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||Neutral Citation Number:  EWHC 403 (TCC)
||Neutral Citation Number:  EWHC 403 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
LEEDS DISTRICT REGISTRY
ON APPEAL FROM THE LEEDS COUNTY COURT
||Appeal ref: LS0321A
Royal Courts of Justice
Strand, London, WC2A 2LL
||Hearing 22nd February 2011
B e f o r e :
Mr Honourable Mr Justice Coulson
|| PERRIAM LIMITED
||- and -
||MR NICHOLAS WAYNE
MR MARTIN DALY
Mr Richard Lander (instructed by Andrew Issacs) for the Defendants/Appellants
Mr David Rose (instructed by Cohen Cramer) for the Claimant/Respondent
Hearing Date: 22nd February 2011
HTML VERSION OF JUDGMENT
Crown Copyright ©
Mr Justice Coulson:
- This is an appeal from a judgment of HHJ Cockcroft, sitting in the Leeds County Court, dated 22nd September 2010, in which he determined two preliminary issues and decided consequential issues as to costs. The appellants, who are the defendants in the proceedings, seek to appeal the judge's findings on one of the preliminary issues and his decisions on costs. Permission to bring this appeal was granted by David Richards J in writing on 24th November 2010.
- The litigation is concerned with the second floor of the Castleton Mill on Armley Road in Leeds. That property was originally owned by a company called Maple Leaf Services Limited. Pursuant to a lease dated 18th August 2002, Maple Leaf let the second floor of the Mill to a company called Ideas Start Here Limited ("Ideas"). The appellants were the guarantors of Ideas, and had previously occupied the premises in another company name. The lease was due to expire on 19th November 2007.
- In April 2007, Maple Leaf was keen to sell Castleton Mill to the claimant, Perriam Limited, a company based outside the United Kingdom. In addition, it suited them to sell the Mill with Ideas as existing tenants of the second floor. Accordingly, on 24th April 2007, Maple Leaf entered into a Deed of Variation with Ideas, which extended the lease, on varied terms, for a further 4 years until 17th November 2011.
- The following month, the claimant obtained a valuation of the property in the sum of £2.8 million, with an upper limit of £3.5 million dependant on the outcome of a rent review involving the other tenant of the Mill, and on the assumption that all of the vacant office accommodation was refurbished to a high standard of secondary specification and immediately let out at full market rates. The same valuation report confirmed that "the major item of disrepair was the advanced state of neglect of the windows of the 2nd and 3rd floor."
- The report stated that, because of their financial position, the value of Ideas' covenant was all but worthless. It was not clear whether the writer of the report had seen the Deed of Variation; certainly there is no reference to it in the report itself.
- On 2nd July 2007, Maple Leaf sold Castleton Mill to the claimant for £2.65 million (ie less than the lower valuation figure in the report). The following year, in October 2008, Ideas went into liquidation.
- In their amended claim in these proceedings, the claimant make two principal claims against the appellants, as guarantors of Ideas. The first, by reference to the repairing covenant in the original lease and clause 4.2 of the Deed of Variation, is in respect of dilapidations, principally in relation to the condition of the windows. The second, by reference to the lease and clause 5.2 of the Deed of Variation, is in respect of outstanding rent, service charge and the like.
- In his judgment of 22nd September 2010, HHJ Cockcroft decided the preliminary issue in respect of clause 4.2 against the appellants, holding that the clause did not amount to a waiver of any liability that they may otherwise have had for the condition of the windows. It is that finding that is the principal subject of this appeal. The judge determined the issue under clause 5.2 against the claimant, with the result that the claim for rent and service charge, to the extent that it accrued after 17th November 2007, could not be recovered against the appellants. That decision is not challenged.
- The judge went on to find that the appellants should pay the claimant's costs of the preliminary issues and that, principally because of the claimant's success on the preliminary issues, the money that it had paid into court by way of security for costs (to reflect the fact that the claimant is a company based abroad) should be returned to them. Both of those orders as to costs are the subject of this appeal.
