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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> J N Hipwell & Son v Szurek  EWCA Civ 674 (28 March 2018)
Cite as:  EWCA Civ 674
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ON APPEAL FROM THE NORTHAMPTON COUNTY COURT
7 Rolls Building, Fetter Lane, London, EC4A 1NL
B e f o r e :
MR JUSTICE HILDYARD
| J N HIPWELL & SON
|- and -
|MRS CLARE SZUREK
Stephen Taylor (instructed by Tollers LLP) for the Respondent
Hearing date: 12th October 2017
Crown Copyright ©
Mr Justice Hildyard:
Nature and ambit of the appeal
(1) A clause (the "Entire Agreement clause") stating that the Lease "constitutes the entire agreement and understanding of the parties relating to the transaction contemplated by the grant of this Lease and supersedes any previous agreement between the parties relating to the transaction"; and
(2) An express acknowledgment on the part of the Respondent (the "Non-Reliance clause") that in entering into the Lease it is "not relying on, and shall have no remedy in respect of, any statement or representation made by or on behalf of the [Appellant]".
(Juridically different, but complementary, I shall for convenience refer to the Entire Agreement clause and the Non-Reliance clause together as the "Entire Agreement Provisions" unless expressly stated otherwise.)
Factual background and principal findings
"1. From 2008, until the events which gave rise to this action in the spring of 2013, the Claimant rented from the Defendant premises which she ran as a café trading under the style Mocha-Mamas. The target clientele for this business was new or expectant parents. The premises were situated at the Glendon Lodge Farm Complex, Glendon, Kettering, Northamptonshire. Initially the Claimant rented a building known as the Hayloft within the complex, then in 2011 she moved to The Dryer a larger building in the same complex. The parties entered into a written lease dated 15th March 2012 which provided for a three year term running from January 2012.
2. In March and then April 2013, the Claimant experienced problems at the premises, as a result, she alleges, of unsafe electrical wiring. Those problems, including a small fire and an sparking plug socket caused her to close the business. In these proceedings, she seeks to recover the losses incurred in the closure of her business.
3. The Claimant's pleaded case is that she entered into the lease relying on representations made by the Defendant as to the rewiring of The Dryer: that it had been inspected, had passed an inspection and was safe. It is asserted that these representations were false or negligent and that she was entitled to rescind the lease. Alternatively it is alleged that there was an implied term within the lease to the effect that the Defendant was to be responsible for maintenance and/or repair of electrical installations and/or there was an implied warranty within the lease that the electrical installation was, at the date of the lease safe. As a result of the problems which occurred, it is alleged that the Defendant was in repudiatory breach of the lease and the Claimant was entitled to accept that repudiation.
4. In the defence it has been asserted that there was no fire and that if there was, it was the fault of the Claimant or one of her employees. It has also been pleaded that the representations relied on by the Claimant were never made and that the Claimant's decision to cease trading was unreasonable and disproportionate. The Defendant also relies on an entire agreement clause in the lease. In addition the Claimant is put to proof that the electrical wiring was unsafe.
5. There is a counterclaim for unpaid rent for the period 14th March to 24th July 2013 (the operative date for a break clause in the lease) and a claim for the Claimant's use of electricity."
(1) Before the Respondent signed the Lease, the Appellant did represent to her that the electrical wiring had been completed and certificated (see paragraph 15 of the Judgment).
(2) The Lease "did not suit either of the parties' requirements" (paragraph 25), did not "adequately reflect the understanding and expectation of either party" so that the Entire Agreement clause "is manifestly incorrect" (paragraph 27).
(3) The parties' true shared expectations, demonstrated by their discussions and actions, were that the Appellant landlord "was considered to bear responsibility for keeping in repair the structure and exterior of the premises and installations for the provision of e.g. water and electricity" (paragraph 25) and that it had "accepted responsibility for the safety of the installation of electrical wiring, its inspection and certification" (paragraph 32, and also paragraph 28). The expert evidence was that "the person responsible for the premises is required to keep a copy [Electrical Safety Certificate] as proof and future reference" (paragraph 14).
(4) On 23 March 2013 there was a fire in the distributor board at the Premises, which caused fire damage to the circuit-breaker: according to the Judge "It was, mercifully, a minor fire, but nevertheless a significant one given its location" (paragraph 19).
(5) After this fire, the parties exchanged correspondence with regard to the provision of Fire Certificates (paragraph 22). The evidence of the Respondent (which the Judge appears to have accepted in paragraph 22) was that she requested, and the Appellant promised to provide to her, copies of the electrical certificate for the installation and the faulty socket so that she could claim loss of one day's business (in consequence of the fire) under an insurance policy.
