it operated; (7) paragraph 5 as it appeared in the draft (ie without the relevant words) was unclear; (8) Mr Amlot could not explain how, without the relevant words, the paragraph worked and accepted that he read the word "thereafter" as meaning "separately"; (9) Mr Amlot accepted that paragraph 5 could have been more clearly drawn; (10) the tentative manner in which, in his letter dated 3 March 1980, Mr Amlot referred to the omission of the relevant words suggested that he was not sure about the matter and that he required instructions from his client; (11) Mr Amlot accepted that he took instructions at his meeting with Mr Webber on a particular amendment to paragraph 3 of part II of the fifth schedule to be found on paragraph 59 of the draft (the preceding page to the one containing paragraph 5); (12) Mr Webber accepted that at this meeting Mr Amlot was given the instructions needed to write his letter to Mr Butler dated 11 July 1980; (13) Mr Webber accepted that Mr Benzie would have briefed him against the points made by Mr Amlot in his letter dated 21 March 1980; (14) Mr Webber accepted that all of the matters referred to in that letter may well have been discussed at his meeting with Mr Amlot; (15) Mr Webber accepted that it was strange that Mr Amlot's letter of 11 July 1980 to Mr Butler did not refer to the omission of the relevant words appearing on paragraph 60 of the draft if it was a matter upon which he had been briefed by Mr Benzie; and (16) Mr Amlot accepted that his decision not to refer to paragraph 5 in his letter of 11 July was deliberate.
- Mr Driscoll submitted that the court should reject Mr Amlot's evidence that he viewed the omission of the relevant words as intentional on BRB's part, just as it should reject his evidence that the reason why no mention was made of the omission in his letter of 11 July 1980 to Mr Butler was because it did not seem necessary to refer to an amendment in PMM's favour when the amendment did not appear to be in dispute. The court, he said, should reject such evidence because Mr Amlot conceded (understandably) that he had no independent recollection of what he had thought at the time so that his evidence about what he did think amounted to no more than reconstruction from the documents.
- He further submitted that the court should reject Mr Webber's evidence that he could say with confidence that he did not review or consider the break right provisions at his meeting with Mr Amlot. Like Mr Amlot Mr Webber had no independent recollection of the meeting. There was no reason why Mr Webber would be given authority by Mr Benzie to deal with any of the other matters referred to into the letter dated 11 July 1980 but not be given authority to deal with the break clause and none was suggested. Mr Webber's evidence that his "brief" at the meeting related only to "mechanical issues" was clearly wrong in that he later accepted that he was the person to whom PMM gave instructions on all issues to Mr Amlot. There was no separate written response from Mr Benzie to Mr Amlot in answer to the latter's letter to him of 21 March 1980; and Mr Amlot did not suggest that he discussed, or might have discussed, paragraph 5 with anyone else other than Mr Webber. Mr Webber accepted that there was a possibility that he had discussed the issue of the break clause with Mr Benzie and that any decision to keep quiet about it would have been taken by Mr Benzie and not by him. His evidence was inconsistent with Mr Amlot's that a deliberate decision was taken at the meeting not to refer to the omission in the letter of 11 July 1980. Mr Amlot's decision in that regard could only have been given by Mr Webber after the latter had been briefed by Mr Benzie. Mr Webber must therefore have instructed Mr Amlot not to refer in the letter to the omission of the relevant words. That failure was to be contrasted with the references in the same letter to many other changes in the draft sub-underlease including those on pages of the draft immediately preceding and immediately following the page on which paragraph 5 appeared.
- The inference properly to be drawn from all of this was that Mr Amlot suppressed the omission of the relevant words because he considered it to be in PMM's interest to do so and Mr Webber agreed to this course. If Mr Amlot did not actually know that the omission of the relevant words was a mistake then he shut his eyes to the obvious and deliberately decided not to raise the questions which an honest and reasonable solicitor in his position would have raised. Mr Amlot did not even acknowledge the change to paragraph 5 by the omission of the relevant words.
- Mr Driscoll submitted that if the court was persuaded that Mr Amlot and Mr Webber knew or suspected that there had been a mistake but decided to take no action rectification was justified not least because Mr Amlot accepted in cross-examination that, if he had known that the omission was a mistake or suspected that it was, he would have drawn Mr Butler's attention to it and would not have accepted instructions to suppress it. Mr Amlot had also accepted that a deliberate decision was taken not to draw attention to the omission in his letter to Mr Butler of 11 July 1980. The omission was favourable to PMM which benefited as a consequence of the failure to draw it to BRB's attention.
- Miss Williamson submitted that since Network Rail disavowed the suggestion that there was any kind of attempt by PMM independently of Mr Amlot to suppress knowledge of the omission of the relevant words, Mr Amlot's evidence was critical to the success or failure of the unilateral mistake claim. Unless the court disbelieved Mr Amlot when he said and repeated that he did not realise that the omission was a mistake and that it never occurred to him that this change in the draft sub-underlease was unintentional, then Network Rail's case for rectification on this ground must also fail. (This was over and above her submission that there was no mistake on BRB's part in any event.)
- There were, she said, seven reasons why PMM, whether through Mr Amlot or independently, was unaware that there was any question of a mistake and why there was nothing to put Mr Amlot on notice that there was a mistake, let alone that he "closed his eyes to the obvious". First, Mr Butler sent Mr Amlot the draft sub-underlease as being a document which, in its overall form, King's College and BRB wished PMM to sign. On behalf of PMM Mr Amlot was entitled to treat it as such. Second, despite what Mr Butler stated in his letter of 3 March 1980 to Mr Amlot, there could be no question of any representation by BRB to PMM that BRB believed that the draft was merely incorporating terms previously agreed; many variations of those terms were being proposed (and many were plainly outside the ambit of clause 10 of the Agreement for Lease) so that no such representation was in fact made. Third, Mr Butler made no attempt to indicate to Mr Amlot where the previous draft was being amended; PMM was not therefore potentially affected with notice that any particular amendment was not intended. Fourth, BRB had its own legal advisers and was apparently using them. PMM was entitled to believe that BRB had taken advice as to the terms of the draft, that these terms represented its intentions and that the terms had been checked on its behalf before being presented to PMM. Fifth, the draft sub-underlease proffered by Mr Butler became a document which the parties were negotiating at arm's length (albeit on the basis that if agreement were not reached in respect of any matter the original terms of the annexed sub-underlease would apply) in circumstances where neither PMM nor its solicitors owed any duty of care to BRB. Sixth, PMM neither said nor did anything to induce BRB to make the relevant mistake (if it did), nor to induce BRB to believe (falsely) that it had not made the relevant (or any) mistake. Seventh, the mere fact that the omission of the relevant words was a benefit to PMM was insufficient to put PMM on notice that it could not in all the circumstances have been intentional, still less to justify any inference that PMM either realised, or harboured a suspicion which it then ignored, that there must be a mistake.
