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Cite as: [2011] EWHC 3060 (Ch)

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Neutral Citation Number: [2011] EWHC 3060 (Ch)
Claim No. 1LS30318


Leeds Combined Court Centre
Oxford Row
Leeds LS1 3BG
23rd November 2011

B e f o r e :

His Honour Judge Keyser Q.C.
sitting as a Judge of the High Court




DAVID STOCKILL (instructed by Quality Solicitors Silks of 27 Birmingham Street, Oldbury, West Midlands, B69 4DY) for the Defendant
Hearing date: 24th October 2011



Crown Copyright ©

    H.H. Judge Keyser Q.C. :


  1. For some years, the defendant, Aspray Transport Limited, which carries on a haulage business, was tenant to the claimant, QuirkCo Investments Limited, of commercial premises known as Unit 3, Speedwell Road, Whitwood Lane, Castleford, West Yorkshire ("the Property"). The defendant asserts that it determined the lease by serving a notice pursuant to a break clause in the lease. But the claimant contends that the notice was ineffective because the defendant was in breach of its obligations under the lease and so was prevented by the terms of the lease from serving a valid notice under the break clause.
  2. In these proceedings the claimant claims a declaration that the lease is continuing and a money judgment in respect of arrears of rent. The defendant denies the claim and brings a counterclaim for declarations that the lease was determined by the service of the notice under the break clause and in respect of the extent of its liability under the lease; it also seeks repayment of moneys said to have been overpaid in respect of rent.
  3. By an application notice filed on 1st September 2011 the claimant applies for summary judgment on its claim pursuant to CPR Part 24 and for an order giving summary judgment for the claimant on the counterclaim or striking out the counterclaim pursuant to CPR r. 3.4 (2) (a).
  4. In support of its application the claimant has relied on two witness statements from its managing director, Mr Darrel Jeremy Quirk, and a witness statement from Mr Jeremy Stewart Webster, its insurance broker. In response to the application, the defendant has relied on a witness statement of Mr Roy Patrick Laight, its Chief Executive Officer and Chairman.
  5. The Background

  6. The lease was made on 3rd January 2001. The defendant was the tenant named in the lease. The claimant purchased the reversion in 2003 and became the defendant's landlord under the lease.
  7. The term created by the lease was for fifteen years expiring on 17th December 2015, subject to the provisions of clause 6.11, which so far as material provided as follows:
  8. 6.11.1 The Lessee or the Lessor may determine this Lease on 18 December 2010 by serving on the other not less than 9 months prior written notice expiring on that day
    6.11.2 This Lease shall only determine as a result of notice served by the Lessee under this sub-clause if at the time of expiring of such notice: there are no arrears of any rents reserved or any other sums payable under this Lease, and there is no other material outstanding breach of any Lessee's covenant; and on or before the intended date of determination the Lessee gives vacant possession of the demised premises to the Landlord; and that notice has been served in accordance with this sub-clause.
    6.11.3 If any of the above condition is [scil. conditions in] 6.11.2 above are not satisfied at the date of the expiry of such notice the notice is deemed to be of no effect and this Lease shall continue as before except that the Lessor may in its absolute discretion waive compliance with all or any of the conditions set out in Clause 6.11.2 by giving notice to the Lessee at any time
    6.11.4 If the provisions of Clause 6.11.2 are complied with then upon the expiry of the notice of termination this Lease shall determine but without prejudice to any right of action of either party in respect of any previous breach of the covenants in this Lease and without prejudice also the continuing operation of this Clause 6.11
  9. In 2009 the defendant, having no further need of the Property, decided to determine the lease by service of a notice under clause 6.11. Accordingly it sent to the claimant a written Notice to Determine the Lease ("the Notice"), which was dated 8th March 2010.
  10. The claimant accepts that the terms of the Notice and the manner of its service complied with clause 6.11 of the Lease. However, it contends that the Notice was of no effect, because at the date of expiry of the Notice, namely 18th December 2010, two of the conditions in clause 6.11.2 were not satisfied: first, it is said that the defendant was in arrear of rent, in particular of insurance rent; second, it is said that the defendant was in material breach of its repairing covenants under the lease. The claimant accepts that there are triable issues in respect of the alleged breach of the repairing covenants. But it contends that there is no answer to the contention that there were at the material time arrears of insurance rent; and on that basis it seeks summary judgment.
  11. The Insurance Charge

  12. In order that the nature of the issue before me can be understood, it is necessary to set out some further provisions of the lease. Clauses 2.2 and 2.3 made provision in respect of the rent due under the lease:
  13. [YIELDING AND PAYING therefor …]

    2.2 From and including 18 December 2000 the yearly rent of eighty-five thousand two hundred and twenty-two pounds (£85,222) (subject to the provisions for review hereinafter contained) and so in proportion for any period less than a year such yearly rent to be payable by four equal quarterly payments in advance on the usual quarter days in every year without any deduction whatsoever
    2.3 Within 14 days of written demand therefor and by way of further additional yearly rent without any deduction such yearly sum or sums ("the Insurance Charge") (and so in proportion for any part of a year) as the Lessor may from time to time expend in insuring and keeping insured the demised premises in accordance with Clause 5.1

    Clause 4.1.1 contained a covenant by the defendant to pay the yearly rent and the Insurance Charge on the days and in the manner mentioned in the lease.

