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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> KPMG Llp v Network Rail Infrastructure Ltd [2006] EWHC 67 (Ch) (31 January 2006) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2006/67.html Cite as: [2006] EWHC 67 (Ch) |
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CHANCERY DIVISION
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
KPMG LLP |
Claimant |
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- and - |
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Network Rail Infrastructure Ltd |
Defendant |
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Michael Driscoll QC and Tom Leech (instructed by Thomas Eggar) for the defendant
Hearing dates: 29th & 30th November, 2nd, 5th, 6th, 7th and 8th December 2005
____________________
Crown Copyright ©
Mr Justice Blackburne:
Introduction
"… but with such modifications only as shall be agreed in writing by the parties hereto (a) in respect of any matter or thing they consider necessary following the completion of the Building to protect their mutual rights and interests hereunder or (b) relating to any further requirement of the [London Transport] Executive for the protection of their railway which extends beneath or adjoins the Site or some part thereof (c) relating to any further requirement of the City of London Corporation contained in [a] Lease of or relating to the said land and/or air space intended to be demised [to] King's College by the said Corporation or (d) provisions relating to the City walkways either as agreed by the Developers with or as required by the City of London Corporation…"
The Agreement for Lease went on to set out when the sub-underlease should be granted. Clause 15 contained an agreement that the Agreement for Lease should not merge in the sub-underlease on its grant to PMM "in respect of any terms and conditions herein contained which are not fully complied with and shall after completion of such grant continue to have full force and effect".
"PART II
(Provisions relating to the review of rent payable under this Sub-Underlease)
1. The rent reserved by this Sub-Underlease shall be subject to reviews upwards only as follows:
(1) The Landlords may give notice in writing not less than three months nor more than twelve months before the date of the expiration of the first year of the said term and of each successive period of five years thereafter (called "the date of review") throughout the said term requiring the rent payable from the date of review to be reviewed
(2) the review of the rent will be to the then current open market value of the demised premises for rental purposes as at the date of review and "the current open market value" means the best rent at which the demised premises might be expected to be let by a willing Landlord without a premium on the open market having regard to:
(a) the unexpired residue of the said term and on the basis that the demised premises are let to a single tenant
(b) all other provisions of this Sub-Underlease other than rent
(c) the current rental value of similar properties (if any) in the neighbourhood and assuming that vacant possession of the demised premises can be given
(d) the floor areas set out in Part I of this Schedule
In calculating the current open market value there shall be disregarded (if applicable) the matters set out in paragraphs (a) (b) (c) and (d) of Section 34(1) of the Landlord and Tenant Act 1954 as amended by the Law of Property Act 1969 and the effect on value of the partitioning and doors erected and installed by the Tenants and indicated by a red line on the relevant floor plans
(3) if the rent as reviewed (hereinafter called "the reviewed rent") exceeds the rent payable before the date of review the reviewed rent shall as from the date of review become the rent reserved by the Lease and all arrears of such rent shall become due and payable on the rent day immediately following the date when the reviewed rent is ascertained PROVIDED that the rent payable after the review shall not be less than that payable prior to the review
2. If the Landlords and the Tenants cannot agree within three months after the date of service of the review notice as to the amount of the reviewed rent the matter shall be referred to a single valuer who shall be a Fellow of the Royal Institution of Chartered Surveyors experienced in dealing with office buildings who shall be nominated (in default of agreement between the parties) on the application of either party by the President for the time being of the Royal Institution of Chartered Surveyors and such valuer shall act as an expert and not as an arbitrator whose decision shall be final and whose costs shall be payable as he may direct
3. If the Landlords shall fail to exercise their right to require the rent payable hereunder to be reviewed within the relevant period prescribed in paragraph 1(1) hereof or in the event that by the relevant date of review the Landlords and the Tenants shall not have reached agreement and the valuer (if appointed) shall not have given his decision provided for in paragraph 2 hereof then the Tenants shall continue to pay rent at-the rate of the rent payable before the relevant date of review on each day appointed by this Deed for payment of rent until agreement shall be reached or the said decision shall be made whichever shall first occur Within 14 days after such agreement shall have been reached or the said decision shall have been made (as the case may be) the Tenants shall pay to the Landlords as arrears of rent an amount equal to the difference between the new rent and the rent actually paid since the relevant review date together with interest thereon from the relevant review date until the date of payment thereof at the rate per annum from time to time of National Westminster Bank PLC base rate