- There were further reasons, said Miss Williamson, why, being a discretionary remedy, rectification (either for mutual or for unilateral mistake) should not be ordered. These related to the conduct of Mr Butler. Mr Butler allowed the omission to occur because, as he accepted, he did not fully and carefully check the draft document which he sent to Mr Amlot although it was his responsibility to do so. Equity aids the vigilant and not the indolent. Moreover. in context, Mr Butler's letters and responses to Mr Amlot in March 1980 could fairly be described as disingenuous. Having admitted that it was discourteous of him simply to send Mr Amlot the new draft sub-underlease without indicating where changes to its terms had been made, Mr Butler had acted discourteously and his representations (that the draft had been merely "updated" and "completed" and that "none of the variations are of any substance") were careless. The court should find that Mr Butler was seeking to "try on" the various amendments he had made knowing, as he had stated in his letter of 25 March 1980 to Mr Arkwright of King's College, that many would be regarded as "more fundamental". He had done so in the hope that by simply presenting them to the tenant without drawing particular attention to any of them, they were more likely to slip past. In the context of Network Rail seeking equitable relief this was not "clean hands"
- She submitted that even if Network Rail would otherwise be entitled to rectification, its claim was barred by its laches in bringing it forward. This was because the events in question took place between 1974 (and on Network Rail's case as early as 1970) and 1985; insofar as anyone originally involved in the matter was still alive and available to give evidence, any true memory of events which he might have had had long since faded to the point where no reliability could safely be placed upon such evidence; the fading of recollections had inevitably been continuing, and worsening, with time; documents on both sides which might previously have been available to assist in demonstrating background facts had been lost or destroyed in the intervening period so that it was no longer possible to be confident that a proper investigation could take place of the material matters; Network Rail (or its predecessor) had known about the alleged "mistake" which it now sought to have rectified since 1999, yet took no steps to bring its claim until 25 February 2005 and only did so in response to proceedings for declarations as to the correct construction of paragraph 5 which KPMG initiated in July 2004. This was notwithstanding that PMM (before its assignment to KPMG) had been given formal notice of a potential claim for rectification in November 2002. It could and should be presumed in KPMG's favour that, on a balance of probability in the face of Network Rail's inactivity for at least five years after learning of the situation, memories had further faded and, quite possibly, relevant documents had ceased to be available. In all of the circumstances the court should conclude that the claim was brought too late.
- No one reading paragraph 5 with any care can fail to pause at the words "and thereafter" appearing in the parenthesis and wonder whether perhaps something has gone wrong with the drafting. It takes some imagination, and not a little mental agility, to read the paragraph as conferring on the tenant five opportunities to break the term of which three are conditional on a rent review having taken place following the expiry of the first, eleventh and twenty-first years respectively of the term and the other two are independent of any rent review and are exercisable during the tenth and twentieth years respectively of the term.
- It is reasonably clear, and I find, that Mr Amlot did not so understand paragraph 5 when he received the clean draft sub-underlease under cover of Mr Butler's letter of 3 March 1980. His observation on the omission of the relevant words in his letter of 21 March 1980 to Mr Benzie was not that BRB was willing to grant PMM two (or any) additional break rights. As appears from his letter to Mr Benzie, he had correctly understood the corresponding paragraph in the form in which it appears in the annexed sub-underlease (and which he referred to in his letter as "the original draft") as providing that PMM could only determine the lease if there was an increase in rent. He understood that the effect of the omission of the relevant words from the draft sub-underlease he was being asked to approve was that this requirement - an increase in rent – was being dropped. He did not suggest to Mr Benzie that the omission had any further consequence, let alone that it resulted in the grant to the tenant of two additional and free-standing break rights. That this was in all probability how at the time he had understood the omission was accepted by Mr Amlot in cross-examination. Furthermore there is nothing in the contemporary correspondence to suggest that this understanding of paragraph 5, whether on the part of Mr Amlot or on the part of his clients, thereafter changed. If it had, if Mr Amlot had suddenly realised that his initial understanding of the amended paragraph was, or was even arguably, mistaken and that BRB appeared to be willing to give PMM two additional break rights, or if PMM had thought that that was how it operated, I would have expected the point to have been made in the correspondence, for example a letter enquiring whether this revised understanding of the amended paragraph was correct. There is nothing to suggest that this occurred. It is not surprising that it did not. For when asked in the course of his cross-examination to explain how paragraph 5 as worded in the executed reversionary sub-underlease (ie without the relevant words) operated so as to confer additional break rights, Mr Amlot found himself in some difficulty.