  14. Clause 5.1 of the lease contained the landlord's covenants in respect of insurance.
  15. 5.1.1 That the Lessor will at all times during the term … insure and keep insured with reputable insurers the demised premises … against loss or damage by the Insured Risks in such amount as shall from time to time represent the full rebuilding or reinstatement value of the demised premises with provision for inflation to cover the period of rebuilding or reinstatement … and will whenever reasonably required produce to the Lessee the policy or policies of such insurance or other sufficient evidence of the nature extent ant terms thereof and the receipt for or other evidence of the payment of the last premium for the same …
    5.1.2 If at anytime it is not possible to insure against any of the Insured Risks then the Lessor shall so advise the Lessee
    5.1.3 To use its reasonable endeavours to ensure that a note of the Lessee's interest is endorsed on the insurance policy effected hereunder and that the Insurer waives all rights of subrogation against the Lessee
  16. The claimant arranged insurance cover for its commercial properties through insurance brokers and had for some years taken out a single policy of insurance with Zurich Insurance plc in respect of all those properties. The relevant renewal date for that policy was 30th November 2010. Mr Webster's evidence is that the insurers calculated the premium attributable to each property on the basis of the activities of the tenants and that to that end the insurers insisted on being provided with details of the tenants and their trading activities and would regularly send out surveyors to update their risk information. The renewal premium for 30th November 2010 was £21,886.08, of which the Property accounted for £3,609.72 (inclusive of VAT).
  17. The evidence regarding the payment of the renewal premium and the demand for the Insurance Charge is to the following effect. On 9th November 2010 the broker sent to the claimant the Schedule to the policy relating to the Property. On 23rd November 2003 the claimant sent to the defendant an invoice for £3,609.72 in respect of "Insurance Premium for the period 1st December 2010 to 30th November 2011". The invoice was dated 1st December 2010—which the claimant appears to have believed to be the renewal date—and said: "Please note payment is due on receipt of this invoice." Having received the invoice, the defendant wrote to the claimant on 25th November 2010:
  18. With reference to the above invoice regarding the insurance premium for Unit 3 Speedwell Road, I must remind you that we have exercised the lease break clause and thus will be vacating on 18th December 2010.

    Consequently, will you please issue a revised bill for the appropriate period of 18 days.

    On 26th November 2010 the claimant sent to the broker a cheque in respect of the entire sum due for the renewal premium under the policy. That cheque was never received and was subsequently stopped. On 29th November 2010 the claimant wrote to the defendant as follows:

    Further to your letter of 25th November 2010 we would comment as follows.

    Whilst the break notice has been served, there are pre-conditions to that break notice which are to be met for the break to be effective and therefore the premium that has properly fallen due has been properly invoiced.

    We therefore look forward to receipt of your payment which his now due.

    The renewal premium had not actually been paid to the insurer on 1st December 2010. Paragraph 6 of Mr Webster's first witness statement states:

    As brokers, we have close ties with insurers and Zurich is no exception. To ensure that cover does not lapse, we operate a 30 day payment period to pay over the premium to the insurer. We will normally ask our client to send us the monies and we will then pay the premium to the underwriting insurance company. My records show that we as brokers paid the insurance company less our commission on behalf of [the claimant] on the 15th day of December 2010.

    On 24th December 2010 the claimant, having ascertained that its cheque in payment of the premium had not been received, sent a replacement cheque. That cheque was duly presented for payment and the moneys were credited to the brokers' account on 11th January 2011.

  19. The defendant did not make any payment in respect of the claimant's invoice. It says that, but for an oversight, it would have paid £151.50 and VAT thereon, being the amount due on apportionment for the period of the policy until the determination of the lease pursuant to the Notice under clause 6.11. Nonetheless, for reasons that I consider later in this judgment, the defendant denies that the failure to make a payment in respect of the Insurance Charge had the effect of rendering the Notice of no effect.
  20. Part 24: The Correct Approach

  21. CPR r. 24.2 provides, so far as material, as follows:
  22. The court may give summary judgment against a … defendant on the whole of a claim or on a particular issue if—

    (a) it considers that— … (ii) that defendant has no real prospect of successfully defending the claim or issue; and
    (b) there is no other compelling reason why the case or issue should be disposed of at a trial.
  23. The correct approach to an application under r. 24.2 was set out by Lewison J in Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 at [15] as follows (as I am dealing with a claimant's application rather than a defendant's application, I shall substitute the appropriate description of the parties in the passage):
  24. (i) The court must consider whether the [defendant] has a "realistic" as opposed to a "fanciful" prospect of success: Swain v Hillman [2001] 1 All ER 91.
    (ii) A "realistic" claim is one that carries some degree of conviction. This means a claim that is more than merely arguable: ED & F Man Liquid Products v Patel [2003] EWCA Civ 472 at [8].
    (iii) In reaching its conclusion the court must not conduct a "mini-trial": Swain v Hillman.
    (iv) This does not mean that the court must take at face value and without analysis everything that a [defendant] says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED & F Man Liquid Products v Patel at [10]
    (v) However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment but also the evidence that can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No 5) [2001] EWCA Civ 550.
    (vi) Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2007] FSR 63.
    (vii) On the other hand it is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the respondent's case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant's case is bad in law, the sooner that is determined, the better. If it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial, it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful, prospect of success. However, it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction: ICI Chemicals & Polymers Ltd v TTE Training Ltd [2007] EWCA Civ 725.

