Prudential Assurance Company Ltd v Ayres
| Jurisdiction | England & Wales |
| Judge | Mr Justice Lindsay |
| Judgment Date | 03 April 2007 |
| Neutral Citation | [2007] EWHC 775 (Ch) |
| Court | Chancery Division |
| Date | 03 April 2007 |
| Docket Number | Case No: HC04C01599 |
[2007] EWHC 775 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Hon. Mr Justice Lindsay
Case No: HC04C01599
Mr Anthony Trace QC and Ms Philomena Harrison (instructed by Lovells) for the Claimant
Mr Alan Steinfeld QC and Mr Richard Ritchie (instructed by Kingsley Napley) for the Defendants
Hearing date: 26 March 2007
Mr Justice Lindsay:
Introduction
The Claimants, the Prudential Assurance Company Limited (“the Prudential”), represented by Mr Trace QC leading Miss Harrison, is the lessee of substantial office premises in the City of London. It holds them of the Wardens and Society of the Mistery or Art of the Leathersellers of the City of London, whom I shall call “the Leathersellers”. The underlessee of the premises, replacing the Defendants, Messrs D.M. Ayres and C. Grew, (who had been the immediately preceding underlessee) came to be a firm of United States Attorneys, the Illinois partnership Altheimer & Gray (“A & G”). A & G moved into bankruptcy both in the United States and here, leaving, by now, some £1.5 million owing by way of unpaid obligations under the Underlease. The Prudential accordingly looked to recover from the Defendants, previous tenants of the premises, in their capacity as guarantors of A & G. But there exists a Supplemental Deed between the Prudential and A & G, supplemental to the Underlease, which contains a provision – clause 2 – which has been called a non-recourse provision, an unusual provision which arguably limits recovery by the Prudential to what might be called the Partnership assets of A & G to the exclusion of the personal assets of its individual partners. This judgment is concerned with the effect of that clause 2 upon recoverability from the Defendants as guarantors of A & G. The Defendants, represented by Mr Steinfeld QC leading Mr Ritchie, argue that the effect of clause 2 in the events which have happened, which I shall describe, is wholly to exonerate the Defendants from liability to the Prudential.
The background facts
On the 12 th March 1997 the Prudential granted an Underlease of substantial office premises on two floors of Hasilwood House, Bishopsgate, London EC2. The underlessee, there described as “the Tenant”, then consisted of two individuals Mr D.J. Guiney and Mr D.M. Ayres. The term of the Underlease was to end on the 24 th December 2006. The reviewable rent, even unreviewed, was prescribed to be, from the 25 th December 2001, a little short of £400,000 per annum payable by equal quarterly payments in advance on the usual quarter days in every year. In addition there were service charges and other conventional provisions. The Underlease was described as a new tenancy within the meaning of section 1 of the Landlord and Tenant (Covenants) Act 1995. The underlessees covenanted to pay the rents reserved without deduction. The only permitted use was as high-class offices. There was a prohibition against assignment of the Underlease without the landlord's, the Prudential's, consent. Amongst the pre-conditions which the Prudential could insist upon, were the underlessee to wish to assign, was the execution by the underlessee and delivery to the Prudential prior to the assignment of an Authorised Guarantee Agreement, an instrument the nature of which is prescribed in the 1995 Act. Were rent to be paid late, interest was to fall due thereon under the provisions of the Underlease. The provisions of sections 24 to 28 inclusive of the Landlord and Tenant Act 1954 were duly excluded.
I have not seen the terms of the Headlease from the Leathersellers to the Prudential but it is plain, to judge from the Licence to Assign to Messrs Guiney and Ayres which the Prudential obtained from the Leathersellers on the 3 rd March 1997, that the Headlease required that the Prudential should obtain prior licence before assigning and that the Prudential bound itself not without the Leathersellers' consent at any time expressly or by implication to waive any of the covenants contained in the Underlease which it granted to Messrs Guiney and Ayres.
Messrs Guiney and Ayres had been joined as underlessees as partners in the law firm of Brobeck Hale & Dorr International and, upon Mr Guiney retiring from that partnership in April 1997, he was shortly thereafter replaced by Mr Grew. On the 24 th September 1998 the Prudential joined in a Deed of Assignment, Covenant, Release and Licence of that date with Mr Guiney, Mr Ayres and Mr Grew. The Underlease was assigned to Messrs Ayres and Grew and Mr Grew covenanted with the Prudential with effect from the 24 th September 1998 and for the residue of the term to pay the rents reserved by the Underlease.