- It is also reasonably clear, and I find, that BRB did not intend either to confer on PMM any additional break rights or to relax the circumstances in which the existing break rights (as set out in paragraph 5 of the annexed sub-underlease) were exercisable. Even allowing for the lapse of so many years since the events in question and for the obvious difficulty in recalling those events, Mr Scutt was adamant that, from BRB's point of view, there could be no question even of relaxing the requirement that the determination of the new rent on the relevant rent review (following the first, eleventh and twenty-first years) should result in an increase in rent, let alone that PMM should have two free-standing break rights. Mr Butler was clear in his evidence that the omission was wholly unintended and his failure to spot it an unfortunate oversight on his part. This is consistent with the history of BRB's reluctance to grant any break rights in the negotiation of the heads of agreement. Further, there is the absence of any hint of such a concession in the correspondence passing between Simmons & Simmons (on behalf of King's College) and BRB in the period up to March 1980. There is no good reason why BRB should have been willing to volunteer any relaxation in the circumstances in which the break rights should be exercisable, let alone add to the occasions when PMM should be able to exercise them. I am also impressed by two particular points made by Mr Butler. First was his point that, if he had been instructed to amend paragraph 5 to allow a tenant's break not linked to a rent review, he would not have done so by simply omitting the relevant words. Second was his point that, given the very lengthy consideration by both King's College and BRB of amendments to the sub-underlease, he is sure that he would have recorded his objection if someone on his clients' side had insisted on an amendment being made to paragraph 5 in this way. Lastly, I am wholly unpersuaded that the fact that with the passing of the years landlords have been increasingly willing to grant commercial leases for shorter terms provides any kind of explanation for the omission of the relevant words. The point might have had some force if in the period up to March 1980 PMM had sought an extension of its break rights but it has not been suggested that it ever did.
- The critical question, to my mind, is the extent if any of PMM's appreciation of the fact that the relevant words had been omitted.
- Having seen Mr Amlot, Mr Webber and Mr Peacock give evidence I reject any suggestion that they or any of them knew (either actually or by shutting their eyes to the obvious or by deliberately failing to ask the kind of question that any honest and reasonable person would have asked) that the omission of the relevant words - assuming they directed their minds to it - was unintended on BRB's part. Making every allowance for the passing of so many years since the events in question, none of those three witnesses struck me as the kind of person who, knowing (in one or other of the three senses referred to above) that BRB had mistakenly omitted the relevant words, would by keeping quiet about the matter seek to benefit from the omission to PMM's advantage. Mr Amlot who was in the witness box for some time came across as wholly honest and honourable in his professional dealings. I have no reason to think that he was any different 25 years ago. Mr Peacock likewise. His denial of any such conduct was not challenged. Nor was Mr Webber's honesty (for the matter is ultimately one of honesty or, at the very least, of fair dealing) subject to any substantial challenge. In short, the evidence falls short of what is needed to establish the claim. It follows that I reject Network Rail's claim to rectify based upon unilateral mistake.
- What then of mutual mistake?
- Persuasively as the matter was argued, I do not accept the alternative way in which the mutual mistake claim was put, raised for the first time after Mr Amlot had completed his evidence. Assuming that, having received the draft sub-underlease (containing the omission) and Mr Amlot's explanation of the effect of the omission on paragraph 5, PMM understood and intended that the paragraph operated exactly as set out in the annexed sub-underlease but without the need for an increase in rent following the relevant rent review, and assuming further that BRB's intention continued throughout that the break rights should only be exercisable if there was an increase in rent following the relevant rent review (which was Mr Scutt's firm evidence), it is not permissible, in my view, to order rectification of the paragraph so that it reflects those parts of the parties' respective intentions about the matter which are the same but ignores those parts which are not. I accept Miss Williamson's submission that the rationale for rectification for mutual mistake is that the bargain which the parties intended is clear and was agreed but that they were both equally and innocently mistaken over its expression with the result that, if the mistake turns out to be to the advantage of one party, it is inequitable that that party should by his conduct in asserting the mistaken term gain the windfall benefit of the shared mistake. There is, as she submitted and I agree, no principle or authority supporting any doctrine of rectification pro tanto, at any rate in the absence of any criticism of the defendant's conduct. In any event I accept Miss Williamson's further submission that there is no evidence of the necessary outward expression of accord as to the meaning or operation of the paragraph in the manner contended for by Network Rail on the alternative way that it puts its claim.
- That leaves merely whether Network Rail establishes its primary mutual mistake claim and, if it does, whether in the exercise of the court's discretion in such a matter the relief claimed should be granted.
- I have already found that BRB's continuing intention up to the time of execution of the reversionary sub-underlease was that the tenant should only have the three break rights conferred by the corresponding provision in the annexed sub-underlease. That was also PMM's intention, at any rate up to the time that Mr Amlot sent Mr Benzie his letter of 21 March 1980 enclosing the draft sub-underlease containing the omission from paragraph 5, since PMM had bound itself by the Agreement for Lease to take a sub-underlease containing such a term and there is nothing to suggest that PMM had changed its mind on the matter. (Nor has it been suggested that, at the time that it was entered into, the Agreement for Lease did not accurately reflect the parties' common intention in this respect.)
- I consider it to be clear that, if PMM had executed the reversionary sub-underlease (with the omission from paragraph 5) without any awareness, let alone intention, on the part of anyone with authority to form PMM's intentions in this regard, that there was to be any change in the circumstances in which the tenant could break its lease, there could be no question but that, discretionary considerations aside, the paragraph ought to be rectified to include the relevant words. For in such a case the paragraph would not have expressed the common continuing intention of the parties. That common intention would have been to have as a term of the sub-underlease the same break rights (neither more nor less) that were to be found in paragraph 5 of the fifth schedule to the annexed sub-underlease which the parties, by the Agreement for Lease, had bound themselves to include in the sub-underlease when finally executed.
- The question, to my mind therefore, is whether as a result of Mr Amlot's letter of 21 March 1980 and what followed PMM's intention in this regard underwent any and if so what change. It has rightly not been suggested that Mr Amlot's own understanding and views on the matter are to be imputed to PMM. His function was to advise the partnership, not to make decisions for it.
- It seems clear, and I find, that whatever the procedures may have been within PMM for making decisions regarding the proposed sub-underlease, by March 1980 the method of communicating those decisions was through Mr Webber. He accepted that that was the position. It is confirmed by Mr Benzie's letter of 23 June 1980 to Mr Amlot in which Mr Benzie stated that he had "asked Terry Webber to hurry the matter along".
- Was there then any change in PMM's intention with respect to the terms on which it was to be entitled to break the proposed sub-underlease?
