Rail for London Ltd v The Mayor & Burgesses of the London Borough of Hackney
| Jurisdiction | England & Wales |
| Judge | Jonathan Hilliard |
| Judgment Date | 09 May 2022 |
| Neutral Citation | [2022] EWHC 1075 (Ch) |
| Docket Number | Case No: PT-2021-000217 |
| Court | Chancery Division |
[2022] EWHC 1075 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
Rolls Building
Fetter Lane, London, EC4A 1NL
Jonathan Hilliard QC sitting as a Deputy Judge of the High Court
Case No: PT-2021-000217
Matt Hutchings QC (instructed by TfL Legal) for the Claimant
Ranjit Bhose QC and Shomik Datta (instructed by The London Borough of Hackney) for the Defendant
Hearing date: 10 February 2022
Jonathan Hilliard QC sitting as a Deputy Judge of the High Court:
Introduction
The Claimant, Rail for London Limited ( Rail for London), seeks to strike out the section of the defence of the Defendant, London Borough of Hackney ( Hackney), relating to estoppel by convention. Rail for London contends that the relevant paragraphs of the Defence, namely paragraphs 52 to 57, disclose no reasonable grounds for defending the claim (the Application). Rail for London contends that Hackney is impermissibly seeking to use estoppel by convention as a sword rather than a shield, and thereby create an enforceable right to receive rent where none previously existed, which would have the effect of varying the relevant lease between them without Hackney having provided any consideration.
Given that the application is put in this way rather than seeking to knock out the use of estoppel by convention on any more fact-sensitive basis, I can set out the facts shortly.
The facts
The relevant aspect of the proceedings for present purposes concerns the meaning and operation of a 3 May 1996 underlease for 99 years and a day from 25 March 1994 ( Lease C) of railway arches and buildings at Kingsland Viaduct (the Arches) made between Hackney as landlord and Rail for London's predecessor, London Underground Limited ( London Underground). The parties are in dispute about the effect of a surrender of the sub-lease to Lease C on the rent payable under Lease C.
The rent payable under Lease C, which is defined as “ the Rent”, includes the “ Basic Rent” (paragraph 1(a) of Schedule 4). The Basic Rent is in turn defined insofar as relevant for present purposes as “ for each Relevant Year the Basic Rent (as defined in the Underlease) that is received by the Tenant pursuant to the provisions of the Underlease…” (clause 1.1).
The Underlease referred to ( Lease D) was granted on the same day as Lease C by London Underground to London Industrial (Kingsland Viaduct) Limited ( London Industrial), for 99 years from 25 March 1994. Under the definitions in clause 1.1 of Lease D, Basic Rent is defined in Lease D as “ for each Relevant Year the Percentage of the Net Income”, Net Income is in turn defined as “ the Gross Income minus the Expenses in any Relevant Year”, and Gross Income “ means in relation to each Relevant Year the aggregate of the following actually received by the Tenant”, the Tenant being London Industrial and its successors in title.
Lease C and D were granted pursuant to a principal agreement, also dated 3 May 1996, between Hackney, London Underground, London Industrial, and London Industrial plc. Pursuant to that agreement, the freehold of Kingsland Viaduct and the Arches was transferred by Hackney to London Underground for £1, and a sequence of leases were entered into whereby the Arches were let by London Underground to Hackney for a nil or nominal rent under a Lease B for 99 years plus two days from 25 March 1994, Hackney sub-let to London Underground under Lease C, and London Underground entered into the sub-underlease, Lease D, with London Industrial. These arrangements were entered against the backdrop of the possible extension of the East London Line from Shoreditch to Dalston.
On 21 November 2003, Lease D was surrendered for £7,788,500 (the Surrender). Rail for London became tenant under Lease C in 2009. Until September 2019, London Underground and then Rail for London continued to pay rent under Lease C: the tenant under Lease C made quarterly payment towards its rental liability, before providing a statement of income and expenses in respect of the Arches and then making an annual balancing payment.
In December 2019, Rail for London asserted that as a result of the Surrender, no Basic Rent had been due after the Surrender, and sought repayment of around £6m paid during the intervening period. Hackney disagreed. Ultimately Rail for London issued proceedings on 9 March 2021 (the Proceedings) seeking various declarations, including that Basic Rent is not payable under Lease C.
The trial is listed for 4 days in October 2022.