4. In the event that during the said term the amount of the rent which would otherwise be payable to the Landlords under this sub-underlease shall be subject to statutory regulation or control for any continuous or non-continuous period or periods so that rent thereby permitted to be paid shall at any time be less than that reserved by this sub-underlease (whether revised in accordance with the provisions of this schedule or not) then the rent payable hereunder shall automatically increase to the maximum amount (howsoever such an amount may be lawfully ascertained) permissible for the time being under or by virtue of such statutory regulation or control and such increase or increases shall initially be collected on the quarter day next following the permitted date of commencement thereof and thereafter be payable as part of the rent hereby reserved in the manner and on the days herein specified for the payment of rent
5. If the Tenants shall be desirous of determining the said term hereby granted at any time after the expiration of the third thirteenth and twenty third years of the said term and of such desire shall give to the Landlords not less than six calendar months' notice in writing (such notice to expire on any quarter day and to be given within a period of six months following the determination of the reviewed rent to be payable from the expiration of the first eleventh and twenty-first years respectively of the said term and thereafter during the year immediately preceding the eleventh and twenty-first years respectively of the said term) then on the expiration of such notice as aforesaid the said term shall cease and determine but without prejudice to the rights and remedies of either party against the other in respect of any antecedent claim or breach of covenant"
The question of construction
"but in the event only that such reviewed rent exceeds the yearly rent payable during the twenty-second year of the said term"
"If the Tenants shall be desirous of determining the said term hereby granted at any time after the expiration of the twenty-fourth thirty-fourth and forty-fourth years of the said term and of such desire shall give to the Landlords six calendar months' notice in writing (such notice to expire on any quarter day and to be given within a period of six months following the determination of the reviewed rent to be payable from the expiration of the twenty-second thirty-second and forty-second years respectively of the said term but in the event only that such reviewed rent exceeds the yearly rent payable during the twenty-second year of the said term and thereafter during the year immediately preceding the thirty-second and forty-second years respectively of the said term) then on the expiration of such notice as aforesaid the said term shall cease and determine but without prejudice to the rights and remedies of either party as against the other in respect of any antecedent claim or breach of covenant."
"5. If the Tenants shall be desirous of determining the said term hereby granted at any time after the expiration of the third thirteenth and twenty third years of the said term and of such desire shall give to the Landlords not less than six calendar months' notice in writing (such notice to expire on any quarter day and to be given within a period of six months following the determination of the reviewed rent to be payable from the expiration of the first eleventh and twenty-first years respectively of the said term but in the event only that such reviewed rent exceeds the yearly rent payable during the first year of the said term and thereafter during the year immediately preceding the eleventh and twenty-first years respectively of the said term) then on the expiration of such notice as aforesaid the said term shall cease and determine but without prejudice to the rights and remedies of either party against the other in respect of any antecedent claim or breach of covenant"
Miss Williamson's submissions on construction
"81. ...Where it is common ground that one contract has been intended to supersede an earlier contract, it must follow that the parties' contract must be found exclusively in the later contract. Thus the earlier contract cannot be used to add to, or modify, the later contract.
82. But does it follow that the earlier contract cannot even be looked at for the purposes of construing the later contract?
83. In principle, it would seem to me that it is always admissible to look at a prior contract as part of the matrix or surrounding circumstances of a later contract. I do not see how the parol evidence rule can exclude prior contracts, as distinct from mere negotiations. The difficulty of course is that, where the later contract is intended to supersede the prior contract, it may in the generality of cases simply be useless to try to construe the later contract by reference to the earlier one. Ex hypothesi, the later contract replaces the earlier one and it is likely to be impossible to say that the parties have not wished to alter the terms of their earlier bargain. The earlier contract is unlikely therefore to be of much, if any, assistance. Where the later contract is identical, its construction can stand on its own feet, and in any event its construction should be undertaken primarily by reference to its own overall terms. Where the later contract differs from the earlier contract, prima facie the difference is a deliberate decision to depart from the earlier wording, which again provides no assistance. Therefore a cautious and sceptical approach to finding any assistance in the earlier contract seems to me to be a sound principle. What I doubt, however, is that such a principle can be elevated into a conclusive rule of law.
84. Where, however, it is not even common ground that the later contract is intended to supersede the earlier contract, I do not see how it can ever be permissible to exclude reference to the earlier contract. I do not see how the relationship of the two contracts can be decided without considering both of them. In essence there are, it seems to me, three possibilities. Either the later contract is intended to supersede the earlier, in which case the above principles apply. Or, the later contract is intended to live together with the earlier contract, to the extent that that is possible, but where that is not possible it may well be proper to regard the later contract as superseding the earlier. Or the later contract is intended to be incorporated into the earlier contract, in which case it is prima facie the second contract which may have to give way to the first in the event of inconsistency. I doubt that it is in any event possible to be dogmatic about these matters."
