![]() |
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback] [DONATE] | |||||||||
England and Wales High Court (Chancery Division) Decisions |
||||||||||
PLEASE SUPPORT BAILII & FREE ACCESS TO LAW
To maintain its current level of service, BAILII urgently needs the support of its users.
Since you use the site, please consider making a donation to celebrate BAILII's 25 years of providing free access to law. No contribution is too small. If every visitor this month gives just £5, it will have a significant impact on BAILII's ability to continue providing this vital service.
Thank you for your support! | ||||||||||
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Hildron Finance Ltd v Sunley Holdings Ltd [2010] EWHC 1681 (Ch) (06 July 2010) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2010/1681.html Cite as: [2010] 28 EG 85, [2010] 40 EG 104, [2010] EWHC 1681 (Ch) |
[New search] [View without highlighting] [Printable RTF version] [Help]
CHANCERY DIVISION
On Appeal from The Central London County Court
Strand, London, WC2A 2LL |
||
B e f o r e :
____________________
HILDRON FINANCE LIMITED |
Part 20 Claimant/ Respondent |
|
- and - |
||
SUNLEY HOLDINGS LIMITED |
Part 20 Defendant/ Appellant |
____________________
Mr Stuart Hornett (instructed by Charles Russell LLP) for the Respondent
Hearing date: 26 May 2010
____________________
Crown Copyright ©
Mr Justice Henderson:
Introduction
"In our view the value put on the flat by [Hildron] is over-optimistic. The sale of the flat or its reduction into possession so as to let it would create other problems in relation to the provision of portering services. It is unlikely that any purchaser would regard the flat as a stand alone investment for which he would be prepared to pay the full open market price as if it were a one-off retail sale. In addition, were the flat retained as a porter's flat, there would be a shortfall on the notional rent because of the terms of the old leases. As against that, the figures proposed by Mr Maunder-Taylor [the expert witness for the nominee purchaser] seem to us to be too low. Even allowing for the "bulk discount" point and the difficulty created by the terms of the old leases as to recovering the notional rent, we take the view that a purchaser would attribute a greater value than £150,000 to the flat. In our judgment the appropriate figures is one of £200,000. If we are wrong in concluding that the sale of the porter's flat is not prohibited, our opinion as to the value which a purchaser would attribute to the right to receive a notional rent under the more recent leases – amounting, we understand, to some two-thirds of the total – would be £100,000."
The Porter's Flat Agreement
(1) that by a transfer of even date Greenhill had been transferred by Sunley to Hildron on the terms therein mentioned;
(2) that Greenhill comprised a block of some 137 flats with six purpose built garages and ancillary grounds for the enjoyment and benefit of the flat occupiers;
(3) that all of the flats (with the exception of flat 9) were then subject to long term leases reserving ground rent and service charge;
(4) that the leases each provided for the landlord at its discretion to employ a porter and other employees for the purpose of performing the landlord's covenants, and to make accommodation available for the porter or other employee either in the block or elsewhere;
(5) that flat 9 was currently occupied by the resident porter employed by the freeholder in accordance with the terms of the leases; and
(6) that in respect of future dealings with flat 9 the parties had agreed to enter into the deed.
"1. HILDRON for itself and its successors in title as aforesaid HEREBY COVENANTS with Sunley for a period of 21 years from the date hereof that
(a) if flat No. 9 is no longer required as accommodation for a porter or other employee of the landlord under the provisions of the said leases it will forthwith sell on the open market and with vacant possession a new lease of flat No. 9 in the form and to the effect of the standard form of block lease (a specimen copy of which is annexed hereto) at a price equal to the highest market price reasonably negotiable such price to be first approved in writing by Sunley (such approval not to be unreasonably withheld)
(b) it shall not grant a lease or tenancy of or otherwise dispose of any interest in flat No. 9 except in accordance with the provisions of this Deed
(c) until such time as a new lease is sold in accordance with the provisions of this Deed Hildron shall not use nor permit or suffer flat No. 9 to be used otherwise than as accommodation for a porter or other employee of the landlord under the provisions of the said leases
(d) on the grant of the new lease as hereinbefore provided Hildron will pay to Sunley a sum equal to 50% of the net sale proceeds (the net sale proceeds being the gross price achieved for such new lease as approved by Sunley under Clause 1(a) of this Deed less the sum of £10,500.00 together with Hildron's reasonable legal costs and surveyors fees in connection with the negotiation and grant of such new lease in so far as such costs and fees are not made the responsibility of the purchaser).