B THE LEASE AND THE DEED OF VARIATION
- The tenant's covenants in the original lease included the following:
5.1.1 To pay the rents including any rents which accrue during any extension or continuance of this lease either by agreement or by operation of law or continued occupation of the premises after the termination of this lease on the days and in the manner set out in this Lease and not to exercise or seek to exercise any right or claim to withhold rent or any right or claim to legal or equitable set-off…
5.5 Repair, cleaning, decoration etc
5.5.1 To repair the premises and keep them in repair to the best standard excluding responsibility for late defects excepting damage caused by an insured risk to the extent that the landlord recovers the cost of reinstatement from the insurers but including work necessitated as a result of damage caused by the tenant or any occupier of the premises where the insurance money is irrecoverable in consequence of any act or default of the tenant or anyone at the premises expressly or by implication with the tenant's authority
5.5.2 To repair and replace from time to time the landlord's fixtures and fittings in the premises which may be or become beyond repair at any time during or at the expiration of the term…"
- Clause 8 of the lease provided that the guarantor's covenants were set out in the guarantor's covenants schedule, also a part of the lease. That schedule provided, amongst other things, that the tenant "shall punctually pay the rents and observe and perform the covenants and other terms of this lease and if at any time during the term the tenant shall make any default in payment of the rents or in observing and performing any of the covenants or other terms of this lease the guarantor will pay the rents and observe or perform the covenants or terms in respect of which the tenants shall be in default and make good to the landlord on demand indemnify the landlord against all losses damages costs and expenses arising or incurred by the landlord as a result of such non-payment, non-performance or non-observance…"
- There was a good deal of evidence adduced before HHJ Cockcroft as to the background to the Deed of Variation. That is a topic to which I return below. The relevant terms of the Deed itself, which was executed on 24th April 2007, were as follows:
3.1 This deed is supplemental to the lease by which the premises were demised for the term subject to the payment of the rent reserved by and the observance and performance of the covenants on the lessee's part and the conditions contained in the lease…
3.3 It has been agreed the term shall be extended as it is provided herein.
3.4 The landlord has agreed to release the tenant from its obligations under the lease as and from 17 November 2007.
3.5 It has been agreed that the tenant's repairing obligations shall be varied as is provided herein.
4.1 The landlord and the tenant agree that the lease shall be varied to the intent that the lease shall expire on 17 November 2011.
4.2 The obligations of the tenant in the lease shall be varied so that there is no continuing obligation to repair, keep in repair or replace the external windows in the premises.
5 Consent of guarantor
5.1 The guarantor consents to the variation of the lease and the other terms and conditions contained in this deed and confirms that their covenant contained in the lease or guarantee shall continue in full force and effect whether or not the variation shall take effect and covenants that the same extend to the covenants given by the tenant in this deed.
5.2 The landlord releases the tenant from its obligations under the lease as and from 17 November 2007 save as to any antecedent breach.
6 No Surrender
6.1 The parties agree and declare that this deed is not intended to and does not affect any surrender of the lease or the grant of any new lease and that the lease (as varied by this deed) shall continue in full force and effect."
- It should be noted that, by the agreement of both parties, it was accepted, and HHJ Cockcroft so found, that the reference to "the tenant" in clauses 3.4 and 5.2 was a mistake, and that both clauses should have referred to "the guarantors".
C THE ISSUES BEFORE THE JUDGE
- At the trial of the preliminary issues, which themselves emerged from the claimant's unsuccessful attempt to strike out part of the defence, the appellants argued that clause 4.2 operated so as to release Ideas, and therefore themselves, from any continuing obligation in respect of the windows as at 24th April 2007 and that, in accordance with the words used and the evidence as to background/context, this meant that the appellants were not now liable for any breach of the repairing obligation in respect of the windows. In response, the claimant argued that, although Ideas was released from its continuing obligation in respect of the windows, that release only took effect from 17th November 2011, and that there was no waiver of any right to claim against Ideas, and therefore the appellants, for any antecedent breach. The judge resolved that dispute of construction in the claimant's favour.
- As to the claim against the appellants in respect of rent and service charge, the argument concerned clause 5.2 of the Deed of Variation. The judge concluded that clause 5.2 released the appellants in respect of any obligation or liability which accrued on or after 17th November 2007. That was therefore a decision against the claimant, and it is not now appealed.