Mr Driscoll's submissions
"One does not ... readily or easily conclude that a mistake has been made. It is only when from the document itself, the surrounding circumstances, or the consequences of adopting a particular construction that it becomes apparent that something must have gone wrong that the court is entitled to abandon the dictionary and the grammar book and in effect to reconstruct or re-write the document."
"(2) Without prejudice to the generality of the provisions in this bill of lading, every exemption limitation, condition and liberty herein contained and every right exemption from liability, defence and immunity of whatsoever nature applicable to the carrier or to which the carrier is entitled hereunder shall also be available to and shall extend to protect every such servant or agent of the carrier [*] is or shall be deemed to be acting on behalf of and for the benefit of all persons who are or might be his servants or agents …" (asterisk added by Lord Bingham)
"21 It is plain that the printing of this clause leaves something to be desired."
Lord Bingham then gave an example and continued:
"It is also plain, and common ground, that there is some omission at the point where I have inserted the asterisk in square brackets."
He then referred to the way in which the judge at first instance and the Court of Appeal had approached the matter, namely by interpolating "(who)" in the gap in the wording. Lord Bingham continued:
"22. While acknowledging that there was no justification for inserting 'who' other than a need to correct an obvious grammatical solecism, Mr Milligan urged that, since it was not the function of the courts to make or rewrite the parties' contracts, the interpolation to be made should be the least intrusive reasonably possible to make sense of the clause. Mr Gee contended (a) that it was clear what words had been omitted, and (b) that the omission was explained by the phenomenon, technically known as homoeoteleuton … As to (a), Mr Gee contended that the missing words were 'acting as aforesaid and for the purpose of all the foregoing provisions of this clause the carrier…' These are the words to be found in the Conline bill of lading form, on which clause 5 as quoted above has been closely modelled, although with some additions, deletions and changes of language. It is a form of bill in very wide use, and was the subject of judicial consideration in … [various cases are referred to]. After the square brackets the clause again picks up the language of the Conline bill. As to (b), Mr Gee submitted that the transcriber's eye had wandered from "carrier" immediately before the square brackets to the same word at the end of the suggested interpolation.
23. I take it to be clear in principle that the court should not interpret words into a written instrument, of whatever nature, unless it is clear both that words have been omitted and what those relevant words were … In the present case there is agreed to be an omission. It is also plain, in my opinion for the reasons which Mr Gee gave, what words were omitted and how they came to be omitted. I would accordingly construe the clause 'acting as aforesaid and for the purpose of all the foregoing provisions of this clause the carrier' appeared in place of the square brackets I have inserted."
"192 … the clause does not make grammatical sense as it stands, and it is obvious that words have been omitted. The court must, therefore, supply the omission by implying at least the minimum necessary for the clause to make grammatical sense. This is what all the judges below did. But the authorities show that in a proper case the court will go further. Where it can see, not only that words have been omitted, but what those words are, then it is its duty to supply them. It is not necessary that the court should be certain precisely what words have been omitted; it is sufficient that it knows their gist. The process is one of construction, not rectification; this is evident from the fact that Court of Chancery not infrequently supplied omissions in wills at a time when it had no jurisdiction to rectify them. …
194. It is obvious that the clause is not an original work of legal draftmanship but is taken from a precedent. Several versions of the clause are in circulation, and it is impossible to identify the particular precedent from which the defective clause in the present case was taken. But they all employ the same mechanism of agency to give legal efficacy to the clause; they all do so by identical or nearly identical words; and they all incorporate the mechanism at precisely that part of the present clause where words have been omitted. In my opinion this is a clear case where the court can and should supply the missing words."
Conclusions on construction
Rectification
"The standard of proof required in an action of rectification to establish the common intention of the parties is, in my view, the civil standard of balance of probability. But as the alleged common intention ex hypothesi contradicts the written instrument, convincing proof is required in order to counteract the cogent evidence of the parties' intention displayed by the instrument itself. It is not, I think, the standard of proof which is high, so differing from the normal civil standard, but the evidential requirement needed to counteract the inherent probability that the written instrument truly represents the parties' intention because it is a document signed by the parties.
