Fitzroy House Epworth Street (No. 1 and No. 2) v Financial Times Ltd
| Jurisdiction | England & Wales |
| Judge | The Chancellor |
| Judgment Date | 31 March 2006 |
| Neutral Citation | [2006] EWCA Civ 329 |
| Docket Number | Case No: A1/2005/2588 |
| Court | Court of Appeal (Civil Division) |
| Date | 31 March 2006 |
[2006] EWCA Civ 329
The Chancellor of The High Court
Lord Justice Jacob and
Lord Justice Moore-Bick
Case No: A1/2005/2588
HT-04–291
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
TECHNOLOGY AND CONSTRUCTION COURT
HHJ THORNTON QC
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Mark Warwick (instructed by Kanter Jules) for the Appellants/Claimants
Paul Morgan QC (instructed by Wragge & Co LLP) for the Respondent/Defendant
The Chancellor
By a lease dated 31st August 1994 ("the Lease") the predecessors in title of the appellants ("the Landlords") demised to the Financial Times Ltd ("the Tenant") a three storey office block situate and known as Castle House, Paul Street, London, EC2 for a term of 16 years commencing on 1st April 1994. By clause 3(4) of the Lease it was provided that
"The Tenant (here meaning the Financial Times only and not its successors in title) may give not less than thirteen months previous notice to the Landlord of termination of this Lease on 1 April 2004. If:
(a) The Tenant has materially complied with all its obligations under this Lease down to the date for which notice of termination has been given;
[(b) …
(c) …
(d) …]
then the Term shall cease on that date and (subject as mentioned below) no party has any further rights or obligations under this Lease.
Termination of this Lease shall not affect any of the Landlord's rights in connection with any breach by the Tenant or its successors in title or the Guarantor of their obligations under this Lease which may have occurred before the date on which this Lease terminates."
On 5th February 2003 the Tenant gave notice under clause 3(4) to terminate the Lease on 1st April 2004. The Tenant was then and on 1st April 2004 up to date with the rent of £595,000 per year. Between 14th January and 26th March 2004 the Tenant undertook a substantial repair programme in order to comply with the various tenant's covenants contained in clause 5. They offered facilities for inspection to the Landlords before, during and after the works were carried out but the Landlords did not take them up. On the termination of the works the Tenant duly vacated Castle House.
Immediately after 1st April 2004 the Landlords claimed that the Lease was still subsisting because on that date the Tenant had "materially failed to comply with" its repairing and other obligations under the Lease. It commenced proceedings in the Technology and Construction Court seeking declarations to that effect on 29th September 2004. The Tenant contended that it had materially complied with all its obligations under the Lease. The proceedings were heard by HH Judge Thornton QC from 15th to 21st September 2005. By his order made on 4th November 2005 he declared that the Lease had been terminated on 1st April 2004 pursuant to the notice dated 5th February 2003 given by the Tenant to the Landlords.
This is the appeal of the Landlords from that order. They contend that the judge misdirected himself as to the test of material compliance to be applied by reference to the judgment of HH Judge Rich QC in Commercial Union Life Assurance Co Ltd v Label Ink Ltd [2001] L & TR 29 (" Label Ink") . They accept the judge's findings of primary fact but contend that the evidence did not warrant some of the inferences he drew as to the immateriality of the breaches of the tenant's covenants which he found.
It is convenient to start with the decision of HH Judge Rich QC in Label Ink. In that case an industrial warehouse was let for a term of 15 years from November 1993. Clause 7.8 contained an option for the tenant to determine the lease on 1st January 1999 on one year's written notice on condition that:
"There shall not be any material breach of the covenants on its part herein contained."
But
"Without prejudice to any remedy available to the landlord in respect of any breach of covenant on the part of the tenant or the conditions herein contained."
It was common ground that a breach could not be material if it was not a subsisting breach on the termination date. Judge Rich then considered various authorities, including the decision of the Court of Appeal in Finch v Underwood [1876] 2 Ch. 310 and continued in paragraphs 12 and 13:
"12. In qualifying clause 7.8 that the breach must be material, it is clearly intended to mitigate that rule as an otherwise trifling breach would disqualify the tenant from exercising the option even though the court might be slow to find such a breach, where it would be unfair to do so.