On the 8 th May 2001 Messrs Ayres and Grew, the Defendants, agreed with A & G that A & G should take over the Underlease. A term of the agreement between them was that in the prospective assignment A & G would separately covenant with the Defendants that A & G and its successors in title to the Underlease would, during the continuance of the term of the Underlease, pay all rents becoming due under the Underlease from the date of actual completion of the assignment.
On 8 th June 2001 a Licence to Assign the Underlease was granted by the Leathersellers to the Prudential. Both the Defendants and A & G were also parties to the licence. Both the Leathersellers and the Prudential agreed to the assignment by the Defendants to A & G. A & G covenanted with the Leathersellers and also with the Prudential. The covenant with the Prudential was that A & G would pay the rents “in the manner and at the respective times appointed for payment thereof and will perform and observe all the covenants on the part of the lessee and the covenants and provisions contained in the Underlease”. By clause 6 the Defendants covenanted with and guaranteed to the Prudential, inter alia, that if A & G, before any lawful assignment of the Underlease by it, made default in payment of the rents payable under the Underlease then the Defendants would pay the rents notwithstanding (clause 6.4.1) any time or indulgence granted by the Prudential to A & G, or any neglect or forbearance of the Prudential or (clause 6.4.2) any variation in the terms of the Underlease, or:
“Any other act or thing [by] which but for this provision [A & G] would have been released”.
That is the background against which has to be construed the most important instrument for present purposes, namely the Supplemental Deed of the 21 st June 2001 made only between the Prudential and A & G. It was expressed to be supplemental to the Underlease. The Supplemental Deed has a definition of “Partnership” which was defined as meaning A & G “as constituted by the present and future partners thereof carrying on in partnership (with others) in the United States of America and elsewhere the professional practice of attorneys under the name or style of Altheimer & Gray and includes any successor body or firm carrying on the whole or a substantial part of the business of that Partnership from time to time in the United States of America and elsewhere and any successor firm, partnership or body following any merger, incorporation or otherwise”. It will be seen from that definition that it defines what is, so to speak, a legal personality; it does not in terms describe any particular body of assets or liabilities.
I shall come on later to the more crucial terms of clause 2 of the Supplemental Deed but, to continue a recital of the background facts, in October 2003 A & G's creditors filed an petition against A & G under Chapter 7 of the US Bankruptcy Code. In November 2003 the case was converted to one under Chapter 11 of the US Bankruptcy Code and on the 21 st November 2003, by Order of the US Bankruptcy Court, A & G were authorised to reject the Underlease with effect from 30 th December 2003.
In May 2004 the Prudential began proceedings against the Defendants asking for a declaration that they, the Defendants, were obliged to accept a new Lease of the fourth and fifth floors of Hasilwood House, the premises described in the Underlease, and there then began to be served on the Defendants a series of notices under section 17 of the Landlord and Tenant (Covenants) Act 1995, none of which is contested as to its service or effect. In May 2005 the Prudential's claim form was amended and there were later further amendments to it so as alternatively to claim from the Defendants as guarantors sums (then) of over £1.3 million and interest. It is that alternative claim which gives rise to the questions of construction with which I shall be concerned.
In May 2006 A & G as a partnership was wound up in England. In June 2006 its liquidator disclaimed the Underlease.
So far I have described, when speaking of proceedings, proceedings the number of which ends 1599. The Prudential has since issued separate proceedings, the ending of which is 4440, but I have not been concerned with such later proceedings.
No evidence other than documentary was led save for the witness statement of Mr C. Martin, the solicitor who, at the time of the Supplemental Deed, was at Berwin Leighton Paisner and had the conduct of conveyancing matters there on behalf of the Prudential. He wrote as to some surrounding circumstances but neither added to or subtracted from the matters required to be entertained in arriving at a true construction of the Supplemental Deed.
Only liability is in dispute before me. Subject to certain qualifications with which I need not, at this stage, deal, quantum is agreed at £1,534,416.88 of which over £1.289 million is for arrears of the reserved rent which, from March 2004, was at £143,250 per quarter.
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