    Part 24: Short Summary of the Issues

  25. I have had the benefit of extensive and well-argued oral and written submissions from Mr Brennan for the claimant and Mr Stockill for the defendant. I am grateful to them for their assistance. The matters dealt with in argument address four broad contentions on the part of the defendant:
  26. (1) That as at the time of the expiry of the Notice there were no arrears of rent in respect of the Insurance Charge, because the claimant, having on 1st December 2010 expended nothing in payment of the premium for the insurance policy, was not entitled to demand payment of the Insurance Charge;

    (2) That, regardless of expenditure, the claimant had not complied with its insurance obligations under clause 5.1 and was therefore not entitled to demand payment of the Insurance Charge;

    (3) That the demand under clause 2.3 was deficient as a matter of timing;

    (4) That, even if there were arrears of insurance rent, those arrears were de minimis and did not invalidate the operation of the Notice.

    First Issue: Sums Expended in Insuring the Property

  27. The submission for the defendant was that the claimant as landlord was entitled to demand payment of the Insurance Charge pursuant to clause 2.3 of the lease only in respect of such sums as it had actually expended on insuring the Property; and that, as the claimant had expended nothing on insurance at the date of the demand, no liability arose on the part of the defendant.
  28. The submission for the claimant was that the defendant's construction of clause 2.3, though grammatically possible, did not make the best commercial sense of the lease as a whole and that actual payment of the insurance premium was not a pre-condition of the landlord's entitlement to demand payment of the Insurance Charge. In the course of argument the submission was refined by the acceptance on behalf of the claimant that, before it became entitled to demand payment of the Insurance Charge, it must either have been credited by the insurer with payment of the insurance premium, that is by means of a credit period for payment, or at least have incurred an obligation to pay the premium.
  29. Accordingly the issue concerns the correct construction of the lease and, in particular, clause 2.3. The applicable principles of construction or interpretation were summarised by Lord Hoffmann in a well-known passage in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896, 912-913, and, pithily, by Lord Bingham of Cornhill in B.C.C.I. v Ali [2002] 1 AC 251 at [8]:
  30. In construing [any contractual provision], the object of the court is to give effect to what the contracting parties intended. To ascertain the intention of the parties the court reads the terms of the contract as a whole, giving the words used their natural and ordinary meaning in the context of the agreement, the parties' relationship and all the relevant facts surrounding the transaction so far as known to the parties. To ascertain the parties' intentions the court does not of course inquire into the parties' subjective states of mind but makes an objective judgment based on the materials already identified.

    This process of construction will be carried on with an eye to business common-sense. In Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, Lord Steyn said at 771:

    In determining the meaning of the language of a commercial contract, and unilateral contractual notices, the law therefore generally favours a commercially sensible construction. The reason for this approach is that a commercial construction is more likely to give effect to the intention of the parties. Words are therefore interpreted in the way in which a reasonable commercial person would construe them. And the standard of the reasonable commercial person is hostile to technical interpretations and undue emphasis on niceties of language.

    If the language of the contract leads clearly to the conclusion that one particular construction is the correct one, the court must give effect to it; but if there is more than one possible construction, the court is entitled to prefer the construction that best accords with commercial common sense, even though another construction would not produce an absurd or irrational result: Rainy Sky S.A. v Kookmin Bank [2011] UKSC 50, paras 15 - 30.

  31. The parties were content to proceed on the basis that there were no special facts relating to the circumstances of the making of the lease and that the document was to be construed with regard to its terms as a whole and such general matters as would have been known to the parties to a commercial lease.
  32. In my judgment, if clause 2.3 of the lease were to be construed on its own, the ordinary and natural construction of the words "such yearly sum or sums … as the Lessor may from time to time expend in insuring and keeping insured" would be that the tenant's liability was to pay on demand only the sums that had actually been spent on insurance by the landlord. As a matter of normal English, "expend" means to pay or to lay out. That is not the end of the process of interpretation. But it is an important starting-point.
  33. There was argument before me as to the significance in clause 2.3 of the word "may". It was submitted on behalf of the claimant that the word was "pivotal to the proper construction of clause 2.3"; though I am doubtful whether that reflects the way in which the claimant's argument was finally put. In my judgment, the word "may" does nothing to indicate that the landlord can demand payment of an Insurance Charge in respect of sums that he has not yet himself expended. All it does is reflect the fact that, at the time of the making of the lease, the landlord's expenditure is both future and indeterminate. That is entirely consistent with an interpretation of the provision that requires that, when the demand is made for payment of the Insurance Charge, the expenditure be past and determinate. To take a different example: in the sentence, "Hercules shall be praised for such heroic deeds as he may perform", the word "may" indicates that Hercules has not yet performed heroic deeds; but his future praise shall be for the deeds he shall by then have performed.
  34. In oral argument, Mr Brennan accepted, with a small qualification to which I shall turn below, that payment by the landlord to the insurer was a precondition of a demand for the Insurance Charge, but he contended that the premium had indeed been paid because it had been credited by the insurer pursuant to arrangements between the insurer and the broker. That contention was also made in Mr Brennan's skeleton argument: see paragraphs 8 (2) and 10. In my judgment, the contention must fail. Mr Brennan relied on the evidence in paragraph 6 of Mr Webster's statement dated 30th August 2011:
  35. As brokers, we have close ties with insurers and Zurich is no exception. To ensure that cover does not lapse, we operate a 30-day payment period to pay over the premium to the insurer. We normally ask our client to send us the monies and we will then pay the premium to the underwriting insurance company. My records show that we as brokers paid the insurance company less our commission on behalf of QuirkCo Investments Limited on the 15th day of December 2010.