D THE JUDGMENT
- Having set out the principles of construction to be derived from the speech of Lord Hoffmann in Investors Compensation Scheme Limited v West Bromwich Building Society  1 WLR 896, the judge then summarised the evidence. He noted that the proposed extension of the lease was in both parties' interests, and that, because it was an advantage to Maple Leaf to have a tenant in situ on the second floor as they prepared to sell Castleton Mill, it was prepared to make concessions so as to release Ideas, and therefore the appellants, from various covenants and obligations. As the judge put it, "the value of the freehold was enhanced by Ideas' continued occupation".
- At paragraph 17 of the judgment onwards, the judge summarised the relevant evidence about the windows. It was clear that this had been a matter which was of particular concern to the appellants when they were asked to extend the lease. Mr Wayne said that both he and Mr Daly came to an agreement with Mr Little and Mr Manning of Maple Leaf in relation to the windows. He described the commercial purpose of that agreement in these terms:
"So far as the external windows were concerned, the agreement was that there should be no continuing obligation in the sense of no ongoing liability to replace or repair whensoever the windows fell into disrepair and similarly no obligation to discharge any of the remaining repairing obligations. Mr Manning had the deed drawn up by his firm, Fox Hayes…We therefore signed the deed believing that we were thereby released from any ongoing personal liability to guarantee any of Ideas' obligations under the lease and that Ideas were released from any liability to maintain external windows."
- At paragraph 20, dealing with the evidence of Mr Little of Maple Leaf, the judge recorded this:
"Mr Little further confirmed that the defendants were concerned about the windows. Some were in need of replacement, some in need of repairs, others in better order, but the importance of the personal guarantee should not be exaggerated. As landlord, irrespective of the obligations under other leases, Maple Leaf had already taken it upon itself to replace the window frames on the ground floor and the first floor at a cost of about £18,000, which costs incidentally made Mr Little sceptical of the much larger cost for replacing the second floor windows which is contended for in the schedule of dilapidation. So sacrificing the security provided by the personal guarantees and relieving Ideas of the window repairing obligations under the lease was a price worth paying for the extended lease."
- The claimant had had no involvement in these discussions, and could not therefore adduce any direct evidence in response.
- Having outlined the factual evidence in his judgment, the judge then summarised the parties' competing contentions and set out his interpretation of clauses 4.2 and 5.2. His answers were those summarised above.
- Subsequently, by an order dated 28th October 2010, and served on 5th November 2010, the judge ordered the appellants pay the costs of and incidental to the preliminary issues, and required them to pay £15,000 on account of those costs. He ordered that the sum of £45,000, which the claimant had originally paid into court by way of security for costs, should be returned to the claimant.
- As to the appellants' liability for costs, the judge said:
"It seems to me that any bystander seeing what had happened in the preliminary hearing could not fail to say the claimants were put to the expense by the particular defence that was run of establishing that there was a liability that was not eliminated by the Deed of Variation. They succeeded in that, and for the reasons advanced by Mr Rose it is appropriate they should have their costs of and occasioned by that preliminary hearing…Clearly if the claimants are in some subsequent date largely unsuccessful in establishing any liability, any significant liability against the defendants – which I think is an extremely remote outcome – then they will be compensated by a costs order which covers all those costs incurred other than those incurred in disputing the preliminary issues."
- As to the release of the money paid in by way of security for costs, the judge said:
"I am going to release the security for costs. I think if anything this is a case where the defendants might be providing security of costs now but if they haven't then it is inequitable that Perriam, who I think are now in the driving seat, should any longer have £45,000 tied up which they don't have access to, so that money is going to be released."
E: WHAT WAS THE EFFECTIVE RELEASE DATE IN RESPECT OF THE WINDOWS?
- It is common ground that the Deed of Variation in this case would win no drafting prizes for precision or clarity. It included errors (the repeated use of the word "tenant" instead of the word "guarantors") which are acknowledged by both sides, and it also struggled to convey the essential agreement reached between the parties. That said, I consider that two things are tolerably clear from the Deed as drafted. The first is that the tenant's repairing obligation in respect of the windows was varied (clause 3.5), with the detail of that variation being provided for in clause 4.2. Secondly, in relation to the guarantors, it was agreed that they would be generally released from their obligations as from 17th November 2007 but not before (the recital at clause 3.4 and clause 5.2).
