Debenhams Retail Plc v Sun Alliance & London Assurance Company Ltd
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE ETHERTON |
| Judgment Date | 09 November 2004 |
| Neutral Citation | [2004] EWHC 2940 (Ch) |
| Docket Number | No: HCO3CO4456 |
| Court | Chancery Division |
| Date | 09 November 2004 |
[2004] EWHC 2940 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
The Strand
London WC2A
Mr Justice Etherton
No: HCO3CO4456
MR JONATHAN BROCK QC (Instructed by Falcon Chambers) appeared on behalf of the Claimants
MR JOHN FURBER QC (Instructed by Wilberforce Chambers) appeared on behalf of the Defendants
Tuesday, 9 November 2004
Introduction
Debenhams Properties Limited ("DPL"), the second Claimant, is the tenant of premises at The Parade, Swindon, Wiltshire ("the Premises") under a lease dated 19 April 1971 ("the Lease"). DPL occupies the Premises as a department store. The Defendant, Sun Alliance and London Assurance Company Limited is the landlord.
The first Claimant, Debenhams Retail Plc ("DRP"), was formerly the tenant of the Premises under the Lease prior to assigning the Lease to DPL.
The Lease provides that part of the rent, called in the Lease "the additional rent", is to be calculated as a proportion of turnover from trade in the Premises ("the Turnover Rent").
In the proceedings, the Claimants seek a declaration that Value Added Tax ("VAT") is not to be included in turnover for the purpose of calculating the Turnover Rent.
The claim form and the Particulars of Claim also include a claim by the Claimants for restitution of Turnover Rent which was overpaid because it was calculated by reference to figures for turnover which included VAT.
Shortly before the hearing, the Claimants indicated that they did not intend to pursue the claim for restitution of overpaid rent, and that the relief would be restricted to a declaration as to the exclusion of VAT from turnover for the purpose of calculating the Turnover Rent.
The Lease
The Lease was granted by Swindon Shopping Centre (Holdings) Limited to DRP, then known as Debenhams Limited ("DL") for a term of 99 years less ten days, from 1 October 1965.
By clause 2.15 of the Lease the tenant covenanted not to use the Premises or permit them to be used, save with the prior written consent of the landlords and the superior landlords, except as a department store for the retail sale of domestic and household goods, and, if required by the tenant, a restaurant and cafeteria, hairdressing and work rooms and ancillary offices.
The rents reserved were set out in the Third Schedule of the Lease, which, so far as relevant, is as follows:
"1 The rents hereinbefore reserved shall be:
(i) the yearly sum of FIFTY-FIVE THOUSAND POUNDS (£55,000) (hereinafter referred to as "the basic rent") and
(ii) such sum (if any) in each year (hereinafter referred to as "the additional rent") as shall be equal to a proportion of turnover (as in Clause 3 hereof defined) calculated by taking the aggregate of:—
(a) Four per centum (4%) of the excess of turnover above the sum of ONE MILLION THREE HUNDRED AND SEVENTY-FIVE THOUSAND POUNDS (£1,375,000) and up to the sum of ONE MILLION FIVE HUNDRED THOUSAND POUNDS (£1,500,000) and
(b) Two per centum (2%) of the excess of turnover above the sum of ONE MILLION FIVE HUNDRED THOUSAND POUNDS (£1,500,000) and up to the sum of THREE MILLION POUNDS (£3,000,000) and
(c) Three per centum (3%) of the excess of turnover above the sum of THREE MILLION POUNDS (£3,000,000) without limit
…
2. (a) The basic rent shall be payable by equal quarterly payments in advance on the usual quarter days in every year the first of such payments or a proportionate part thereof being in respect of the period from the date of this Underlease to the quarter day next following to be made on the signing hereof
(b) the additional rent (if any) shall be payable in each year within Twenty-one days after it shall have been calculated and determined in manner hereinafter appearing
…
3. (a) In this Schedule the expression "turnover" shall mean the gross amount of the total sales including services from trade in the Demised Premises or any part or parts thereof by the Tenant (meaning in this context the turnover of the Tenant and of any licensee of the Tenant trading in any part of the Demised Premises) during any trading period of the Tenant commencing on or about the First Day of February in each year (hereinafter called "the Trading Period" or "trading Periods") where the context so requires and in calculating turnover account shall be taken of goods and merchandise returned by customers and accepted by the Tenant and of cash and other discounts given in the normal and ordinary course of trade and in all cases in relation to periods of less than the Trading Period (if any) turnover shall be deemed to accrue from day to day and in relation to any licensee of the Tenant turnover shall be included only for any lesser period
