Marks and Spencer Plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd

JurisdictionEngland & Wales
JudgeLord Neuberger,Lord Sumption,Lord Hodge,Lord Carnwath,Lord Clarke
Judgment Date02 December 2015
Neutral Citation[2015] UKSC 72
CourtSupreme Court
Date02 December 2015
Marks and Spencer plc
(Appellant)
and
BNP Paribas Securities Services Trust Company (Jersey) Limited and another
(Respondents)

[2015] UKSC 72

before

Lord Neuberger, President

Lord Clarke

Lord Sumption

Lord Carnwath

Lord Hodge

THE SUPREME COURT

Michaelmas Term

On appeal from: [2014] EWCA Civ 603

Appellant

Guy Fetherstonhaugh QC

Kester Lees

(Instructed by King & Wood Mallesons LLP)

Respondents

Nicholas Dowding QC

Mark Sefton

(Instructed by Allen & Overy)

Heard on 7 October 2015

Lord Neuberger : (with whom Lord Sumption and Lord Hodge agree)
Introductory
1

This appeal concerns a tenant's break clause in a lease. The lease had been granted for a term expiring on 2 February 2018, and, in the normal way, the rent was payable in advance on the usual quarter days. The tenant exercised its right under the break clause to determine the lease on 24 January 2012, after it had paid the full quarter's rent due on 25 December 2011. The issue is whether it can recover from the landlords the apportioned rent in respect of the period from 24 January to 24 March 2012. The resolution of that issue turns on the interpretation of the lease, and it requires the court to consider the principles by reference to which a term is to be implied into a contract.

The Contractual documentation
2

The defendants were the landlords and the claimant was the tenant under four sub-underleases of different floors in a building known as The Point ("the Building") in Paddington Basin, London W2. Each sub-underlease was set out in a Schedule to a deed made on 15 January 2010, which varied or "restated" the provisions of a previous sub-underlease which had been granted to the claimant in 2006. The origin of most of the provisions of each of the four sub-underleases granted in 2010 is to be found in the four sub-underleases granted in 2006. In this judgment, it is only necessary to refer to one of the four deeds ("the Deed"), the sub-underlease it granted ("the Lease") and the sub-underlease ("the earlier Lease") it replaced, as any differences between the four Deeds, the four 2010 sub-underleases and the four 2006 sub-underleases are irrelevant for present purposes.

3

The Lease demised the third floor of the Building ("the Premises") together with the use of two car parking spaces to the claimant "for a term of years starting on 25 January 2006 and ending on 2 February 2018". The reddendum reserved a rent consisting of (a) "the Basic Rent" and (b) "the Car Park Licence Fee". The Basic Rent was "£919,800 plus VAT per annum", which was to be "reviewed in accordance with Schedule 4", which provided for reviews on certain specified "review dates". The Basic Rent was to be "paid yearly and proportionately for any part of a year by equal quarterly instalments in advance on the [usual] quarter days". As at 25 December 2011, the Basic Rent was £1,236,689 per annum plus VAT. The Car Park Licence Fee was £6,000 per annum, which was to "be paid by equal quarterly instalments in advance on the [usual] quarter days". The Lease was validly excluded from the ambit of sections 24–28 of the Landlord and Tenant Act 1954, which meant that, if not determined before 2 February 2018, the Lease would end on that date.

4

Clause 8.1 of the Lease entitled the claimant (so long as it remained the tenant) to determine the Lease, by giving the landlords six months' prior written notice (a "break notice") to take effect on the "first break date", namely 24 January 2012, and clause 8.2 provided for a "second break date" of 24 January 2016. Clause 8.3 stipulated that a break notice would only have effect "if on the break date there are no arrears of Basic Rent or VAT on Basic Rent". Clause 8.4 provided that a break notice would only take effect on the first break date "if on or prior to the first break date the tenant pays to the landlord the sum of £919,800 plus VAT". Clause 8.5 was concerned with consequential conveyancing machinery. Clause 8.6 entitled the landlords to "waive compliance with all or any of the conditions … set out in clause 8.3". Clause 8.7 stated that if "the provisions of this clause are complied with" the Lease should end on the break date "without prejudice to the rights of either party in respect of any previous breach by the other". A very similar clause to clause 8 was contained in the earlier Lease: hence the choice of break dates, which were on anniversaries of the date of grant of the earlier Lease.

