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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> London Trocadero (2015) LLP v Picturehouse Cinemas Ltd & Ors [2021] EWHC 2591 (Ch) (28 September 2021) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2021/2591.html Cite as: [2021] EWHC 2591 (Ch) |
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BUSINESS AND PROPERTY COURTS OF ENGLAND & WALES
PROPERTY, TRUSTS AND PROBATE LIST (Ch D)
7 Rolls Buildings Fetter Lane London EC4A 1NL |
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B e f o r e :
(SITTING AS A DEPUTY JUDGE OF THE HIGH COURT)
____________________
LONDON TROCADERO (2015) LLP |
Claimant |
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- and - |
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(1) PICTUREHOUSE CINEMAS LIMITED (2) GALLERY CINEMAS LIMITED (3) CINEWORLD CINEMAS LIMITED |
Defendants |
____________________
JONATHAN SEITLER QC (instructed by CMS Cameron McKenna Nabarro Olswang LLP) appeared for the Defendants
Hearing dates: 23 and 26 July 2021
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Crown Copyright ©
DEPUTY JUDGE ROBIN VOS:
Introduction
Procedural matters
Background facts
The terms of the leases
The 1994 Lease
"IN consideration of the Rent and of the covenants hereinafter contained the Landlord HEREBY DEMISES unto the Tenant ALL THAT the demised premises TOGETHER WITH the easements and rights specified in the First Schedule hereto BUT EXCEPTING AND RESERVING the easements and rights specified in the Second Schedule hereto TO HOLD the same … UNTO the Tenant for the Term YIELDING AND PAYING therefor during the Term FIRST yearly (and proportionately for a part of a year) the Rent which shall be payable by equal quarterly payments in advance on the Quarter Days the first of such payments or a proportionate part thereof to be due on the date specified in the Particulars and to be in respect of the period therein mentioned SECONDLY by way of additional rents the amounts payable pursuant to the provisions of sub-clauses 3.5 and 3.6 of the Lease AND THIRDLY by way of additional rent the amounts payable by way of Value Added Tax pursuant to the provisions of sub-clause 3.3 of this Lease."
"to pay the Rents at the respective times and in the manner herein provided for without any deduction whatsoever".
"to comply with all obligations imposed by … any Act or Acts of Parliament or legislation … in respect of the demised premises or the use thereof whether by the owner or the Landlord tenant or occupier and at all times to keep the Landlord indemnified against all costs claims demands and liability in respect thereof".
"… a cinematograph theatre or theatres with the ancillary sale (but only to patrons of films who have been admitted through the ticket barriers) of merchandise relevant to such cinema use including hot and cold beverages for consumption of such patrons on the premises together with a bar, kitchens, café, and open terrace for the sale and consumption of alcohol on the premises and for conferencing purposes".
"No warranty as to Permitted Use
5.5 Nothing herein contained or implied nor any statement or representation made by or on behalf of the Landlord or the Superior Landlord prior to the date hereof shall be taken to be a covenant warranty or representation that the demised premises can lawfully be used for the Permitted Use."
The 2014 Lease
"all of the terms, requirements, covenants and conditions contained in [the 1994 Lease]".
"the Landlord lets with full title guarantee the Property to the Tenant for the Contractual Term at the Annual Rent".
The Covid restrictions
Summary judgment application
"(i) The court must consider whether the [Respondent] has a 'realistic' as opposed to a 'fanciful' prospect of success: Swain v Hillman [2001] 2 All ER 91
(ii) A 'realistic' claim is one that carries some degree of conviction. This means a claim that is more than merely arguable: ED & F Man Liquid Products v Patel [2003] EWCA Civ 472 at [8]
(iii) In reaching its conclusion the court must not conduct a 'mini-trial': Swain v Hillman
(iv) This does not mean that the court must take at face value and without analysis everything that a [Respondent] says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED & F Man Liquid Products v Patel at [10]
(v) However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No 5) [2001] EWCA Civ 550
(vi) Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2007] FSR 63
(vii) On the other hand it is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the respondent's case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant's case is bad in law, the sooner that is determined, the better. If it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial, it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful, prospect of success. However, it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction: ICI Chemicals & Polymers Ltd v TTE Training Ltd [2007] EWCA Civ 725."
"in my experience the court regularly deals with points of law and construction of real difficulty on the hearing of an application for summary judgment".
