Goldman Sachs International v Procession House Trustee Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Nugee |
| Judgment Date | 03 May 2018 |
| Neutral Citation | [2018] EWHC 1523 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No. PT-2017-000090 |
| Date | 03 May 2018 |
[2018] EWHC 1523 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
PROPERTY TRUSTS AND PROBATE
LIST (ChD)
Royal Courts of Justice, Rolls Building,
Mr Justice Nugee
Case No. PT-2017-000090
Mr J. Seitler QC (instructed by Burges Salmon LLP) appeared on behalf of the Claimant.
Mr M. Sefton QC (instructed by Eversheds Sutherland (International) LLP) appeared on behalf of the Defendants.
I have before me a Part 8 claim which seeks the determination of a question of construction of a break clause in a lease. The claimant is the tenant, Goldman Sachs International, and appears by Mr Seitler QC. The defendants are two companies: Procession House Trustee Limited and Procession House Trustee 2 Limited who, together, form the landlord and appear by Mr Sefton QC.
The lease is dated 17 April 2000 and was granted by a predecessor of the landlord called Heron Procession House Limited to the tenant, Goldman Sachs International. It is a lease of office premises at Procession House, 55 Ludgate Hill and 110 New Bridge Street in the City of London, which is a building which surrounds the City Thameslink railway station. The term granted was for 25 years from and including 29 September 1999, which means it would otherwise expire by effluxion of time in September 2024, but that is subject to clause 23, which is the break clause. I should read the whole of clause 23 which reads as follows:
“ TENANT'S BREAK OPTION
23.1 subject to the Tenant being able to yield up the Premises with vacant possession as provided in clause 23.2, this Lease shall be terminable by the Tenant at the expiry of the twentieth year of the Term by the Tenant giving to the Landlord not less than 12 months' and one day's previous notice in writing.
23.2 On the expiration of such notice, the Term shall cease and determine (and the Tenant shall yield up the Premises in accordance with clause 11 and with full vacant possession) but such determination shall be without prejudice to the respective rights of either party against the other in respect of any antecedent claim or breach of covenant.
23.3 The Tenant shall not be entitled to give such notice while it shall be in arrears in payment of the Rent.”
Clause 23.2 refers to clause 11. Clause 11 is a clause headed “YIELDING UP” and reads as follows:
“11.1 Unless not required by the Landlord, the Tenant shall, at the end of the Term, remove any alterations or additions made to the Premises (and make good any damage caused by that removal to the reasonable satisfaction of the Landlord) and shall reinstate the Premises to their original layout and to no less a condition than as described in the Works Specification.
11.2 At the end or sooner determination of the Term the Tenant will quietly yield up the Premises to the Landlord in such condition as is set out in the Works Specification.
Provided in either case that:-
(a) Tenant will not be required to reinstate upgrades to the building plant machinery and equipment and to the extent that such upgrades do not reduce the net internal area (or in the reasonable opinion of the Landlord), adversely affect the value or the Landlord's ability to let the Premises in the future and the Tenant shall be entitled to no compensation in respect of any such upgrades; and
(b) The Tenant may use substitute materials of comparable quality if materials specified in the Works Specification are not readily available at the time of reinstatement.”
The initial rent for the lease was just over £million. It was subject to five yearly reviews but I was told that it has, in fact, not been reviewed and that that is still the passing rent. The premises are currently vacant and Goldman Sachs intends to operate the break clause which will enable it, if it can operate it successfully, to break the lease in September 2019 and they have brought these proceedings in good time before the break clause comes to be operated so that they know precisely what it is they have to do in order to operate it successfully. It will be seen that the advantage to them of being able to break the lease five years early is to save some £20 million in rent.
The rival contentions are these. The tenant, through Mr Seitler, says that the words in clause 23.1 “yield up the Premises with vacant possession as provided in clause 23.2” oblige the tenant to yield up the premises with vacant possession, the reference to clause 23.2 simply qualifying, or being governed by, the words “with vacant possession”. So the only cross-reference in clause 23.1 to clause 23.2 is the reference to “with vacant possession”.
The landlord, through Mr Sefton, says by contrast that those words mean that the tenant has to yield up the premises both with vacant possession and as provided in clause 23.2, and that the effect of that is that it has to comply with the obligations of clause 11, that clause being expressly referred to in the bracketed part of clause 23.2.
Various matters were common ground. There was no real dispute over the principles of contractual construction. I was referred by both parties to the speech of Lord Neuberger in Arnold v Britton & Ors [2015] UKSC 36 for his statement of the principles at [15] to [23]. He sets out at [15] what the court is seeking to do, that is identify the intention of the parties by reference to “what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean.” He says:
“And it does so by focussing on the meaning of the relevant words, in this case clause 3(2) of each of the 25 leases, in their documentary, factual and commercial context.”
Then he then sets out various factors which have to be taken into account.
Then at [16] onwards, he emphasised seven particular factors. The passage as a whole, which I have read the whole of, is a very helpful reminder of the factors to take into account but it is too long to read into this judgment.
I was also referred, although not taken specifically, to the later decision of the Supreme Court in Wood v Capita Insurance Services Limited [2017] UKSC 24 where Lord Hodge at [8] to [15] restates again the principles applicable, in particular, at [10]:
“The court's task is to ascertain the objective meaning of the language which the parties have chosen to express their agreement. It has long been accepted that this is not a literalist exercise focused solely on a parsing of the wording of the particular clause but that the court must consider the contract as a whole and, depending on the nature, formality and quality of drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to that objective meaning.”
Also, at [13] where he says:
“Textualism and contextualism are not conflicting paradigms in a battle for exclusive occupation of the field of contractual interpretation. Rather, the lawyer and the judge, when interpreting any contract, can use them as tools to ascertain the objective meaning of the language which the parties have chosen to express their agreement.”
Mr Sefton, by reference to [15] of Lord Neuberger's judgment in Arnold v Britton said that the words were the main tool for construction. I do not intend to restate the principles in my own words but I certainly accept that it is clear from both those cases and numerous other cases that the task of the court is to ascertain the meaning of the language that has been used, not other language that has not been used, and that in the end, that is what the court is doing. It is interpreting the parties' language and it is, as Lord Neuberger points out, the one aspect of their contract that the parties can control (see [17] of his judgment). However, in ascertaining the meaning of the language the parties have used, as both judgments again make clear, the court can make more or less use of tools which go beyond the mere words on the page. As I say, there was not really any dispute between the parties as to the principles of construction.
Certain other matters were common ground. First, that although clause 23.1 refers to the option being subject to the tenant “being able to yield up the Premises with vacant possession as provided in clause 23.2”, it is accepted by Mr Seitler that that is a condition which in fact means that the tenant must actually yield up the premises at the termination of the term. That, as I say, was common ground and it follows that it is not disputed that there are at least two preconditions to the exercise of the break option, one in clause 23.3 which is to be satisfied at the time that the notice is given, which is that the tenant should not be in arrears in payment of the rent when the notice is given, and the other in clause 23.1 which is the obligation to yield up with vacant possession when the notice expires or would expire if valid, which is one which looks forward to the termination date. As I say, that is common ground. The only dispute between the parties is whether it is also a precondition in clause 23.1 that the tenant complies with the entirety of clause 23.2 including the obligation to yield up the premises in accordance with clause 11.
It is also common ground that clause 11 does apply on either party's construction to impose...
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