Brimex Ltd v Begum Ltd

JurisdictionEngland & Wales
JudgeMR JUSTICE MORGAN
Judgment Date19 December 2007
Neutral Citation[2007] EWHC 3498 (Ch)
CourtChancery Division
Date19 December 2007
Docket NumberHC07C02821

[2007] EWHC 3498 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Before:

Mr Justice Morgan

HC07C02821

Between
Brimex Ltd
Claimant
and
Begum
Defendant

Mr M Michell (instructed by Bowling & Co) appeared on behalf of the Claimant.

Mr N Ley (instructed by Burt Brill & Cordens) appeared on behalf of the Defendant.

MR JUSTICE MORGAN

The case in summary

1

The premises at 18 Theberton Street, Islington, London N1 are a restaurant which trades under the name of the Sacre Coeur. The defendant is the current freehold owner of the premises. There was formerly a lease of the premises to Mr Ergedon, but the term of that lease ended on 11 th or 12 th May 2006 and all parties accept that the tenancy created by that lease did not continue past that date pursuant to the provisions of Part II of the Landlord and Tenant Act 1954.

2

Before May 2006 and, in particular, on 1 st March 2005, Mr Ergedon entered into a written agreement with the claimant, Brimex Limited (“Brimex”). The agreement stated that it did not create the relationship of landlord and tenant. Brimex occupied the premises from March 2005 for the purposes of its business as a restaurant.

3

There were periods when rent was not paid to the freeholder of the premises, but that was because of a dispute between the then freehold owners. There is no suggestion that a tenancy binding the freeholder came into existence after May 2006 by reason of payment and acceptance of rent.

4

In October 2007 the defendant changed the locks of the restaurant. Brimex applied for and obtained an injunction, letting it back into the restaurant. A speedy trial was ordered. Brimex says that the agreement of 1 st March 2005 created a sub-tenancy in its favour for 12 months to 1 st March 2006, and that sub-tenancy continued after that date and indeed continued after May 2006 under Part II of the 1954 Act. After May 2006, when the headlease came to an end, it is said that Brimex became the direct tenant of the freeholder.

The issues

5

The following issues now arise.

(1) What was the nature of the legal relationship created by the agreement of 1 st March 2005?

(2) If the agreement of 1 st March 2005 created a sub-tenancy of the premises, was that tenancy within Part II of the 1954 Act?

(3) If so, is that tenancy now directly binding on the freeholder?

(4) Was the grant of any such sub-tenancy a breach by Mr Ergedon of the headlease?

(5) Did Brimex induce the breach of contract by Mr Ergedon?

(6) Should an injunction be granted against Brimex or Mr Ergedon?

(7) Is Brimex entitled to damages resulting from the defendant changing the locks in October 2007?

The freehold

6

From around 1994 to some date in 2007 the freehold of the premises was vested in the defendant and another person. There appears to have been a dispute of some kind as to who was entitled to the rent payable under the headlease. On 23 rd August 2007 the solicitors for the defendant wrote to Mr Ergedon stating that the freehold had been transferred to the defendant alone. Subsequently, the defendant was registered as the sole proprietor of the freehold.

The headlease

7

The headlease was granted on 12 th May 1994. It was granted by the then joint freeholders, one of whom was the defendant. The premises were described as the ground floor and basement restaurant premises at 18 Theberton Street, London N1. The lease was for a term of 12 years from 12 th May 1994. The rent payable was subject to review. In the last three years of the lease the rent payable was £30,000 per annum.

8

By clause 3(12) of the lease the lessee covenanted:

“Not to assign, underlet, or otherwise part with possession of part only of the demised premises, nor to underlet the whole, and not without the express consent in writing to assign the whole, such consent not to be unreasonably withheld in the case of a respectable and responsible tenant whose references are submitted in writing, providing such consent shall not be unreasonably withheld in the case of a limited company which the landlord insist on suitable surety covenants being of the nature specified in the fourth schedule hereto.”

9

This clause prevents an underletting of the whole of the premises. There is, however, no prohibition on parting with possession of the whole of the premises.

10

On 14 th July 1998 the term of the lease was assigned to Mr Ergedon for a premium of £52,000. After the event, on 13 th November 1998 the landlords granted a licence to assign the term to Mr Ergedon. Mr Ergedon was a party to that licence and gave a direct covenant to the landlords to perform the tenant's covenants in the headlease.