(6) By 19 April 2013, the Appellant had not provided the certificates: paragraph 22.
(7) On that date, there was another electrical incident, this time from a "sparking" electrical socket, which was subsequently diagnosed as having been caused by "arcing at this point of supply" (paragraph 17).
(8) The Appellant then, on 24 April 2013, at last did arrange and secure the electrical inspection and certification of the Premises; but by then the Respondent had already given notice (paragraph 22).
(9) The electrician, a Mr Green, who undertook that inspection on behalf of the Appellant, subsequently provided a report on 29 April 2013 (paragraph 9).
(10) Thereafter, on 9 May 2013, the Appellant informed the Respondent by email that there was no reason for her to close her Premises, and that on inspection the electrician had "found no issue" with the installation (paragraph 24).
(11) In fact (though this was not at the time disclosed to the Respondent), the Appellant's electrician, Mr Green, had reported that at the time of his inspection there were problems with regard to electrical safety, and his report concluded that the electrical installation was "unsatisfactory", that one item was dangerous with risk of injury, and four others were potentially dangerous in respect of which further "urgent remedial action was required" (paragraph 24).
(12) As it was, to inform the Respondent that there was no reason for her to close her Premises and that the electrician had "found no issue" with the installation must have reinforced the Respondent's view that the Appellant was denying there had been any electrical faults and any obligation to put them right (paragraph 24).
(13) Given the nature of the Respondent's use of the Premises, safety was particularly important (paragraph 33). In all the circumstances, she decided that she could no longer be confident about the safety of the Premises, particularly from the risk of electrical fire (paragraph 24). The Respondent's conclusion that she could no longer continue her business at the Premises "is unsurprising" (paragraph 24).
(14) The Judge found that "after the fire occurred, in an important part of the electrical installation, found to be unsafe by Mr Green, the [Appellant] was in breach of the implied terms of the agreement between the [Appellant] and the [Respondent]"; and alternatively, that "the [Respondent] relied on the representations that the electrical wiring was safe, had been inspected and certificated, when she signed the lease".
(15) The Judge concluded that "after the experience of the fire, which followed previous minor electrical problems and which was followed by the sparking of the plug some three weeks later, combined with the failure of the [Appellant] to offer inspection or certification of the premises, I find that the [Appellant] was in repudiatory breach of the lease and the [Respondent] was entitled to accept that breach and vacate the premises" (paragraph 33) and sue for business loss.
"On the facts found by the Learned Judge, the Learned Judge ought also to have found that the pre-lease representations made by Mr Martin Hipwell (for the Appellant and to the effect that the wiring within the premises had been inspected, was safe, and had been or would be certificated) were representations made knowing them to be untrue (i.e. fraudulently)."
(1) When the Court is construing the provisions of a lease it should do so against the background facts known to the parties at the time of the grant: she relied on Baxter v Camden LBC  32 HLR 148 (and see paragraph 30 of the Judgment).
(2) When the lease is not on its face a complete bargain the Court may, in appropriate circumstances, imply terms: she relied on Liverpool City Council v Irwin  AC 239 (again see paragraph 30 of the Judgment).
(3) An entire agreement clause is but one piece of evidence to be weighed against other evidence; if a reasonable bystander would not consider the lease to be determinative of the parties' intentions, the Court is justified in looking at the overall intention of the parties to decide whether the entire agreement clause is effective to exclude liability or prevent the Respondent pursuing her claim: she relied on a statement in Fulton Motors Limited v Toyota (GB)  Eu LR 327 that there may be cases where "the parties could not have intended the form of agreement including the entire agreement clause to express the entire agreements between them" (and see paragraph 31 of the Judgment).
(4) A term should be implied to reflect the parties' discussions and actions and shared understanding that the landlord accepted responsibility for the safety of the installation of electrical wiring, its inspection and certification (see paragraph 32).
Grounds of Appeal
(1) Ground 2 asserts that the Judgment was infected by a serious procedural irregularity, in relying on an authority which had not been cited or mentioned in argument, namely, Fulton Motors [supra], as the basis for providing the answer to the Entire Agreement clause and thus a central point in the case.
(2) Grounds 3, 4 and 5 are all based on the contention that the Judge failed to consider, or properly to consider, the fact and consequences of the Respondent's breach of duty of disclosure in failing to disclose her business accounts. The Appellant submits that the success or otherwise of the Respondent's business was a "central issue in the case", both substantively (since it went to the question whether the Respondent was always looking for an excuse to get out of the Lease if her business was failing) and in relation to quantum (for obvious reasons). It also went to credibility. The Appellant contends that the Judge both: (a) failed to attach proper weight to the Respondent's breach when assessing her credibility (Ground 3); and (b) erred in law by approaching the Respondent's failure as being mitigated by the decision or failure of the Appellant to apply for specific disclosure after noticing the deficiency (Ground 4). Further, the decision of the Judge then to accept the Respondent's explanation for £20,000 losses when the Appellant's Counsel was unable properly to cross-examine her on the accounts was a serious procedural irregularity compounded by the fact that in consequence "the Respondent unfairly benefitted from her own breach" (Ground 5).
