England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		31/01/2011

Peter Smith J :

INTRODUCTION

1. This action involves the consideration of one short point namely whether the Defendant as tenant has succeeded in exercising an option conferred by a break clause to determine a lease.
2. The Claimants (the Defendant's landlords) seek a declaration that it has not served a valid break notice and so has failed to determine the lease.

BACKGROUND

3. By a lease ("the Lease") dated 1st March 2005 and made between Manhattan Securities Ltd (1) and the Defendant (2) the premises ("the Premises") known as unit 4 City Limits Lower Earley Reading were demised to the Defendant for a term of 10 years from and including 1st March 2005 at an initial rent £40,000 pa.
4. The Lease contains a break clause in clause 8.8.1 which provides:-

"If the Tenant shall wish to terminate this Lease on the Break Date [i.e. 1st March 2010] and shall give to the Landlord not less than six months [notice] in writing to do so and up to the Break Date the Tenant has paid all the Rent and other sums due under this Lease, then on the Break Date this Lease shall cease and determine, but without prejudice to any claims which either party may have against the other for breaches of the covenants and conditions of this Lease occurring prior to the Break Date."

5. The issue in this case is as to the service of the notice. It is therefore necessary to look at the provisions in the Lease for service.

SERVICE PROVISIONS

6. Clause 8.7.1 provides:-

"Any notice to be served by any party to this Lease must be given in writing and shall be valid only if:-

(a) It is sent by special delivery post or delivered by hand.

(b) It is sent:

(i) To a company, at the registered office of the company

(ii) Where the receiving party is not a company, at the address shown in this Lease or such other address as that party may notify to the other parties from time to time.

(iii) in the case to the Tenant only, to the premises.

7. Clause 8.7.2 provides that service of any notice will be deemed to be effected:-

(a) By hand, at the time of delivery, or if delivered after 4pm on a working day, on the next working day

(b) By special delivery post, on the expiry of 2 days from delivery into the custody of the postal service."

7. Accordingly for the notice to be effective if the provisions of the Lease are to be complied with it must be conditional upon (i) the Tenant wishing to terminate the Lease on 1st March 2010 (ii) the Tenant giving to the Landlord not less than 6 months' notice in writing and (iii) up to 1st March 2010 the Tenant paying the rent and other sums due under the Lease.
8. The only dispute is whether in the events that transpired condition (ii) as to service of the Notice has been fulfilled.
9. It will be seen that clause 8.7.1 is not designed to provide an additional choice of methods of service in addition to methods of service valid at common law. The wording in the provision is "shall be valid only if " thus demonstrating that unless in some way the Landlord is debarred from insisting on service in accordance with that Lease provision the method of service is mandatory.
10. The Defendant initially occupied the Premises as its UK office. It is a company based in Chicago providing telecommunication services. In October 2008 the Claimants' immediate predecessor in title SLA Property Company Ltd ("SLA") transferred the freehold of the Premises and thus the reversion expectant on the determination of the Lease to the Claimants in their capacity as trustees of the Second and Third Claimants' pension. The transfer was duly registered at HM Land Registry and the Defendant was informed of that transfer as it acknowledged in the trial before me.
11. The Claimants delegated the management of the Premises to managing agents namely Mattioli Woods Plc the account manager being a Mr Ekanayake. He informed the Defendant that the pension scheme had taken over the freehold by an email on 18th December 2008 and enclosed an invoice for the rent due on the December 2008 quarter day which suggested that the "Trustees Posel of Trust" were the new landlords.

DECISION TO TERMINATE THE LEASE

12. The premises have been unoccupied by the Defendant for 2 years and as part of its business reorganisation it therefore wishes to be rid of its obligations under the Lease if possible. Mr Charak the Defendant's Chief Financial Officer entrusted Ms Tiffany Voltz (the Defendant's Director of Administration) with the responsibility of serving the break notice. Although she was not legally trained she had read the Lease and formed the view that any break notice had to be sent by special delivery post or by hand and the Defendant decided to serve a Break Notice by special delivery post.