The agreement of March 2005

11

On 1 st March 2005 Mr Ergedon entered into a written agreement with Brimex. Initially, there was a hotly disputed issue as to the effect of this agreement. Brimex said that it created a tenancy, and the defendant said it created a licence to enable Brimex, as a manager, to run a restaurant. However, halfway through the trial the defendant conceded that the agreement did indeed create a tenancy. In view of that concession, I can refer to the terms of the agreement much more briefly than would otherwise have been necessary.

12

As I have indicated, the parties to the agreement were Mr Ergedon and Brimex. Mr Ergedon is described in the agreement as “the Employer”, and Brimex is described as “the Manager”. The recital is in these terms:

“Whereas the owner is desirous of being relieved from the active participation in carrying on the business of a restaurant now carried on at 18 Theberton Street, London N1 OQX, and the Manager is desirous to carry on business in its own name.”

13

Clause 1 of the agreement provides for the Employer to employ the Manager and for the Manager to serve the Employer as a manager of the business of the restaurant known as the Sacre Coeur for the term of 12 months from 1 st March 2005.

14

Under clause 2 the Manager is to pay the Employer the sum of £10,140 per quarter in advance. Clause 2 provides for the Manager (as the company is described) to pay for other outgoings in relation to the premises.

15

The provisions continue by identifying the various responsibilities of Brimex as “the Manager” in relation to the premises. In view of the concession that this agreement creates a tenancy, I need not read the detailed terms of those other provisions. It is right to say that many of them are much more consistent with the creation of a relationship of landlord and tenant than they are with the creation of the relationship of employer and manager.

16

By clause 9 of the agreement it was provided:

“The Manager shall not enter into any transaction in connection with the business in any name other than his own and shall indemnify the Employer against all liability arising out of any breach of this clause.”

17

Clause 11 is in these terms:

“Nothing herein contained shall be deemed to constitute the relationship of the [sic] landlord and tenant between the Employer and the Manager or a partnership between the parties hereto.”

18

By clause 17 of the agreement there is a provision that, in effect, means that if the “Manager” does not make the payment per quarter (as earlier specified), then the “Employer” is entitled to take possession of the premises.

19

Clause 19 of the agreement provides that the agreement is personal between the parties. By clause 20 it was provided that either party could terminate the agreement on giving three months' notice to the other party.

20

The agreement was signed by Mr Ergedon on his own behalf. On behalf of Brimex, the agreement was signed by a Mr Aiden, who was the sole director of Brimex at that time.

Brimex Limited

21

In late 2004 Brimex was acquired off the shelf on the initiative of Mr Aiden and a Mr Genjay. One hundred ordinary shares in the company had been, or were then, issued. Mr Aiden held 50 of those shares; Mr Genjay held 45 of them; and the remaining 5 shares were held by Mr Ergedon. Mr Aiden was the sole director and Mr Genjay was the company secretary. Mr Ergedon was not a director.

22

Both Mr Aiden and Mr Genjay had been involved in the restaurant business before and indeed had worked for Mr Ergedon both at the Sacre Coeur (although a little before March 2005) and at another restaurant.

The use of the premises

23

After 1 st March 2005 the premises were occupied by Brimex for the purposes of its business as a restaurant.

The expiry of the headlease

24

The term of the headlease was due to expire on or about 11 th May 2006. Neither party asserts that the term of the headlease continued under Part II of the 1954 Act. The head lessee, Mr Ergedon, did not occupy the premises at the expiry date for the purposes of his business. Although the agreement of 1 st March 2005 spoke of Mr Ergedon being the Employer of a Manager (Brimex), neither party to this case contends that that was the true position. Mr Ergedon could not have relied on section 23(1A)(a) of the 1954 Act (as amended by the 2003 Regulatory Reform Order), because Mr Ergedon did not in May 2006 have a controlling interest in Brimex.

No holding over after expiry of headlease

25

Equally, no one contends that Mr Ergedon held over as a periodic tenant after 12 th May 2006. Accordingly, I do not need to investigate the position as regards payment of rent and other communications between the freeholder and Mr Ergedon.

The legal effect of the agreement of March 2005

26

Initially, the main dispute between the parties was as to whether the agreement did or did not create a tenancy. Brimex submitted that,...

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