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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Burford UK Properties Ltd & Ors v Forte Hotels (UK) Ltd & Ors [2003] EWCA Civ 1800 (17 December 2003) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2003/1800.html Cite as: [2003] EWCA Civ 1800 |
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF
JUSTICE, CHANCERY DIVISION
(Mr Simon Berry QC)
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE CHADWICK
and
LADY JUSTICE ARDEN
____________________
Burford UK Properties Ltd & Ors |
Appellants |
|
- and - |
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Forte Hotels (UK) Ltd (Formerly Trust House Forte) & Ors |
Respondents |
____________________
Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr C Nugee QC and Mr J Karas (instructed by Lovells) for the Respondents
____________________
Crown Copyright ©
Lady Justice Arden :
"(a) does not constitute a covenant by the tenant, breach of which gives rise to a cause of action for damages, but
(b) does constitute a proviso to the formula by reference to which [NBR] is to be calculated on the hypothesis if not the fact that the tenant has used its best endeavours to obtain the maximum revenue from the use of the bedrooms as sleeping accommodation."
"1. In this Schedule the following expressions have where the context permits the following meanings respectively:-
…
(e) 'Net Bedroom Revenue' means the gross amount (hereinafter called 'the gross amount') received in respect of charges for bedroom accommodation at the hotel forming part of the Premises but excluding therefrom sums received by way of
(a) payment of or in lieu of gratuities to staff
(b) charges for use of bedrooms for purposes other than sleeping accommodation and
(c) payment for services ancillary to the provision of sleeping accommodation including but not limited to the provision of refreshments in bedrooms
and deducting from the gross amount all sums payable in the normal course of trade to third parties by way of commission
PROVIDED ALWAYS that
(1) the Tenant shall at all times use its best endeavours to obtain the maximum revenue from the use of bedrooms as sleeping accommodation and shall not take bedrooms out of service for redecoration except in accordance with the normal practice of the hotel industry and
(2) if after the date hereof there shall be imposed a tax or levy (payable by the Tenant to a governmental local governmental or other authority) on the occupation of hotel bedrooms or the charge therefor then the amount of such tax or levy shall be deducted from the gross amount but only to the extent that the same is not offset by a reduction (granted solely as a result of and to compensate for the imposition of the tax or levy first before mentioned) in the rate of general taxation of the Tenant's profits arising from carrying on the business of the said hotel or in the general rates payable in respect of the Premises To The Intent that so far as practicable having regard to changing circumstances the same exclusions and deductions shall be made from the gross amount in each year which is relevant for the purpose of calculating the Notional Rental Value."
"3. The Tenant hereby covenants with the Lessor as follows:
…
(31) To provide the Lessor with all information reasonably necessary for the purpose of enabling the ascertainment or verification of the amounts due or payable under the provisions of the Third Schedule hereto and in particular for the purpose aforesaid (but without prejudice to the generality of this covenant) to permit any person duly authorised in that behalf by the Lessor to inspect and take copies of the books accounts vouchers records and other documents and papers of the Tenant and afford such explanation thereof as that person or the Lessor may reasonably require.
(32) To keep the Lessor fully and effectually indemnified from and against all actions proceedings claims demands liabilities costs charges and expenses howsoever arising which may be brought by any person against the Lessor or be incurred by the Lessor in consequence of any of the following matters or things:-
(a) the use of the Premises or any part or parts thereof
(b) any breach by the Tenant of any covenant condition or stipulation in this Lease contained and
(c) any injury or loss to any person or property in or upon the Premises or any part thereof.