SERVICE

13. Unfortunately Ms Voltz was unaware of the fact that there had been a change of the freehold owners. As I have said above the Defendant accepts that it as a company was aware of that change. On 10th August 2009 she sent a Break Notice to SLA saying "this letter is to inform that Telular Corporation wishes to exercise its right to terminate its lease according to section 8.8.1 of our lease for the [premises] …… on the Break Date of March 1, 2010. If Telular Corporation is required to submit any additional information to secure this Break Date lease termination, please do not hesitate to contact me….."
14. That letter was sent by special delivery post by Fedex.
15. Mr Holland who appears for the Claimants accepts that Notice was served in accordance with the requirements as to the method of service. Equally Mr Weekes who appears for the Defendant acknowledges that the Notice was invalid because it was not sent to the Landlords.
16. Had matters rested there the Defendant would have failed to establish that it had correctly exercised the break clause. However subsequent events present a different position.

SUBSEQUENT EVENTS

17. First a Mr Elliot a property administrator who had received the Notice sent an email to Ms Voltz on 13th August 2009. In that he informed her that the property had been transferred on 6th October 2008 to Mattioli Woods. That is not correct in the sense that Mattioli Woods were managing agents and not the owners.
18. The same day Ms Voltz sent an email to Mr Posel the Second Claimant. In that email she said:-

"Mr Posel, Telular recently sent a letter to Suffolk Life regarding our desire to terminate our Lease on the Break Date (please see attached). I was informed (and confirmed with Sherry Swehla of our Finance team) that Mattioli Woods is now in charge of this property. If you could let me know the necessary steps to appropriately terminate our Lease on the Break Date, I would greatly appreciate it. Thanks in advance for your help!"

19. Mr Posel replied on the same day (copying in Mr Ekanayake) saying that he had forwarded her email to Mattioli Woods who would then be in contact.

CRUCIAL EMAIL

20. On 17th August 2009 Mr Ekanayake sent an email to Ms Voltz (copying in inter alia Mr Posel). In that email he said "Dear Ms Voltz We accept the attached letter and can confirm we are happy for you to break the Lease, however please could you re-address this letter to the following address:- Posel Trust MW House 1 Penman Way Grove Park Enderby Leicester LE19 1SY. I look forward to hearing from you soon…."
21. On the same day Mr Posel sent an email to Ms Voltz acknowledging that Mattioli Woods had now responded to her and requesting details of the sub tenant to whom the premises had been sub-let and advice as to when their lease with Telular would come to an end. It is clear that the landlords were acknowledging that they expected the lease to terminate and were investigating whether they could carry on in a direct relationship with the sub tenant to avoid a rental void.
22. The dispute between the parties in this case turns entirely on the effect of that email from Mr Ekanayake.
23. Ms Voltz prepared the suggested replacement Notice but regrettably it was either not sent out or has been lost in the post. The Defendant accepts it cannot show that any such Notice was effectively served on the Claimants.
24. Any Break Notice to be effective would have to be served before 1st September 2009. Between this correspondence and the passing of that date nothing further happened.

THE ISSUES

25. The Claimants had no further communication as I have said after that exchange of emails on 17th August 2009. The sub tenants have departed (which might explain their current stance). They have therefore taken the view that the documentation set out earlier in the judgment was not effective to exercise the Break Clause in the Lease and the Defendant is still the tenant. This conduct has been described in somewhat pejorative terms in correspondence and in the witness statements served on behalf of the Defendant. That in my view is not justified. This was a commercial arrangement and the Claimants are perfectly entitled to take whatever positions they are advised are appropriate to protect their own commercial position. At the end of the day the difficulties posed by this arise out of the failure on the part of the Defendant properly to serve Notices in accordance with the clear provisions in the Lease. Equally it is entitled to take what arguments are in its favour for its commercial benefit i.e. its desire to be rid of this Lease which is regarded as burdensome now.