(b) The Tenant shall procure a certificate (hereinafter referred to as "the turnover certificate") to be issued by its Auditors within the period of two months following the last day of the Trading Period in each year specifying the amount of turnover and in the event of default involving delay in issuing the turnover certificate the Tenant shall pay to the Landlord interest on such additional rent (if any) as shall become payable by virtue of the issue of such Turnover Certificate at the rate of seven per centum (7%) per annum less income tax for the period commencing the First day next following the said period of two months
(c) The Tenant shall keep and cause each of its licensees to keep full proper and accurate records of turnover and shall afford all necessary facilities to the Landlords and their duly authorised Accountants to inspect the same at all reasonable times
(d) If the Landlords shall not agree the turnover certificate they shall give notice in writing to that effect to the Tenant as soon as may be practicable and the parties shall thereupon use their best endeavours to agree the amount of turnover provided that in default of agreement the dispute shall be referred at the instance of either party to an Arbitrator appointed by the President for the time being of the Institute of Chartered Accountants in England and Wales and if by agreement between the parties or on the decision of such Arbitrator it shall be decided that the turnover certificate shall have been incorrect then the Tenant shall forthwith pay to the Landlords the amount (if any) so agreed or found by such decision to be due together with interest thereon at the rate and for the period mentioned in sub-clause (b) hereof unless on arbitration the said Arbitrator shall desire that no such interest should be paid."
Other background facts
VAT was introduced as from 1 April 1973.
In April 1975 the then landlord of the Premises, Rank City Wall Limited ("Rank"), wrote to DL with reference to the certificate for turnover produced by DL's auditors for turnover from trade in the Premises for the year ending 1 February 1975. In the letter Rank said:
"We are particularly concerned about the treatment of VAT as to whether it is included in turnover or not, and the effect on your turnover figures of the replacement of purchase tax by VAT."
DL replied by letter dated 30 April 1975, stating that it could do no better than to enclose a copy of a memorandum from the Debenham group's chief accountant. That memorandum ("the Tucker Memorandum") written by the group chief accountant, Mr R.T.F. Tucker, to Mr G.C. Priest, the assistant property manager, was as follows:
"Referring to the letter from Rank City Wall I think the relative points are as follows:—
1. Our sales are always quoted in every context save for Group Companies Act requirements as being 'S.P.T.I', this means selling price inclusive of the V.A.T output liability.
2. I feel that it is in every respect comparable to sales at the time of Purchase Tax because in those days we added our profit to the cost price plus Purchase Tax, and bearing in mind that at the introduction of V.A.T some very careful calculation was gone into as to the effect on gross profits, when talking, to those relative to the old selling values and the new selling values based on a tax inclusive figure when it was revealed that the deviation was perhaps.25% relative to 30–35%, I think Rank City Wall should accept that the sales figures in the days of Purchase Tax and the sales figures which we quote now are quite reasonably comparable and in fact the introduction of multi-rate V.A.T with a 25% rate will certainly not be to the disadvantage of Rank City Wall and would be comparable to the old days when Purchase Tax was raised from say 11 11/42 to 25%."
In 1976 DL wrote to Rank enquiring about the possibility that VAT should not be included in the gross turnover figure for the purpose of the Turnover Rent. Rank, in correspondence, referred to the letter from DL of 30 April 1975 and the Tucker Memorandum. The matter was not pursued further by DL.
DL re-registered as a public company on 5 February 1982 and changed its name to Debenhams Plc ("DP").
In 1990 DP wrote to the Defendant stating, in effect, that VAT should be excluded from turnover for the purpose of calculating the Turnover Rent.
Following correspondence in which the Defendant referred to the earlier letters, DP continued to pay the Turnover Rent calculated on the basis that VAT was included in turnover.
On 4 December 1997, DP changed its name to that of the first Claimant, DRP.
In 1999 DRP again asserted in correspondence with the Defendant that VAT should not be included in turnover for the purpose of calculating the Turnover Rent. Following correspondence from the Defendant's agent, King...
To continue reading
Request your trial
-
Debenhams Retail Plc v Sun Alliance & London Assurance Company Ltd
...- Whether turnover included VAT. This was an appeal by the landlord (S) of commercial premises against a decision of the High Court ([2004] EWHC 2940 (Ch)) that the tenant's turnover, for the purposes of calculating additional rent due under the lease as a percentage of turnover, did not in......