- In coming to a view on this critical issue three matters are to be noted. The first arises out of Mr Amlot's letter of 11 July 1980 to Mr Butler setting out the responses (following Mr Amlot's earlier meeting with Mr Webber) to the amendments made by Mr Butler to the draft sub-underlease. Although making reference to many of those amendments (including amendments that had been made to other parts of the fifth schedule) the letter was silent on the omission of the relevant words from paragraph 5. Second, Mr Amlot had no recall of any discussion of the paragraph with anyone either at PMM or at JLW (a fact which was not at all surprising given the lapse of time) but stated that he did not believe any such discussion did take place. His evidence was to the effect that, having noted the omission and having noticed that "it worked in favour of Peat Marwick rather than against them", he saw no need to focus intently on it, recalled that "in my mind… [it] became part of the document" and stated that he "concentrated on the changes which were still not agreed". Third, Mr Webber's evidence was, again not surprisingly, that he had no particular recollection of what happened at his meeting with Mr Amlot and had no recollection of any discussion of the break clause whether with Mr Benzie or with others. But he nevertheless seemed clear ("…I can say with confidence …") that he "did not review or consider the termination provisions" either at his meeting with Mr Amlot or at any other time.
- I see no reason not to accept the evidence of these two witnesses on these matters. I accept therefore that the change to paragraph 5 caused by the omission was not discussed at Mr Amlot's meeting with Mr Webber. If it had been, I cannot help thinking that the fact that it had would have been mentioned in Mr Amlot's letter of 11 July 1980 to Mr Butler not least because anyone giving the paragraph (without the relevant words) any degree of careful attention is almost bound to have asked himself exactly what the paragraph meant and would therefore surely have wanted to establish with the other side what was intended by the omission. That is so whether one reads it as either Miss Williamson or Mr Driscoll (in support of Network Rail's first fall-back position) invited me to do when addressing the question of construction or one reads it as Mr Amlot appears to have done when he first received the draft in March 1980. Indeed I accept Mr Driscoll's submission that Mr Amlot's expression of view in his letter of 21 March to Mr Benzie on the effect of the omission ("this now seems to have been dropped, which would appear to be in your favour") was couched in less than certain terms.
- In short, given Mr Amlot's less than confident opinion on the effect of the omission, his doubt that it was discussed with anyone at PMM, Mr Webber's confidence that he had not discussed it with anyone and the likelihood that if it had been discussed it would have featured in Mr Amlot's letter of 11 July 1980, and given also my rejection of any kind of conspiracy of silence, the conclusion that I reach, indeed the evidence is almost wholly to this effect, is that the omission was not discussed at Mr Amlot's meeting with Mr Webber.
- That leaves only the possibility that although Mr Webber was the means whereby PMM's views on the amendments to the draft sub-underlease were to be communicated to Mr Amlot, either Mr Benzie (or someone else at PMM) considered and agreed the omission from paragraph 5 and communicated this direct to Mr Amlot, or Mr Benzie (or others at PMM) considered and agreed the amendment but no one communicated this fact to Mr Amlot who, not having been instructed not to accept the amendment caused by the omission, simply allowed the matter to be approved, as it were, by default. There is no evidence beyond speculation to support either hypothesis. I can see no reason why Mr Benzie (or someone else at PMM other than Mr Webber) should have considered and agreed this particular amendment as distinct from the others that Mr Webber did consider with Mr Amlot at their meeting, and then communicated the fact to Mr Amlot. If, however, that is what did occur, I would have expected to see a letter on the file. There is none. As to the second hypothesis, this assumes a breakdown in communication between Mr Benzie (or whoever else was at PMM) and Mr Webber (PMM's channel of communication with Mr Amlot) of which there is no hint in the evidence.
- It follows therefore that on the balance of probabilities I am persuaded that PMM continued as much after 21 March 1980 as, by reason of the Agreement for Lease, it had before that date, to intend to enter into a sub-underlease which gave to it the same three opportunities to break as were conferred by paragraph 5 of the fifth schedule to the annexed sub-underlease (later adjusted only to reflect the split in the overall term effected by the initial and reversionary sub-underleases).
- Does Network Rail persuade me of this by convincing proof? Having rejected the claim based on unilateral mistake (and therefore having rejected any suggestion of dishonesty or sharp practice on the part of Mr Amlot and partners in PMM) I cannot but think that the obvious reason why the reversionary sub-underlease was executed containing a clause as ineptly drafted as the last seventeen words of the parenthesis in paragraph 5 is simply because when the matter eventually came to be considered by PMM, and despite Mr Amlot's letter of 21 March 1980, the omission was overlooked. The answer to my question is therefore "yes".
- What then of discretion?
- I am not persuaded that Mr Butler's admitted discourtesy in sending to Mr Amlot a clean copy of the draft sub-underlease rather than one showing the amendments which BRB was proposing, and his statement that none of the amendments were of any substance, even when he knew that some were, should disentitle Network Rail to rectification. Mr Butler's actions may have caused Mr Amlot extra work in establishing what amendments had been made but, as Mr Driscoll submitted, they were not causative of any prejudice: Mr Amlot (or rather his assistant) spotted the omission from paragraph 5 and he commented on it in his letter to Mr Benzie. Nor did Mr Butler's misdescription of some at least of the amendments as of no substance mislead Mr Amlot. The conduct complained of did not, in my view, have any "immediate and necessary relation to the equity sued for" (see Dering v Earl of Winchelsea 1 Cox Eq 318 at 319). At most it served only to deflect Mr Butler's own attention from the amendments to the annexed sub-underlease that his clients intended to make.
- Nor do I consider that the fact that the omission was, as Mr Butler admitted, the result of his own carelessness (or carelessness for which he was responsible) in failing properly to check the draft sub-underlease is a factor which should disentitle Network Rail to relief, even when taken with the other matters complained of. If it were, many a claim to rectification for mutual mistake would fail since, ex hypothesi, the instrument as executed has failed accurately to express the parties' common intention and this will very often have been as a result of carelessness for which, in part at least, the claimant for relief must share responsibility.