4. THE Lessor HEREBY COVENANTS with the Tenant that the Tenant paying the rent hereby reserved and performing and observing the covenants conditions and agreements herein contained and on the part of the Tenant to be performed and observed shall peaceably hold the Premises during the said term without any lawful interruption by the Lessor or any person claiming under or in trust for the Lessor
5.THE Surety in consideration of the demise hereinbefore contained HEREBY COVENANTS with the Lessor that the Tenant will pay the rent hereby reserved on the days and in manner aforesaid and will perform and observe all the covenants conditions and provisions herein contained and on the part of the Tenant to be performed and observed and that in case of default in such payment of rent or in the performance or observance of such covenants conditions and provisions as aforesaid the Surety will pay and make good to the Lessor on demand all losses damages costs and expenses thereby arising or incurred by the Lessor PROVIDED ALWAYS and it is hereby agreed that any neglect or forbearance on the part of the Lessor in endeavouring to obtain payment of the rent hereby reserved when the same becomes payable or to enforce performance of such covenants conditions and provisions shall not release or exonerate or in any way affect the liability of the Surety under this covenant PROVIDED FURTHER that the foregoing covenant shall be deemed to continue notwithstanding that the Tenant may assign this Lease or may cease to exist in any way AND PROVIDED ALSO that in the event of this Lease being disclaimed by a liquidator of the Tenant or (if this Lease shall be vested in an individual who shall be adjudicated bankrupt) by a trustee in Bankruptcy the Surety HEREBY COVENANTS with the Lessor that the Surety will at its expense accept from the Lessor a Lease of the Premises for a term equal in duration to the residue remaining unexpired of the term hereby granted at the date of such disclaimer such Lease to contain the like covenants conditions and provisions on the respective parts of the Lessor and the Tenant to be performed and observed in all respects (including the proviso for re-entry but excluding any provision for a Surety) and to reserve the like rent as are herein contained and reserved SAVE THAT the Surety shall not be bound to accept any such Lease unless the Lessor within the period of three months after such disclaimer serves upon the Surety a notice in writing so to do
6. PROVIDED ALWAYS and these presents are made upon this express condition namely if the said yearly rent or any part thereof shall at any time be in arrear and unpaid for Twenty one days after the same shall have become due (whether any formal or legal demand therefore shall have been made or not) or if the Tenant shall at any time fail or neglect to perform or observe any of the covenants conditions or provisions herein contained and on the part of the Tenant to be performed and observed then and in any such case it shall be lawful for the Lessor or any person or persons duly authorised by the Lessor in that behalf into and upon the Premises or any part thereof in the name of the whole to re-enter and the Premises peaceably to hold and enjoy henceforth as if these presents had not been made and so that the term of years hereby granted shall thereupon absolutely determine but without prejudice to any right of action or remedy of the Lessor in respect of any antecedent breach of any of the convenants conditions or provisions by or on the part of the Tenant herein contained." (Italics added)
"Construing paragraph 1 of the third schedule as a whole, it seems to me that the prescribed definition of Net Bedroom Revenue, which includes the proviso, has the effect that the gross amount will be the amount actually received unless – or subject to the proviso that – the circumstances are such the tenant will not have complied with proviso (1) in which case the gross amount is to be such an amount as would then have been received, in each case deducting from the gross amount 'all sums payable in the normal course of trade to third parties by way of commission'.
I have not reached this conclusion by way of a finding that there is an implied term to this effect in the third schedule. Rather, my view is that, construing the third schedule and, indeed, the lease as a whole, this is the true construction of paragraph 1(e) of the third schedule and proviso (1)." (judgment, paragraph 9).
i) There were obligations on the tenant relevant to the rent review provisions in the body of the lease where the tenant's covenants are contained. Thus clause 3(31) imposes a covenant on the tenant to provide the lessor with information for the purpose of ascertaining the amounts due under the third schedule. This supports the view that proviso (1) does not create an obligation on the tenant. Schedule 3 constitutes a discrete part of the lease where the definitions and formulae to be deployed for the purpose of reviewing the rent are to be found.
ii) The words "provided that" normally indicate a limitation on the preceding provision rather than introduce an obligation. Thus proviso (2) of paragraph (1)(e) of schedule 3 contains a qualification on the definition of NBR.
iii) While the word "shall" would normally indicate an obligation, it does not necessarily do so. In this connection, the judge referred to re Courage Group's Pension Schemes [1987] 1 WLR 495 at 503-4 and Melanesian Mission Trust Board v Australia Mutual Provident Society [1994] 76 P&CR 297 at 303-4.
iv) Proviso (1) was not a covenant, condition or provision for the purposes of clauses 4, 5 or 6 of the Lease.
v) The defendant's interpretation made commercial sense since there would seem to be no reason why parties should wish to impose on the tenant a separate liability to pay damages for breach of covenant. The damages would only be the diminution in the amount of the rent attributable to the breach of the proviso. Clearer words would be necessary if the effect were only to give a cause of action in damages rather than lead to the adjustment of the figure for receipts to be taken into account in calculating NBR.
"7. If any dispute or question whatsoever shall arise between the parties hereto with respect to the amount of the Notional Rental Value or with respect to the construction or effect of this Schedule then the amount of the Notional Rental Value or other matter in difference shall be determined by a single Arbitrator to be agreed between the parties or failing such agreement to be nominated by the President for the time being of the Royal Institution of Chartered Surveyors on the application of either party and such reference shall be deemed to be a submission to arbitration within the Arbitration Act 1950 or any statutory modification or re-enactment thereof for the time being in force."