CLAIMANTS' POSITION

26. The Claimants' position is relatively straight forward. The Notice that was correctly served dated 10th August 2009 was ineffective because it was not addressed to nor served on the then Landlord.
27. Second the copying of the email to Mr Posel on 13th August 2009 was equally ineffective because the letter attached was not addressed to the Landlord and, even if that hurdle is overcome, emailing the document is ineffective because it does not comply with the service requirements in the Lease.
28. Third in respect of Mr Ekanayake's email of 17th August 2009 the Claimants' position is that it merely acknowledged receipt of the email and the appended Notice which had been sent to him by Mr Posel and no more. It is not an acceptance of the validity of the Notice for the purposes of exercising the Break Clause. That is clear the Claimants say by reason of the final part of the sentence "however could you please readdress this letter to the following address." That the Claimants contend shows that whilst the Claimants were acknowledging the early documentation they still required something more properly to trigger the Break Clause i.e. service of a fresh Notice on them at the address identified in that email. That never happened and accordingly the Defendant had not terminated the Lease because it has failed to properly to exercise the Break Clause.

THE DEFENDANT'S CONTENTIONS

29. As I have said the Defendant accepts the 10th August 2009 Notice was invalid because it was not sent to the Landlord.
30. Equally the Defendant acknowledges that the exchange of emails on 17th August 2009 of itself is not valid service in accordance with the Lease. It is acknowledged that it is defective for two reasons. First once again the Notice is not addressed to the Landlord (although there could have been an argument about that see below). Second and more fundamentally service by email even the mis-addressing point can be overcome is not in accordance with the Lease.
31. The Defendant acknowledges that the provisions in the Lease are mandatory and do not provide an alternative method of service to service at common law.
32. However the Defendant's contention is that Mr Ekanayake's email waived any of the defects when he said "we accept the attached letter and can confirm we are happy for you to break the Lease……."
33. That the Defendant contends is a representation that the Claimants accepted the Notice despite its defects as to form and service and were content for it to be treated as a valid exercise of the Break Clause contained in the Lease.
34. The Defendant deals with the final part of the letter by submitting that a subsequent document was merely a matter of form and does not deflect from the primary position as set out in the email that Mr Ekanayake on behalf of the Claimants accepted the Notice, accepted that the Defendant was intending to break the Lease and was intending so to do by those documents which he accepted.

LEGAL ISSUES

35. Despite the shortness of the point I was provided with a large number of authorities. I do not intend to refer to the bulk of them because at the end of the day in my view the decision is primarily one of fact to be determined by me namely the effect of Mr Ekanayake's email of 17th August 2009.
36. I will refer to a number of key authorities however. First the leading authority on interpretation of notices is Mannai Ltd v Eagle Star Insurance Co Ltd [1997] AC 749. In that case the Break Notice was served specifying the date of termination of the lease on 12th January 1995. In fact the Notice ought to have expired on the 3rd anniversary of the Term of Commencement Date namely 13th January 1995. Nevertheless the House of Lords held that the Notice was effective the Head Note providing:-

"the construction of the notices had to be approached objectively, and the question was how a reasonable recipient would have understood them, bearing in mind their context; that the purposes of the notices was to inform the landlord of the tenants decision to determine the leases in accordance with the break clauses; that a reasonable recipient with knowledge of the terms of the leases and of the third anniversary date would have been left in no doubt that the tenant wished to determine the leases on 13th January 1995 but had wrongly described it as 12th January 1995; and that accordingly the notices were effective to terminate the leases."

37. Lord Steyn said this at page 767:-

"(1)      This is not a case of a contractual right to determine which prescribes as an indispensable condition for its effective exercise that the notice must contain specific information. After providing for the form of the notice ("in writing"), its duration ("not less than six months") and service ("on the landlord or its solicitors"), the only words in clause 7(13) relevant to the content of the notice are the words "notice to expire on the third anniversary of the term commencement date determine this lease". Those words do not have any customary meaning in a technical sense. No terms of art are involved. And neither side has suggested that anything should be implied into the language. That is not surprising since the tests governing the implication of terms could not conceivably be satisfied. The language of clause 7(13) must be given its ordinary meaning. A notice simply expressed to determine the lease on third anniversary of the commencement date would therefore have been effective. The principle is that that is certain which the context renders certain: Sunrose Ltd v Gould [1962] 1 W.L.R. 20.