13. The intention must be to modify that rule to an extent that is reasonably fair to both landlord and tenant. The tenant is given by clause 7.8 the right to break, providing he complies with his covenants to the extent of avoiding any material breach. In my judgment, in that context, the breach is material if, but only if, having regard to all the circumstances, and to the proper efforts of the tenant to comply with his covenants, as well as the adverse effect on the landlord of any failure to do so, it will be fair and reasonable to refuse the tenant the privilege which the lease otherwise grants. The extent of any breach, the practicality of quantifying any damage arising out of it, the efforts made by the tenant to avoid it, the genuine interest which a landlord had in strict compliance are, in my judgment, all material factors in determining materiality."
Counsel for the Landlords contends that the interpretation put upon the words "material breach" is wrong in law, creates uncertainty and unnecessarily extends the range of issues thereby increasing the evidence required. He suggested that the decisions of Judge Rich and Judge Thornton in the instant case had been widely publicised and, in some quarters, criticised. He referred us to a number of authorities in an attempt to satisfy us that the approach of Judges Rich and Thornton was inconsistent with previous authority and wrong. I will deal with them in chronological order.
In Finch v Underwood [1876] 2 Ch. 310 the landlord had covenanted with the tenant, on receipt of notice from the latter, to renew the lease "in case the covenants and agreements on the tenants' part shall have been duly observed and performed". Notice was duly given but the landlord refused to renew the lease because the interior of the property needed repairs at a cost of £13. Vice-Chancellor Malins decided that the landlord was obliged to renew the lease because the want of repair was "trifling". The Court of Appeal disagreed. James LJ considered that the case was one of compliance with a condition precedent. He held that the tenant had lost his right to a renewal of the lease by breach of the covenant to repair. He added (p.315):
"No doubt every property must at times be somewhat out of repair, and a tenant must have a reasonable time allowed to do what is necessary: but where it is required as a condition precedent to the granting of a new lease that the lessee's covenants shall have been performed, the lessee who comes to claim the new lease must shew that at that time the property is in such a state as the covenants require it to be. He can easily send in his builder, get a report of what repairs are necessary, and do them before he applies for the lease. There is no hardship in requiring this of him, and I think he is not entitled to excuse himself by saying that the want of repair is trifling. The answer to that is, "No matter; your bargain was to leave the property in thorough repair." If he has not fulfilled his legal bargain, which is also his bargain in equity, he cannot sustain his claim for a lease."
Mellish LJ was of the same view. He pointed out that equity could not relieve the tenant from the consequence of failing to comply with the condition precedent. He added (p.316):
"In a case like this, if a tenant wishes to claim the benefit of such a covenant he should send in his surveyor to see what repairs are needed, and should effect the repairs which the surveyor certifies to be requisite. The Court would be inclined to give credit to a survey thus honestly made, and would lean towards holding the condition precedent to have been complied with. But in the present case it is admitted that there was an existing breach of the covenant to repair."
Baggallay LJ agreed because the condition had not been performed.
In the light of certain submissions, to which I shall refer later, I do not understand Mellish LJ to be suggesting that reasonable conduct of the tenant can justify a finding that a condition precedent has been satisfied notwithstanding the existence of a relevant breach of covenant. Rather he is pointing out that in the circumstances he postulates the court would be likely to accept the evidence of the surveyor for the tenant to the effect that the covenant had been duly performed by the material time.
The second authority to which we were referred is Simons v Associated Furnishers Ltd [1931] 1 Ch. 379. In that case buildings had been demised for a term of 17 years on terms that the tenant might terminate the lease at the expiration of the first five or ten years of the term if it gave notice to that effect and if it "shall up to the time of determination…perform and observe the covenants…but without prejudice to the remedies of either party against the other in respect of any antecedent claim or breach of covenant". The tenant duly gave notice to terminate. The tenant admitted that there...
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