(3) Ground 6 is that the Judge failed to consider the Respondent's duty to mitigate, which (the Appellant submitted) required the Respondent to undertake remedial works herself and charge the costs back to the Appellant in order to avoid her (larger) business loss.
(1) The Respondent invited this Court to find that representations which induced the Respondent to enter into the Lease were fraudulent. Such a finding was and is sought because it is well established and not disputed that if an agreement is induced by fraud, an entire agreement clause within it will not derive the innocent party of its remedy of rescission. But, as is implicit, no such finding was made by the Judge, though the Respondent maintains that she:"was alert to the issue of fraud (see paragraph 3 of the Judgment and paragraph 12 of the Particulars of Claim) but did not conclude the issue one way or the other"and she adds that:"…if the Judge concluded that these representations were negligent or innocent (i.e. the [Respondent] failed to make out her allegation of fraud), that conclusion was wrong in law."
(2) The Respondent sought to uphold the decision on the further or alternative basis that the conclusions:"were similar to those which would have followed a claim for rectification of the Lease (so as to correct the erroneous omission [from its terms] of the Appellant's repairing obligations with regards to the building, and to have included within the Lease terms which properly reflected the parties' agreement)".This was (as I understand it) either elaborated in or coupled to an argument (which I shall quote in order to ensure its faithful record) that:"…the Judge was entitled to treat the Lease as if it contained implied terms to the effect that the Appellant was responsible for the installation, repair and certification of the electrical installation because, had the Respondent sought rectification of the Lease, that would have achieved the same outcome. An entire agreement clause is not an automatic bar to rectification – JJ Huber (Investments) Ltd v Private DIY Co Ltd  NPC 102."
(3) The Respondent, by amendment which was permitted by the Court de bene esse before the commencement of the appeal, latterly sought to revive an argument apparently abandoned or not pursued below to the effect that: (a) the provisions of clause 11.2 of the Lease, purporting to exclude liability for misrepresentations, were of no effect in accordance with section 3 of the Misrepresentation Act 1967; (b) the Appellant had in any event waived clause 22 of the Lease; and (c) there was a contract collateral to the Lease, under which the Appellant was obliged to provide the Respondent with an electrical installation which was safe.
Grounds 1 and 7: crux of this appeal
"The purpose of an entire agreement clause is to preclude a party to a written agreement from threshing through the undergrowth and finding in the course of negotiations some (chance) remark or statement (often long forgotten or difficult to recall or explain) on which to found a claim such as the present to the existence of a collateral warranty. The entire agreement clause obviates the occasion for any such search and the peril to the contracting parties posed by the need which may arise in its absence to conduct such a search. For such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere, and that accordingly any promises or assurances made in the course of negotiations (which in the absence of such a clause might have effect as a collateral warranty) shall have no contractual force, save insofar as they are reflected and given effect in that document. The operation of the clause is not to render evidence of the collateral warranty inadmissible in evidence…: It is to denude what would otherwise constitute a collateral warranty of legal effect."
"The entire agreement clause and the provision for two years' notice of termination were inconsistent with the terms of the letter and accordingly did not form part of the agreement."
I am not persuaded that Fulton Motors, which was plainly decided by reference to the special facts identified, offers any real assistance in the different circumstances of this case.
(1) The starting point is to determine whether there is any provision in the agreement in question (in that case also, a lease) which expressly covers the point: only if there is not can the implication of a term be appropriate, for the jurisdiction is to restore efficacy not improve that which, though not optimal, is workable (my phraseology). As Lord Neuberger put it, "it is only after the process of construing the express terms is complete that the issue of an implied term falls to be considered" (at ).
(2) The Court must take into account the possibility that the parties deliberately decided not to include the term sought to be implied: it is tempting but wrong to fashion and interpolate a term simply to reflect the merits of the situation as they appear when the issue arises: see  and the quotation from Lord Bingham MR's judgment in Philips Electronique Grand Public SA v British Sky Broadcasting Ltd  EMLR 472 at 481-2.
(3) The question whether a term is to be implied is to be judged at the date when the contract is made (see ).
(4) The test is necessity, not reasonableness; but "absolute necessity" may put the bar too high, and it may be more helpful to ask the question whether without the term the contract would lack commercial or practical coherence (see ).