"the court should be reluctant to grant summary judgment where the law is uncertain or the application involves the court making a determination in a developing area of law. The rationale is that the development of the law should in some cases be based upon findings of actual and not hypothetical facts. The judgment of Peter Gibson LJ in Hughes v Colin Richards [2004] EWCA Civ 266 at [30] is usually cited in support of this principle".
The issues
Implied terms
"In summary, the relevant principles can be drawn together as follows:-
i) A term will not be implied unless, on an objective assessment of the terms of the contract, it is necessary to give business efficacy to the contract and/or on the basis of the obviousness test;
ii) The business efficacy and the obviousness tests are alternative tests. However, it will be a rare (or unusual) case where one, but not the other, is satisfied;
iii) The business efficacy test will only be satisfied if, without the term, the contract would lack commercial or practical coherence. Its application involves a value judgment;
iv) The obviousness test will only be met when the implied term is so obvious that it goes without saying. It needs to be obvious not only that a term is to be implied, but precisely what that term (which must be capable of clear expression) is. It is vital to formulate the question to be posed by the officious bystander with the utmost care;
v) A term will not be implied if it is inconsistent with an express term of the contract;
vi) The implication of a term is not critically dependent on proof of an actual intention of the parties. If one is approaching the question by reference to what the parties would have agreed, one is not strictly concerned with the hypothetical answer of the actual parties, but with that of notional reasonable people in the position of the parties at the time;
vii) The question is to be assessed at the time that the contract was made: it is wrong to approach the question with the benefit of hindsight in the light of the particular issue that has in fact arisen. Nor is it enough to show that, had the parties foreseen the eventuality which in fact occurred, they would have wished to make provision for it, unless it can also be shown either that there was only one contractual solution or that one of several possible solutions would without doubt have been preferred;
viii) The equity of a suggested implied term is an essential but not sufficient pre-condition for inclusion. A term should not be implied into a detailed commercial contract merely because it appears fair or merely because the court considers the parties would have agreed it if it had been suggested to them. The test is one of necessity, not reasonableness. That is a stringent test."
"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 have been taken to have intended in relation to the event, event 'B', which they did not contemplate."
"The implication of contractual terms involves a 'different and altogether more ambitious undertaking' than the exercise of contractual interpretation which identifies the true meaning of the language in which the parties have expressed themselves: the interpolation of terms to deal with matters for which, ex hypothesi, the parties have themselves made no provision. It is because the implication of terms is so potentially intrusive that the law imposes strict constraints on the exercise of the 'extraordinary' power so to intervene."
"The default position is that nothing is to be implied into a contract. The more detailed and apparently complete the contract, the stronger this presumption is."
"(a) That if the Permitted Use of the premises by [the Tenant] under the leases were to become illegal, then the obligation to pay rent and service charges otherwise due thereunder would be suspended and cease to be payable for that period;
(b) That the sums due under the leases would only be payable in respect of periods during which the premises could be used for its intended purpose, as a cinema with attendance at a level commensurate with that which the parties would have anticipated at the time that the 1994 Lease and the 2014 Lease were entered into."
"The test is one of necessity, not reasonableness. That is a stringent test."
Failure of basis
"… a benefit has been conferred on the joint understanding that the recipient's right to retain it is conditional. If the condition is not fulfilled, the recipient must return the benefit. The condition might take one of a variety of forms. For instance, it might consist in the recipient doing or giving something in return for the benefit… Alternatively, the condition might be the existence of a state of affairs, or the occurrence of an event, for which the recipient has undertaken no responsibility."
"Money had and received to the Plaintiff's use can undoubtedly be recovered in cases where the consideration has wholly failed, but unless the contract is divisible into separate parts it is the whole money, not part of it, which can be recovered … a partial failure of consideration gives rise to no claim for recovery of part of what has been paid."
(1) Whether there has in fact been a failure of basis.
(2) If so, does the failure of basis relate to a severable part of the leases?
(3) If both of these hurdles are overcome, is the failure of basis a defence to the Landlord's contractual claim for payment of sums due under the leases?
Failure of basis and subsisting contracts
"104. Confusion is sometimes caused by the fact that the term 'consideration', when used in the phrase "failure of consideration" as a reason for a restitutionary claim, does not mean the same thing as it does when considering whether there is sufficient consideration to support the formation of a valid contract. Viscount Simon LC explained this in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32, 48:
'In English law, an enforceable contract may be formed by an exchange of a promise for a promise, or by the exchange of a promise for an act ... but when one is considering the law of failure of consideration and of the quasi-contractual right to recover money on that ground, it is, generally speaking, not the promise which is referred to as the consideration, but the performance of the promise.'