The standard of proof is no different in a case of so-called unilateral mistake …"
The documentary evidence
"Here we have a substantial difference of opinion as to the intent which could cause a considerable discussion. We on our side were under the impression that the lessee required his term to have a break clause half-way in order that he could if necessary opt out of the remainder of the term. On the other hand the lessee understands that the break was to become operative as from the half-way mark and could be put into effect at any one of the subsequent review dates.
There is some room for doubt as to what was intended in the draft Heads of agreement which were prepared initially although looking further back it does seem that one of the letters from Jones Lang Wootton fairly clearly sets out their point of view. On the other hand it is our opinion that if such a clause is allowed to go through, it could seriously affect the value of the property from a value point of view… Our point is of course that if the lessee is prepared to take a view for 21 years now he should be prepared to do the same at the end of that term and not leave us with the situation that we have to go through the same agony every five years. Frankly, we do not think that this is acceptable."
"I was frankly amazed to see two alterations to the previous draft which are as follows: … clause 5(2) - Determination of Lease - where it is suggested that the tenant's right to break should operate at the 24th year only, and not subsequently. Both these points are quite contrary to what was agreed at the meeting at my Client's offices on 22nd March, the main points of which were set out in the draft Heads of agreement forwarded … by me on 5th April."
By a further letter dated 9 August 1972 JLW wrote to Savills stating that:
"There can be no question of renegotiating matters of principle which were agreed months ago …"
"… that there may have been some misunderstanding on our side. You for your part are quite clear in your own mind as to the proposal but we certainly had not interpreted it in the same terms. However, I think that again you must agree that it would be quite irresponsible for us to suggest to our Clients that it would be right for them to accept the situation where their investment could be disrupted at the whim of the tenant every 5 years without any certainty that it might happen at all. Indeed were one to attempt to finance a development on such a basis it is clear what the answer would be. On the other hand your Clients are taking a view about this property at the present time for a period of 21 years and I can see no reason why they should not do exactly the same when they come to the end of that period. Indeed it was originally intended that your Clients should be granted a lease of 42 years or more without break in order to protect the flexibility which they would have available to them by reason of a lease of the whole of the development."
"Our Clients and their Agents do feel strongly that this reflects what was agreed at the preliminary meeting but this again is being discussed between the respective Agents at the moment."
"… We have now heard … that the matter is to proceed and accordingly we enclose a copy of the draft Deed of Agreement in the form we have now submitted to Messrs Simmons & Simmons … The determination clause 5(2) has been altered to provide that you are only entitled to determine the Lease on the expiry of the 24th, 34th and the 44th years in the circumstances set out."
"PMM shall be entitled to determine the Lease at the expiry of the twenty-fourth, thirty-fourth and forty-fourth years of the term by notice in writing to the Landlord given at any time within the period of six months following the determination of the new annual rent to be payable as from the expiration of the twenty-second, thirty-second and forty-second years of the term in the event that such new rent exceeds the annual rent payable during the twenty-second year of the term and thereafter during the year immediately preceding the thirty-second and forty-second years of the term."
"The basic draft is that which was the up-dated version of the draft attached to the original Agreement. Subsequently, I agreed with David Roberts various amendments in order to clarify one or two points and further to up-date the form of the draft."
"so as not to tempt providence I will not send a copy of this revised draft to David Roberts until I submit it to Stephenson Harwood".
"Peats always understood that there would be some delay but it is now getting on for four years since practical completion."
"You will appreciate that the draft has been updated, and completed, in many places although none of the variations are of any substance."
"We have compared the new draft with the draft attached to the Agreement [for Lease] in detail and all of the variations are marked on the enclosed draft."
If the "enclosed draft" was the same as the marked-up draft in evidence it is plain that not all the variations had been noted.
"The alterations that have been made are, I think, the most serious alterations to the original deal and I think are quite unacceptable and do not fall within the scope of any amendments that it was always understood would be required. It was never envisaged that the basic commercial terms would be altered …"
"The original draft provided that you only had the right to determine if there was an increase of rent. This now seems to have been dropped, which would appear to be in your favour."
"I would suggest when you have had a chance of considering the amendments, we have a meeting to agree what can be accepted and also those points upon which we shall have to go back to Simmons & Simmons."
"I have now been through the draft and compared it with the form of Underlease attached to the Agreement. I have reported to Peats in full and do not wish to comment until I have instructions except to say that while I can see that many of the amendments reflect the incorporation of the plans and the arrangements that have been made in particular with the LTE and the City Corporation, there do seem to be some amendments of substance which I would have thought my Clients would find it difficult to accept."
He then gave an example and continued:
"It was never the intention that the fundamental financial terms should be re-negotiated."