- Mr Rose argued before me, as he had done successfully in front of HHJ Cockcroft, that, because clause 4.2 was silent as to when the release in respect of the windows came into force, it made sense, in construing the Deed as a whole, to conclude that the release in respect of the windows also came into force on 17th November 2007. Mr Lander, on the other hand, argued that the language of clause 4.2, and the absence of an express date in the future when the release was to be effected, pointed inexorably to the release having immediate effect, that is to say from the date of the execution of the Deed on 24th April 2007.
- In my judgment, the release at clause 4.2 in respect of the windows was intended to have immediate effect. There are a number of reasons for that conclusion. First, the identification of the date of 17th November 2007 in clauses 3.4 and 5.2 related to the general release of the guarantors only; it had no direct relationship to the provision at clause 4.2 relating to the release of the tenant from its obligations in respect of the windows. Clause 4.2 was specifically referable to the tenant (not the guarantors) and the tenant's particular obligation in respect of the windows. It was therefore dealing with a different party, and a different topic, to those covered by clauses 3.4 and 5.2, and there was no necessity for the release date to be the same.
- Secondly, the fact that no date is expressly identified in clause 4.2 strongly suggests that the release was not a release which was to take effect in the future, but was instead an immediate release. Clauses 3.4 and 5.2 related to a release that was not to have effect at the date of the Deed, but would instead take effect in the future, on 17th November 2007. The absence of any express date in clause 4.2 points inexorably towards the release not being a release in the future, but an immediate release at the date of the Deed.
- Thirdly, I consider that that conclusion is amply confirmed by the language of clause 4.2 itself. The clause makes plain that the variation was to be immediate: "so that there is no continuing obligation to repair…" That is not the language of a future event, something that will happen in the future; it is the language of the present, identifying, through the use of the word "is", a statement of the immediate position.
- Accordingly, for all these reasons, it seems to me plain that the release of the obligation in respect of the windows under clause 4.2 was intended to take immediate effect. The release date was therefore the date of the Deed. To that extent, therefore, I part company with the view of HHJ Cockcroft. Moreover, as will become apparent below, that finding has an impact on the real issue under clause 4.2, namely the extent, if at all, to which that release, as at the date of the Deed of Variation, operated to release the appellants, as guarantors, from any liability in respect of the condition of the windows.
F. DOES CLAUSE 4.2 AMOUNT TO A COMPLETE DEFENCE IN RESPECT OF CLAIMS IN RESPECT OF THE WINDOWS?
a) The Proper Approach To Interpretation
- As I have already noted, the judge correctly set out the five principles of construction identified by Lord Hoffmann in his speech in Investors Compensation Scheme. They are so well known that it is unnecessary to set them out again here. Lord Hoffmann's conclusion, that the factual background included "absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man" meant that, in this case, as in so many contractual disputes in recent years, extensive evidence of 'background' was adduced. This material may have strayed dangerously close to declarations of subjective intent, but that is a risk which, as I and other judges have pointed out, is the almost inevitable consequence of this approach. Furthermore I note that, neither before the judge, nor before me, did Mr Rose suggest that the proper boundaries had actually been crossed.
- The situation where the words of the document might not adequately convey the agreement actually reached between the parties was covered by Lord Hoffmann's speech in the subsequent case of Chartbrook Limited and Another v Persimmon Homes Limited and Another  UKHL 38. At paragraphs 22-25 of his speech, he said this:
"22. In East v Pantiles (Plant Hire) Ltd (1981) EG 61 Brightman LJ stated the conditions for what he called "correction of mistakes by construction":
"Two conditions must be satisfied: 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. If those conditions are satisfied, then the correction is made as a matter of construction"
23 Subject to two qualifications, both of which are explained by Carnwath LJ in his admirable judgment in KPMG LLP v Network Rail Infrastructure Ltd  Bus LR 1336, I would accept this statement, which is in my opinion no more than an expression of the common sense view that we do not readily accept that people have made mistakes in formal documents. The first qualification is that "correction of mistakes by construction" is not a separate branch of the law, a summary version of an action for rectification. As Carnwath LJ said, at p 1351, para 50:
"Both in my judgment, and in the arguments before us, there was a tendency to deal separately with correction of mistakes and construing the paragraph 'as it stands', as though they were distinct exercises. In my view, they are simply aspects of the single task of interpreting the agreement in its context, in order to get as close as possible to the meaning which the parties intended"
24 The second qualification concerns the words "on the face of the instrument". I agree with Carnwath LJ, paras 44-50, that in deciding whether there is a clear mistake, the court is not confined to reading the document without regard to its background or context. As the exercise is part of the single task of interpretation, the background and context must always be taken into consideration.