105. To avoid this confusion, Goff and Jones suggest, at paras 12-10 to 12-15, that the expression 'failure of basis' is preferable to 'failure of consideration' because it accurately identifies the essence of the claim being pursued. Whichever terminology is used, the legal content is the same. The attraction of 'failure of basis' is that it is more apt, but 'failure of consideration' is more familiar.
106. Failure of basis, or failure of consideration as it has been generally called, does not necessarily require failure of a promised counter-performance; it may consist of the failure of a state of affairs on which the agreement was premised."
"I use the expression 'fundamental to the basis' because it should not be thought that mere failure of an expectation which motivated a party to enter into a contract may give rise to a restitutionary claim. Most contracts are entered into with intentions or expectations which may not be fulfilled, and the allocation of the risk of their non-fulfilment is a function of the contract."
"The law of restitution is concerned with whether a claimant can claim a gain from the defendant, rather than whether a claimant can be compensated for loss suffered. Restitutionary remedies are therefore distinct from those which are traditionally available in contract or in tort, as was recognised by Lord Wright [in Fibrosa at [61]]:-
'It is clear that any civilised system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, that is, to prevent a man from retaining the money of, or some benefit derived from, another which it is against conscience that he should keep. Such remedies in English Law are generically different from remedies in contract or in tort, and are now recognised to fall within a third category of the common law which has been called quasi-contract or restitution.'"
"The underlying rationale for a claim in unjust enrichment differs from that of a contractual claim, and different policy considerations will arise."
"Where there is a contract between the parties relating to the benefit transferred, no claim in unjust enrichment will generally lie while the contact is subsisting."
"The law should give effect to the parties' own allocation of risk and valuations, as expressed in the contract, and should not permit the law of unjust enrichment to be used to overturn those allocations or valuations."
"…invalidity of a relevant contract is not a necessary prerequisite to a successful claim in unjust enrichment."
"It is fundamental that a payment cannot amount to an enrichment if it was made for full consideration; and that it cannot be unjust to receive or retain it if it was made in satisfaction of a legal right… The proposition is supported by more than a century and a half of authority…"
(1) be inconsistent with the terms of the contract (see [75], [97] and [116]); nor
(2) interfere with the contractual allocation of risk between the parties (see [72-73], [121], [124] and [126]).
Has there been a failure of basis?
"Now whatever be the true ground on which the doctrine is based, it is certain that it applies only where the foundation of the contract is destroyed so that performance or further performance is no longer possible. In the case of a lease, the foundation of the agreement in my opinion is that the landlord parts with his interest in the demised property for a term of years, which thereupon becomes vested in the tenant, in return for rent. So long as the interest remains in the tenant, there is no frustration though particular use may be prevented."
"The case law holds that a restitutionary claim, based on failure of consideration, will, therefore, succeed only if the failure is total."
"There is a lively academic debate whether it is an accurate statement of law today that failure of consideration cannot found a claim in restitution or unjust enrichment unless the failure is total, but that point has not been fully argued and it is unnecessary to decide it in this case. Modern authorities show that the courts are prepared, where it reflects commercial reality, to treat consideration as severable."
"This analysis reinforces the central importance in the test of identifying the essential purpose of the contract. Thus, a contract may confer the right to receive and impose an obligation to provide a number of benefits. The test as to whether receipt of any one or more of those benefits is inconsistent with total failure of consideration is not whether they are large or small in the context of the entirety of the benefits to be conferred but whether they are the whole or part of the main benefit expected or bargained for or merely incidental or collateral thereto. It is no doubt for that reason that the High Court in David Securities and Baltic Shipping and the Court of Appeal in Rowland v Divall and Rover International held that the answer to that question is to be approached from the perspective of the payer rather than the payee."
"The general rule must therefore be, that where a man undertakes to pay a specific rent for a piece of land, he is obliged to pay that rent, whether it answers the purpose for which he took it or not."
"I cannot find any case in which the rent reserved by a lease was apportioned simply because the lessee was deprived of the use and enjoyment of a portion of the demised premises, his title to that portion not being either assailed, displaced or weakened. On the contrary, the trend of the authorities is, I think, strongly against any such result."