    That evidence clearly does not show any payment on or before 23rd November, 30th November or 1st December 2010. The payment was made on 15th December 2010; whether it was impliedly authorised by the claimant or merely ratified subsequently could only be decided after consideration of further evidence. It is accordingly incorrect to speak of a payment on the renewal date by means of "credit" rather than actual money. There was simply the common situation, whereby the insurer's offer of renewal will not lapse but will remain open for acceptance for a period after the renewal date and payment may be made within that period. Mr Brennan expressly accepted that at no time before the actual payment of the premium to the insurer was the claimant contractually obligated to the insurer to make the payment. Therefore, even if, contrary to my opinion, it would suffice that the landlord had undertaken a contractual obligation to pay the premium (the small qualification to the claimant's acceptance of the need to pay), the claimant did not satisfy the precondition of a demand for payment of the Insurance Charge.

  36. The claimant rightly did not contend that the sending of the cheque to the broker on 26th November 2010 constituted expenditure for the purposes of clause 2.3. An insurance broker is normally the agent of the insured, not of the insurer; that was clearly the position in this case. Further, the cheque never arrived and was never paid.
  37. It is consistent with the defendant's construction of clause 2.3, which I take to be the plain and natural meaning of that provision, that clause 5.1.1 imposes on the landlord an obligation not only to insure but also, whenever reasonably required, to produce to the tenant both (a) the policy or sufficient evidence of its terms and (b) "the receipt for or other evidence of the payment of the last premium for the same". In oral submissions Mr Brennan accepted that both the policy and the proof of payment must relate to the insurance cover for the present period and not for a previous year. I consider that that must be correct. It is not an inevitable conclusion that payment of the premium is a precondition of the right to make a demand under clause 2.3; a lease could consistently impose an obligation on a landlord to obtain and pay for insurance, while entitling the landlord to seek payment of insurance rent before he has actually laid out the money for the premium. However, clause 5.1.1 does at least confirm the need for the landlord to be able to prove actual payment of the premium and coheres well with the natural meaning of clause 2.3. There is in my view nothing in the terms of the lease to indicate that clause 2.3 should be construed other than in accordance with that natural meaning.
  38. I see no reason of commercial common-sense to reach a different interpretation of clause 2.3. Mr Brennan argued that, as it is the tenant who obtains direct and immediate benefit from the insurance, it is sensible to suppose that the tenant should pay "up front" for the insurance cover. In fact, however, both parties are benefited by the existence of insurance; and, although other arrangements could be made, it makes good sense to provide that the landlord shall arrange and pay for the policy and shall then be entitled to recoup his outlay from the tenant. Mr Brennan further submitted that it would be commercially inconvenient to interpret clause 2.3 as requiring payment of the premium as a precondition of a demand for insurance rent, because to do so would make it difficult for the landlord to make a demand without first checking that the insurer had received the payment. I see no force in that submission, for as a matter of practicality there seems to me to be no genuine problem at all.
  39. I have not been referred to any decided case that bears directly on the construction of a provision such as clause 2.3. Any previous decision would anyway have to be treated with caution, unless it had established a recognised approach to the construction of a particular kind of clause; generally, each particular lease or other contract must be construed individually. In Havenridge Ltd v Boston Dyers Ltd (1994) 49 E.G. 111, the lease provided that the lessee should pay "by way of further and additional rent all yearly or other sums as the Lessor shall from time to time properly expend or pay to any insurance company in respect of or for insuring and keeping insured the demised premises". The central issue before the Court of A ppeal was whether there had to be implied into the lease a term that the insurance premiums would be fair and reasonable; the Court was not concerned with the issue that is before me. I note, however, that, in the absence of an agreed statement of facts, Evans LJ proceeded on the basis that it had to be assumed that the landlord "[had] paid the sums claimed to an insurer of repute and otherwise [had] acted in accordance with the contract." This does at least indicate that Evans LJ had no difficulty in identifying actual payment to the insurer as a precondition of a demand for insurance rent, and to that extent it supports my opinion that commercial common-sense does not dictate a different conclusion; though it goes no further than that.
  40. In conclusion, I hold that on its true construction clause 2.3 of the lease permits the landlord to serve a demand for payment of the Insurance Charge only in respect of such sums as it has already paid in insuring the Property in accordance with clause 5.1. As at the date of the demand, which I shall take to be 1st December 2010, the claimant had not paid any sums in insuring the Property. In my judgment, therefore, the demand was invalidly served and did not give rise to a liability on the part of the defendant to pay the Insurance Charge before the expiry of the Notice under the break clause.
  41. This conclusion does not mean that the Notice was necessarily valid and effective to determine the lease. The claimant may yet establish that at the date of the expiry of the Notice there was some other material outstanding breach of the defendant's covenants under the lease. That is something which can only be decided at trial.
  42. My conclusion as to the construction of clause 2.3 does, however, suffice to dispose of the claimant's application for judgment on the claim pursuant to Part 24. It was also common ground between the parties that, in the event that I was able to determine the construction issue definitively as between the parties, I should do so. That seems to me to be a sensible approach as a matter of efficient case management. I shall ask for representations from counsel as to the appropriate form of the order to be made in the light of my decision.
  43. It is strictly unnecessary for me to determine the remaining issues that have arisen on the Part 24 application, but out of deference to counsel's submissions I shall briefly set out my conclusions on those issues.
  44. Second Issue: Insurance in Accordance with Clause 5.1

