Prudential Assurance Company Ltd v Ayres
| Jurisdiction | England & Wales |
| Judge | Lord Justice Moore-Bick,Lord Justice Moses,Lord Justice Ward |
| Judgment Date | 07 February 2008 |
| Neutral Citation | [2008] EWCA Civ 52 |
| Court | Court of Appeal (Civil Division) |
| Date | 07 February 2008 |
| Docket Number | Case No: A3/2007/0899 |
[2008] EWCA Civ 52
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr. Justice Lindsay
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Ward
Lord Justice Moore-bick and
Lord Justice Moses
Case No: A3/2007/0899
Mr. Anthony Trace Q.C. and Miss Philomena Harrison (instructed by Lovells) for the appellant
Mr. Alan Steinfeld Q.C. and Mr. Richard Ritchie (instructed by Kingsley Napley) for the respondents
Hearing date: 13 th December 2007
This is an appeal against an order of Lindsay J. dismissing the appellant's claim for outstanding rent and other charges under a guarantee given by the respondents of the obligations of the tenant under an underlease of premises constituting part of an office building known as Hasilwood House, Bishopsgate. The appellant is the well-known insurance company, The Prudential Assurance Company Limited (“the Prudential”); the respondents are, or were at the material time, partners in Brobeck Hale & Dorr International, a firm of American lawyers.
Hasilwood House is owned by the Leathersellers Company (“the Leathersellers”). On 21 st December 1995 the Prudential entered into a lease of the premises which contained, among other things, a covenant against assignment or sub-letting without the landlord's consent, such consent not to be unreasonably withheld.
On 12 th March 1997 the Prudential, with the consent of the Leathersellers, entered into an underlease of part of the premises for a term expiring on 24 th December 2006 with Donald Joseph Guiney and David Monroe Ayres, two partners in Brobeck Hale & Dorr International. The underlease contained a similar covenant against assignment or sub-letting, but it entitled the Prudential, as a condition of giving its consent to any assignment, to require the tenant to execute a guarantee of the assignee's covenants in a specified form complying with section 16 of the Landlord and Tenant (Covenants) Act 1995. On 24 th September 1998 by a deed of assignment, covenant, release and licence made between the Prudential, Mr. Guiney, Mr. Ayres and Mr. Christopher Grew, Mr. Grew replaced Mr. Guiney as tenant under the underlease.
This appeal arises out of a subsequent assignment of the underlease by the respondents to another firm of American lawyers, Altheimer & Gray, in June 2001. Since this appeal is not concerned with the head lease, it is convenient in the rest of this judgment to refer to the underlease simply as “the lease”.
Altheimer & Gray became interested in acquiring the lease in early 2001, if not before. The normal way of carrying out a transaction of that kind would be for two partners residing in this country to take an assignment of the lease for the benefit of the firm as a whole, as had been the case with Brobeck Hale & Dorr International, but Altheimer & Gray made it clear to all concerned from a very early stage that it wanted to take the assignment in the name of the partnership and that it was willing to proceed with the transaction only on the basis that there should be no recourse against the personal assets of the individual partners. The correspondence surrounding the negotiations for the assignment makes it clear that both the Prudential and the respondents were willing to accept those two demands, which do not appear to have been the subject of any significant negotiation. There were negotiations about the precise manner in which those requirements were to be implemented and also about the provision of additional security required by the Prudential in the form of a bank guarantee in respect of the payment of rent, but not about their substance. I think it is clear, therefore, that the transaction proceeded on the footing that the position of Altheimer & Gray was to be equated for all practical purposes with that of a limited liability company whose shares were fully paid up.
By 8 th May 2001 the terms of the proposed assignment had been agreed in principle between the Prudential, the respondents and Altheimer & Gray and the documents intended to give effect to it had all reached their final form with one exception, to which I shall come in a moment. On that date the respondents entered into an agreement with Altheimer & Gray to assign the residue of the lease on terms that Altheimer & Gray would enter into a covenant with them in the assignment to pay all rent becoming due under the lease from the date of completion.
