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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Bywater Properties Investments LLP & Ors v Oswestry Town Council  EWHC 310 (Ch) (14 February 2014)
Cite as:  EWHC 310 (Ch)
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MANCHESTER DISTRICT REGISTRY
1 Bridge Street West, Manchester M60 9DJ
B e f o r e :
SITTING AS A JUDGE OF THE HIGH COURT
| (1) BYWATER PROPERTIES INVESTMENTS LLP
(2) REFUGE NOMINEES LIMITED
(3) GLADSTONE NOMINEES LIMITED
- and -
OSWESTRY TOWN COUNCIL
John Brennan (instructed by Lanyon Bowdler LLP, Shrewsbury) for the Defendant
Hearing date: 11 February 2014
Crown Copyright ©
His Honour Judge Stephen Davies:
The material terms of the leases
"Paying therefor yearly during the said term (subject as hereinafter provided with respect to the periodical reviews thereof) the rent of £2,500 "
"On the expiry of each period of 25 years ( "the date of review") the Landlords shall have the right to review the yearly rent for the time being payable hereunder on giving to the Tenants not more than 24 nor less than 3 months notice in writing prior to each such date of review of their intention so to do and if the Landlords shall give to the Tenants such notice as aforesaid then from and after each such date of review the yearly rent shall be the fair ground rental market value of the demised premises Provided Further that in no event shall the rent payable by the Tenants to the Landlords after each such date of review be less than the rent of £2,500 per annum hereby reserved"
"The Landlords shall have the right to review the yearly rent for the time being payable hereunder at the same times and upon the same terms and conditions as the principal lease PROVIDED that in no event shall the rent payable by the Tenants to the Landlords after each date of review in respect of this Lease be less than the rent of £1,500 per annum hereby reserved."
The respective cases, summarised
The relevant legal principles
"18. During the past forty years, the House of Lords and Supreme Court have laid down the correct approach to the interpretation, or construction, of commercial contracts in a number of cases starting with Prenn v Simmonds  1 WLR 1381 and culminating in Rainy Sky SA v Kookmin Bank  1 WLR 2900.
19. When interpreting a contract, the court is concerned to find the intention of the party or parties, and it does this by identifying the meaning of the relevant words, (a) in the light of (i) the natural and ordinary meaning of those words, (ii) the overall purpose of the document, (iii) any other provisions of the document, (iv) the facts known or assumed by the parties at the time that the document was executed, and (v) common sense, but (b) ignoring subjective evidence of any party's intentions. In this connection, see Prenn at 1384-1386 and Reardon Smith Line Ltd v Yngvar Hansen-Tangen  1 WLR 989, per Lord Wilberforce, Bank of Credit and Commerce International SA v Ali  1 AC 251, para 8, per Lord Bingham, and the survey of more recent authorities in Rainy Sky, per Lord Clarke at paras 21-30."
"The question raised on this appeal is one of construction of a rent review clause in a lease. In answering that question it is axiomatic that what the court is seeking to identify and declare is the intention of the parties to the lease expressed in that clause. Thus, like all points of construction, the meaning of this rent review clause depends on the particular language used interpreted having regard to the context provided by the whole document and the matrix of the material surrounding circumstances. We recognise, therefore, that the particular language used will always be of paramount importance. Nonetheless it is proper and only sensible, when construing a rent review clause, to have in mind what normally is the commercial purpose of such a clause."
"In construing all written instruments, the grammatical and ordinary sense of the words is to be adhered to, unless that would lead to some absurdity, or some repugnance or inconsistence with the rest of the instrument, in which case the grammatical and ordinary sense of the words may be modified, so as to avoid that absurdity and inconsistency, but no further."
(see Lord Blackburn in Caledonian Railway Co v North British Railway Co (1881) 6 App Cas 114 at 131, citing Lord Wensleydale in Grey v Pearson at (1857) 6 H.L. Cas 61 at 106).
"Subject to [the use of a specialist vocabulary] the inquiry will start, and usually finish, by asking what is the ordinary meaning of the words used."
"the first place where one expects to find the meaning of the words and the intention of the draftsman is in the words themselves. If they yield to a fairly clear conclusion then one has to pause long before concluding that at that point the draftsman has used words with a meaning that do not fit in with the objective that he was seeking to attain."
"It is not necessary in this case to say much about the circumstances which provided the background to this contract or the commercial purpose of the transaction. It was of a kind which is familiar to those who engage in the practice of letting commercial property. On the one hand there was the lessor MMT, whose primary interest in the transaction was to obtain a return on the money which it had invested in the construction of the building. On the other there was the lessee AMP, whose interests lay in securing terms for the letting of the property which did not exceed those generally available in the market for similar premises. From the point of view of the investor the most attractive form of lease is one which ensures that the return on the amount invested will be increased if market rentals were to rise but will not diminish if market rentals were to fall. Its purpose is best served by a system of periodic rent reviews together with a provision, commonly referred to as a "ratchet clause" which will ensure that the rent payable after any review will never be less than the rent payable prior to the review date. The lessee's purpose will be best served by provisions which will enable the rent to be adjusted either way at each review date. The balance which requires to be struck between these competing interests is a matter for negotiation in each case. The result of that negotiation is then set out in the formal contract, which supersedes the negotiations and to which one must then turn in order to discover what was agreed."
"Lord Hoffmann [in Attorney General of Belize v Belize Telecom Ltd  1 WLR 1988] made the important point that the question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so. Otherwise, the express provisions of the instrument are to continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls. As appears below, that seems to me to be of particular significance here because this is not a case in which each party needs to establish a competing implied term if it is to succeed. Put another way, it is not a two way test. Absent an implied term, the default position is that the owners must bear their own loss."
"The usual effect of a rent review is to alter the passing rent for the remainder of the term or until a further review takes place. This is because the rent, once reviewed, becomes the rent reserved by, and payable under, the lease, and it can be altered in amount only by an express provision to that effect."
"questions of construction are frequently a matter of impression and are not readily susceptible of precise explanation."
The words used
Commercial purpose of the rent review clauses