"Let me say immediately that it is not my clients intention to attempt to re-negotiate terms which were agreed some years ago and I would not like to think that either you or your clients have gained the impression that this was in our minds when revising the draft documents. Where changes have been proposed they have arisen out of lengthy discussions and are merely an attempt to rationalise and perhaps improve on some of the drafting."
The reference to "lengthy discussions" was to discussions between King's College and BRB. I consider (in agreement with Miss Williamson) that this response was somewhat disingenuous: BRB/King's College, through Mr Butler, were plainly hoping to secure changes of substance to the lease terms.
"I think we probably anticipated that some comments would be made about one or two of the more fundamental alterations and we shall just have to see how far Peats want to take them."
This comment makes abundantly clear that, in some respects at least, the amendments which, through Mr Butler, BRB/King's College had put forward were significant in nature and went beyond what was envisaged by clause 10 of the Agreement for Lease.
"As soon as we have had a chance of digesting the enclosures we will come back to you."
"We understand our Clients are prepared to accept part of the additional wording that you have added but there was nothing about interest in the agreed draft and therefore we have deleted the words."
He made no comment on the only other amendment to the fifth schedule that his office had noted, namely the omission of the relevant words. His letter concluded by repeating PMM's anxiety "to make progress" and stated his willingness to attend a meeting if that was thought useful "to go through the various points".
"… the relevant pages of the draft sub-underlease which I have amended to convert it to a sub-underlease and reversionary sub-underlease – you will see that my amendments are made in manuscript in red ink on the top copy of each set of pages."
The oral evidence
(1) Donald Amlot
"In my mind, the amended clause 5 became part of the document and I concentrated on those clauses which were still not agreed."
"… I did not focus intently on this clause as there was no need to do so … I noticed the change. I saw that it worked in favour of Peat Marwick, rather than against them, but I did not find this strange in all the circumstances. I believe that the change was an intentional part of the revision of the draft sub-underlease …"
"Rightly or wrongly I thought that it worked in exactly the same way as it had worked before except the requirement that the rent had to be increased."
(2) Terence Webber
(3) Christopher Peacock
(1) Patrick Scutt
"A free-standing break (which is what I understand the tenant to be contending for in these proceedings) was not agreed by BRB at the outset and nothing changed on that while I was involved or, so far as I am aware, at all. Even a proposal that the break should continue to be conditional on an immediately preceding rent review being initiated, but not requiring an increase in rent in consequence of that review would to me have represented a significant change to the commercial basis of the sub-underlease. BRB had only been willing to accept a break (and thus the prospect of remarketing the building) if it was demonstrated that the passing rent was lower than the rent in the market. A finding on review of nil increase would expose BRB to the risk of a reduction in rent on top of the other costs of a marketing rental void and initial rent free period or other concession to a new tenant.
Had any such proposal been made, this would undoubtedly have featured in the minutes of the progress meetings I was attending. I have seen copies of the minutes recovered from Simmons & Simmons' files from 1973 to 1980. There is no such reference. Further, a variation of fundamental commercial terms of the underlease would have required BRPB's sanction which was, to the best of my recollection, neither sought nor given …"
(2) Alan Butler
A… I do not think disingenuous would be the right description, no. I think in the first case it was just casual and probably lazy, I just thought "well, we have agreed it with British Rail, let us get it off to Amlot and see what he thinks of it" I suspect. I do no think that is disingenuous. I do not think that letter [of 25 March 1980] is disingenuous either. Because, as I have already said, what I mean by "it is not my client's intention to renegotiate the terms" is exactly that. We were not seeking to renegotiate the deal that had been struck between the parties."
He was not willing to accept that any of the proposed amendments were of substance. I cannot help thinking that if he had identified the changes that had been made to the annexed sub-underlease this dispute would probably never have arisen. I accept, nevertheless, that there was no question of bad faith on his part in failing to do so.
Rectification: the submissions
(1) Mutual Mistake
i) that the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified;
ii) that there was an outward expression of accord;
iii) that the intention continued at the time of the execution of the instrument sought to be rectified; and
iv) that by mistake the instrument did not reflect that common intention.
See Swainland Builders Ltd v Freehold Properties Ltd [2002] 2 EGLR 71 at paragraph 33 (Peter Gibson LJ).
(2) Unilateral mistake
Conclusions on rectification
Discretion
"Two circumstances, always important in such cases, are the length of the delay and the nature of the acts done during the interval, which might affect either party and cause a balance of justice or injustice in taking one course or the other, so far as relates to the remedy."