- Nor, further, do I consider that Miss Williamson's "package point" assists her client. The submission assumed that PMM was aware of and intended to execute the reversionary sub-underlease in a form which deliberately omitted the relevant words from paragraph 5 because of the perceived effect that the omission would have on the availability and terms of exercise of its break rights as compared with the corresponding provision in the annexed sub-underlease. But I have already found that PMM had no such awareness and intention. Were that not my conclusion, the question of rectification for mutual mistake simply would not arise.
- That merely leaves the laches defence. As to this, it is well established that the doctrine does not come into play before the person against whom it is raised as a defence has discovered the material facts, in this case the mistake. It must be shown that the subsequent delay in pursuing the claim renders it "practically unjust to give a remedy, either because the party has, by his conduct, done that which might fairly be regarded as a waiver of it, or where by his conduct and neglect he has, though perhaps not waiving that remedy, yet put the other party in a situation in which it would not be reasonable to place him if the remedy were otherwise to be asserted". See Lindsay Petroleum Company v Hurd (1873) 5 App Cas 221 at 239 (per Lord Selborne). As Lord Selborne went on (at 240) to observe:
- It was common ground that Railtrack (by then BRB's successor in relation to the landlord's interest under the reversionary sub-underlease) had no awareness of the mistake until October 1999. There was certainly a delay between that discovery and the launch by Network Rail (to which Railtrack had meanwhile changed its name) in February 2005 of the Part 20 claim for rectification. Quite what the reasons were for that delay and what was passing between the parties over the intervening period were not matters explored before me. The most that is said about that period of delay is that recollections of the relevant events would have further deteriorated. But even by late 1999 nearly twenty years had passed since the crucial events of March to July 1980. Some delay after October 1999 was inevitable if only so that the matter could be investigated. Further delay would necessarily have occurred before an action, once commenced, could come on for trial. As it is, the present proceedings have taken sixteen months to come to trial. It is difficult therefore to think that any period of reasonably avoidable delay could have had much if any effect on recollections. There is no evidence that documents have been lost during this period, for example pursuant to a policy of weeding out and destroying documents relating to transactions long past. It has not been suggested that witnesses who might otherwise have been available to give evidence and whose evidence might have been material have died during the period of delay. Mr Benzie died as long ago as 1981. Others, Mr Calvert, Mr Kersey and Mr Roberts are either known or are believed to have died but I was not told when. I was told that Mr Bowie died in 2002 but whether he would have been in a position to give material evidence was not explored.
- At the end of the day, I am not persuaded that the length of any avoidable delay and the nature of the acts done and the other events that have occurred during this period are such that I should withhold from Network Rail the equitable remedy of rectification to which it is otherwise entitled.
Mr Justice Blackburne:
Introduction
"… but with such modifications only as shall be agreed in writing by the parties hereto (a) in respect of any matter or thing they consider necessary following the completion of the Building to protect their mutual rights and interests hereunder or (b) relating to any further requirement of the [London Transport] Executive for the protection of their railway which extends beneath or adjoins the Site or some part thereof (c) relating to any further requirement of the City of London Corporation contained in [a] Lease of or relating to the said land and/or air space intended to be demised [to] King's College by the said Corporation or (d) provisions relating to the City walkways either as agreed by the Developers with or as required by the City of London Corporation…"
The Agreement for Lease went on to set out when the sub-underlease should be granted. Clause 15 contained an agreement that the Agreement for Lease should not merge in the sub-underlease on its grant to PMM "in respect of any terms and conditions herein contained which are not fully complied with and shall after completion of such grant continue to have full force and effect".
"PART II
(Provisions relating to the review of rent payable under this Sub-Underlease)
1. The rent reserved by this Sub-Underlease shall be subject to reviews upwards only as follows:
(1) The Landlords may give notice in writing not less than three months nor more than twelve months before the date of the expiration of the first year of the said term and of each successive period of five years thereafter (called "the date of review") throughout the said term requiring the rent payable from the date of review to be reviewed
(2) the review of the rent will be to the then current open market value of the demised premises for rental purposes as at the date of review and "the current open market value" means the best rent at which the demised premises might be expected to be let by a willing Landlord without a premium on the open market having regard to:
(a) the unexpired residue of the said term and on the basis that the demised premises are let to a single tenant
(b) all other provisions of this Sub-Underlease other than rent
(c) the current rental value of similar properties (if any) in the neighbourhood and assuming that vacant possession of the demised premises can be given
(d) the floor areas set out in Part I of this Schedule
In calculating the current open market value there shall be disregarded (if applicable) the matters set out in paragraphs (a) (b) (c) and (d) of Section 34(1) of the Landlord and Tenant Act 1954 as amended by the Law of Property Act 1969 and the effect on value of the partitioning and doors erected and installed by the Tenants and indicated by a red line on the relevant floor plans
(3) if the rent as reviewed (hereinafter called "the reviewed rent") exceeds the rent payable before the date of review the reviewed rent shall as from the date of review become the rent reserved by the Lease and all arrears of such rent shall become due and payable on the rent day immediately following the date when the reviewed rent is ascertained PROVIDED that the rent payable after the review shall not be less than that payable prior to the review
2. If the Landlords and the Tenants cannot agree within three months after the date of service of the review notice as to the amount of the reviewed rent the matter shall be referred to a single valuer who shall be a Fellow of the Royal Institution of Chartered Surveyors experienced in dealing with office buildings who shall be nominated (in default of agreement between the parties) on the application of either party by the President for the time being of the Royal Institution of Chartered Surveyors and such valuer shall act as an expert and not as an arbitrator whose decision shall be final and whose costs shall be payable as he may direct
3. If the Landlords shall fail to exercise their right to require the rent payable hereunder to be reviewed within the relevant period prescribed in paragraph 1(1) hereof or in the event that by the relevant date of review the Landlords and the Tenants shall not have reached agreement and the valuer (if appointed) shall not have given his decision provided for in paragraph 2 hereof then the Tenants shall continue to pay rent at-the rate of the rent payable before the relevant date of review on each day appointed by this Deed for payment of rent until agreement shall be reached or the said decision shall be made whichever shall first occur Within 14 days after such agreement shall have been reached or the said decision shall have been made (as the case may be) the Tenants shall pay to the Landlords as arrears of rent an amount equal to the difference between the new rent and the rent actually paid since the relevant review date together with interest thereon from the relevant review date until the date of payment thereof at the rate per annum from time to time of National Westminster Bank PLC base rate