"The rent is payable for the site and issues out of the land."
"…removal of the foundation of the contract – viz. use as a warehouse."
"Most contracts are entered into with intentions or expectations which may not be fulfilled, and the allocation of the risk of their non-fulfilment is a function of the contract."
Are the leases severable?
"The intention as disclosed by the lease is that … the consideration to be received by the lessee is severable by reference to the period of occupation; so that there was a total failure of consideration at least in relation to 83 days out of the 183 days in respect of which the $1.5m was paid. I do not think that such an interpretation of this lease is inconsistent with Ellis v Rowbotham and the other cases referred to, which did not address questions of severability of consideration under the particular leases being dealt with and consequent failure of consideration."
"It is not appropriate to separate out parts of the obligation in the Underlease and say that there is a total failure of consideration merely because the lease had been terminated in future as regards the rent that was payable in advance for that period. The Underlease contains a bundle of rights and obligations on both sides and as part of that in my view the Tenant agreed to pay rent in advance as part of the overall consideration for obtaining the Underlease from the Landlord. Merely because the provisions obligate him to pay rent in advance even after the Termination Date does not mean that there is a failure of consideration as regards the payment merely because beneficial use of the premises is not taken. One looks at the overall package in the Underlease and the Tenant obtained consideration in the form of the entirety of the Underlease. In my view therefore the premise of Hodgson CJ's judgment is wrong and I would not accept it."
"I would not apply the reasoning in Ocelota to the present case. In any event, the circumstances in Ocelota were quite different from the present case. In Ocelota, the landlord unilaterally took back the premises from the tenant where there was no fault on the part of the lessee. In the present case, the lessor was perfectly willing to allow the lessee to enjoy the possession of the premises from 24 January 2012 until the end of the term but the lessee chose to give up that right. That may or may not be a valid ground of distinction but, in any event, I do not find the decision in Ocelota persuasive in the present context."
Failure of basis as a defence to a contractual claim
"… the effect of frustration, had it been applicable, would have been to throw the whole burden of interruption for 20 months on the Landlord, deprived as he would be of all his rent and imposed as he would have upon his shoulders the whole danger of destruction by fire and the burden of reletting after the interruptions. As it is … the tenant has to pay the entire rent during the period of interruption without any part of the premises being usable at all, together with the burden (such as it may be) of the performance of the other tenant's covenants which include covenants to insure and repair. These are no light matters."
Set-off
(1) Whether any right of set-off is excluded by the terms of the Lease; and
(2) If not, whether it is only the Tenant (as the person who is making the counterclaim) who can benefit from the set-off or whether the result of the set-off is that an equivalent amount of the rent and service charge is not in fact due so that, indirectly, the claim against the Original Tenant and the Guarantor is reduced as well.
"The word 'deduction' has never achieved the status of a terms of art, but is an expression employed, both in everyday speech and in the language of the courts, at one moment in its strict sense to describe the ordinary process of subtraction with which it is grammatically associated, and at other moments in a broader sense to describe the result which follows when one claim is set against another and a balance is struck. It is thus a useful and a flexible word, but heavily dependent upon the context in which it is used for an accurate understanding of the sense in which it is being employed. If the context happens to be one that affords no guidance as to its intended meaning, it becomes an expression that necessarily suffers from ambiguity."
"is in context, as wide as it could be and clearly cover set-off against an instalment of the consideration that has fallen due."
"…the right of set-off against rent in a lease is not to be excluded except by words which cannot sensibly be interpreted as not extending to set-off. In my judgment the effect of the decision of the Court in the Connaught Restaurants Ltd case was almost this: that at least in the absence of any clear indication to the contrary in the lease, a covenant or any provision relating to the payment of rent will not exclude the tenant's normal right to claim equitable set-off, save where the word 'set-off' is specifically used."
"The very nature of an equitable set off is that it is personal in nature, in that it is a claim raised against the claimant which impeaches his right to sue and does not run against third parties".
"Whether the cross claim is sufficiently connected with the claim as to make it unfair that the Defendant should be obliged to pay the claim without deduction."
"Any sums which may not otherwise be recoverable by the Landlord from the Guarantor by way of guarantee by reason of any legal limitation, immunity, disability or incapacity or other circumstances relating to the Tenant (and whether or not known to the Landlord) shall nevertheless be recoverable from the Guarantor as principal debtor in respect thereof."
Other Compelling Reasons to go to Trial
Conclusion