Conclusions
The scheme of the third schedule
"2. The Final Rent shall be reviewed on the First Review Date and on every further successive Review Date.
3. If on any Review Date it shall be found that the Notional Rental Value exceeds the Final Rent at that time payable hereunder there shall be substituted for the Final Rent at that time payable hereunder an increased yearly rent equal to the Notional Rental Value then ascertained."
"6. For the purpose of this Schedule the expression 'Notional Rental Value' shall be ascertained as at every further successive Review Date in accordance with the following formula:-
Notional Rental Value = Y/X x R where
R is the Final Rent payable until the Review Date at which the review falls to be made
X is the Net Bedroom Revenue during the year ending with the last preceding Review Date
Y is the Net Bedroom Revenue during the year ending with the Review Date at which the review falls to be made."
The features of the definition of NBR
The lease read as a whole
"It may well be that there are other tenants' covenants in the lease, some of which I have identified, the breadth of which is capable of having an impact on a rent review, and which will give rise to a claim in damages to the extent that such impact is not made good by the application of the principle that a tenant cannot profit on a rent review by relying on its own wrong. However, this is not a matter which of itself is capable of overriding that which does, in my view, represent a true construction of paragraph 1(e) and proviso (1)"
Disposition
Lord Justice Chadwick:
"If any dispute or question whatsoever shall arise between the parties hereto with respect to the amount of the Notional Rental Value . . . then the amount of the Notional Rental Value . . . shall be determined by a single Arbitrator . . . and such reference shall be deemed to be a submission to arbitration within the Arbitration Act 1950 . . ."
"'Net Bedroom Revenue' means the gross amount (hereinafter called 'the gross amount') received in respect of charges for bedroom accommodation at the hotel forming part of the Premises but excluding therefrom sums received by way of
(a) payment of or in lieu of gratuities to staff
(b) charges for use of bedrooms for purposes other than for sleeping accommodation and
(c) payment for services ancillary to the provision of sleeping accommodation including but not limited to the provision of refreshments in bedrooms
and deducting from the gross amount all sums payable in the normal course of trade to third parties by way of commission
PROVIDED ALWAYS that
(1) the Tenant shall at all times use its best endeavours to obtain the maximum revenue from the use of bedrooms as sleeping accommodation and shall not take bedrooms out of service except in accordance with the normal practice of the hotel industry and
(2) if after the date hereof there shall be imposed a tax or levy . . . on the occupation of hotel rooms . . . then the amount of such tax or levy shall be deducted from the gross amount . . . To The Intent that so far as practicable having regard to changing circumstances the same exclusions and deductions shall be made from the gross amount in each year that is relevant for the purpose of calculating the Notional Rental Value"
". . . the prescribed definition of Net Bedroom Revenue, which includes the proviso, has the effect that the gross amount will be the amount actually received unless – or subject to the proviso that – the circumstances are such that the tenant shall not have complied with proviso (1) in which case the gross amount is to be such an amount as would then have been received, in each case deducting from the gross amount "'all sums payable in the normal course of trade to third parties by way of commission'."
The judge emphasised that he did not find it necessary to imply a term to that effect. Rather, the qualification to which he held the definition of Net Bedroom Revenue subject – "[where] the circumstances are such that the tenant shall not have complied with proviso (1) . . . the gross amount is to be such an amount as would then have been received" – could be found in the words which the parties to the lease had used to express their intention.
Lord Justice Auld:
"…. The aggregate of the Initial Rent and the Supplemental Rents (subject to increase in accordance with the provisions contained in the Third Schedule hereto)."
Also defined in clause 1, at para. (viii), are the various terms, the subject of close analysis by Arden and Chadwick LJJ, governing the rent revision machinery provided by clause 2, the habendum, again by reference to the third schedule:
"'the First Review Date' 'every further successive Review Date' 'Notional Rental Value' and 'Net Bedroom Revenue' shall have the meanings respectively assigned to them in the Third Schedule hereto."
.
. "[t]o provide the Lessor with all information reasonably necessary for the purpose of enabling the ascertainment or verification of the amounts due or payable under the provisions of the Third Schedule hereto and in particular for the purpose aforesaid (but without prejudice to the generality of this covenant) to permit any person duly authorised in that behalf by the Lessor to inspect and take copies of the books accounts vouchers records and other documents and papers of the Tenant and afford such explanation thereof as that person or the Lessor may reasonably require."
"If any dispute or question whatsoever shall arise between the parties hereto with respect to the amount of the Notional Rental Value or with respect to the construction or effect of this Schedule then the amount of the Notional Rental Value or other matter in difference shall be determined by a a single Arbitrator …"