4. In the event that during the said term the amount of the rent which would otherwise be payable to the Landlords under this sub-underlease shall be subject to statutory regulation or control for any continuous or non-continuous period or periods so that rent thereby permitted to be paid shall at any time be less than that reserved by this sub-underlease (whether revised in accordance with the provisions of this schedule or not) then the rent payable hereunder shall automatically increase to the maximum amount (howsoever such an amount may be lawfully ascertained) permissible for the time being under or by virtue of such statutory regulation or control and such increase or increases shall initially be collected on the quarter day next following the permitted date of commencement thereof and thereafter be payable as part of the rent hereby reserved in the manner and on the days herein specified for the payment of rent
5. If the Tenants shall be desirous of determining the said term hereby granted at any time after the expiration of the third thirteenth and twenty third years of the said term and of such desire shall give to the Landlords not less than six calendar months' notice in writing (such notice to expire on any quarter day and to be given within a period of six months following the determination of the reviewed rent to be payable from the expiration of the first eleventh and twenty-first years respectively of the said term and thereafter during the year immediately preceding the eleventh and twenty-first years respectively of the said term) then on the expiration of such notice as aforesaid the said term shall cease and determine but without prejudice to the rights and remedies of either party against the other in respect of any antecedent claim or breach of covenant"
The question of construction
"but in the event only that such reviewed rent exceeds the yearly rent payable during the twenty-second year of the said term"
"If the Tenants shall be desirous of determining the said term hereby granted at any time after the expiration of the twenty-fourth thirty-fourth and forty-fourth years of the said term and of such desire shall give to the Landlords six calendar months' notice in writing (such notice to expire on any quarter day and to be given within a period of six months following the determination of the reviewed rent to be payable from the expiration of the twenty-second thirty-second and forty-second years respectively of the said term but in the event only that such reviewed rent exceeds the yearly rent payable during the twenty-second year of the said term and thereafter during the year immediately preceding the thirty-second and forty-second years respectively of the said term) then on the expiration of such notice as aforesaid the said term shall cease and determine but without prejudice to the rights and remedies of either party as against the other in respect of any antecedent claim or breach of covenant."
"5. If the Tenants shall be desirous of determining the said term hereby granted at any time after the expiration of the third thirteenth and twenty third years of the said term and of such desire shall give to the Landlords not less than six calendar months' notice in writing (such notice to expire on any quarter day and to be given within a period of six months following the determination of the reviewed rent to be payable from the expiration of the first eleventh and twenty-first years respectively of the said term but in the event only that such reviewed rent exceeds the yearly rent payable during the first year of the said term and thereafter during the year immediately preceding the eleventh and twenty-first years respectively of the said term) then on the expiration of such notice as aforesaid the said term shall cease and determine but without prejudice to the rights and remedies of either party against the other in respect of any antecedent claim or breach of covenant"
Miss Williamson's submissions on construction
"81. ...Where it is common ground that one contract has been intended to supersede an earlier contract, it must follow that the parties' contract must be found exclusively in the later contract. Thus the earlier contract cannot be used to add to, or modify, the later contract.
82. But does it follow that the earlier contract cannot even be looked at for the purposes of construing the later contract?
83. In principle, it would seem to me that it is always admissible to look at a prior contract as part of the matrix or surrounding circumstances of a later contract. I do not see how the parol evidence rule can exclude prior contracts, as distinct from mere negotiations. The difficulty of course is that, where the later contract is intended to supersede the prior contract, it may in the generality of cases simply be useless to try to construe the later contract by reference to the earlier one. Ex hypothesi, the later contract replaces the earlier one and it is likely to be impossible to say that the parties have not wished to alter the terms of their earlier bargain. The earlier contract is unlikely therefore to be of much, if any, assistance. Where the later contract is identical, its construction can stand on its own feet, and in any event its construction should be undertaken primarily by reference to its own overall terms. Where the later contract differs from the earlier contract, prima facie the difference is a deliberate decision to depart from the earlier wording, which again provides no assistance. Therefore a cautious and sceptical approach to finding any assistance in the earlier contract seems to me to be a sound principle. What I doubt, however, is that such a principle can be elevated into a conclusive rule of law.
84. Where, however, it is not even common ground that the later contract is intended to supersede the earlier contract, I do not see how it can ever be permissible to exclude reference to the earlier contract. I do not see how the relationship of the two contracts can be decided without considering both of them. In essence there are, it seems to me, three possibilities. Either the later contract is intended to supersede the earlier, in which case the above principles apply. Or, the later contract is intended to live together with the earlier contract, to the extent that that is possible, but where that is not possible it may well be proper to regard the later contract as superseding the earlier. Or the later contract is intended to be incorporated into the earlier contract, in which case it is prima facie the second contract which may have to give way to the first in the event of inconsistency. I doubt that it is in any event possible to be dogmatic about these matters."
Mr Driscoll's submissions
"One does not ... readily or easily conclude that a mistake has been made. It is only when from the document itself, the surrounding circumstances, or the consequences of adopting a particular construction that it becomes apparent that something must have gone wrong that the court is entitled to abandon the dictionary and the grammar book and in effect to reconstruct or re-write the document."
"(2) Without prejudice to the generality of the provisions in this bill of lading, every exemption limitation, condition and liberty herein contained and every right exemption from liability, defence and immunity of whatsoever nature applicable to the carrier or to which the carrier is entitled hereunder shall also be available to and shall extend to protect every such servant or agent of the carrier [*] is or shall be deemed to be acting on behalf of and for the benefit of all persons who are or might be his servants or agents …" (asterisk added by Lord Bingham)
"21 It is plain that the printing of this clause leaves something to be desired."
Lord Bingham then gave an example and continued:
"It is also plain, and common ground, that there is some omission at the point where I have inserted the asterisk in square brackets."