(2)      The question is not how the landlord understood the notices. The construction of the notices must be approached objectively. The issue is how a reasonable recipient would have understood the notices. And in considering this question the notices must be construed taking into account the relevant objective contextual scene. The approach in Reardon Smith Line Ltd v Yngvar Hansen-Tangen (trading as H.E. Hansen-Tangen) [1976] 1 W.L.R. 989, which deals with the construction of commercial contracts, is by analogy of assistance in respect of unilateral notices such as those under consideration in the present case. Relying on the reasoning in Lord Wilberforce's speech in the Reardon Smith case, at 996D to 997D, three propositions can be formulated. First, in respect of contracts and contractual notices the contextual scene is always relevant. Secondly, what is admissible as a matter of the rules of evidence under this heading is what is arguably relevant. But admissibility is not the decisive matter. The real question is what evidence of surrounding circumstances may ultimately be allowed to influence the question of interpretation. That depends on what meanings the language read against the objective contextual scene will let in. Thirdly, the inquiry is objective: the question is what reasonable persons, circumstanced as the actual parties were, would have had in mind. It follows that one cannot ignore that a reasonable recipient of the notices would have had in the forefront of his mind the terms of the leases. Given that the reasonable recipient must be credited with knowledge of the critical date and the terms of clause 7(13) the question is simply how the reasonable recipient would have understood such a notice. This proposition may in other cases require qualification. Depending on the circumstances a party may be precluded by an estoppel by convention from raising a contention contrary to a common assumption of fact or law (which could include the validity of a notice) upon which they have acted: Norwegian American Cruises A/S (formerly Norwegian American Lines A/S) v  Paul Munday Ltd [1988] 2 Lloyds Rep. 343. Such an issue may involve subjective questions. That is, however, a different issue and not one relevant to this appeal. I proceed therefore to examine the matter objectively.

(3) It is important not to lose sight of the purpose of a notice under the break clause. It serves one purpose only: to inform the landlord that the tenant has decided to determine the lease in accordance with the right reserved. That purpose must be relevant to the construction and validity of the notice. Prima facie one would expect that if a notice unambiguously conveys a decision to determine a court may nowadays ignore immaterial errors which would not have misled a reasonable recipient.

(4) There is no justification for placing notices under a break clause in leases in a unique category. Making due allowance for contextual differences, such notices belong to the general class of unilateral notices served under contractual rights reserved, e.g. notices to quit, notices to determine licences and notices to complete: Delta Vale Properties Ltd v  Mills [1990] 1 W.L.R. 445, 454E-G. To those examples may be added notices under charter parties, contracts of affreightment, and so forth. Even if such notices under contractual rights reserved contain errors they may be valid if they are "sufficiently clear and unambiguous to leave a reasonable recipient in no reasonable doubt as to how and when they are intended to operate": the Delta case, at p. 454E-G, per Slade L.J. and adopted by Stocker L.J. and Bingham L.J: see also Carradine Properties Ltd v  Aslam [1976] 1 W.L.R. 442, 444. That test postulates that the reasonable recipient is left in no doubt that the right reserved is being exercised. It acknowledges the importance of such notices. The application of that test is principled and cannot cause any injustice to a recipient of the notice. I would gratefully adopt it".

38. Lord Hoffmann delivered a similar judgment (page 774):-

"If one applies that kind of interpretation to the notice in this case, there will also be no ambiguity. The reasonable recipient will see that in purporting to terminate pursuant to clause 7(13) but naming 12 January 1995 as the day upon which he will do so, the tenant has made a mistake. He will reject as too improbable the possibility that the tenant meant that unless he could terminate on 12 January, he did not want to terminate at all. He will therefore understand the notice to mean that the tenant wants to terminate on the date on which, in accordance with clause 7(13), he may do so, i.e. 13 January."

THE ESTOPPEL AND WAIVER

39. The Claimants submit that the concepts of estoppel and waiver are similar if not identical but they both require:-

i) a clear and unequivocal promise or assurance;

ii) by one party to contract to another;

iii) that the promisor will not enforce its strict legal rights under the contract;

iv) which promise or assurance is intended to effect the legal relations between them; and

v) which is reasonably understood by the other party to have that effect; and

vi) which is in fact acted upon by the other party.