25 What is clear from these cases is that there is not, so to speak, a limit to the amount of red ink or verbal rearrangement or correction which the court is allowed. All that is required is that it should be clear that something has gone wrong with the language and that it should be clear what a reasonable person would have understood the parties to have meant. In my opinion, both of these requirements are satisfied."
- Accordingly, having come to a different view to HHJ Cockcroft as to the immediate nature of the release, I must go on to ascertain the meaning which clause 4.2 would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties at the time of the Deed of Variation. This involves, principally, a consideration of the words used, in the context of the document as a whole (see The Apostolis (No 2)  2 Lloyd's Rep 337 at 348). But as part of that process, it is important to take into account the background and the context, so as to arrive at a result which a reasonable person would have understood the parties to have meant, and which is in accordance with the commercial purpose of the contract and a commercially sensible construction: see Mannai Investment Co Limited v Eagle Star Life Assurance Limited  AC 749 at 771.
b) The Background
- It seems to me that there are three critical elements of the background which need to be borne in mind for the purpose of interpreting clause 4.2. The first is the clear commercial advantage to Maple Leaf if Ideas could be persuaded to remain as the tenants occupying the second floor. And whilst Ideas were prepared to agree that, and had themselves sub-let part of the second floor to others, they would only do so on the basis of significant concessions in respect of matters for which they (and therefore the appellants) would or might otherwise have been liable.
- Secondly, it must also be remembered that it was the appellants themselves who were particularly concerned about the condition of the windows. It was they who expressly raised that issue with Maple Leaf, and it was they who made plain that any agreement would have to ensure that they had no continuing liability for the windows. That, of course, explains why clause 4.2 was a separate and stand-alone provision dealing solely with the windows. It was because, at the appellants' behest, the parties had reached a specific agreement in respect of the windows.
- The third important aspect of the background concerns the very poor state of the windows in April 2007. It seems entirely safe to assume that, at the date of the Deed of Variation, the windows either required wholesale replacement, or, at the very least, part replacement and part extensive repair. That, so it seems to me, is a critical element of the background when considering the agreement that was reached and recorded in the Deed of Variation. It is clear that the agreement was intended to provide a benefit to the appellants in respect of the windows because they were in such a poor state of repair and they wanted to be protected from claims for the cost of repair/replacement.
c) The Words Used
- The words used in clause 4.2 have to be contrasted with the words in clauses 3.4 and 5.2. In those latter clauses, there was a general provision releasing the appellants from their obligations from a set date in the future, namely 17th November 2007, although it was made plain that, as guarantors, they would continue to be liable for any "antecedent breach". In other words, under clauses 3.4 and 5.2, the guarantors had no liability for any breach on the part of the tenant that occurred after 17th November 2007, but they expressly retained a liability for any breaches by the tenant before that date.
- Clause 4.2 was different. It was a specific agreement in relation to the windows only. As I have already noted, instead of providing for a release date in the future, it provided for an immediate cessation of the tenant's obligation to repair the windows. From 24th April onwards, there was no such obligation. Furthermore, unlike clause 5.2, there was no saving provision in respect of antecedent breach; in other words, there was nothing to say that, although the tenant no longer had an obligation to repair the windows, the tenant was or may still be liable for any failure to repair in the past. Those differences strongly suggest that, in contrast to the other obligations and liabilities, it was not intended that, from 24th April 2007, there would be any liability on the part of the tenant, and therefore on the part of the appellants, in respect of the windows.
- What is more, these differences cannot be regarded as simply another drafting glitch: given that everyone knew that the windows were in a very poor state of repair, it seems to me that a saving provision in respect of antecedent breach (if not an express provision noting the tenant's liability and an agreed schedule of condition) would have been essential, if it was the intention that Maple Leaf was at least reserving to itself the right to make claims against Ideas because of the state of the windows in April 2007.