  45. The defendant submits that any expenditure by the claimant would not have been for the purpose of "insuring and keeping insured the demised premises in accordance with Clause 5.1", because in breach of clause 5.1.3 the claimant had not used reasonable endeavours to ensure that a note of the lessee's interest was endorsed on the insurance policy and—a point taken for the first time in the course of argument—that the insurer waived all rights of subrogation against the lessee. The defendant accepts that the insurance effected by the policy complied with the requirements of clause 5.1.1 of the lease.
  46. The evidence regarding endorsement of the lessee's interest is to the effect that the identity of the lessee was recorded on the schedule to the policy in 2009 but was not recorded in 2010. In his witness statement dated 6th October 2011 Mr Webster explains that the insurer did not require that the lessee be specifically named and that therefore he sometimes did not name the tenant. The current Folio to the policy, which is exhibited to the witness statement, shows the effective date of the insurance as 30th November 2008 and the renewal date as 30th November 2011 and against the heading "Occupancy" records, "Hauliers as Garages/Offices"; the tenant is not named.
  47. As regards waiver of rights of subrogation, the claimant relies on the following provision in the policy of insurance:
  48. In the event of a claim arising under this Section the Insurers agree to waive any rights, remedies or relief to which they might become entitled by subrogation against:

    (c) any tenant or lessee in respect of damage to that portion of the Premises in the demise of that tenant or lessee or to those portions of the Premises in which all the tenants have a common interest where the premium has been paid by the tenant or lessee but excluding damage arising out of the tenant's or lessee's gross negligence or as a result of the tenant's or lessee's wilful act or recklessness.
  49. In my judgment, a failure by the claimant to use reasonable endeavours as required by clause 5.1.3 of the lease would not preclude a demand for payment of the Insurance Charge under clause 2.3.
  50. The submissions on this issue focussed largely on the law relating to mutually dependent obligations. I did not derive much assistance from a consideration of that issue. The relevant question is not, in my judgment, whether the obligations in clause 2.3 and in clause 5.1.3 are mutually dependent, as that expression is usually understood, but simply whether as a matter of construction a failure to use reasonable endeavours under clause 5.1.3 means that for the purposes of clause 2.3 the Property has not been insured in accordance with clause 5.1. Accordingly it is not an objection to the defendant's argument that obligations in leases are not normally construed to be mutually dependent.
  51. As regards construction, it is correct, as Mr Stockill says, that clause 2.3 refers to clause 5.1 and that clause 5.1.3 is part of clause 5.1. But it does not follow that a failure to comply with clause 5.1.3 means that the premium, when paid, has not been expended in insuring the Property in accordance with clause 5.1. The scope of the requisite insurance is specified in clause 5.1.1. Although clause 5.1.3 affects the interests of the lessee, it does not purport to define the required insurance cover of the demised premises; rather it imposes on the landlord a liability to use best endeavours in specified respects. If the policy complies with clause 5.1.1, it fully satisfies the requirements regarding insurance cover. Thus, if the landlord uses reasonable endeavours pursuant to clause 5.1.3 but to no avail, the insurance cover does not for that reason become non-compliant with the requirements of the lease; the premium will have been expended in insuring the Property in accordance with clause 5.1 whether or not the reasonable endeavours bear fruit. In my judgment, this serves to indicate that non-compliance with clause 5.1.3 does not affect the entitlement to recover a premium that has been properly paid in effecting an insurance policy that complies with clause 5.1.1.
  52. A further reason for this conclusion is that a contrary interpretation of clause 2.3 would render the operation of that provision significantly less certain and convenient. It is commercially desirable that the amount of the lessee's obligation for rent be capable of prompt and easy ascertainment; the provisions in the lease relating to rights of re-entry and the operation of the break clause give examples of why this is so. In my view the lease does provide the necessary certainty, because clause 5.1.1 provides a simple means whereby the tenant can verify both the compliance of the insurance cover with the terms of the lease and the fact and amount of payment of the premium. However, if the liability for the Insurance Charge depended on the landlord's use of reasonable endeavours, unwelcome uncertainty would be introduced into the ascertainment of the liability under clause 2.3.
  53. For these reasons, I would have rejected the defendant's argument in respect of the second issue.
  54. If I had arrived at a different construction of clause 2.3, I would have drawn a distinction between the noting of the lessee's interest on the policy and the waiver of subrogation rights.
