Landlord and tenant –– Agreement for lease –– Licence to occupy –– Termination of licence –– Repossession of premises –– Application for interim mandatory injunction to restore occupation –– Whether grounds for injunction made out –– Proprietary estoppel and constructive trust –– “Subject to contract” negotiations –– Whether serious issue to be tried
The second defendant held a 99-year lease of studio premises consisting of a number of buildings. In November 1996, the claimant, who was already holding a five-year lease of certain buildings granted in 1995, and the second defendant entered into an agreement for the grant to the claimant of leases of additional parts of the site for terms of 15 years. Under the agreement, the claimant was granted a licence to enter and remain in the additional premises upon the same terms as if the leases had been granted. The terms included a right of re-entry and provisions for the payment of a licence fee based upon the rent and service charge provisions of the proposed leases. They also permitted the second defendant to determine the agreement upon any failure of the claimant to perform or observe any material obligations. The leases were not entered into and the claimant never paid the licence fee in respect of the additional premises. Between 1996 and mid-1997, and between late 1998 and 1999, negotiations to revise the agreement took place between the parties, concerning, inter alia, the parties’ respective contributions to improvements. Correspondence in June 1998 was marked “without prejudice”, and, in December 1998, “subject to contract”.
On 2 October 2000 the second defendant retook possession of the additional premises, and demanded that the leases should be entered into and all sums should be paid (some £675,000). The claimant issued proceedings seeking reinstatement to the premises by way of an interim mandatory injunction. It contended that, in the course of the negotiations, the second defendant knew that it was intending to spend a large amount on the premises, and could not afford to do so as well as comply in full with the terms of the agreement. It relied upon representations on behalf of the second defendant regarding a substantial rent holiday and expenditure on improvements. The claimant sought relief on the basis of proprietary estoppel and/or constructive trust.
Held: The claimant was not entitled to an interim mandatory injunction. The merits threshold for the grant of such injunctions was a flexible one, and was designed to take account of the fact that its grant, depending upon the circumstances, might involve a higher degree of risk of injustice if it turned out to have been wrongly granted, and that the greater the degree of assurance that the claimant would succeed, the less would be the risk of injustice to the defendant. Thus, there might be very little difference between prohibiting eviction on the day before it was due to take place, and requiring reinstatement on the day after it took place, but all would depend upon the circumstances. The claimant had no case on the merits to justify the grant of relief. The “subject to contract” nature of the negotiations was decisive. There was no doubt that the parties had treated any negotiations as “subject to contract”, and it would be virtually impossible to establish at trial that the negotiations took place upon anything other than that basis. There was no basis, upon the evidence, for any licence-free period after March or September 1999. The claimant did not satisfy the lowest possible threshold for the grant of an injunction (a serious issue to be tried; or damages would not be adequate remedy).
The following cases are referred to in this report.
American Cyanamid Co v Ethicon Ltd [1975] AC 396; [1975] 2 WLR 316; [1975] 1 All ER 504, HL
Attorney-General of Hong Kong v Humphreys Estate (Queen’s Gardens) Ltd [1987] 1 AC 114; [1987] 2 WLR 343; [1987] 2 All ER 387, PC
Cohen v Nessdale Ltd [1982] 2 All ER 97; [1982] 1 EGLR 160; [1982] EGD 1169; (1982) 262 EG 437, CA
Films Rover International Ltd v Cannon Film Sales Ltd [1987] 1 WLR 670; [1986] 3 All ER 772
Gillett v Holt [2001] Ch 201; [2000] 3 WLR 815; [2000] 2 All ER 289
James v Evans [2000] 3 EGLR 1; [2000] 42 EG 173
Lindsay Parkinson & Co (Sir) v Triplan Ltd [1973] QB 609; [1973] 2 WLR 632
Locabail International Finance Ltd v Agroexport [1986] 1 WLR 657; [1986] 1 All ER 901; [1986] 1 Lloyd’s Rep 317
Nottingham Building Society v Eurodynamics Systems plc [1995] FSR 605, CA; [1993] FSR 468, ChD
Shepherd Homes Ltd v Sandham (No 1) [1971] Ch 340; [1970] 3 WLR 348; [1970] 3 All ER 402; (1970) 21 P&CR 863; [1970] EGD 583; 215 EG 580
Yaxley v Gotts [2000] Ch 162; [1999] 3 WLR 1217; [2000] 1 All ER 711; (2000) 32 HLR 547; 79 P&CR 91; [1999] 2 EGLR 181
Zockoll Group Ltd v Mercury Communications Ltd [1988] FSR 354
This was the hearing of an application by the claimant, Edwin Shirley Productions Ltd, for an interim mandatory injunction in proceedings against the defendants, Workspace Management Ltd, Workspace Group plc and Three Mills Film & Television Studios Ltd, seeking relief on the basis of proprietary estoppel and constructive trust.
Michael Pryor (instructed by Rosling King) appeared for the claimant; Anthony Radevsky (instructed by Norton Rose) represented the defendants.
Giving judgment, LAWRENCE COLLINS J said:
Introduction
1. The claimant, Edwin Shirley Productions Ltd (ESP), was established by Mr Edwin Shirley, who is the owner of almost all of its share capital and is also its managing director. It provides studio and rehearsal space to the film and television industry at Three Mills Island, Bromley-by-Bow, East London, under the name Three Mills Island Studios. Among recent productions that used ESP’s studios were the television programme Big Brother, and the Mike Leigh film, Topsy Turvy. The second defendant, Workspace Group plc (Workspace) (previously known as London Industrial plc), holds a 99-year lease (from 1971) of Three Mills Island. The first and third defendants are associated companies of Workspace, which was created to own and manage the commercial property portfolio of the former Greater London Council.
2. The relevant part of Three Mills Island is the site of a former distillery, bottling plant and bonded warehouse complex. The site is divided into four blocks, now known as A, B, C and D. Block B and studio 12 (in block C) are the subject of a tenancy granted to ESP by Workspace in November 1995 for five years, in respect of which ESP is holding over. ESP also occupies a small “Portakabin village” near block B, and other Portakabins and open space at the site, which ESP used under a storage-and-parking licence from Workspace.
3. On 5 November 1996 Workspace and ESP entered into an agreement for leases of: (i) what were described as “the existing premises”, namely units 5 and 6 in block B; and (ii) what was described as “the new building”, namely units 9A, B and C (now studios 8, 9, 11 and 12 in block C).
4. The relevant provisions of the agreement were as follows:
(a) from the date of the agreement until the grant of the leases (for terms of 15 years), ESP was to have a licence at all times to enter into and upon and to remain in the new building, but as licensee only (clause 2.1);
(b) the licensed occupation was to be with the benefit of all the rights, covenants, conditions and other provisions, and subject to the same exceptions and reservations, covenants, conditions and other provisions as those contained in the lease to be granted in respect thereof as far as applicable and practicable (clause 2.2);
(c) the rent was set out in schedule 4 of each of the leases, and was to be payable as from the “rent commencement date”, which was to be 1 January 1997 (clauses 1.2(1) and 7.1 and 7.2), and was to be payable by equal quarterly instalments in advance beginning on 1 January 1997, and thereafter on quarter days (clause 2.1(a) of form of lease, but subject to a side letter allowing monthly payments) without deduction or set-off, whether legal or equitable (clause 1.1 of schedule 6); the rent in respect of block C was to be £66,398 in 1997, £74,446 in 1998, and thereafter £80,483 (subject to an upwards-only rent review) (clause 1. 1. of schedule 4),
(d) the form of lease contained a right of re-entry should the whole or part of the rent remain unpaid for 14 days after becoming due (whether demanded or not) (form of lease, clause 5.1);
(e) clause 8 provided as follows:
8.1 The Landlord may determine this Agreement by written notice to the Tenant if both:
(a) the Tenant fails to perform or observe any of its material obligations in this Agreement or if any event occurs which had the Leases been granted would have entitled the Landlord to re-enter the Premises and
(b) either such failure or event is incapable of remedy or it is capable of remedy and the Landlord has served on the Tenant written notice specifying the failure or event and requiring it to be remedied within a reasonable time (to be specified in the notice) and the Tenant has failed so to do.
8.2 If this Agreement is determined under clause 8.1 the Tenant shall forfeit all interest in the New Building and in any fixtures or works installed in them and shall give vacant possession of the New Building to the Landlord without the Landlord making to the Tenant any compensation or allowance whatsoever…
5. The leases were never entered into and ESP never paid Workspace the licence fee in respect of the relevant parts of block C. On 2 October 2000 Workspace retook possession of those parts, and, on the same day, Norton Rose, the solicitor for Workspace, wrote to ESP demanding that the leases be entered into, and that all sums owing pursuant to the agreement by ESP (which were said to be about £675,000) be paid to Workspace, in each case by 13 October. Upon ESP’s failure to comply with these demands, on 13 October 2000 Norton Rose wrote determining the agreement for lease.
Proceedings
6. On 2 October 2000 Norton Rose also wrote on behalf of Workspace terminating ESP’s licence to use the open storage and parking space on the site, and stating that the use of various Portakabins on the site was a trespass. On 31 October 2000 ESP applied, without notice, to me for an injunction restraining Workspace from retaking possession of the Portakabins, which were used for purposes ancillary to the film and television studios. I granted the injunction (but refused it in relation to the storage and parking space). On 6 November I made an order (by consent) that the injunction be continued, but subject to an undertaking that ESP would pay £50,000 into court by 7 November as security for the cross-undertaking in damages, and an order that, by 20 November, it pay into court the further sum of £50,000 as security for the cross-undertaking. According to the evidence of Mr St Croix, the solicitor at Norton Rose handling this litigation for Workspace, he was told by the solicitor for ESP that the order was sought without notice on 31 October “so as to make an impression on the Defendants in order to lay down a marker for the Defendants”, or words to that effect.
7. Meanwhile, on 3 November ESP had issued an application for, inter alia, reinstatement to block C, which is the subject of the present hearing. Particulars of claim were served on 22 November, and on 30 November, ESP having failed to pay the second tranche of security, Park J ordered that unless it paid the money into court by 5 December, the injunction would be discharged. No payment having been made by 5 December, the injunction relating to the Portakabins was discharged. Subsequently, the defendants indicated that they did not seek to remove ESP from the Portakabins, and this aspect is not relevant on the present hearing.
Facts
8. Prior to the agreement for leases, ESP had made it clear to Workspace that its business plan required substantial capital injections, and it was talking of a joint venture/partnership in the development and management of the Three Mills Island studios site. In April 1996 Mr Evans, the accountant for ESP, indicated to Mr Platt, the managing director of Workspace, that a significant part of the funding of the future programme would be required from external sources, and he suggested that Workspace should become ESP’s financial partner in the capital expenditure programme. On 3 September 1996 Mr Shirley referred to Mr Platt’s commitment to consider a contribution of £100,000 towards the cost of soundproofing part of block C, and Mr Shirley estimated that more than £500,000 would be required over the following 18 months. Workspace agreed to make the contribution of £100,000.
9. After the agreement was executed in November 1996, there were negotiations between the parties for a revision of the arrangements. According to Mr Shirley, the negotiations were required because the agreement in November 1996 had been rushed, leaving a number of issues unresolved, including what he describes as security for ESP’s investment and protection for Workspace’s advance of £100,000 for soundproofing and the addition of studio 10, the foyer and the studio reception. According to Workspace’s evidence, the main concern was that it wanted to remove the reference to the landlord’s contribution from the agreement, because repayments of the contribution by its tenant might have a detrimental effect upon any rent review with its own landlord. In addition, Workspace was anxious for ESP’s occupation of studio 10 and the reception to be regulated. According to ESP, substantial sums were spent by it upon making these units suitable for use as studios or ancillary services. Accordingly, the major elements of the negotiations were the removal of the landlord’s contribution from the agreement and its replacement by a loan agreement and the letting of the additional units to ESP.
10. On 12 December 1996 Messrs Norton Rose wrote, on behalf of Workspace, to the solicitor for ESP, Messrs Winstanley-Burgess, to say that they had been instructed not to prepare engrossments of the leases pending the outcome of negotiations between the parties.
11. On 10 June 1997 Ms Carragher, the operations director of Workspace, wrote to Mr Shirley, in a letter marked “without prejudice”, to say that it seemed sensible to complete the leases covered by the agreement, since it was not possible to find the time necessary to try and work out some form of joint venture between the companies. It is clear from that letter that, at that time, Workspace was expecting payment of the licence fee from 1 January 1997 until completion of the new leases, since Ms Carragher ended the letter by saying:
As you know the new rents became effective from 1st January (with exception of the rent for unit 10). We have continued to charge you at the old rate of £99,177.96 per annum exclusive, pending completion of the new leases. Please note that the amount properly due under the Agreement for Lease is £145,415 per annum exclusive, from 1st January and a balancing statement will be raised in due course.
12. On 2 July 1997 Mr Shirley wrote a letter to Ms Carragher (which Workspace says it had not seen before it was produced in evidence in reply the week before this hearing) to suggest a moratorium on signing the new leases, and stating that she had been “very understanding in the matter of rent free periods”. He ended by saying:
I should like to suggest a moratorium on our signing the new leases. I know that you have been very understanding in the matter of rent-free periods. However, only now that the building project is well and truly under way are we realising the true cost of the disruption caused (by the building works). We have had to do considerable extra work to insulate our customers from building noise; to relocate portacabins; to re-run services; to minimise the effects of the disruption upon our customers. Our image in the film making world has suffered a serious knock.
We have invested considerable sums in the improvements to your property. I should like to particularly draw your attention to the works necessary to obtain public entertainment licenses. You yourself saw how Three Mills can become an attraction to the wider public. We obviously want to continue in this vein, but it all costs money. Perhaps we could discuss this when we next meet.
13. Very little then happened until late 1998, as (according to Mr Platt) the negotiations relating to the proposed variations “drifted”. According to the evidence of Workspace, this was because it was heavily engaged on a rapid expansion in other areas, and there was no incentive for ESP to press matters to a conclusion.
14. From December 1998 to mid-1999 there were negotiations for a revision of the terms of the agreement. Some (but not all) of the correspondence from Workspace to ESP and from Norton Rose to Winstanley-Burgess was marked “subject to contract” or “subject to lease”. The details of the negotiations are not material for present purposes, except for the contention of ESP that one of the terms that was definitively agreed was that the rent under the new leases would commence from March 1999 (or, as ESP says was subsequently agreed, September 1999), and that the licence fee that would otherwise have been payable from January 1997 was waived or agreed not to be due. I set out the essence of the evidence upon that aspect below. In summary, it is alleged that an agreement to that effect was made at meetings on 4 and 9 December 1998, and evidenced by an internal memorandum of 9 December, a letter of 18 December from ESP’s accountants to Mr Platt, and various letters that contemplate that the new leases will commence from March 1999.
15. On 24 February 1999 ESP’s solicitor wrote to Workspace’s solicitor to say that it was instructed that their respective clients had now agreed to aim to complete new leases with effect from the March quarter day 1999. It stated that, since the agreement had been signed in November 1996, further negotiations had taken place between their respective clients, as a result of which new draft leases were to be produced.
16. On 22 March 1999 Ms Carragher wrote to Mr Shirley (in a letter marked “subject to contract”), in which she said, in relation to an inclusion of a rent for part of the premises at £4 per sq ft: “Before you start protesting, remember you have had No 10, most of No 9 and The Lab rent and service charge free for over two years”.
17. On 29 April Norton Rose, in a letter marked “subject to lease”, wrote to Winstanley-Burgess stating that the rent and service charges under the new leases would commence from 25 March, irrespective of when the leases were actually completed. On 21 May Mr Shirley wrote to Ms Carragher emphasising that it had strong reasons (which is a reference to rates) for starting the lease on 25 March 1999, and, in her reply of 24 May, she said she had no objection to the lease starting on that date. On 26 May Winstanley-Burgess agreed to what Norton Rose had said about the starting date.
18. There was a meeting on 28 July 1999 between Mr Shirley (and his colleague Emma Pascoe) and Ms Carragher, at which (according to Mr Shirley) it was agreed that there should be a September 1999 commencement date (which, in his evidence, he described as a “further six month rent free period”), and there is an attendance note by Winstanley-Burgess on that date reporting that Mr Shirley had said that there would be “another six months rent free”.
19. On 4 October 1999 Ms Carragher wrote to Mr Shirley as follows:
Without wishing to be dramatic, I think we are at a crossroads. Our two companies can decide to work together, and have a mutually beneficial future, or we can choose to become adversaries, which will be of benefit to no one.
We have reached a stage at Three Mills where our management is being totally ignored by your management, causing a whole range of problems, some very serious.
The appearance of the site, the way in which the facilities are used, the lack of information regarding alterations, installations etc, have reached a point where we may be forced to take a course of action we would prefer to avoid, namely, compelling you to enter into the lease covered by the Agreement for Lease.
Norton Rose, our lawyers, have instructions to call for the completion of the lease, and to deal with the remaining space you occupy, which falls outside the scope of the lease.
20. On 12 October 1999 (in a letter which Workspace says it did not see until it was produced in evidence in reply) Mr Shirley wrote:
We have both spent a great deal of time negotiating the lease that we are about to sign and I would not want to countenance any further changes. I would like to sign and exchange these leases as soon as possible.
I do not think that our respective positions are in any way adversarial. We are your tenants and you are the landlords of the studios and I am keen, as I have always been to work with you to make Three Mills a great success…
21. According to Workspace, it became convinced, in the course of 2000, that ESP was deliberately stringing out the negotiations to secure a financial advantage, and, in addition, relations between it and ESP were deteriorating as a result of, inter alia, a fire on the site that it considered was caused by ESP, and ESP’s conduct in its management of its clients, which had caused complaint from Workspace’s tenants. On 9 May 2000 Ms Carragher wrote to Mr Shirley to say that she had
Our clients had agreed in a number of important respects to vary the terms of the Agreement dated 5th November 1996. The principles of those variations were clearly agreed and in reliance upon them our clients have committed substantial sums to the property to the benefit not only of your client’s freehold reversion but also of its adjoining interest. Not only were the principles agreed but the drafting of the documentation was also substantially agreed.
It is in both our clients’ mutual interests that the outstanding wording is finalised and the new lease put in place as soon as possible. We have advised our clients that we see no reason why it should take any significant time to finalise the documentation.
22. On 25 August Norton Rose replied that, although it had been subject to contract negotiations that contemplated potential variations, no variations were formally agreed, and it threatened proceedings in relation to ESP’s failure to enter into the leases, and to pay the licence fees for its occupation of the relevant parts of block C.
23. Workspace claims: £395,725.27 in respect of the licence fee from January 1997 to October 2000; service charges and insurance premiums in respect of the 1995 lease of £218,482; repayment of the landlord’s contribution, pursuant to clause 8.5, of £117,500, plus interest; and damages for trespass/mesne profits etc.
Alleged rent-free period
24. According to Mr Shirley:
Rather than the Claimant having had the benefit of its investment returned by virtue of having accepted a lower rent on its premises, the Claimant’s case is that it was offered rent free periods by Workspace to account for the investment that the Claimant was making at the site. I categorically deny any suggestion that the first that the Defendants heard of these rent free periods was during the current proceedings. As stated in the Witness Statement of Stephen Evans dated 12th February 2001, the Claimant and Workspace were engaged in negotiations as to a form of partnership or joint venture during 1996. Although these negotiations were ultimately unsuccessful and Workspace did not invest in the Claimant company or advance any further loans other than the £ 100,000 towards the cost of soundproofing Unit 9, Workspace took the option that offered them the least risk, namely by offering the Claimant rent free accommodation to allow the Claimant the opportunity to upgrade its premises at the site. This rent free period was subsequently extended to compensate the Claimant in part for difficulty that the Claimant was experiencing as a result of Workspace’s Bottling Plant works.
…
When it was agreed that the Claimant was to have a “rent free period: it was on the basis that the rent/licence fee and/or service charge liability would be waived entirely and the Claimant proceeded on that basis. I confirm, for the avoidance of doubt, that it was never stated to me personally nor anyone at the Claimant firm that any of the Defendants had only deferred rather than waived rent/licence fee and/or service charge.
…
I would like to bring to the [attention] of the court that since the Claimant has occupied the new premises under the agreement for lease the Defendants made no mention of collecting rent and service charge from the Claimant at a time when the Claimant continued to pay rent and service charge on the Old Premises…
25. The justification, according to ESP, for the rent-free period was initially to allow ESP to convert the warehouses into film and television studios, and subsequently also to compensate ESP for the disruption caused to ESP’s business by Workspace’s conversion of what had been the bottling plant at block A into three rooftop studios, and for ESP’s expenditure in assisting tenants of Workspace in block A to relocate to other parts of the site
26. ESP says, first, that terms were finally agreed by Ms Carragher at a meeting with Mr Shirley on 4 December 1998 (which was relied upon for the first time in evidence served in reply) and at a subsequent meeting over dinner attended by Mr Platt, Mr Evans and Mr Shah (of the accountant) and Mr Shirley (and which had been relied upon in the particulars of claim). Second, it says that the agreement is evidenced by correspondence. In his first witness statement, Mr Shirley said that, by the end of 1998, agreement had been reached as to the form of the revised leases, including that they would be effective as from 25 March 1999. For that, he relied upon a letter from Mr Evans, the senior partner of ESP’s accountant, William Evans & Partners, of 18 December 1998 to Mr Platt, in which Mr Evans wrote to set out “the points to regularise the landlord/tenant arrangements in respect of the space occupied” by ESP. He went on as follows:
1. Amendment to existing leases and Agreement to lease 1995 Lease and draft Unit 9 will be revised as follows:
1. Two leases will be created. One for studios 4,5,6, 7 and Lobby will, in addition incorporate cutting edge site. The second lease will be for studios 8, 9, 10, 11, 12 & Foyer and will also incorporate the Old Lab (offices) ground floor only.
2. The term of the lease will not be less than 21 years. If a longer term is required then ESP has to consider the stamp duty aspects, which hasn’t been explored as yet.
3. The rent for both the leases will be set at current rate per sq ft and will be for a period of 5 years. Rent for second lease will commence from quarter date in March 1999.
4. Rent review will be at the end of every 5 years.
5. There will be no further or additional rent payable and the repayment of £100,000 will be rolled over the term of the lease.
27. Mr Platt’s evidence was that the first time the issue of a rent-free period relating to the relevant part of the site was raised was when the proceedings were served, and he never discussed such a rent-free period. His evidence was that the detailed points set out in the letter from Mr Evans of 18 December 1998 had not been raised at the dinner, and had not been agreed by him, and that the points made in that letter were a response by the claimant to send him a list of outstanding issues. In a witness statement of 12 January, Ms Carragher categorically rejected the suggestion that she, or any representative of Workspace, had ever agreed that ESP would be granted a rent-free period. Her evidence was that the references in the correspondence to the leases commencing from March 1999 were designed purely to accommodate Mr Shirley’s concern that if the leases were expressed to begin in January 1997 the site might be assessed for rating purposes as from that date.
28. In evidence in reply served a week before the hearing, Mr Shirley said that, on 4 December, he had a meeting with Ms Carragher at the offices of ESP, and discussed with her the terms upon which ESP and Workspace would be willing to enter into new leases. The accountant prepared memoranda, one of which set out what he had agreed, or had been led to believe was agreed, with her during that meeting. On 9 December Mr Shah, of Williams Evans & Partners, sent to Mr Shirley two memoranda that he had prepared for the meeting with Mr Platt that evening (Ms Carragher was to be present, but she did not attend because of illness), from which they would decide the strategy to be adopted at the meeting. The first memorandum was on business strategy, and the second purported to indicate what had previously been agreed, including that the rent for the relevant parts of block C would commence from the quarter date in March 1999.
29. Mr Evans said that the memoranda prepared for the meeting on 9 December were based upon discussions between Mr Shirley and Ms Carragher. They were internal memoranda, and were intended to solidify their joint thoughts and to confirm the issues that were to be discussed. Ms Carragher was absent due to illness. He said that he did not come away from the meeting with the view that Workspace was going to require ESP to pay the licence fee/rent and/or service charge from 1 January 1997 upon new leases being entered into. He was of the opinion that they had reached an understanding whereby ESP was given rent-free accommodation in return for carrying out improvements. He
30. ESP’s case is that Workspace knew that ESP was intending to spend a large amount on its properties at the site, and that it could not afford to do that as well as comply in full with the terms of the 1996 agreement; Workspace represented to ESP that new terms would be agreed, including a substantial rent holiday, and ESP, in reliance upon that representation, continued to spend money on improvements to the premises it occupied. On that basis, ESP claims to be entitled to relief on an allegation of proprietary estoppel and/or constructive trust. ESP’s particulars of claim allege that during the negotiations for revision of the agreement and the leases, it continued with its capital expenditure on the site (of which full particulars would be provided shortly, it was said), and that “the total expenditure… has amounted to not less than £1.6m resulting in a series of serviceable modern film and television studios together with reception and office space”. But it does not appear to be suggested that anything approaching this sum was spent after 1996 in reliance upon Workspace’s representations. ESP claims that Workspace is endeavouring to remove it from the site so as to increase its own studio business on the back of ESP’s hard work.
Position of the parties
31. ESP claims that the termination of the agreement and the re-entry was unlawful because: (a) there is no provision in the agreement for re-entry without prior written notice; and (b) if (contrary to its primary position) the provision for re-entry in the leases is incorporated into the agreement, the eviction would be unlawful, because it was based upon non-payment of a licence fee that is not due. Accordingly, it is entitled to an interim mandatory injunction, because it has a strong case on the merits that it was entitled to rent-free periods in relation to the new premises at block C, such that Workspace was not entitled to evict it, and the balance of convenience favours the grant of the injunction: first, its continued absence from the site is crippling ESP financially; second, if it were reinstated, it would have the prospect of achieving bookings and increasing its income; and, third,Workspace and the other defendants have not been making any use of the premises, and would suffer no prejudice.
32. Workspace’s position is as follows. First, the claim for an injunction should be dismissed because ESP has not offered, and could not provide, an adequately secured cross-undertaking in damages, having failed to provide the second tranche of security in relation to the order that I made on 31 October 2000. Second, there is no serious question, on the merits, to be tried because: (a) even on ESP’s highest case (that it was agreed that the fee was not payable until March, alternatively September 1999), it did not pay the fee at any time before re-entry in October 2000; (b) its plea that a rent-free period was granted from 1 January 1997 to March/September 1999 is implausible; (c) there is no allegation of any variation or new agreement complying with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989; (d) this is not a case for the application of the concepts of proprietary estoppel and constructive trust; (e) any allegation of variation or of proprietary estoppel/constructive trust is negatived by the “subject to contract character of the negotiations relied upon”; (f) damages would be an adequate remedy for ESP, and a cross-undertaking in damages would not be an adequate remedy for Workspace; and (g) the balance of convenience is firmly in favour of Workspace, because granting the injunction will expose it to the likelihood of further irrecoverable losses of some magnitude.
Mandatory injunction
33. This is an application issued early in November 2000 for a mandatory injunction to reinstate ESP to premises from which it was evicted on 2 October 2000. The application was made on 3 November, after the application to me without notice on 31 October 2000 (which was in relation to the Portakabins and the parking and storage space), and was originally returnable before Park J when he was to hear Workspace on my order of 31 October.
34. There was some debate before me on the merits threshold required before the court will grant an interim mandatory injunction. I was referred to a passage in McGhee’s Snell’s Equity (13th ed) 2000, which says at paras 45-49:
The court has jurisdiction to grant a mandatory injunction on an interim application before trial, but will very seldom do so; the court usually requires a high degree of assurance that at the trial it will appear that the injunction was rightly granted.
35. For the last part of that passage, the footnote refers to Shepherd Homes Ltd v Sandham (No 1) [1971] Ch 340* and Locabail International Finance Ltd v Agroexport [1986] 1 WLR 657. It then adds: “But see Films Rover International Ltd v Cannon Film Sales Ltd [1987] 1 WLR 670 at 679-682″. The expression “But see” is frequently used by academic authors as a code for a very harsh form of criticism or dismissal. But I do not consider that this decision of Hoffmann J deserves that form of criticism, if it was intended. He was considering an argument that the court should not grant an interlocutory mandatory injunction unless there appeared to be a high degree of probability that the plaintiff would succeed in establishing its legal right at the trial. On a previous interlocutory hearing on a quite separate application (for delivery up of negatives and material for film sound effects), the Court of Appeal had gone no further than holding that the plaintiff had an arguable case on the merits, which Hoffmann J treated as meaning that the plaintiff was at least as likely to fail as to succeed.
* Editor’s note: Also reported at (1970) 215 EG 580
36. Counsel for the defendant had relied upon the decision of the Court of Appeal in Locabail International Finance Ltd v Agroexport [1986] 1 WLR 657, in which Mustill LJ had approved the judgment of Megarry J in Shepherd Homes Ltd v Sandham (No 1) [1971] Ch 340 at p351, in which Megarry J said:
on motion, as contrasted with the trial, the court is far more reluctant to grant a mandatory injunction than it would be to grant a comparable prohibitory injunction. In a normal case the court must, inter alia, feel a high degree of assurance that at the trial it will appear that the injunction was rightly granted; and this is a higher standard than is required for a prohibitory injunction.
Mustill LJ (with whom Balcombe LJ agreed) said that the statement of principle in relation to the very special case of mandatory injunction was not affected by the decision in American Cyanamid Co v Ethicon Ltd [1975] AC 396, but he then went on to point out that the court was dealing with what has always been regarded as an exception to the low American Cyanamid threshold of serious issue to be tried, namely an injunction that would, in effect, amount to the final grant of a major part of the relief claimed in the action.
37. Hoffmann J said ([1987] 1 WLR 670 at pp680G and 682C):
The passage quoted from Megarry J in Shepherd Homes Ltd v Sandham [1971] Ch 340, 351, qualified as it was by the words “in a normal case,” was plainly intended as a guideline rather than an independent principle. It is another way of saying that the features which justify describing an injunction as “mandatory” will usually also have the consequence of creating a greater risk of injustice if it is granted rather than withheld at the interlocutory stage unless the court feels a “high degree of assurance” that the plaintiff would be able to establish his right at a trial. I have taken the liberty of reformulating the proposition in this way in order to bring out two points. The first is to show that semantic arguments over whether the injunction as formulated can properly be classified as mandatory or prohibitory are barren. The question of substance is whether the granting of the injunction would carry that higher risk of injustice which is normally associated with the grant of a mandatory injunction. The second point is that in cases in which there can be no dispute about the use of the term “mandatory” to describe the injunction, the same question of substance will determine whether the case is “normal” and therefore within the guideline of “exceptional” and therefore requiring special treatment. If it
…
These considerations lead me to conclude that the Court of Appeal in Locabail International Finance Ltd v Agroexport [1986] 1 WLR 657, 664, was not intending to “fetter the court’s discretion by laying down any rules which would have the effect of limiting the flexibility of the remedy,” to quote Lord Diplock in the Cyanamid case [1975] AC 396, 407. Just as the Cyanamid guidelines for prohibitory injunctions which require a plaintiff to show no more than an arguable case recognise the existence of exceptions in which more is required… so the guideline approved for mandatory injunctions in the Locabail case recognises that there may be cases in which less is sufficient. It is significant that both Mustill and Balcombe LJJ did not merely rely on the mandatory nature of the injunction. They went on to explain why in the particular circumstances of the case, the granting of the injunction would give rise to an unacceptable risk of injustice. Mustill LJ, said that the injunction would put the defendant “in an irretrievable difficulty,” that the defendants appeared unable to comply and would therefore “inevitably be in breach” and that if they failed to comply, they had no officers or assets within the jurisdiction and there was no way in which the injunction could be enforced.
38. These cases are not referred to in the current Civil Procedure, but I was referred to the last (1999) edition of the Supreme Court Practice (29/L/1), which cites a number of cases in which a lower standard than “high degree of assurance” was applied to interim mandatory injunctions, including not only the decision of Hoffmann J (which is wrongly stated to have been reversed by the Court of Appeal), but also an unreported decision of the Court of Appeal (Zockoll Group Ltd v Mercury Communications Ltd 1998*), which approved a decision of Chadwick J (Nottingham Building Society v Eurodynamics Systems plc [1993] FSR 468) following Hoffmann J.
* Editor’s note: Reported at [1998] FSR 354
39. I therefore proceed upon the basis that the merits threshold is a flexible one and is designed to take account of the fact that its grant, depending upon the circumstances, may involve a higher degree of risk of injustice if it turns out to have been wrongly granted, and that the greater the degree of assurance that the claimant will succeed, the less will be the risk of injustice to the defendant. Thus, there may be very little difference between prohibiting eviction the day before it is due to take place and requiring reinstatement on the day after it has taken place, but all will depend upon the circumstances.
Proprietary estoppel and constructive trust
40. The essence of the claim of ESP is that there is a proprietary estoppel, or, alternatively, a constructive trust, on the basis that it would be unconscionable for Workspace to purport to rely upon the strict terms of the 1996 agreement, and, in particular, to assert that rent or licence fee is due in respect of the relevant parts of block C either at all or for any period prior to 29 September 1999 (or, alternatively, 25 March ). Consequently, the terms of the agreement or the relevant lease must be treated as having been varied so as to include studio 10, the foyer and unit 4, all for a term of not less than 20 years, commencing 29 September 1999 (or 25 March 1999); sums due for licence fee in relation to block C are payable on execution of the new leases; the terms for repayment of the £100,000 are to be set out in a separate loan document, to the effect that the loan be repaid over the terms of the lease; and the initial rent is to be at the rates applicable during December 1998, with five-year rent reviews.
41. The elements of proprietary estoppel are usually said to be: (a) representation or encouragement or acquiescence, which leads to: (b) detrimental reliance, such that: (c) it is unconscionable for the party against whom the estoppel is raised to take advantage of the other party by denying him the right or benefit that he expected to receive. These elements have most recently been the subject of authoritative discussion in Gillett v Holt [2000] 3 WLR 815. In that case, the plaintiff had spent his working life as a farm manager for, and as a friend of, the first defendant, who was a landowner of substantial means. The first defendant made repeated promises and assurances over many years that the plaintiff would succeed to his farming business. Subsequently, relations between the plaintiff and the first defendant deteriorated, and the first defendant made lifetime dispositions to the second defendant. It was held that the first defendant’s conduct had given rise to an estoppel, and the minimum equity to do justice to the plaintiff was for the first defendant to convey to him the freehold of the farmhouse, together with a sufficient sum of money to compensate for his exclusion from the rest of the farming business. For present purposes, the importance of the decision is that it confirms that the promise or assurance relied upon by the claimant need not be binding or irrevocable (for otherwise there would be no need for an estoppel doctrine), that the element of detriment is not a narrow or technical concept, and the requirement of detriment must be approached as part of a broad inquiry as to whether repudiation of an assurance is, or is not, unconscionable in all the circumstances.
42. In this case, ESP also claims an interest by way of constructive trust, although the basis of this claim has not been fully articulated. The interrelationship between proprietary estoppel and constructive trust has been considered recently in Yaxley v Gotts [1999] 3 WLR 1217*, which also raised the relationship between these remedies and the requirement of writing in section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. Like Gillett v Holt, this case involved a relationship of friendship. The second defendant had offered to give the plaintiff, a builder, the ground floor of a house that the second defendant was proposing to purchase, in return for which the plaintiff would convert the house into flats and manage the property on behalf of the second defendant. The house was purchased by the first defendant, the son of the second defendant. The plaintiff, believing the second defendant to be the owner, performed his side of the bargain, but when the plaintiff and the defendants subsequently fell out, the first defendant refused to grant the plaintiff an interest in the property. Consequently, the agreement (which was held to be between the plaintiff and the second defendant, but adopted by the first defendant) was purely oral. It was held that an oral agreement of that kind, although void and unenforceable under section 2 of the 1989 Act, was still enforceable on the basis of a constructive trust in circumstances where, previously, the doctrines of part performance or proprietary estoppel might have been relied upon. Robert Walker LJ said at p1227:
At a high level of generality, there is much common ground between the doctrines of proprietary estoppel and the constructive trust, just as there is between proprietary estoppel and part performance. All are concerned with equity’s intervention to provide relief against unconscionable conduct…
* Editor’s note: Also reported at [1999] 2 EGLR 181
43. It was held that the saving in section 2(5) of the 1989 Act for the creation or operation of constructive trusts would allow a limited exception for those cases in which a supposed bargain had been so fully performed by one side, and the general circumstances of the matter were such that it would be inequitable to disregard the expectation of the claimant, and insufficient to grant him no more than a restitutionary remedy.
Subject to contract
44. In this case, there was a concluded agreement in November 1996. It is plain that there were negotiations thereafter for a revision of the agreement. Part, but not all, of the correspondence was marked “subject to contract” or “subject to lease”. What that means, of course, is that the parties do not intend to be contractually bound until another document embodying all the terms of their agreement is executed. The fact that not all of the correspondence is headed “subject to contract” does not prevent the subject-to-contract qualification continuing to apply to the negotiations. In Cohen v Nessdale Ltd [1982]
* Editor’s note: Also reported at [1982] 1 EGLR 160
45. The present case raises the question of the relationship between “subject to contract” negotiations and equitable remedies. In Attorney-General of Hong Kong v Humphreys Estate (Queen’s Gardens) Ltd [1987] 1 AC 114, the Privy Council held at p127H that:
It is possible but unlikely that in circumstances at present unforeseeable a party to negotiations set out in a document expressed to be “subject to contract” would be able to satisfy the court that the parties had subsequently agreed to convert the documents into a contract or that some form of estoppel had arisen to prevent both parties from refusing to proceed with the transactions envisaged by the document.
On the facts, it was held that the relevant party chose to begin negotiations and elected to continue on terms that either party might suffer a change of mind and withdraw.
46. That decision was applied in James v Evans [2000] 42 EG 173* (CA). A farmer advertised his farm for letting. The claimant responded to the advertisement, solicitors were retained on each side and a contract of tenancy for 10 years was drafted. The farmer never signed his part of the contract because he had a stroke and died without regaining consciousness. But meanwhile he had allowed the claimant to go into occupation to take care of the sheep. The farmer’s sister, as administratrix, served a notice to quit on the claimant, who resisted upon the basis that there had been an oral agreement amounting to a constructive trust, or there was an estoppel based upon the claimant’s payment (prior to the death of the farmer) of the agreed valuation for the sheep, half of the cost of valuation, and six months’ rent in advance. The Court of Appeal agreed with the judge below that there was no proprietary estoppel because of the fact that negotiations for sale were carried on “subject to contract”, and, accordingly, the parties did not intend to be bound until execution of the documents necessary to give legal effect to the transaction. Any ancillary agreement, such as the agreement to purchase the sheep, was incorporated as a requirement of the grant of a tenancy, and was therefore equally conditional. It is noteworthy that the Court of Appeal accepted that the judge below had been right to deal with the case on the basis that the defendant had no real prospect of successfully defending the claim against him, and made that determination on the first day of what would otherwise have been a three-day witness trial.
* Editor’s note: Also reported at [2000] 3 EGLR 1
Conclusions
47. For present purposes, I will assume that ESP has an arguable case that the negotiations envisaged that ESP would not pay any licence fee for the period until March 1999 or September 1999. That is an assumption that would have to be questioned if it were decisive of this application. There is no document that strongly points in that direction. It is true that the negotiations envisaged that the new leases would commence in 1999, but there is only one document emanating from the Workspace side that would give any support for an argument that it had agreed a rent-free period, and that is Ms Carragher’s “subject to contract” letter of 22 March 1999, in which she referred to ESP having had some of the premises “rent and service-charge free for over two years”. But that sentence seems to relate to premises that were not included in the November 1996 agreement, and in respect of which there had been no agreement. If that is so, it is irrelevant.
48. I also consider that ESP would face formidable difficulties in persuading the court that it was entitled to an equitable remedy in this purely commercial context. It was throughout advised by solicitors and accountants, and was well able to deal with Workspace on a commercial basis by articulating its concerns and reaching binding agreements. But I consider that, quite apart from the difficulties to which I have alluded, there are two decisive reasons why ESP has no case on the merits justifying the grant of relief.
49. First, I consider that the “subject to contract” nature of the negotiations is decisive. Throughout, there was correspondence between the parties and between solicitors that was marked “subject to contract” or “subject to lease”, and it was never suggested, until these proceedings, that there had been a final and binding agreement. It is true that there is no document marked “subject to contract” prior to the alleged agreement in December 1998, but Ms Carragher’s letter of 10 June 1997 is marked “without prejudice”, and her first relevant letter following December 1998 (on 22 March 1999) is marked “subject to contract”.
50. In this case, I have no doubt that the parties treated any negotiations as “subject to contract”. Even if the letter of 18 December 1998 reflects terms that had been agreed (which Workspace denies), it seems to me likely that the effect of any agreement would have been conditional upon the negotiation and execution of further documents. Indeed, the terms of the alleged agreement pleaded in para 37 of the particulars of claim are distinctly uncertain, and certainly incapable of being regarded as a contract. I am satisfied that it will be virtually impossible for ESP to establish at trial that the negotiations were anything other than subject to contract, and that no case has been made for what Lord Templeman said in Attorney-General of Hong Kong would be the unlikely and unforeseeable circumstances that would allow reliance upon an estoppel to overcome the subject to contract character of their negotiations. The rationale is quite simply that proprietary estoppel and constructive trust require: (a) detrimental reliance; and (b) unconscionable conduct. Since the parties must be taken to know that a party who has agreed terms subject to contract is free to withdraw, there can be no question of reliance (particularly by a commercial enterprise involved in property transactions) or of unconscionable conduct.
51. Second, I do not consider that there is any effective answer to Workspace’s argument that, whatever may be the position to March or September 1999, it has never been suggested by ESP that it is not bound to pay the licence fee for the period thereafter, that the licence fee was not paid at any time prior to the termination of the licence on 2 October 2000, and that Workspace was therefore entitled to terminate the licence on that date. It is true that clause 8 of the agreement requires termination by written notice, following prior written notice to remedy a breach within a reasonable time. But the payment of the licence fee is subject (by clause 2.2) to the terms of the draft lease “so far as applicable and practicable”, and the draft lease grants the landlord the right of re-entry if rent remains unpaid 14 days after becoming due. Nothing in the agreement or the draft lease makes this provision inapplicable or impracticable in relation to the licence fee.
52. Nor do I understand ESP’s argument that this right cannot arise before the leases are entered into. There is nothing in the agreement that makes the payment of the licence fee conditional upon the leases being executed. If it were conditional, it would have the absurd result that the landlord’s remedy for the fee would be exclusively a damages remedy if the leases were never executed as a result of the prospective tenant’s failure to enter into them. Nor is there any evidence whatever that it was ever agreed, in the course of the negotiations in 1998 and 1999, that the fee would not be payable before the leases were executed. Workspace may now regret its failure to rely upon its strict rights, but there is no reason to suppose that it has waived or forfeited them.
53. Consequently, I do not consider that ESP has satisfied even the lowest possible threshold of the grant of an injunction, namely a serious issue to be tried. If I were wrong in that, I do not consider that this would be a case for an injunction. ESP has not answered Workspace’s contention that the damages would be an adequate remedy. Nor has it given the slightest indication that it would be able to pay the licence fee that, on any view, is due from at least September 1999 to 2 October 2000. Nor (as its failure to pay the second tranche of £50,000 in relation to the injunction granted on 31 October 2000 shows) is it in a position to give an effective cross-undertaking in damages, nor has it offered one.
Security for costs
54. Workspace has applied for security for costs pursuant to section 726(1) of the Companies Act 1985 and the new CPR 25.13(2)(c), the effect of which is that the court can order security if the claimant is a company and there is reason to believe that the company will be unable to pay the defendant’s costs if ordered to do so. The practice, which goes back to the well-known decision in Sir Lindsay Parkinson & Co v Triplan Ltd [1973] QB 609, enables the court to take into account the merits of the claim, whether: the application for security is being used oppressively to stifle a genuine claim; the claimant’s financial position has been brought about by conduct on the part of the defendant; and the application is made at a late stage.
55. In seeking to establish that ESP will be unable to pay the costs of Workspace if it is successful in its defence, Workspace relies upon, inter alia: ESP’s failure to pay £50,000 in relation to the security for the cross-undertaking; the fact that several county court judgments have been entered against it; ESP’s failure to file accounts for the financial year to 3 March 2000, notwithstanding its obligation pursuant to section 242 of the Companies Act 1985 to do so 10 months after its relevant accounting reference period; the 1999 accounts of ESP show it to be in serious difficulties (an excess of almost £400,000 of current liabilities over current assets, and its credit facilities were inadequate to fund the deficit), and when Workspace’s solicitors raised some serious questions on the accounts, and asked for further information, ESP’s solicitor refused to respond, on the basis that the questions would be dealt with in evidence, and that was not done.
56. I have no doubt that this is a proper case for security. As I have indicated, the prospects of success are low. There is no reason whatever to suppose that the application is being used oppressively to stifle a genuine claim, and it cannot possibly be said that ESP’s want of means has been brought about by any conduct on the part of Workspace. On the contrary, ESP had, until 2 October 2000, the benefit of the premises and was not paying any rent or licence fee for them.
57. I have been shown a schedule of prospective costs, which amounts to (including VAT) some £235,000. In the circumstances, I consider that security in the amount of £150,000 should be provided within 28 days on the usual terms.