- That interpretation is supported by the provision that there was "no continuing obligation to repair". Under a repairing covenant of this kind, the tenant is under a continuing obligation to repair: any breach of that obligation is a continuing breach, and a cause of action accrues every day. But if there is no continuing obligation, if that obligation ceases, then the daily accrual of the cause of action comes to an end as well. Accordingly, so it seems to me, the words in clause 4.2 should be construed as meaning that, as at the date of the Deed, Maple Leaf had released the tenant, and therefore the appellants, in respect of any obligations relating to the repair of the windows. There could no longer be a claim against them for the condition of the windows.
- For these reasons, I conclude that the language of clause 4.2, particularly when contrasted with the words in clauses 3.5 and 5.2, supports Mr Lander's construction, namely that the clause operated to relieve the appellants of their liability in respect of the windows, and provided them with a defence to that part of the dilapidations claim.
d) Background and Commercial Common Sense
- However, although that is my interpretation of the words used, I acknowledge that the point is not entirely one way. This is principally because, as Mr Rose rightly noted, clause 4.2 omitted any express reference to waiver or release from liability. So it is also necessary to consider the background, and the commercial reality behind the negotiations, before reaching a final conclusion as to the proper interpretation of clause 4.2. Once that material is considered, I am in no doubt at all that the construction outlined above is the only proper interpretation of this provision. To that extent, the approach outlined in Chartbrook, noted above, becomes relevant.
- First, as I have said, clause 4.2 had to be a real benefit to the appellants. In circumstances where they and Maple Leaf knew that the windows were in a very poor state of repair, the agreed intention was to provide the appellants with a benefit: a release from a liability that they would or might otherwise have had. In practical and commercial terms, it is plain that such a benefit could only have been a waiver, a release from any antecedent breach.
- Why do I say that? Because of the agreed fact that the windows were in such a bad way in April 2007. Let us take the claimant's original case, which was that, as at May 2007, the windows required total replacement. It is easy to see why, on the evidence, that claim was made. But, if that were right, then a provision which purported to release the appellants from any future liability in respect of the windows, but which made them liable for any antecedent breach (ie up to 23rd April 2007), would have been of no practical value to them at all. On that construction, the condition of the windows on 23rd April meant that, despite the release, the appellants would still have been liable for the full cost of replacing the windows, the very thing which the parties had agreed would not happen.
- Furthermore, such an interpretation would mean that clause 4.2 was entirely otiose; there would have been no purpose in releasing the appellants from a future liability to pay for the cost of replacing the windows if, on the very day that that release was agreed, the appellants were already liable for that cost. A court should always endeavour to avoid a construction which makes a contractual provision redundant: see Beaufort Developments (NI) Limited v Gilbert Ash (NI) Limited  1 AC 266.
- Even if the windows only required a mixture of replacement and extensive repair on 24th April, rather than wholesale replacement, to the extent that some required replacement, this interpretation would still give rise to the same difficulty. As to repair, although Mr Rose argued that the potential benefit to the appellants lay in their protection from liability for further deterioration in the windows after the release date, the widespread nature of the problems meant that this was of a nugatory value.
- Furthermore, just considering repair for a moment, it is worth considering how the condition of the windows on 24th April 2007 was to be ascertained, so as to see, on this construction, what repair works the tenant might be liable for, and what would count as subsequent deterioration. The windows were in a very poor state of repair, but neither the Deed of Variation, nor any other document, provided any mechanism for identifying where the tenant's (and thus the appellants') liability might start or finish.
- This brings me on to the second reason why, on a consideration of the background, and endeavouring to achieve a result that is commercially sensible, clause 4.2 had to operate as a waiver. That is the absence of anything in the Deed itself, and the absence of any schedule of condition or similar document, which suggested that the tenant, and therefore the appellants, were in breach of their obligations under the existing lease in respect of the windows. It is axiomatic that, in circumstances where the landlord is releasing the tenant from a particular liability, but considers that the tenant is already in breach of that same obligation, the landlord must identify the nature, scope and extent of the tenant's alleged breach at the date of the release. The failure to do so creates a recipe for doubt and confusion, with the inevitable argument that the particular default only occurred after the release date, and was therefore not actionable.