  55. Both the lessor and the lessee have insurable interests in the property subject of the lease. The purpose of noting the lessee's interest on the policy is to avoid argument as to the existence of an insurable interest on the part of a person (namely, the lessee) other than the insured. In the present case the nature of the policy and the endorsements on the schedule to the policy clearly acknowledged the existence of lessees; as a matter of law the interest of those lessees was thereby acknowledged. Further, the identity of the lessee was plainly known to the insurer and had been expressly noted on the schedule in the previous year. Although as a matter of law a renewal of a policy of insurance takes effect as a new contract, the contract takes place on broadly the same terms as those previously in existence and falls to be read in the context of the circumstances in which it was made. In my judgment the claimant sufficiently complied with the obligation regarding endorsement of the lessee's interest.
  56. The issue concerning waiver of rights of subrogation must be viewed in the context of the relationship between the landlord and the tenant, because in the circumstances of this case the rights to which the insurer might be subrogated would be the landlord's rights of action against the tenant.
  57. I was referred to Mark Rowlands Ltd v Berni Inns Ltd [1986] 1 Q.B. 211. The plaintiff demised part of a building to the defendant. The lease contained a covenant by the plaintiff to insure the building against loss and damage by inter alia fire. The defendant covenanted to repair the demised premises when necessary and to pay insurance rent equal to the apportioned cost of insuring the demised premises. The lease provided that in the event of fire the defendant was to be relieved of the obligation to repair and the plaintiff was to use the insurance money to effect repairs. (The lease in the present case contains provisions to essentially similar effect.) The building was destroyed by a fire that had been caused by the defendant's negligence. The insurer paid the plaintiff under the policy and, in the plaintiff's name, brought a subrogated claim against the defendant for damages for negligence. The claim was dismissed, and the Court of Appeal upheld the dismissal on the ground that the provisions of the lease showed a clear intention that, in the event of damage to the building by fire caused by the defendant's negligence or by accident, the plaintiff would have recourse under the policy of insurance but would have no right of action against the defendant. The Court of Appeal did not suggest that the plaintiff would have had no right of action if the defendant had caused the fire deliberately.
  58. Although I do not have to determine the matter, it is strongly probable that the same position obtains in the present case and that the provisions of the lease indicate an intention that, within the scope of the insured risks, the claimant should have no right of action in negligence against the defendant. That conclusion would deprive questions of subrogation of much of their relevance. In the case of deliberate damage, such as arson, it will be difficult to infer an intention that the landlord should have no recourse against the tenant; and it may also be difficult to persuade an insurer to waive subrogation rights relating to such circumstances.
  59. However, it is not axiomatic that a landlord should have no right of action against the tenant in respect of the latter's negligence within the scope of an insured risk, and the purpose of a waiver of subrogation will be to give added comfort to the tenant that no attempt will be made to pursue him for losses to which the insurance relates. The waiver in the present case did not extend to "gross negligence" and therefore fell significantly short of a complete waiver. The evidence before me does not show what efforts were made to obtain a waiver or what further waiver might have been obtained. If the point had arisen in the light of my decisions on other matters, I should have held that there was a realistic prospect that the claimant had not complied with its obligation to use reasonable endeavours to procure a complete waiver and that the issue should be determined at trial. For reasons that I have already given, however, the point does not arise.
  60. Third Issue: Timing

  61. For the defendant, Mr Stockill submitted that, in stating that payment of the Insurance Charge was due immediately upon receipt of the invoice, the claimant's invoice demanding the payment of the insurance rent was defective in two respects. First, it was sent and received before the renewal date and the date shown on the invoice and was therefore at best unclear as to the date when payment was said to be due. Second, under clause 2.3 there was a fourteen day period for payment and payment was therefore not due immediately.
  62. In my judgment the demand was sufficiently clear in its terms to have been capable of being valid. The statement that payment was due upon receipt of the invoice was reasonably to be understood in the context of the statement of the date on the invoice. A refusal to pay the invoice on the ground that it had been received a few days before the date it bore would in my view have been without merit. I also reject the contention that the demand was bad for failure to ask for payment in fourteen days. The lease entitled the claimant to demand payment, which is what it did. The lease also gave the defendant fourteen days to pay, and that provision applied to the demand. Whether or not the statement on the invoice as to the date when payment was due was strictly correct seems to me to be immaterial, as it was clear that the invoice was a demand under the lease and the provisions of clause 2.3 stipulated what the effect of that demand was.
  63. Fourth Issue: De Minimis