5

Schedule 5 to the Lease dealt with insurance. In brief, the landlords covenanted to insure the Building against specified risks, and the tenant was obliged to "pay to the landlord … a fair proportion [assessed by reference to the ratio of the floor area of the Premises to that of the Building] of every premium payable by the landlord … for insuring the Building …". These payments were "reserved as rent".

6

Schedule 7 to the Lease was concerned with the services which the landlord covenanted to provide to the occupiers of the Building, and the service charge which the tenant was to pay in return. The service charge, which was reserved as rent, was to be "a fair proportion" (assessed in a similar way to the insurance rent) of the cost to the landlords of providing the services. This was initially to be based on an annual estimate, which was to be paid "on account" in advance by equal instalments on the usual quarter days. Paragraph 4.5 of the Schedule provided for payment by the tenant of a balancing sum in ten working days if the actual expenditure was greater than the payment on account, and paragraph 4.6 entitled the tenant to be credited with any "overpayment … against the next … payment on account", if the expenditure was less than the payment on account.

7

As is almost invariably the case with modern commercial leases, the Lease was a very full and detailed document. It ran to some 70 pages, including 15 pages of tenant's covenants and nine pages of landlords' covenants, and it included, in clause 5, a right for the landlords to forfeit the Lease for non-payment of rent or other breach of covenant by the tenant. The provisions for review of the Basic Rent in Schedule 4 ran to four pages, and required a periodic review of the rent to the then-current market rental value of the Premises as at certain specified "review dates". Paragraph 8 of Schedule 4 stated that if the reviewed rent was not determined by a review date, rent at the preceding rate is to be payable and, once the reviewed rent is determined, a balancing figure is payable by the tenant to the landlords.

8

It is not necessary to say much about the Deed, save that clause 4 provided that, if the tenant did not exercise its right to break the Lease (and the other three sub-underleases) on 24 January 2012, the landlords would pay the tenant £150,000 by crediting it against the tenant's liability for the rent due on the following quarter day, 25 March 2012.

The factual background
9

On 7 July 2011, pursuant to clause 8.1, the claimant tenant served a break notice on the defendant landlords to determine the Lease on 24 January 2012. On 19 July 2011, the defendants invoiced the claimant for its share of the insurance rent premium under Schedule 5 ("the insurance rent") in respect of the year from 1 July 2011, in the sum of £14,972.85 plus VAT, which the claimant paid two weeks later.

10

Shortly before 25 December 2011, the claimant paid the defendants the rent due on that date in respect of the quarter from that date up to and including 24 March 2012, the day before the next quarter day, thereby ensuring that clause 8.3 of the Lease was satisfied. This rent consisted of the Basic Rent (as reviewed) of £309,172.25 plus VAT, and the Car Park Licence Fee of £1,500. On or about 18 January 2012, the claimant paid the defendants £919,800 plus VAT, pursuant to clause 8.4 of the Lease. As a result of these payments, the break notice served on 7 July 2011 was effective, and the Lease determined on 24 January 2012.

11

On 3 September 2012, more than eight months after the expiry of the Lease, the defendants served on the claimant a service charge certificate in respect of the services provided in the calendar year 2011. This showed that the cost of the services had been less than the estimate, and the defendants credited the claimant with its excess payment.

12

Although there were similar issues about the Car Park Licence Fee, the insurance rent and the service charge, the principal issue between the parties at trial was whether the claimant was entitled to be refunded a sum equal to the apportioned Basic Rent in respect of the period 24 January 2012 (when the Lease expired) and 25 March 2012, given that the claimant had paid the Basic Rent (in the sum of £309,172.25 plus VAT) on 25 December 2011 in respect of that period even though the Lease had expired on 24 January 2012. In a carefully reasoned judgment, Morgan J held that the claimant was so entitled — [2013] EWHC 1279 (Ch). For reasons given by Arden LJ (with whom Jackson and Fulford LJJ agreed), the Court of Appeal allowed the defendants' appeal — [2014] EWCA Civ 603.

13

The claimant now appeals to this court, contending, as it did in the courts below, that there should be implied into the Lease a term that, if the tenant exercises the right to break under clause 8 and the Lease consequently determines on 24 January, the landlords ought to pay back a proportion of the Basic Rent paid by the tenant due on the immediately preceding 25 December ("the apportioned sum"), being apportioned in respect of the period 24 January up to and including the ensuing 24 March 2012. A similar issue arises in relation to the Car Park Licence Fee and the insurance rent, which I shall deal with at the end of this judgment.

Implied terms in contracts
14

It is rightly accepted on behalf of the claimant that there is no provision in the Lease which expressly...

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