- It strains common sense, and seems to me to be wholly contrary to both the commercial purpose and language of the Deed, and the factual background as recorded in the evidence, to conclude that Maple Leaf intended to pursue a claim in respect of the windows under the terms of the lease against Ideas (and therefore the appellants), but which claim they not only failed to identify in the Deed or elsewhere, but which they also made effectively impossible to pursue by agreeing a Deed of Variation without a schedule of condition or any other mechanism to permit the parties or a court to arrive at an assessment of that liability. On the contrary, it seems to me that the absence of any asserted claim by Maple Leaf, and the drafting of the Deed of Variation without any suggestion of antecedent breach in respect of the windows, and with no schedule of condition, can only be explained by the agreement between the parties that the tenant (and therefore the appellants), would no longer be regarded as having any liability in respect of those windows.
- For all these reasons, therefore, it seems to me that, despite the absence of the word 'waiver' in clause 4.2, that was indeed the effect of the provision. Any other result would render the clause of no practical use and value at all. I therefore allow the appeal against Judge Cockcroft's interpretation of the provision and replace his interpretation with my own. On that basis, the appellants have a complete defence to the dilapidations claim in respect of the windows.
G: LIABILITY FOR COSTS
- As a matter of principle and practice it is rare for a court to interfere with a judge's order on costs. That is because an order for costs is discretionary; the circumstances in which a court would feel able to substitute a different view from that ordered below will be rare. However, in the present case, Judge Cockcroft's orders on costs were predicated on the basis that the issue as to clause 4.2 was the most important issue in the case, and that, because the claimant had won on that issue, it was entitled to its costs.
- In the present case, I have allowed the appeal against Judge Cockcroft's order as to the interpretation of clause 4.2. In my judgment, clause 4.2 does provide the appellants with a complete defence to the dilapidations claim in respect of the windows. In those circumstances, the appellants were successful on both of the points dealt with by way of preliminary issue, and that success must be reflected in the orders for costs.
- Accordingly, there can be no basis on which the appellants should pay the claimant's costs of the preliminary issues. More importantly, there can be no basis on which the court can conclude that, as things presently stand, the claimant is "in the driving seat", as Judge Cockcroft put it. If anything, it is the appellants who are now in a strong position, because they have won on both preliminary issues. Thus the money that was paid out of court to the claimant must be paid back into court to continue to act as security for costs.
- I do not make an order that the claimant should pay the appellants' costs of the preliminary issues, despite their success on the preliminary issues. It seems to me that those costs should always have been costs in the case. The mere fact that a party has won a preliminary issue does not, of itself, entitle that party to its costs of that issue. Before knowing the overall outcome of the trial, it is always dangerous to give one party its costs of an issue merely because, through a sensible case management decision, one aspect of the substantive dispute was dealt with in advance of the others.
- It therefore follows that I would have allowed the appeal against Judge Cockcroft's order that the appellants pay the claimant's costs of the preliminary issues in any event, regardless of their success or failure on the construction of clause 4.2. As a matter of principle, the right order in relation to the preliminary issues was always costs in the case. For completeness, however, I should say that, had I upheld Judge Cockcroft's interpretation of clause 4.2, I would not have allowed the appeal against the payment out of the security for costs. It seems to me that, had the claimant won on that issue, its likelihood of success was a relevant matter to be taken into account in the exercise of the court's discretion and the judge would have been entitled to do as he did.
- On the face of it, it seems to me that the appellants are entitled to their costs of this appeal, on which they have been successful. However, since that was not a matter that was addressed orally, I will leave that matter open for the time being. I invite the parties to consider my indication to see if agreement can be reached on the costs of the appeal; if not, I will deal with any dispute about costs in the way that is most cost-efficient for the parties.
- For the reasons set out above, I allow the appeal against Judge Cockcroft's decision as to the proper interpretation of clause 4.2. On my analysis, that provision did operate as a waiver or release to the appellants, such that, after 24th April 2007, they had no liability for the condition of the windows. The clause therefore provides them with a complete defence to any claim now for the costs of replacement or repair of those windows.
- I also allow the appeal against Judge Cockcroft's orders as to costs. The costs of the preliminary issues will be costs in the case. The money paid into court by way of security must be returned to court by the claimant within seven days of the handing down of this judgment.
- I invite the parties to reach an agreement as to the order consequential upon this judgment. If there are any further issues between the parties, such as costs, those can be dealt with, possibly by way of a telephone conference, which can be arranged through my clerk.
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