  64. The defendant contends that any arrears of rent at the date of the expiry of the Notice under the break clause were trivial and therefore did not render the Notice ineffective under clause by reason of the operation of the legal principle de minimis non curat lex.
  65. Mr Stockill accepted that, if the demand for the insurance charge were valid, the amount falling due in respect of the Insurance Charge under clause 2.3 was £3,609.72. He also accepted that £3,609.72 is not an amount falling within any de minimis principle.
  66. In my view, those concessions, which I consider to have been correct, are sufficient to dispose of the de minimis argument. At the time of expiring of the Notice there were arrears of rent in an amount that was more than de minimis.
  67. Mr Stockill submitted that the effect of the determination of the lease pursuant to the Notice would be to give to the defendant a right to reimbursement or restitution of rent, including additional rent under clause 2.3, because the rent paid should be subject of an apportionment on the basis of time, and that therefore the operation of the de minimis principle should look to the position after the right to reimbursement had accrued; in the result the outstanding obligation for the Insurance Charge was only £150.50 plus VAT, and £2,160.31 would have been repayable for rent paid in advance under clause 2.2.
  68. Even on the assumption that the de minimis principle applies to clause of the lease and that there would be a right of restitution of rent on the basis of apportionment upon the determination of the lease pursuant to the break clause—both of which are matters that the claimant disputes—I would reject Mr Stockill's submission. The right of restitution on which he relies would arise only upon the expiry of an effective Notice and would therefore depend on the absence of arrears at that moment. In my judgment, to rely on the supposed right of restitution to establish that there were no arrears is to pull oneself up by one's own bootstraps.
  69. However, I do not consider that the defendant's position would be any better if the relevant breach of covenant were only for £150.50 plus VAT. A right to determine a lease pursuant to a break clause is in the nature of an option. All conditions of the exercise of an option must be strictly performed. In respect of an option under a break clause, Woodfall's Landlord and Tenant states at paragraph 17.291 (footnotes omitted):
  70. Where an option is conditional on performance by the tenant of his covenants, the condition is treated as a condition precedent. Accordingly, it must be strictly performed, and even a trivial breach will preclude exercise of the option.

    In Finch v Underwood (1875) L.R. 2 Ch.D. 310 the tenant's entitlement to the grant of a new lease was subject to a condition precedent that he had complied with his repairing covenant. There were disrepairs to the extent of about £13 10s. At first instance it was held that this "trifling" breach did not disentitle the tenant to a new lease. The Court of Appeal reversed that decision. James LJ said at 313:

    I think, moreover, that the Plaintiff, if otherwise entitled to a lease, would have lost that right by breach of the covenants to repair. No doubt every property must at times be somewhat out of repair, and a tenant must have a reasonable time allowed to do what is necessary: but where it is required as a condition precedent to the granting a new lease that the lessee's covenants shall have been performed, the lessee who comes to claim the new lease must shew that at that time the property is in such a state as the covenants require it to be. He can easily send in his builder, get a report of what repairs are necessary, and do them before he applies for the lease. There is no hardship in requiring this of him, and I think he is not entitled to excuse himself by saying that the want of repair is trifling. The answer to that is, "No matter; your bargain was to leave the property in thorough repair." If he has not fulfilled his legal bargain, which is also his bargain in equity, he cannot sustain his claim for a lease.

    Although £13 was worth considerably more in 1875 than it is now, the decision is important for the Court of Appeal's insistence that trifling breaches were not to be ignored.

  71. In Fitzroy House Epworth Street (No. 1) Ltd v Financial Times Ltd [2006] 1 WLR 2207 the lease contained a break clause that the tenant could exercise only if it had materially complied with all of its obligations at the date of termination. The Court of Appeal was concerned with the effect of the insertion of the word "material" in the relevant provision, but in considering that question it also considered the effect of an unqualified requirement of compliance with obligations. After a review of the authorities, including Finch v Underwood, Sir Andrew Morritt C, with whom Jacob and Moore-Bick LJJ agreed, referred at [17] to:
  72. the recognition in Finch's case that such provisions have to be strictly complied with because equity has no power to relieve a party in breach, the warning in Simons v Associated Furnishers Ltd [1931] 1 Ch 379 of the need for consistency and the insistence in the Bairstow Eves case [Bairstow Eves (Securities) Ltd v Ripley] [1992] 2 EGLR 47 that the court should not rewrite the parties' contract.

    Addressing the issue of materiality, the Chancellor said at [35]:

    Materiality must be assessed by reference to the ability of the landlord to re-let or sell the property without delay or additional expenditure. Where the provision is absolute then any breach will preclude an exercise of the break clause. But I see no justification for attributing to the parties an intention that the insertion of the word "material" was intended to permit only breaches which were trivial or trifling. Those words are of uncertain meaning also and are not the words used by the parties.

  73. In the present case, clause is absolute in its terms. In my judgment any failure to comply with the absolute requirement of the condition precedent would disentitle the lessee from determining the lease under the break clause. The parties could have made a different provision, and in the case of other breaches of covenant they did so by clause There are obvious reasons why a break clause may not require absolute compliance with, for example, a repairing covenant. But it will generally be easy for a tenant, and for that matter a landlord, to know whether or not there has been compliance with the monetary obligations under a lease, and the practical reasons for qualifying the absolute nature of the condition are less evident. Even if the de minimis principle applied in the extreme case (arrears of a few pence), I am satisfied that it would not apply in this case and that the defendant's argument cannot stand with Finch v Underwood.
  74. Part 3

  75. By the second part of its application the claimant seeks either judgment on the counterclaim under Part 24 or an order striking out the counterclaim pursuant to r. 3.4 (2) (a), which is in the following terms:
  76. The court may strike out a statement of case if it appears to the court—
    (a) that the statement of case discloses no reasonable grounds for bringing or defending the claim …
  77. The counterclaim may be summarised as follows.
  78. (1) It avers that the lease was validly determined on 18th December 2010 by the operation of the break clause.