He then referred to the way in which the judge at first instance and the Court of Appeal had approached the matter, namely by interpolating "(who)" in the gap in the wording. Lord Bingham continued:
"22. While acknowledging that there was no justification for inserting 'who' other than a need to correct an obvious grammatical solecism, Mr Milligan urged that, since it was not the function of the courts to make or rewrite the parties' contracts, the interpolation to be made should be the least intrusive reasonably possible to make sense of the clause. Mr Gee contended (a) that it was clear what words had been omitted, and (b) that the omission was explained by the phenomenon, technically known as homoeoteleuton … As to (a), Mr Gee contended that the missing words were 'acting as aforesaid and for the purpose of all the foregoing provisions of this clause the carrier…' These are the words to be found in the Conline bill of lading form, on which clause 5 as quoted above has been closely modelled, although with some additions, deletions and changes of language. It is a form of bill in very wide use, and was the subject of judicial consideration in … [various cases are referred to]. After the square brackets the clause again picks up the language of the Conline bill. As to (b), Mr Gee submitted that the transcriber's eye had wandered from "carrier" immediately before the square brackets to the same word at the end of the suggested interpolation.
23. I take it to be clear in principle that the court should not interpret words into a written instrument, of whatever nature, unless it is clear both that words have been omitted and what those relevant words were … In the present case there is agreed to be an omission. It is also plain, in my opinion for the reasons which Mr Gee gave, what words were omitted and how they came to be omitted. I would accordingly construe the clause 'acting as aforesaid and for the purpose of all the foregoing provisions of this clause the carrier' appeared in place of the square brackets I have inserted."
"192 … the clause does not make grammatical sense as it stands, and it is obvious that words have been omitted. The court must, therefore, supply the omission by implying at least the minimum necessary for the clause to make grammatical sense. This is what all the judges below did. But the authorities show that in a proper case the court will go further. Where it can see, not only that words have been omitted, but what those words are, then it is its duty to supply them. It is not necessary that the court should be certain precisely what words have been omitted; it is sufficient that it knows their gist. The process is one of construction, not rectification; this is evident from the fact that Court of Chancery not infrequently supplied omissions in wills at a time when it had no jurisdiction to rectify them. …
194. It is obvious that the clause is not an original work of legal draftmanship but is taken from a precedent. Several versions of the clause are in circulation, and it is impossible to identify the particular precedent from which the defective clause in the present case was taken. But they all employ the same mechanism of agency to give legal efficacy to the clause; they all do so by identical or nearly identical words; and they all incorporate the mechanism at precisely that part of the present clause where words have been omitted. In my opinion this is a clear case where the court can and should supply the missing words."
Conclusions on construction
Rectification
"The standard of proof required in an action of rectification to establish the common intention of the parties is, in my view, the civil standard of balance of probability. But as the alleged common intention ex hypothesi contradicts the written instrument, convincing proof is required in order to counteract the cogent evidence of the parties' intention displayed by the instrument itself. It is not, I think, the standard of proof which is high, so differing from the normal civil standard, but the evidential requirement needed to counteract the inherent probability that the written instrument truly represents the parties' intention because it is a document signed by the parties.
The standard of proof is no different in a case of so-called unilateral mistake …"
The documentary evidence
"Here we have a substantial difference of opinion as to the intent which could cause a considerable discussion. We on our side were under the impression that the lessee required his term to have a break clause half-way in order that he could if necessary opt out of the remainder of the term. On the other hand the lessee understands that the break was to become operative as from the half-way mark and could be put into effect at any one of the subsequent review dates.
There is some room for doubt as to what was intended in the draft Heads of agreement which were prepared initially although looking further back it does seem that one of the letters from Jones Lang Wootton fairly clearly sets out their point of view. On the other hand it is our opinion that if such a clause is allowed to go through, it could seriously affect the value of the property from a value point of view… Our point is of course that if the lessee is prepared to take a view for 21 years now he should be prepared to do the same at the end of that term and not leave us with the situation that we have to go through the same agony every five years. Frankly, we do not think that this is acceptable."
"I was frankly amazed to see two alterations to the previous draft which are as follows: … clause 5(2) - Determination of Lease - where it is suggested that the tenant's right to break should operate at the 24th year only, and not subsequently. Both these points are quite contrary to what was agreed at the meeting at my Client's offices on 22nd March, the main points of which were set out in the draft Heads of agreement forwarded … by me on 5th April."
By a further letter dated 9 August 1972 JLW wrote to Savills stating that:
"There can be no question of renegotiating matters of principle which were agreed months ago …"
"… that there may have been some misunderstanding on our side. You for your part are quite clear in your own mind as to the proposal but we certainly had not interpreted it in the same terms. However, I think that again you must agree that it would be quite irresponsible for us to suggest to our Clients that it would be right for them to accept the situation where their investment could be disrupted at the whim of the tenant every 5 years without any certainty that it might happen at all. Indeed were one to attempt to finance a development on such a basis it is clear what the answer would be. On the other hand your Clients are taking a view about this property at the present time for a period of 21 years and I can see no reason why they should not do exactly the same when they come to the end of that period. Indeed it was originally intended that your Clients should be granted a lease of 42 years or more without break in order to protect the flexibility which they would have available to them by reason of a lease of the whole of the development."
"Our Clients and their Agents do feel strongly that this reflects what was agreed at the preliminary meeting but this again is being discussed between the respective Agents at the moment."
"… We have now heard … that the matter is to proceed and accordingly we enclose a copy of the draft Deed of Agreement in the form we have now submitted to Messrs Simmons & Simmons … The determination clause 5(2) has been altered to provide that you are only entitled to determine the Lease on the expiry of the 24th, 34th and the 44th years in the circumstances set out."
"PMM shall be entitled to determine the Lease at the expiry of the twenty-fourth, thirty-fourth and forty-fourth years of the term by notice in writing to the Landlord given at any time within the period of six months following the determination of the new annual rent to be payable as from the expiration of the twenty-second, thirty-second and forty-second years of the term in the event that such new rent exceeds the annual rent payable during the twenty-second year of the term and thereafter during the year immediately preceding the thirty-second and forty-second years of the term."