2. HILDRON HEREBY FURTHER COVENANTS with Sunley that it will forthwith in conjunction with its application to HM Land Registry to register the transfer hereinbefore recited lodge this Deed at HM Land Registry so that its contents may be noted in the register of title number 461978 and will make an application in Form 75 to register a restriction against title number 461978 in respect of this Deed.
3. HILDRON HEREBY FURTHER COVENANTS with Sunley that during the term specified in Clause 1 hereof it will not dispose of its interest in the said property known as Greenhill aforesaid unless simultaneously with such disposal the person persons or body acquiring such interest shall have entered into a Deed with Sunley in the terms (mutatis mutandis) of this Deed."
The judgment of the Recorder
"26. However, Hildron has a much more formidable argument. Thus, it contends that once the s.13 notice was served (on 8 November 2004) compliance with Clause 1 of the Porter's Flat Agreement became impossible, for these reasons:
(1) first, s.19(1)(a) of the 1993 Act prohibited Hildron from granting a long lease and would have rendered any transaction purporting to sell Flat 9 void; and
(2) secondly, it would have been legally and/or practically impossible to sell a lease of the flat after a unilateral notice protecting the s.13 notice was registered by the residents on 12 November 2004. Hildron, therefore, contends that the effect in law was to discharge the covenant, on the ground that performance, albeit arising after the contract was entered into, would have been illegal …
27. Sunley did not contend that there was any breach by Hildron of Clause 3 of the Porter's Flat Agreement (not to sell the Property without requiring purchaser to enter into the same covenants); it concedes that, when the transfer of the property finally took place in early 2009, the Porter's Flat Agreement had expired by effluxion of time, on 24 March 2007, with the result that any possible obligation had lapsed; and it acknowledges that even if this agreement had not expired, Hildron would still have been prima facie relieved from all liability, as assignments made in compliance with statutory requirements cannot result in breaches of covenant …
28. However, Sunley argued further that, as a matter of construction and so as to give effect to the overage agreement, Clause 1 of the Porter's Flat Agreement should be construed as requiring Hildron "to perform the substance of its obligations" by paying 50% of what it received for the flat (less deductions), as leasehold enfranchisement (whether under the 1993 Act or otherwise) was not even on the horizon when this agreement was entered into, in March 1986.
29. The situation, as it appears to me, is clear. The application of the so-called Slipper principle does not arise, as the Porter's Flat Agreement had already expired when the freehold was finally transferred to Greenhill [i.e. the nominee purchaser] and, as I see it, there is insufficient evidence to support the contention that Flat 9 was "no longer … required" for a porter during the 21 year life of the covenant. If I am wrong, Slipper is determinative of the position and there is no conceptual basis, as I see it, upon which the application of this principle can be avoided. Mr van Tonder expressly disavowed any reliance upon the existence of an independent implied term supporting the manner in which this covenant should be construed, and rightly so.
30. Mr Hornett's contention, simply put, was that Mr van Tonder was effectively inviting the Court to re-write Clause 1 of the Porter's Flat Agreement in a manner which was wholly different to anything the parties can reasonably have contemplated and that such a step would do extreme violence to elementary principles of contract law. I agree."
(1) Sunley's primary argument on the appeal
"The difficulty with that approach is that it is commonplace that problems of construction, in relation to commercial contracts, do arise where the circumstances which actually exist at the time when the contract falls to be construed are not circumstances which the parties foresaw at the time when they made the agreement. If the parties have foreseen the circumstances which actually arise, they will normally, if properly advised, have included some provision which caters for them. What that provision may be will be a matter of negotiation in the light of an appreciation of the circumstances for which provision has to be made.
It is not, to my mind, an appropriate approach to construction to hold that, where the parties contemplated event "A", and they did not contemplate event "B", their agreement must be taken as applying only in event "A" and cannot apply in event "B". The task of the court is to decide, in the light of the agreement that the parties made, what they must be taken to have intended in relation to the event, event "B", which they did not contemplate. That is, of course, an artificial exercise, because it requires there to be attributed to the parties an intention which they did not have (as a matter of fact) because they did not appreciate the problem which needed to be addressed. But it is an exercise which the courts have been willing to undertake for as long as commercial contracts have come before them for construction. It is an exercise which requires the court to look at the whole agreement which the parties made, the words which they used and the circumstances in which they used them, and to ask what should reasonable parties be taken to have intended by the use of those words in that agreement, made in those circumstances, in relation to this event which they did not in fact foresee."