The pleadings
In the Particulars of Claim, Rail for London asserted that from 22 November 2003, the day after the Surrender, the Basic Rent under Lease C was zero (paragraph 25(d)) and therefore from that date the Basic Rent ceased to be payable under Lease C (paragraph 26). Rail for London therefore sought in the prayer a declaration that “ the Basic Rent is not payable under Lease C”. There was no claim pleaded for restitution of overpaid rent.
In its Defence, Hackney pleaded that (i) on the true construction of Lease C, Basic Rent continued to be payable after the Surrender, (ii) further or alternatively a term should be implied to this effect (paragraphs 37–51), and (iii) further or alternatively Rail for London was “ estopped by convention from asserting that Basic Rent is not payable under Lease as a result of the Surrender” (paragraph 52). In aid of contentions (i) and (ii), Hackney pleaded that the admissible background included a number of matters, including that the commercial purpose of the Principal Agreement was (among other things) that Hackney would obtain by the mechanism of a long lease-back in the form of Lease C, the net rental income from those arches for a 99 year term (paragraph 35(d)(vii)). Rail for London denies that this was part of the commercial purpose.
The components of the estoppel by convention pleaded by Hackney were that:
(1) “ For 16 years following the Surrender, the relevant parties (initially [Hackney] and [London Underground], and thereafter [Hackney] and [Rail for London] as [London Underground's] statutory successor) shared a common assumption or assumptions. The said common assumptions were that:
(a) the Basic Rent remained payable under Lease C, regardless of and/or notwithstanding the Surrender; and
(b) the Basic Rent remained calculable in accordance with the machinery of Lease D, regardless of and/or notwithstanding the Surrender.” (paragraph 53)
(2) These common assumptions were clearly communicated and shared between the relevant parties by their conduct (paragraph 54).
(3) Hackney relied on those common assumptions and has done so in a manner that would give rise to substantial detriment in the event that Rail for London was permitted to resile from those assumptions (paragraph 55), namely (i) Hackney is now unable to pursue an action for redress against the external solicitors who advised and acted for it in the drafting and execution of the relevant documents, including Leases C and D, and (ii) in reliance upon the convention(s) alleged, Hackney did not pursuant alternative contractual relief against London Underground following the Surrender in November 2003.
(4) In the premises it would be unconscionable to permit Rail for London now to resile from, or alter, the convention(s) previously established between the parties, so Rail for London was estopped by convention from asserting that the Basic Rent is not payable under Lease C as a result of the Surrender (paragraph 56), and the estoppel subsists for the remainder of the term (paragraph 57).
Hackney went on to counterclaim that Rail For London had breached its obligations under Lease C by failing to pay rent since September 2019, and sought declarations (i) in the alternative that (a) its interpretation of Lease C was the correct one, (b) a term was to be implied into Lease C to the same, and (c) that Rail for London was estopped by convention from asserting that Basic Rent is not payable under Lease C as a result of the Surrender, and (ii) that Rail for London provide Hackney with the material necessary to calculate the unpaid Basic Rent.
In its Reply to Defence and Counterclaim, Rail for London pleaded in relation to estoppel by convention that (i) paragraphs 52 to 57 of the Defence disclosed no reasonable grounds for defending the claim because Hackney was seeking to use estoppel by convention as a sword, not a shield, (ii) it was denied that the parties shared a clearly communicated common assumption in the terms alleged, (iii) it was denied that Hackney relied on the alleged common assumptions to its substantial detriment or at all, and (iv) it was denied that it would be unconscionable to permit Rail for London to resile from any convention established by the parties (paragraphs 32 to 35). The contention in point (i) forms the basis of the strike-out application before me.
The test
The Application relies on limb (a) of CPR r.3.4(2), namely that that the statement of case discloses no reasonable grounds for bringing or defending the claim.
Mr Bhose QC, appearing with Mr Datta for Hackney, submitted that an application to strike out in a context such as this should not be granted unless the Court is certain that the claim is bound to fail. He relied on [22] of Hughes v Colin Richards & Co [2004] EWCA Civ 266, a case in which the Court of Appeal dismissed an appeal against the rejection of a strike-out application. Peter Gibson LJ was dealing in that paragraph with the correct approach when the pleadings show significant disputes of fact between the parties going to the existence and scope of the alleged duty of care. Peter Gibson LJ held that the correct approach was that the Court...
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