"The basic draft is that which was the up-dated version of the draft attached to the original Agreement. Subsequently, I agreed with David Roberts various amendments in order to clarify one or two points and further to up-date the form of the draft."
"so as not to tempt providence I will not send a copy of this revised draft to David Roberts until I submit it to Stephenson Harwood".
"Peats always understood that there would be some delay but it is now getting on for four years since practical completion."
"You will appreciate that the draft has been updated, and completed, in many places although none of the variations are of any substance."
"We have compared the new draft with the draft attached to the Agreement [for Lease] in detail and all of the variations are marked on the enclosed draft."
If the "enclosed draft" was the same as the marked-up draft in evidence it is plain that not all the variations had been noted.
"The alterations that have been made are, I think, the most serious alterations to the original deal and I think are quite unacceptable and do not fall within the scope of any amendments that it was always understood would be required. It was never envisaged that the basic commercial terms would be altered …"
"The original draft provided that you only had the right to determine if there was an increase of rent. This now seems to have been dropped, which would appear to be in your favour."
"I would suggest when you have had a chance of considering the amendments, we have a meeting to agree what can be accepted and also those points upon which we shall have to go back to Simmons & Simmons."
"I have now been through the draft and compared it with the form of Underlease attached to the Agreement. I have reported to Peats in full and do not wish to comment until I have instructions except to say that while I can see that many of the amendments reflect the incorporation of the plans and the arrangements that have been made in particular with the LTE and the City Corporation, there do seem to be some amendments of substance which I would have thought my Clients would find it difficult to accept."
He then gave an example and continued:
"It was never the intention that the fundamental financial terms should be re-negotiated."
"Let me say immediately that it is not my clients intention to attempt to re-negotiate terms which were agreed some years ago and I would not like to think that either you or your clients have gained the impression that this was in our minds when revising the draft documents. Where changes have been proposed they have arisen out of lengthy discussions and are merely an attempt to rationalise and perhaps improve on some of the drafting."
The reference to "lengthy discussions" was to discussions between King's College and BRB. I consider (in agreement with Miss Williamson) that this response was somewhat disingenuous: BRB/King's College, through Mr Butler, were plainly hoping to secure changes of substance to the lease terms.
"I think we probably anticipated that some comments would be made about one or two of the more fundamental alterations and we shall just have to see how far Peats want to take them."
This comment makes abundantly clear that, in some respects at least, the amendments which, through Mr Butler, BRB/King's College had put forward were significant in nature and went beyond what was envisaged by clause 10 of the Agreement for Lease.
"As soon as we have had a chance of digesting the enclosures we will come back to you."
"We understand our Clients are prepared to accept part of the additional wording that you have added but there was nothing about interest in the agreed draft and therefore we have deleted the words."
He made no comment on the only other amendment to the fifth schedule that his office had noted, namely the omission of the relevant words. His letter concluded by repeating PMM's anxiety "to make progress" and stated his willingness to attend a meeting if that was thought useful "to go through the various points".
"… the relevant pages of the draft sub-underlease which I have amended to convert it to a sub-underlease and reversionary sub-underlease – you will see that my amendments are made in manuscript in red ink on the top copy of each set of pages."
The oral evidence
(1) Donald Amlot
"In my mind, the amended clause 5 became part of the document and I concentrated on those clauses which were still not agreed."
"… I did not focus intently on this clause as there was no need to do so … I noticed the change. I saw that it worked in favour of Peat Marwick, rather than against them, but I did not find this strange in all the circumstances. I believe that the change was an intentional part of the revision of the draft sub-underlease …"
"Rightly or wrongly I thought that it worked in exactly the same way as it had worked before except the requirement that the rent had to be increased."
(2) Terence Webber
(3) Christopher Peacock
(1) Patrick Scutt
"A free-standing break (which is what I understand the tenant to be contending for in these proceedings) was not agreed by BRB at the outset and nothing changed on that while I was involved or, so far as I am aware, at all. Even a proposal that the break should continue to be conditional on an immediately preceding rent review being initiated, but not requiring an increase in rent in consequence of that review would to me have represented a significant change to the commercial basis of the sub-underlease. BRB had only been willing to accept a break (and thus the prospect of remarketing the building) if it was demonstrated that the passing rent was lower than the rent in the market. A finding on review of nil increase would expose BRB to the risk of a reduction in rent on top of the other costs of a marketing rental void and initial rent free period or other concession to a new tenant.
Had any such proposal been made, this would undoubtedly have featured in the minutes of the progress meetings I was attending. I have seen copies of the minutes recovered from Simmons & Simmons' files from 1973 to 1980. There is no such reference. Further, a variation of fundamental commercial terms of the underlease would have required BRPB's sanction which was, to the best of my recollection, neither sought nor given …"
(2) Alan Butler
A… I do not think disingenuous would be the right description, no. I think in the first case it was just casual and probably lazy, I just thought "well, we have agreed it with British Rail, let us get it off to Amlot and see what he thinks of it" I suspect. I do no think that is disingenuous. I do not think that letter [of 25 March 1980] is disingenuous either. Because, as I have already said, what I mean by "it is not my client's intention to renegotiate the terms" is exactly that. We were not seeking to renegotiate the deal that had been struck between the parties."
He was not willing to accept that any of the proposed amendments were of substance. I cannot help thinking that if he had identified the changes that had been made to the annexed sub-underlease this dispute would probably never have arisen. I accept, nevertheless, that there was no question of bad faith on his part in failing to do so.
Rectification: the submissions
(1) Mutual Mistake
i) that the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified;
ii) that there was an outward expression of accord;
iii) that the intention continued at the time of the execution of the instrument sought to be rectified; and
iv) that by mistake the instrument did not reflect that common intention.
See Swainland Builders Ltd v Freehold Properties Ltd [2002] 2 EGLR 71 at paragraph 33 (Peter Gibson LJ).
(2) Unilateral mistake
Conclusions on rectification
Discretion
"Two circumstances, always important in such cases, are the length of the delay and the nature of the acts done during the interval, which might affect either party and cause a balance of justice or injustice in taking one course or the other, so far as relates to the remedy."