"29. In the present case, as in most cases on the interpretation of contracts which reach this court, the words fall short of the facts. It may be axiomatic that we are to deduce the parties' intentions from the words they have used, but the intention itself is in most such cases a fiction. Occasionally, it is true, something which has been agreed on has just been poorly expressed and can be elucidated; but far more often the parties have simply and understandably not even thought about the event which has now caused a problem. No more than a legislature can they be expected to anticipate every eventuality; but when the unexpected happens, as it regularly does, they and the courts have only the now insufficient words on the page to fall back on.
30. What is the court then to do? It may not simply make the contract which it believes the parties would have made if they had thought about the issue. It must keep in focus those agreed purposes which are evident. It must give what effect it can to the words on the page. But since, ex hypothesi, the words on the page do not fit the facts, the court has to work creatively; and consistency requires it do so by adopting and observing principles – in lawyers' language, rules of construction …
31. …
32. "Construction" has two meanings, one derived from the verb to construe, the other from the verb to construct. It may be as well to admit that under the guise of the first, the courts in cases like this are doing the second. We mitigate the uncovenanted effect of literalism not by nakedly writing a new contract for the parties but by construing the words according to principles which enable the contract, in effect, to be reconstructed. It is a very reasonable stopping place on the road that runs between second-guessing parties who have simply contracted incautiously and leaving a party at the mercy of unconsidered words."
(i) the grant of a long lease;
(ii) the marketing of the lease;
(iii) the sale of the lease at a price to be approved by Sunley; and
(iv) the division of the proceeds of sale.
The overall purpose of these steps, he submits, was to allow the porter's flat to be realised at something approaching market value. Because of the service of the initial notice, the steps could no longer take place in literal compliance with the terms of the contract. In particular, because of section 19 of the 1993 Act, it was no longer possible to grant and sell a new long lease of the flat. Nevertheless, the freehold of the flat was sold through the statutory machinery of the 1993 Act, which uses the terms "vendor" and "purchaser" in connection with the process. The grant of a new lease was not of fundamental importance to the agreement, but was rather considered by the parties, in the circumstances prevailing in 1986, to be the appropriate way of unlocking the value contained in the flat. In the changed context of the collective enfranchisement process, the equivalent unlocking was achieved by obtaining the determination of the Lands Tribunal of the price to be paid for the freehold interest in the flat. Accordingly, the grant of the lease should not be treated as a critical part of the contractual process.
"… the value of the freeholder's interest in the specified premises is the amount which … that interest might be expected to realise if sold on the open market by a willing seller … on the following assumptions …"
It is thus essentially equivalent to the open market sale envisaged by clause 1 of the Porter's Flat Agreement.
(a) the disposal of the flat as part of the enfranchisement process is not a sale on the open market, as required by clause 1(a);
(b) the disposal of the flat as part of a freehold disposal of the entire block is not an isolated sale of the flat on a long lease with vacant possession, as again required by clause 1(a);
(c) the valuation of the flat by the Lands Tribunal is not "a price equal to the highest market price reasonably obtainable" within the meaning of clause 1(a); and
(d) the valuation methodology is different.
(2) Other arguments
"The legislature by compelling him to part with his land to a railway company, whom he could not bind by any stipulation, as he could an assignee chosen by himself, has created a new kind of assign, such as was not in the contemplation of the parties when the contract was entered into. To hold the defendant responsible for the acts of such an assignee is to make an entirely new contract for the parties."
"There can be no doubt that a man may by an absolute contract bind himself to perform things which subsequently become impossible, or to pay damages for the non-performance, and this construction is to be put upon an unqualified undertaking, where the event which causes the impossibility was or might have been anticipated and guarded against in the contract, or where the impossibility arises from the act or default of the promissor.
But where the event is of such a character that it cannot reasonably be supposed to have been in the contemplation of the contracting parties when the contract was made, they will not be held bound by general words which, though large enough to include, were not used with reference to the possibility of the particular contingency which afterwards happens."
It is accepted by Sunley that the parties could not in 1986 have foreseen the way in which the 1993 Act would subsequently operate, and in my judgment it would plainly be unreasonable to construe clause 1(a) of the Porter's Flat Agreement as imposing an absolute liability on Hildron even where performance became impossible. The right solution, therefore, is to treat the contract as discharged by frustration without fault on either side.
Conclusion