    (2) It claims a declaration that, if any sum is due in respect of the Insurance Charge, it is only £150.50 plus VAT.

    (3) It claims repayment of £2,160.31 in respect of rent attributable to the period 18th December to 24th December 2010, after the lease had been determined.

    (4) It claims repayment of £28,161.23, which it paid to the claimant on 20th December 2010, on the ground that the payment was made by mistake on account of rent that did not fall due because the lease had been determined by the break clause.

  79. Point (1) must await determination at trial, because only at trial can it be decided whether or not the purported exercise of the option under the break clause was valid.
  80. Point (2) is to be understood as a claim to be advanced in the event that the demand for payment of the Insurance Charge is held to be valid. As I have held that the demand was not valid, there is no liability to pay any money in that regard.
  81. Point (4) cannot be dismissed summarily but must await determination at trial. A claim to recover moneys paid by mistake discloses a cause of action in law, and it is a question of evidence whether it is made out on the facts.
  82. The claim at point (3) rests on the contention that, upon the determination of the lease on 18th December 2010 pursuant to the valid exercise of the option under the break clause, the lessee became entitled to restitution of that part of the rent paid in advance on the previous quarter day which was attributable to the few days of the quarter that post-dated the determination of the lease. That entitlement is said to arise either as a matter of the true construction of clause 2.2 of the lease or under the general law of unjust enrichment—presumably on the ground of failure of consideration.
  83. No authority was cited in direct support of the defendant's contention. The reason for that, in my judgment, is that the contention is unsound.
  84. The common law does not permit apportionment of rent in respect of time. The Apportionment Act 1870 does not affect the date on which rent is payable and does not authorise apportionment in respect of time of rent payable in advance. The general principle is that rent payable in advance is payable in full on the due date, notwithstanding that the lease subsequently determines before the expiry of its term: see, for example, Ellis v Rowbotham [1900] 1 QB 740 and Canas Property Co. v K.L. Television Services [1970] 2 Q.B. 433. I do not consider that the case of termination of a lease by the lessee's exercise of a contractual option is properly to be treated differently; rights of restitution for failure of consideration do not depend on the absence of fault of the claimant: see, for example, Dies v British and International Mining and Finance Corpn. 1939] 1 K.B. 724. The landlord's entitlement to recover as rent the full amount due in advance, notwithstanding the subsequent termination of the lease before the expiry of the term, is sufficiently explained by the fact that the contractual obligation to pay the rent had accrued before termination and that the law of unjust enrichment does not operate to circumvent the scheme of obligations and entitlements contained in a valid contract.
  85. A claim for recovery of the rent referable to the period between the termination of the lease and the end of the quarter must therefore rest on the terms of the lease itself. Clause 2.2 is set out in paragraph 9, above. Mr Stockill relies particularly on the words: "and so in proportion for any period less than a year" In my judgment the words will not bear that reliance. In Capital and City Holdings Ltd v Dean Warburg Ltd and others (1988) 58 P. & C.R. 346, it was argued that, upon the true construction of the under-lease, the under-lessee was not liable for rent in respect of any period of time after the date of termination of the under-lease by forfeiture. The words relied upon were: "yielding and paying therefor during the term … yearly (and proportionately for any part of a year) the rent which shall be payable by equal quarterly payments in advance on the quarter days the first of such payments or a proportionate part thereof to be due on the date specified in the particulars and to be in respect of the period therein mentioned …" Ralph Gibson LJ, with whom Nicholls LJ agreed, said at 351:
  86. The term was from July 7, 1987 to June 23, 1991. The quarter days were stated to be March 25, June 24, September 29, and December 25, in each year. The tenant covenanted to pay the rent at the times and in the manner provided. [Counsel for the respondents] argued that, despite the clear obligation to pay a quarter's rent on December 25, 1987, the words "proportionately for any part of a year" and "or a proportionate part thereof" caused that liability to be reduced by the serving of the writ. I do not agree. It seems to me that the references to the proportionate part of a year were included to deal with the fact that the term commenced on July 7, and called for a proportionate payment down to the first following quarter day. The presence of those words does not, in my judgment, modify in any way the obligation imposed by the lease on the tenant to pay a full quarter's rent on December 25, 1987.

    Similarly in the present case, the term of the lease was from 18th December 2000 until 17th December 2015 and the rent was due on the usual quarter days. I consider that the words relied on by Mr Stockill do no more than deal with the fact that the commencement and expiry of the term did not coincide with the quarter days, so that proportionate payments would be required at either end of the lease. No such proportionate payment would be required in respect of the break clause, because the validity of the exercise of the option under that clause would not be capable of ascertainment at the preceding quarter day and because the lease makes no provision for a proportionate payment or for the pro rata recovery of any moneys attributable to the period after the expiry of the notice under the break clause.

  87. For these reasons, the claim to repayment of £2,160.31 in respect of rent attributable to the period 18th December to 24th December 2010 will be struck out. I shall hear Counsel as to the appropriate terms of the order.

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