Marks and Spencer Plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd and Another
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden,Lord Justice Jackson,Lord Justice Fulford |
| Judgment Date | 14 May 2014 |
| Neutral Citation | [2014] EWCA Civ 603 |
| Docket Number | Case No: A3/2013/1900 |
| Court | Court of Appeal (Civil Division) |
| Date | 14 May 2014 |
[2014] EWCA Civ 603
Lady Justice Arden
Lord Justice Jackson
and
Lord Justice Fulford
Case No: A3/2013/1900
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
Mr Justice Morgan
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Nicholas Dowding QC (instructed by Allen & Overy LLP) for the Appellants
Mr Guy Fetherstonhaugh QC (instructed by King & Wood Malleson LLP) for the Respondent
Hearing date: Tuesday 25 March 2014
This appeal concerns a "break clause" in a lease, that is, a clause which permits the tenant to terminate the lease on a date ("the break date") earlier than the last date of the term. Lessees often negotiate such clauses, recognising that the lessor may well demand compensation, often in the form of a "break premium", payment of which is made a pre-condition of a "break" under the break clause. Here the parties negotiated a break premium but said nothing about an apportionment of rent, which the lease requires the tenant to pay in advance. Can the court imply a term which enables the lessee to get back that part of the advance payment of rent which relates to a period ("the broken period") after the break date, by when the lease will have terminated? The closely-reasoned judgment of Morgan J dated 16 May 2013, which is the subject of this appeal, held that the court could do so. The lessor, BNP Paribas ("BNP"), now appeals.
I have come to a different conclusion from the judge for the primary reason that in my judgment the lease, read as a whole against the relevant background, would not reasonably be understood to include such a term, and thus the test for an implied term is not met. I start with the principal terms of the lease, some background about the exercise of the break clause and these proceedings and a summary of the judge's detailed reasoning. Then I set out my full reasons on the basis of the parties' submissions on this appeal.
What were the relevant express terms of the lease?
There are in fact four leases (strictly, sub-underleases) between the parties, each for a separate floor of the same office block in Paddington, London. We have considered the terms of only one of those leases as they are all on the same terms, so far as material. The lessee is Marks and Spencer plc ("M&S"). The parties entered into a deed of variation dated 15 January 2010 which "restated" the terms of the lease. The previous terms of the lease are not material. I have set out the critically relevant terms of the lease in the Annex to this judgment.
Basic Rent was payable in advance on the usual quarter days, with additional payments for car parking, insurance and services. The reddendum in clause 2 of the restated lease setting out the grant or demise to the tenant and the terms as to rent ("the apportionment clause") uses the words "proportionately for any part of a year." The judge held that the apportionment clause applied not only to the first and final periods of the lease if it ran until expiry, which would not be full quarters, but also, if the break clause was operated, to the advance payment of rent from the last quarter day preceding the break date provided that the break premium had also been paid since it was then certain that the lease would terminate on the break date ("the apportionment conclusion").
The term of the lease was expressed in the lease to expire on 2 February 2018. The parties contracted out of the security of tenure provisions in sections 24–28 of the Landlord and Tenant Act 1954 so the lease would be bound to end on that date if it had not expired on any earlier date.
The break clause allowed the lessee to terminate the lease on either 24 January 2012 (called "the first break date") or 24 January 2016 (called "the second break date"), but he had to give six months' advance notice. In addition, there had to be no arrears of rent or VAT on rent, and the lessee had to have paid a substantial premium by the break date. But these were the only conditions for the operation of the break clause.
There is no express term which entitles the lessee to be repaid any sum by way of Basic Rent, car parking fee, insurance or services that he has paid in excess of what is due from him for periods prior to the break date.
M&S operates the break clause and sues to recover rent and charges for the broken period
M&S complied with the conditions of the break clause to enable it to exercise the right on the first break date. It paid the Basic Rent for the quarter starting on 25 December 2011 ("the last quarter day") in full and the break premium on 18 January 2012. So the lease came to an end on 24 January 2012. After that date, M&S demanded repayment of the rent paid in advance for the period from 25 January to 24 March 2012 (being the broken period). BNP refused to make repayment and so M&S started these proceedings to recover the Basic Rent, car parking fee, Insurance and service charges relating to the that period.
At trial, M&S puts its claim on several bases: (i) the express terms of the lease, (ii) restitution (iii) total failure of consideration and (iv) implied term. The judge rejected all these bases except implied term. M&S does not cross-appeal any of the claims which the judge rejected. We are solely concerned with the correctness of the judge's conclusion in M&S's favour that there was an implied term.
Detailed reasoning of the judge
The judge's reasoning on implied term proceeds by the following steps.
First, the judge selected the test for implication of a term. He held that the applicable test was thar set out at the end of paragraph 21 of the speech of Lord Hoffmann in the Privy Council case of A.G. of Belize v Belize Telecom Ltd [2009] 1 WLR 1988, namely:
"21 It follows that in every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean. It will be noticed from Lord Pearson's speech that this question can be reformulated in various ways which a court may find helpful in providing an answer—the implied term must "go without saying", it must be "necessary to give business efficacy to the contract" and so on—but these are not in the Board's opinion to be treated as different or additional tests. There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?" (italics added)
The core reasoning of the judge was that applying this test a term could be implied that advance rent paid for the broken period would be repaid following the break date principally for two reasons.
First, building on the apportionment conclusion, the judge held that a reasonable person would consider that such a term was to be implied because the lessee should be in the same position as a lessee who paid the break premium on the last quarter day ("the same position conclusion"). Second, the judge held that the break premium amounted to a year's rent (before any rent review) and so the parties should be taken to have agreed that this was the full amount of compensation for the lessor if the lessee exercised his right to determine the lease under the break clause and in those circumstances they were unlikely to have considered that the lessor should retain the rent for the broken period as well ("the full compensation conclusion").
The judge reinforced his principal reasons by a number of further reasons ("the subsidiary reasons") as follows:
i) The implications of the case law (rejecting an implied term) may have been less obvious at the time the lease was drafted than they were by the date of his judgment.
ii) In view of the fact that rent is reserved "proportionately for any part of year" and that the quarterly payments were "instalments", it may have been fairly obvious what the parties thought should happen in such a case.
iii) A clause entitling the lessee to repayment could be easily and clearly drafted and was not inconsistent with other provisions of the lease.
iv) Previous cases which rejected claims for repayment of rent for a broken period following the exercise of a break clause or forfeiture had not considered whether there might be an implied term for repayment.
As a cross-check, the judge asked whether it was necessary to imply the term. He held that the implied term was necessary to give business efficacy to the lease.
Finally, the judge dealt with a possible objection to the implication of the term that it would enable a lessee whose lease had been forfeited to recover rent for the broken period. The judge held that it was possible to distinguish the present case from forfeiture. The judge would not have implied a term entitling the lessee in default to repayment of rent for any broken period after the date when the lessor forfeited the lease. There was no provision for compensation if the lessor terminated the lease.
The judge went on to hold that there was an implied term for reimbursement of the proportion of insurance charges attributable to the broken period and the proportion of the car parking fee which had been paid before the break date. He held that, while there was no express provision for this and the words "proportionately for any part of a year" did not appear in the relevant provisions, these charges would in any...
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