40. These principles the Claimants submit in Snell "Principles of Equity" (32nd Edition) paragraphs 12-09 and 12-010.
41. Mr Weekes for the Defendant acknowledges that was a correct summary of the law.
42. Had the issue as to the form of the Notice been vital (i.e. it being addressed to the predecessor landlord) I would have decided that applying the Mannai principles and following an earlier decision of Megarry VC in Townsend Carriers Ltd v Pfizer Ltd [1977] 33 P&CR 361 that a reasonable recipient would not have been misled as to the intentions of the Defendant to terminate the Lease because the Notice was addressed to the wrong person. On the construction of the Lease I do not accept that the form of the Notice requires it to be addressed to the Landlord as opposed to being sent to them. The Notice has to be given to them but it does not specify that the contents of the Notice require them to be referred to in it. There can be no question of the Claimants being misled as to the intent by the service of the Notice.
43. It follows therefore that the only issue is whether or not Mr Ekanayake's email of 17th August 2009 on behalf of the Landlords dispensed with the requirement set out in the Lease for service in the manner therein stated. As set out above in Mannai I need to interpret the documentation objectively.
44. In so doing I conclude that the Landlords by the service of the original Notice and the sending of the same by email on 17th August 2009 knew full well the Defendant intended to terminate the Lease. Further Mr Posel referred the documentation to Mr Ekanayake for him to act on it. He then sent an email acknowledging it. Not only did he appreciate that the Defendant intended to terminate the Lease but he also on behalf of the Claimants raised an issue as to the sub-tenants which would only be relevant if the Lease terminated.
45. Further effect must be given to the opening part of his sentence. "We accept the attached letter and can confirm we are happy for you to break the Lease….." Mr Holland ingeniously but in my view unsuccessfully sought to argue that the document was not an acceptance but merely an acknowledgment of receipt. That in my judgment does not give effect to the word "accept". Looked at objectively in my view Mr Ekanayake was accepting on behalf of the Claimants that the documentation provided to them showed an intent on the part of the Defendant to terminate the Lease and that they accepted that the documentation had the effect of terminating the Lease on 1st March 2010.
46. In sending the email in the form that he did in my view Mr Ekanayake represented that was the Claimants' stance and accordingly they are estopped from subsequently challenging the validity of the Notice or alternatively they have waived the requirement for the Notice to be served in the way specified in the Lease. They could have withdrawn that concession at any time up until 31st August 2009. Withdrawing after that would be too late. The Defendant has plainly in my view objectively acted on the basis that there was no issue but that it has served an effective Notice.
47. I do not see the further notice referred to in the email as affecting that. The Defendant was entitled to conclude and did so conclude that the Claimants accepted the earlier documents as being effective to terminate the Lease but required service of a further document for reasons for which were and are unexplained. Given the first sentence of Mr Ekanayake's email they cannot have formed the view that he was rejecting the earlier Notices and required further Notices to be served to terminate the Lease. They therefore acted on Mr Ekanayake's email by failing to serve a Notice in accordance with the Lease. Alternatively Mr Ekanayake by unequivocally accepting the earlier Notices thereby waived any requirement for the Defendant to serve a fresh Notice compliant with the Lease.
48. Of course as Mr Weekes acknowledged if the Landlords had simply acknowledged receipt of the Notice and said nothing more it would have been open to them to challenge the validity of the Notice. There is no duty in my view on a Landlord served with a document to inform the server that he believes that it has not been validly served. However a Landlord receiving such a Notice must not give any indication that the notice is accepted despite its defects. In the present case but for the acceptance set out in the first part of Mr Ekanayake's email the Landlords would subsequently be able in my view to challenge the validity of the Notice. However given his opening words it is in my view not open to them so to do for the reasons that I have said.
49. The requirement for service of a fresh document does not in my view mean that the Landlords were requiring re-service of that Notice in order for the Break Notice to be exercised. I do not know why they required it but I do not accept that it was as Mr Holland submits demonstrative of the fact that the Landlords were not accepting the earlier documentation. His argument requires me to find that contrary to the word "accept" the Landlords are "not accepting" the Notice and require a fresh one to be served. That seems to me to fly in the face of the clear word "accept". The Defendant was therefore entitled to assume nothing more was required.
50. I therefore conclude that the Defendant has successfully terminated the Lease and the claim for the declaratory relief fails.