Before the transaction could be completed, however, it was necessary for the Prudential to obtain the Leathersellers' consent to the assignment. That was achieved by the execution of a licence to assign (“the Licence”) executed by all four interested parties, namely, the Leathersellers, the Prudential, the respondents and Altheimer & Gray, on 8 th June 2001. The terms of the Licence have assumed some importance in this case and it is therefore necessary to refer to some of them in detail. They included the following:
“3. The Assignee [Altheimer & Gray] hereby covenants:
3.1 with the Landlord [the Leathersellers] that the Assignee will perform and observe all the covenants on the part of the lessee and the conditions and provisions on the part of the lessee contained in the Underlease.
3.2 with the Tenant [the Prudential] that the Assignee will pay the rents in the manner and at the respective times appointed for payment thereof …..
………………..
6. The Undertenant [the respondents] covenants with and guarantees to the Tenant that:
……….
6.3 the Assignee shall punctually pay the rents and perform and observe the covenants and other terms of the Underlease;
6.4 if the Assignee shall ….. make any default in payment of the rents or in performing or observing any of the covenants or other terms of the Underlease the Undertenant will pay the rents and perform the and observe the covenants or terms in respect of which the Assignee shall be in default and make good to the Tenant on demand and indemnify the Tenant against all losses damages costs and expenses arising or incurred by the Tenant as a result of such non-payment non-performance or non-observance notwithstanding:
6.4.1 any time or indulgence granted by the Tenant to the Assignee ……
……….
6.4.4 any other act or thing which but for this provision the Undertenant would have been released.”
In addition, clause 6.5 of the Licence contained a covenant on the part of the respondents to accept a new lease for a period equivalent to the residue of the old lease if the assignee should disclaim prior to any further lawful assignment.
The assignment itself was executed by the respondents and Altheimer & Gray on 21 st June 2001. It contained, among others, the following provisions:
“3.3 The Assignee covenants with the Assignor that the Assignee ….. will henceforth during the said term and any statutory continuation of it pay the reserved rent and perform and observe the tenant's covenants and the conditions contained in the Lease and will at all times keep the Assignor indemnified against all proceedings, costs, claims and expenses whatsoever in respect thereof.”
On the same date the Prudential (as Landlord) and Altheimer & Gray (as Tenant) executed a deed (“the Supplemental Deed”) which was expressed to be supplemental to the lease and which provided, so far as is material, as follows:
“2. PARTNERSHIP LIABILITY
Whilst the Lease is vested in Altheimer & Gray or any Group Company of Altheimer & Gray or while Altheimer & Gray or any Group Company of Altheimer & Gray remains liable under an authorised guarantee agreement pursuant to Section 16 of the Landlord and Tenant (Covenants) Act 1995 (but notwithstanding any assignment or other transfer, or any disclaimer, of the same or any other event or circumstances whatsoever):-
2.1 The liability of the Tenant under the Lease and all documents ancillary to or supplemental to the lease and the liability of the Tenant under any authorised guarantee agreement given in connection with any assignment of the Lease shall be limited to the Partnership (including, but not limited to all its assets, income and accounts) and such liability shall not extend to the personal assets of individual partners (present, past or future) therein. Consequently any recovery by the Landlord against the Tenant or any previous tenant under the Lease for any such default shall be limited to assets of the Partnership and shall not extend to the personal assets of any individual partners therein other than the capital and current accounts of such partners in the Partnership. Further, no partner (present, past or future) of the Tenant shall be required by the Landlord at any time to loan or contribute personal money or property to the Tenant to enable it to discharge any obligation owed to the Landlord.
2.2 In the event of the liquidation of Altheimer & Gray ….. in circumstances where the liquidator would have a right to bring a claim against the separate estate of any of the individual partners or to prove for the same by reason of any insufficiency in the joint estate for the payment of the joint expenses and joint debts with or without interest thereon, then the Landlord shall not be entitled to any payment, dividend or other distribution from any such liquidator, in either case to the extent that [t]he liquidator may be or become entitled to make or have made any claim or submit or have submitted any proof against the individual...
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