(5) Although the process of construction and the process of implying terms both involve determining the scope and meaning of the contract (see Attorney-General of Belize v Belize Telecom Ltd  1 WLR 1988, and  in Marks & Spencer), the process of implication involves a rather different exercise from that of construction, and calls for strict restraint: see per Lord Bingham MR in the Philips case at page 481 and per Lord Neuberger in Marks & Spencer at .
(1) By clause 4.4 the tenant covenanted:"To keep the whole of the Premises and all fixtures and fittings in good tenantable repair and decorative order (damages by any insured risk excepted unless and to the extent that any act or omission of the Tenant renders the insurance money irrecoverable) and to yield up the same and all the Landlord's fixtures and fittings annexed thereto in good repair and decorative order to the Landlord on the termination of the Term howsoever determined."
(2) Whereas the landlord covenanted as regards the condition and maintenance of the property only:(a) By clause 5.2, "At all times to keep the premises and all additions thereto of which the Tenant has notified the landlord insured to the full cost of reinstatement under a policy complying with the terms of this clause."(b) By clause 5.4, "To maintain Accessways and Car Parking Areas (as hereinafter defined)."
"To permit the Landlord or any person authorised by him with workmen and others to enter the Premises at any reasonable time on no less than 48 hours notice (or without notice in an emergency) to repair, maintain, cleanse or renew the Premises or any adjoining or neighbouring property or any service media serving the same."
"Means any pipes wires sewers drains ducts cables conduits or other channels through which water sewerage gas electricity and other services are conveyed which now serve or may at any time hereafter serve the Premises."
"that the electrical installation which serves the Premises (including all wires, ducts, cables conduits or other channels through which electricity is conveyed) is safe and the subject of a current Electrical Safety Certificate".
Grounds 3 to 5
(1) It is too late now to establish an argument based on section 3 of the Misrepresentation Act 1967. That is not so much because such an argument was conclusively abandoned below: there is a dispute in that regard, and it may be that it was simply not pursued in the face of judicial questioning as it perhaps should have been. The operative reason is that because the argument was not pursued, there are no findings of fact by the Judge such as to enable this Court to determine whether the Entire Agreement Provisions, in excluding liability for misrepresentation, were unreasonable, so as to nullify their effect. The evidential basis was simply not established. There the matter must be left.
(2) The Respondent also sought to contend that the undisputed understandings between the parties established a collateral contract, independent but contemporaneous with the Lease, which was not excluded by the parol evidence rule nor nullified by the Entire Agreement Provisions. I record the argument but this too is a matter best left for another day.
(3) The Respondent's Counsel also sought to support the outcome of the case by analogy with what the result would have been had the Respondent successfully applied for rectification. He argued, relying on Craddock Bros Ltd v Hunt  Ch 136 at , that the collateral agreement between the parties justified rectification; and, relying on JJ Huber (Investments) Ltd v The Private DIY Company Ltd  NPC 102, that an entire agreement clause is not a bar to rectification. Suffice it to say that I did not find this argument easy to follow; quite simply, no claim for rectification was ever advanced.
(4) The Amended Respondent's Notice also asserted that the Appellant had in any event waived the Entire Agreement Provisions. In support of this argument, Counsel for the Respondent referred us to SAM Business Systems Limited v Hedley and Company (sued as a firm)  EWHC 2733 (TCC) as authority for the proposition that an entire agreement clause may be waived. We accept that, as far as it goes; but it is to be noted that in the case cited, there was no non-reliance clause such as there is in this case. As to the factual basis for the waiver alleged, Counsel for the Respondent relied, in summary, on: (a) the fact that the Appellant had carried out repairs to the heating within the Premises the subject of the Lease, which was inconsistent with the absence of any obligation on the part of the landlord; and (b) representations in an email from the Appellant's agent dated 1 February 2012 (and thus before the Lease was executed) implicitly accepting that the landlord had accepted repairing obligations, to be fulfilled within a "reasonable" time. In my view, the implied representation would fall within the Non-Reliance clause and thus not avail the Respondent; and neither the conduct nor the representation relied on is sufficiently unequivocal to sustain a plea of waiver.
(5) Finally, the Respondent invited this Court to find that though the Judge did not express a conclusion on the issue, her findings taken as a whole signify that, had she done so, she would have found that the representations made were fraudulent. It was common ground that the Entire Agreement Provisions would not apply in the context of a finding of fraud. The difficulty for the Respondent is obvious: the Judge did indeed make no such finding, and it would be wholly exceptional for this Court to make its own finding in such circumstances. As it is there is no reason for adopting such a course; but even if the appeal rested on it, I would not have substituted such a finding.
Lord Justice Gross: